<PAGE> 1
As filed with the Securities and Exchange Commission on February 13, 1998
1933 Act Registration No. 33-57340
1940 Act Registration No. 811-7452
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
------ ------
Post-Effective Amendment No. 9 X
------ ------
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 X
------ ------
(Check appropriate box or boxes.)
AIM VARIABLE INSURANCE FUNDS, INC.
---------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, TX 77046-1173
---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (713) 626-1919
-----------------------
Charles T. Bauer
11 Greenway Plaza, Suite 100, Houston, TX 77046-1173
---------------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Nancy L. Martin, Esquire
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
------
on date pursuant to paragraph (b)
------
60 days after filing pursuant to paragraph (a)(1)
------
on (date) pursuant to paragraph (a)(1)
------
X 75 days after filing pursuant to paragraph (a)(2)
------
on (date) pursuant to paragraph (a)(2) of Rule 485.
------
If appropriate, check the following:
This post-effective amendment designates a new effective date for
------ a previously filed post-effective amendment.
Title of Securities Being Registered: Common Stock
<PAGE> 2
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(a))
<TABLE>
<CAPTION>
N-1A
ITEM NO. PROSPECTUS LOCATION
- ---------- -------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Item 3. Condensed Financial Information . . . . . . . . . . . . . . . . Financial Highlights; Performance
Item 4. General Description of Registrant . . . . . . . . . . . . . . . Cover Page; About the Funds;
Investment Objectives and
Programs; Risk Factors; General
Information
Item 5. Management of the Fund . . . . . . . . . . . . . . . . . . . . Management; General Information
Item 5A. Management's Discussion of Fund Performance . . . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . . . Dividends, Distributions and Tax
Matters; General Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . . . Purchase and Redemption of
Shares; Determination of Net Asset
Value; Management
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . . . Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . Not Applicable
STATEMENT OF ADDITIONAL INFORMATION LOCATION
--------------------------------------------
PART B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . . . . . . Introduction; General Information
About the Funds; Miscellaneous
Information
Item 13. Investment Objectives and Policies . . . . . . . . . . . . . . Investment Programs; Hedging and
Other Investment Techniques;
Investment Restrictions
Item 14. Management of the Fund . . . . . . . . . . . . . . . . . . . . Management
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . . . . . . . Miscellaneous Information
Item 16. Investment Advisory and Other Services . . . . . . . . . . . . Management; Miscellaneous
Information
Item 17. Brokerage Allocation and
Other Practices . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities . . . . . . . . . . . . . . General Information about the
Funds
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . . . . . . . . Determination of Net Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends, Distributions, and Tax
Matters
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . Management
Item 22. Calculations of Performance Data . . . . . . . . . . . . . . . Performance
Item 23. Financial Statements . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 3
[AIM LOGO APPEARS HERE]
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. AGGRESSIVE GROWTH FUND
AIM V.I. BALANCED FUND
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT 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 & INCOME FUND
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. MONEY MARKET FUND
AIM V.I. VALUE FUND
PROSPECTUS
MAY 1, 1998
AIM V.I. AGGRESSIVE GROWTH FUND, AIM V.I. BALANCED FUND, AIM V.I.
CAPITAL APPRECIATION FUND, AIM V.I. CAPITAL DEVELOPMENT 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. HIGH YIELD FUND, AIM V.I.
INTERNATIONAL EQUITY FUND, AIM V.I. MONEY MARKET FUND and AIM V.I.
VALUE FUND (the "Funds") are thirteen investment portfolios
comprising series of AIM Variable Insurance Funds, Inc. (the
"Company"), an open-end, series, management investment company.
Shares of the Funds 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 Funds may be
offered, in the future, to certain pension or retirement plans. The
investment objectives of the Funds are described on the inside cover
page. The address for the Company is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173, and its telephone number is (713)
626-1919.
UP TO 50% OF THE SECURITIES IN WHICH THE AIM V.I. DIVERSIFIED INCOME
FUND INVESTS AND UP TO 100% OF THE SECURITIES IN WHICH THE AIM V.I.
HIGH YIELD FUND INVESTS MAY BE SECURITIES RATED IN THE LOWER RATING
CATEGORIES OF NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS
("NRSROS"), OR ARE UNRATED, AND ARE COMMONLY KNOWN AS "JUNK BONDS."
INVESTMENT IN NON-INVESTMENT GRADE DEBT SECURITIES ARE SUBJECT TO
GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST, AND MAY ENTAIL OTHER
RISKS THAT ARE DIFFERENT FROM OR MORE PRONOUNCED THAN THOSE INVOLVED
IN HIGHER-RATED SECURITIES. INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS. SEE "RISK
FACTORS" UNDER "INVESTMENT PROGRAMS."
This prospectus sets forth basic information about the Funds that
prospective investors should know before investing. It should be read
and retained for future reference. A Statement of Additional
Information dated May 1, 1998, 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. The SEC maintains a Web site at http://www.sec.gov that
contains the Statement of Additional Information, material
incorporated by reference, and other information regarding the Fund.
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 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.
THERE IS NO ASSURANCE THAT THE AIM V.I. MONEY MARKET FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ---
<S> <C> <C> <C>
About the Funds........................... 2 Future Fund Closure....................... 24
Financial Highlights...................... 3 Determination of Net Asset Value.......... 24
Performance............................... 8 Dividends, Distributions and Tax
Investment Objectives and Programs........ 8 Matters................................. 25
Risk Factors.............................. 18 General Information....................... 25
Management................................ 19 APPENDIX A................................ A-1
Purchase and Redemption of Shares......... 23 APPENDIX B................................ B-1
APPENDIX C................................ C-1
</TABLE>
- --------------------------------------------------------------------------------
ABOUT THE FUNDS
The following is a brief description of the investment objectives and programs
of the Funds:
AIM V.I. AGGRESSIVE GROWTH FUND ("AGGRESSIVE GROWTH FUND") is a diversified
portfolio which seeks to achieve long-term growth of capital by investing
primarily in common stocks, convertible bonds, convertible preferred stocks and
warrants of companies, which in the opinion of the Fund's investment advisor are
expected to achieve earnings growth over time at a rate in excess of 15% per
year.
AIM V.I. BALANCED FUND ("BALANCED FUND") is a diversified portfolio which
seeks to achieve as high a total return as possible, consistent with
preservation of capital, by investing in a broadly diversified portfolio of
high-yielding securities, including common stocks, preferred stocks, convertible
securities and bonds.
AIM V.I. CAPITAL APPRECIATION FUND ("CAPITAL APPRECIATION FUND") is a
diversified portfolio which seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller emerging
growth companies.
AIM V.I. CAPITAL DEVELOPMENT FUND ("CAPITAL DEVELOPMENT FUND") is a
diversified portfolio which seeks long-term capital appreciation by investing
primarily in common stocks, convertible securities and bonds.
AIM V.I. DIVERSIFIED INCOME FUND ("DIVERSIFIED INCOME FUND") is a diversified
portfolio which seeks to achieve a high level of current income primarily by
investing in a diversified portfolio of foreign and U.S. government and
corporate debt securities, including lower rated high yield debt securities
(commonly known as "junk bonds").
AIM V.I. GLOBAL UTILITIES FUND ("GLOBAL UTILITIES FUND") is a non-diversified
portfolio which seeks to achieve a high level of current income, and as a
secondary objective to achieve capital appreciation, by investing primarily in
common and preferred stocks of public utility companies (either domestic or
foreign).
AIM V.I. GOVERNMENT SECURITIES FUND ("GOVERNMENT FUND") is a diversified
portfolio which seeks to achieve a high level of current income consistent with
reasonable concern for safety of principal by investing in debt securities
issued, guaranteed or otherwise backed by the U.S. Government.
AIM V.I. GROWTH FUND ("GROWTH FUND") is a diversified portfolio which seeks to
provide growth of capital through investments primarily in common stocks of
leading U.S. companies considered by AIM to have strong earnings momentum.
AIM V.I. GROWTH & INCOME FUND ("GROWTH & INCOME FUND") is a diversified
portfolio which seeks to provide growth of capital, with current income as a
secondary objective by investing primarily in dividend paying common stocks
which have prospects for both growth of capital and dividend income.
AIM V.I. HIGH YIELD FUND ("HIGH YIELD FUND") is a diversified portfolio which
seeks to achieve a high level of current income by investing primarily in
publicly traded debt securities of less than investment grade.
AIM V.I. INTERNATIONAL EQUITY FUND ("INTERNATIONAL FUND") is a diversified
portfolio which seeks to provide long-term growth of capital by investing in
international equity securities, the issuers of which are considered by AIM to
have strong earnings momentum.
AIM V.I. MONEY MARKET FUND ("MONEY MARKET FUND") is a diversified portfolio
which seeks to provide as high a level of current income as is consistent with
the preservation of capital and liquidity by investing in a diversified
portfolio of money market instruments.
AIM V.I. VALUE FUND ("VALUE FUND") is a diversified portfolio which seeks 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
markets generally. Income is a secondary objective.
THE AIM FAMILY OF FUNDS, THE AIM FAMILY OF FUNDS AND DESIGN (I.E., THE AIM
LOGO), AIM AND DESIGN, AIM, AIM LINK, AIM INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA
FAMILIA AIM DE FONDOS AND LA FAMILIA AIM DE FONDOS AND DESIGN ARE REGISTERED
SERVICE MARKS AND INVEST WITH DISCIPLINE AND AIM BANK CONNECTION ARE SERVICE
MARKS OF A I M MANAGEMENT GROUP INC.
2
<PAGE> 5
The Aggressive Growth Fund, Balanced Fund, Capital Appreciation Fund, Capital
Development Fund, Diversified Income Fund, Global Utilities Fund, Government
Fund, Growth Fund, Growth & Income Fund, High Yield Fund, International Fund,
Money Market Fund and Value Fund are separate series of shares of the Company, 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"). Each Fund has its own investment objective(s) and policies designed
to meet specific investment goals, operates as an open-end management investment
company and expects to be treated as a regulated investment company for federal
income tax purposes. Each Fund is diversified except Global Utilities Fund. For
more information on diversification, see "Risk Factors" in this Prospectus.
Each Fund invests in securities of different issuers and industry
classifications in an attempt to spread and reduce the risks inherent in all
investing. Each 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 each
Fund, continuously reviews and, from time to time, changes the portfolio
holdings of each of the Funds in pursuit of each Fund's objective(s).
The Aggressive Growth Fund will discontinue sales of its shares to new
investors, as soon as reasonably practicable, when its assets reach $200
million. See "Future Fund Closure."
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the
Capital Appreciation Fund, the Diversified Income Fund, the Global Utilities
Fund, the Government Fund, the Growth Fund, the Growth & Income Fund, the
International Fund, the Money Market Fund and the Value Fund for the fiscal
years ended December 31, 1997, 1996, 1995 and January 31, 1995 and 1994. The
financial highlights have been audited by Tait, Weller & Baker, independent
auditors, whose unqualified reports thereon are included in the Statement of
Additional Information. Additional information about the performance of the
Funds is contained in the Funds' annual report to shareholders, which may be
obtained without charge upon request.
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------------- -----------------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income (loss)................... 0.03 0.02 0.04 0.05 --
Net gains (losses) on securities (both realized
and unrealized).............................. 2.58 2.89 4.46 (0.54) 2.59
-------- -------- -------- ------- -------
Total from investment operations............... 2.61 2.91 4.50 (0.49) 2.59
-------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income........... (0.02) (0.03) -- (0.04) (0.01)
-------- -------- -------- ------- -------
Dividends from net realized gains.................. (0.27) -- -- -- --
-------- -------- -------- ------- -------
Total distributions................................ (0.29) (0.03) -- (0.04) (0.01)
-------- -------- -------- ------- -------
Net assets, end of period........................ $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
======== ======== ======== ======= =======
Total return(a).................................... 13.51% 17.58% 37.38% (3.91)% 25.90%
======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $522,642 $370,063 $212,152 $88,177 $35,354
======== ======== ======== ======= =======
Ratio of expenses to average net assets.......... 0.68%(b)(c) 0.73% 0.75%(d) 0.84% 1.06%(d)
======== ======== ======== ======= =======
Ratio of net investment income to average net
assets......................................... 0.18%(b) 0.18% 0.39%(d) 0.46% 0.07%(d)
======== ======== ======== ======= =======
Portfolio turnover rate.......................... 65% 59% 37% 81% 34%
======== ======== ======== ======= =======
Average broker commission rate(e)................ $ 0.0577 $ 0.0592 N/A N/A N/A
======== ======== ======== ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $493,118,049.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
3
<PAGE> 6
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------- ------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................ 0.73 0.73 0.69 0.76 0.54
Net gains (losses) on securities (both realized
and unrealized)................................ 0.24 0.28 0.94 (1.42) 0.29
------- ------- ------- ------- -------
Total from investment operations................. 0.97 1.01 1.63 (0.66) 0.83
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............. (0.01) (0.68) (0.75) (0.68) (0.35)
Distributions from net realized capital gains.... -- -- -- -- (0.02)
------- ------- ------- ------- -------
Total distributions.............................. (0.01) (0.68) (0.75) (0.68) (0.37)
------- ------- ------- ------- -------
Net asset value, end of period....................... $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
======= ======= ======= ======= =======
Total return(a)...................................... 9.39% 10.19% 18.11% (6.35)% 8.33%
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........... $89,319 $63,624 $44,630 $25,271 $14,530
======= ======= ======= ======= =======
Ratio of expenses to average net assets(b)......... 0.80%(c)(d) 0.86% 0.88%(e) 0.91% 1.05%(e)
======= ======= ======= ======= =======
Ratio of net investment income to average net
assets(f)........................................ 6.90%(c) 7.09%(b) 7.65%(e) 8.07% 6.78%(e)
======= ======= ======= ======= =======
Portfolio turnover rate............................ 52% 76% 72% 100% 57%
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.03 and 1.69% (annualized) for January 31, 1995 and 1994, respectively.
(c) Ratios are based on average net assets of $74,589,876.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(e) Annualized.
(f) After fee waivers and/or expense reimbursement. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 7.95% and 6.14% (annualized) for January 31, 1995 and
1994, respectively.
AIM V.I. GLOBAL UTILITIES FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------- -----------
1997 1996 1995 1995
------- ------- ------ -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 12.55 $ 11.64 $ 9.69 $10.00
------- ------- ------ ------
Income from investment operations:
Net investment income.............................. 0.32 0.40 0.29 0.27
Net gains (losses) on securities (both realized and
unrealized)...................................... 2.40 0.99 1.98 (0.33)
------- ------- ------ ------
Total from investment operations................... 2.72 1.39 2.27 (0.06)
------- ------- ------ ------
Less distributions:
Dividends from net investment income............... -- (0.41) (0.31) (0.25)
Distributions from net realized capital gains...... (0.01) (0.07) (0.01) --
------- ------- ------ ------
Total distributions................................ (0.01) (0.48) (0.32) (0.25)
------- ------- ------ ------
Net asset value, end of period......................... $ 15.26 $ 12.55 $11.64 $ 9.69
======= ======= ====== ======
Total return(a)........................................ 21.63% 12.07% 23.73% (0.56)%
======= ======= ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)............. $22,079 $13,576 $8,394 $2,958
======= ======= ====== ======
Ratio of expenses to average net assets.............. 1.28%(b)(c) 1.40%(d) 1.47%(d)(e) 1.31%(e)(f)
------- ------- ------ ------
Ratio of net investment income to average net
assets............................................. 2.81%(b) 3.56%(d) 3.76%(d)(e) 4.39%(e)(f)
======= ======= ====== ======
Portfolio turnover rate.............................. 28% 47% 58% 69%
======= ======= ====== ======
Average broker commission rate(g).................... $0.0365 $0.0477 N/A N/A
======= ======= ====== ======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $16,297,147.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(d) After fee waivers and/or reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.55%, 3.42%, 2.44% (annualized) and 2.79% (annualized)
for 1996 and 1995, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 2.80% and 2.90%, respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
4
<PAGE> 7
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------- ------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income.............................. 0.59 0.58 0.54 0.53 0.38
Net gains (losses) on securities (both realized and
unrealized)...................................... 0.22 (0.35) 0.74 (0.88) 0.10
------- ------- ------- ------- -------
Total from investment operations................... 0.81 0.23 1.28 (0.35) 0.48
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............... (0.01) (0.53) (0.50) (0.50) (0.24)
------- ------- ------- ------- -------
Net asset value, end of period......................... $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
======= ======= ======= ======= =======
Total return(a)........................................ 8.16% 2.29% 13.84% (3.42)% 4.78%
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)............. $33,800 $24,527 $19,545 $12,887 $10,643
======= ======= ======= ======= =======
Ratio of expenses to average net assets.............. 0.87%(b) 0.91% 1.19%(c) 0.95%(d) 1.00%(c)(d)
======= ======= ======= ======= =======
Ratio of net investment income to average net
assets............................................. 5.85%(b) 5.80% 5.78%(c) 5.51%(e) 4.74%(c)(e)
======= ======= ======= ======= =======
Portfolio turnover rate.............................. 66% 32% 41% 29% 0%
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $27,710,072.
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.10% and 1.80% (annualized) for January, 1995 and 1994, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.35% and 3.94% (annualized) for January, 1995 and 1994,
respectively.
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
--------------------------------- ------------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income.......................... 0.08 0.07 0.09 0.06 0.02
Net gains (losses) on securities (both realized
and unrealized).............................. 4.27 2.52 3.65 (0.88) 1.59
-------- -------- -------- ------- -------
Total from investment operations.......... 4.35 2.59 3.74 (0.82) 1.61
-------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income........... (0.09) (0.06) (0.01) (0.06) (0.02)
Distributions from capital gains............... (0.68) (0.72) -- -- -
-------- -------- -------- ------- -------
Total distributions....................... (0.77) (0.78) (0.01) (0.06) (0.02)
-------- -------- -------- ------- -------
Net asset value, end of period..................... $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
======== ======== ======== ======= =======
Total return(a).................................... 26.87% 18.09% 34.89% (7.11)% 16.07%
======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $258,852 $178,638 $102,600 $45,497 $25,115
======== ======== ======== ======= =======
Ratio of expenses to average net assets.......... 0.73%(b)(c) 0.78% 0.84%(d) 0.95% 0.85%(d)(e)
======== ======== ======== ======= =======
Ratio of net investment income to average net
assets......................................... 0.54%(b) 0.79% 0.95%(d) 0.71% 0.51%(d)(e)
======== ======== ======== ======= =======
Portfolio turnover rate.......................... 132% 143% 125% 179% 99%
======== ======== ======== ======= =======
Average broker commission rate(f)................ $ 0.0618 $ 0.0629 N/A N/A N/A
======== ======== ======== ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $224,542,336.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) Prior to fee waivers and/or expense reimbursements annualized ratios of
expenses and net investment income (loss) to average net assets are 1.50%
and (0.14)%, respectively.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
5
<PAGE> 8
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JANUARY 31,
1997 1996 1995 1995
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 15.03 $ 12.68 $ 9.98 $10.00
-------- -------- ------- ------
Income from investment operations:
Net investment income................................... 0.13 0.16 0.14 0.11
Net gains (losses) on securities (both realized and
unrealized)........................................... 3.74 2.36 3.11 (0.02)
-------- -------- ------- ------
Total from investment operations........................ 3.87 2.52 3.25 0.09
-------- -------- ------- ------
Less distributions:
Dividends from net investment income.................... (0.01) (0.14) (0.14) (0.11)
Distributions from capital gains........................ (0.02) (0.03) (0.41) --
-------- -------- ------- ------
Total distributions..................................... (0.03) (0.17) (0.55) (0.11)
-------- -------- ------- ------
Net asset value, end of period.............................. $ 18.87 $ 15.03 $ 12.68 $ 9.98
======== ======== ======= ======
Total return(a)............................................. 25.72% 19.95% 32.65% 0.90%
======== ======== ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted).................. $639,113 $209,332 $38,567 $7,380
======== ======== ======= ======
Ratio of expenses to average net assets................... 0.69%(b)(c) 0.78% 0.78%(d) 1.07%(d)(e)
======== ======== ======= ======
Ratio of net investment income to average net assets...... 1.15%(b) 2.05% 1.92%(d) 1.95%(d)(e)
======== ======== ======= ======
Portfolio turnover rate................................... 135% 148% 145% 96%
======== ======== ======= ======
Average broker commission rate(f)......................... $ 0.0612 $ 0.0644 N/A N/A
======== ======== ======= ======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $414,115,808.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.72% (annualized) and 1.30% (annualized), respectively.
(f) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
--------------------------------- ------------------
1997 1996 1995 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income........................... 0.10 0.07 0.07 0.06 --
Net gains (losses) on securities (both realized
and unrealized)............................... 1.03 2.67 2.58 (1.49) 2.49
-------- -------- ------- ------- -------
Total from investment operations................ 1.13 2.74 2.65 (1.43) 2.49
-------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income............ (0.08) (0.04) (0.02) (0.03) --
-------- -------- ------- ------- -------
Distributions from net realized capital gains... (0.28) -- -- -- --
======== ======== ======= ======= =======
Total distributions............................. (0.36) -- -- -- --
======== ======== ======= ======= =======
Net assets, end of period........................... $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
======== ======== ======= ======= =======
Total return(a)..................................... 6.94% 20.05% 24.04% (11.48)% 24.90%
======== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).......... $211,023 $165,738 $82,257 $55,019 $23,533
======== ======== ======= ======= =======
Ratio of expenses to average net assets........... 0.93%(b)(c) 0.96% 1.15%(d) 1.27%(e) 1.98%(d)(e)
======== ======== ======= ======= =======
Ratio of net investment income to average net
assets.......................................... 0.68%(b) 0.78% 0.75%(d) 0.60%(f) (0.15)%(d)(f)
======== ======== ======= ======= =======
Portfolio turnover rate........................... 57% 59% 67% 64% 26%
======== ======== ======= ======= =======
Average broker commission rate paid(g)............ $ 0.0173 $ 0.0209 N/A N/A N/A
======== ======== ======= ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $202,576,375.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.28% and 3.06% (annualized), for January 1995 and 1994 respectively.
(f) After fee waivers and/or expense reimbursements. Ratios and net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.59% and (1.23)% (annualized), for January 1995 and
1994 respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
6
<PAGE> 9
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------- ------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................ 0.05 0.05 0.05 0.04 0.02
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............. (0.05) (0.05) (0.05) (0.04) (0.02)
------- ------- ------- ------- -------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return......................................... 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a)
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........... $58,635 $63,529 $65,506 $31,017 $13,891
======= ======= ======= ======= =======
Ratio of expenses to average net assets............ 0.59%(b)(c) 0.55% 0.53%(a) 0.63%(d) 0.95%(a)(e)
======= ======= ======= ======= =======
Ratio of net investment income to average net
assets........................................... 5.01%(b) 4.84% 5.40%(a) 4.14%(d) 2.29%(a)(e)
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Annualized.
(b) Ratios are based on average net assets of $63,641,415.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers and/or
expense reimbursements ratios of expenses and net investment income to
average net assets are 0.70% and 4.07%, respectively.
(e) After fee waivers and/or expense reimbursments. Prior to fee waivers and/or
expense reimbursements annualized ratios of expenses and net investment
income to average net assets are 1.53% and 1.70%, respectively.
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
--------------------------------- -------------------
1997 1996 1995 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income......................... 0.08 0.30 0.11 0.10 0.02
Net gains (losses) on securities (both
realized and unrealized).................... 4.05 2.09 4.18 (0.35) 2.17
-------- -------- -------- -------- -------
Total from investment operations.............. 4.13 2.39 4.29 (0.25) 2.19
-------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income.......... (0.19) (0.10) (0.01) (0.09) (0.02)
Dividends from realized capital gains......... (0.59) (0.92) -- -- --
-------- -------- -------- -------- -------
Total distributions...................... (0.78) (1.02) (0.01) (0.09) (0.02)
-------- -------- -------- -------- -------
Net asset value, end of period.................... $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
======== ======== ======== ======== =======
Total return(a)................................... 23.69% 15.02% 36.25% (2.03)% 21.94%
======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........ $690,841 $369,735 $257,212 $109,257 $38,255
======== ======== ======== ======== =======
Ratio of expenses to average net assets......... 0.70%(b)(c) 0.73% 0.75%(d) 0.82% 1.00%(d)(e)
======== ======== ======== ======== =======
Ratio of net investment income to average net
assets........................................ 1.05%(b) 2.00% 1.11%(d) 1.17% 0.51%(d)(e)
======== ======== ======== ======== =======
Portfolio turnover rate......................... 127% 129% 145% 143% 87%
======== ======== ======== ======== =======
Average broker commission rate(e)............... $ 0.0487 $ 0.0429 N/A N/A N/A
======== ======== ======== ======== =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $529,874,605.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Annualized ratios of
expenses and net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 1.35% and 0.16%, respectively.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
7
<PAGE> 10
- --------------------------------------------------------------------------------
PERFORMANCE
Each 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 Funds.
A 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, a 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 a Fund over a specified period. It is a function
of the type and quality of a Fund's investments, its maturity and its operating
expense ratio.
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 any Fund. Such a practice will
have the effect of increasing the Fund's yield and total return. Quotations of a
Fund's performance will not reflect charges levied at the separate account
level.
The performance of each Fund will vary from time to time and past results are
not necessarily indicative of future results. A 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 a Fund is not insured or guaranteed.
These factors should be carefully considered by the investor before making an
investment in a Fund.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND PROGRAMS
Set forth in this section is a statement of each Fund's investment objective
along with a description of the investment policies, strategies and practices of
each Fund. The investment objective(s) of each Fund, except the High Yield Fund,
are deemed to be fundamental policies and, therefore, unless permitted by law,
may not be changed without the approval of a majority of that Fund's outstanding
shares (within the meaning of the 1940 Act). The Board of Directors on behalf of
the High Yield Fund is permitted to change the investment objective of that Fund
without shareholder approval. Each 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. Each 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 any
Fund should recognize that there are risks in the ownership of any security and
that no assurance can be given that any particular Fund will achieve its
investment objective(s).
AIM V.I. AGGRESSIVE GROWTH FUND. The Fund's investment objective is to achieve
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in common stocks, convertible bonds, convertible preferred
stocks and warrants of companies which, in the opinion of the Fund's investment
advisor, are expected to achieve earnings growth over time at a rate in excess
of 15% per year. Many of these companies are in the small to medium-sized
category. Management of the Fund will be particularly interested in companies
that are likely to benefit from new or innovative products, services or
processes that should enhance such companies' prospects for future growth in
earnings. As a result of this policy, the market prices of many of the
securities purchased and held by the Fund may fluctuate widely. Any income
received from securities held by the Fund will be incidental, and an investor
should not consider a purchase of shares of the Fund as equivalent to a complete
investment program. The Fund's portfolio is primarily comprised of securities of
two basic categories: (a) "core" companies, which Fund management considers to
have experienced above-average and consistent long-term growth in earnings and
to have excellent prospects for outstanding future growth, and (b) "earnings
acceleration" companies which Fund management believes are currently enjoying
dramatic increase in profits. The Fund's strategy does not preclude investment
in large, seasoned companies which in the judgment of AIM possess superior
potential returns similar to companies with formative growth profiles. The Fund
will also invest in established smaller companies (under $500 million in market
capitalization) which offer exceptional value based upon substantially above
average earnings growth potential relative to market value. The Fund may invest
in non-equity securities, such as corporate bonds or U.S. Government obligations
during periods when, in the opinion of AIM, prevailing market, financial, or
economic conditions warrant, as well as when such holdings are advisable in
light of a change in circumstances of a particular company or within a
particular industry. For additional information about the Fund's investment
techniques and strategies, see "Certain Investment Strategies and Techniques" in
this Prospectus and "Investment Programs" in the Statement of Additional
Information.
8
<PAGE> 11
AIM V.I. BALANCED FUND. The Fund's objective is to achieve as high a total
return to investors as possible, consistent with preservation of capital. The
Fund seeks to achieve its objective by investing in a broadly diversified
portfolio of high-yielding securities, including common stocks, preferred
stocks, convertible securities and bonds. Although equity securities will be
purchased primarily for capital appreciation and fixed income securities will be
purchased primarily for income purposes, income and capital appreciation
potential will be considered in connection with all investments. The Fund
normally will have a minimum of 30% and a maximum of 70% of its total assets
invested in equity securities and a minimum of 30% and a maximum of 70% of its
total assets invested in (non-convertible) fixed income securities. Most of such
fixed income securities will be rated Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Services
("S&P") or, if unrated, deemed to be of comparable quality by AIM, although the
Fund may invest to a limited extent in lower-rated securities. The fixed income
securities in which the Fund invests may include U.S. Government obligations,
mortgage-backed securities, asset-backed securities, bank obligations, corporate
debt obligations and unrated obligations, including those of foreign issuers.
The Fund may, in pursuit of its objective, invest up to 10% of its total assets
in debt securities rated lower than Baa by Moody's or BBB by S&P, which are
commonly known as "junk bonds." See "Risk Factors -- Non-Investment Grade Debt
Securities" for more information concerning the risk factors associated with
investing in such securities. The Fund may also invest up to 25% of its total
assets in convertible securities. Compliance with all of the above percentage
requirements may limit the ability of the Fund to maximize total return. The
actual percentage of the assets invested in equity and fixed income securities
will vary from time to time, depending on the judgment of AIM as to general
market and economic conditions and trends, yields and interest rates and changes
in fiscal and monetary policies. For additional information about the Fund's
investment techniques and strategies, see "Certain Investment Strategies and
Techniques" in this Prospectus and "Investment Programs" in the Statement of
Additional Information.
AIM V.I. CAPITAL APPRECIATION FUND. The Fund's investment objective is to seek
capital appreciation through investments in common stocks, with emphasis on
medium-sized and smaller emerging growth companies. AIM will be particularly
interested in companies that are likely to benefit from new or innovative
products, services or processes that should enhance such companies' prospects
for future growth in earnings. As a result of this policy, the market prices of
many of the securities purchased and held by the Fund may fluctuate widely. Any
income received from securities held by the Fund will be incidental, and an
investor should not consider a purchase of shares of the Fund as equivalent to a
complete investment program. The Capital Appreciation Fund's portfolio is
primarily comprised of securities of two basic categories of companies: (1)
"core" companies, which AIM considers to have experienced above-average and
consistent long-term growth in earnings and to have excellent prospects for
outstanding future growth, and (2) "earnings acceleration" companies which AIM
believes are currently enjoying a dramatic increase in profits. For additional
information about the Fund's investment techniques and strategies, see "Certain
Investment Strategies and Techniques" in this Prospectus and "Investment
Programs" in the Statement of Additional Information.
AIM V.I. CAPITAL DEVELOPMENT FUND. The Fund's investment objective is
long-term capital appreciation. Production of income is incidental to this
objective. The Fund's principal investments are in common stocks, convertible
securities and bonds. There can, of course, be no assurance that the Fund will
in fact achieve its objective since all investments are inherently subject to
market risks.
The Fund will invest primarily in securities of small and medium-sized
companies (i.e., companies which fall in the smallest 85% by market
capitalization of publicly traded companies in the United States). Among factors
that AIM may consider when selecting investments in a company for the Fund are
(i) the growth prospects for a company's product, (ii) the economic outlook for
its industry, (iii) a company's new product development, (iv) its operating
management capabilities, (v) the relationship between the price of the security
and its estimated fundamental value, (vi) relevant market, economic and
political environments and (vii) financial characteristics such as balance sheet
analysis and return on assets. The Fund may invest in issuers making initial
public offerings of their securities if AIM determines that the issuer has good
prospects for growth. The Fund may also invest up to 10% of its total assets in
securities of other registered investment companies. For additional information
about the Fund's investment techniques and strategies, see "Certain Investment
Strategies and Techniques" in this Prospectus and "Investment Programs" in the
Statement of Additional Information.
AIM V.I. DIVERSIFIED INCOME FUND. The Fund's investment objective is to seek
to achieve a high level of current income. The Fund will seek to achieve its
investment objective by investing primarily in: (i) foreign government
securities, (ii) foreign and domestic corporate debt securities, (iii) U.S.
Government securities, including U.S. Government Agency Mortgage-Backed
Securities and (iv) lower-rated or unrated high yield debt securities (commonly
known as "junk bonds") of U.S. and foreign companies. Under normal
circumstances, the Fund's assets will be invested in each of these four sectors.
The Fund may invest up to 10% of its total assets in common stocks, preferred
stocks, similar equity securities and convertible securities of U.S. and foreign
companies. The Fund does not intend to invest more than 50% of its total assets
in lower-rated or unrated high yield securities or more than 50% of its total
assets in foreign debt securities. (For a description of the various rating
categories of corporate debt securities in which the Fund may invest, see
Appendix A to this Prospectus. For a description of U.S. Government Agency
Mortgage-Backed Securities, see Appendix B to this Prospectus.) However, the
Fund may from time to time invest up to 100% of its total assets in U.S.
Government securities and, as a defensive measure, may invest up to 100% of its
total assets in money market securities. For a discussion of the investment
risks associated with investments in high yield securities and foreign
securities, see "Risk Factors" in this Prospectus. For further discussion of the
extent of the Fund's intended investment, see "Certain Investment Strategies and
Techniques" in this Prospectus and "Investment Programs" in the Statement of
Additional Information".
For a breakdown of the quality ratings of the Fund's investments as of
December 31, 1997, see "Risk Factors -- Portfolio Ratings."
9
<PAGE> 12
AIM V.I. GLOBAL UTILITIES FUND. The Fund's investment objective is to achieve
a high level of current income, and as a secondary objective the Fund seeks to
achieve capital appreciation, by investing primarily in the common and preferred
stocks of public utility companies (either domestic or foreign). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
securities of public utility companies (either domestic or foreign). Public
utility companies include companies that provide electricity, natural gas or
water and other sanitary services to the public, and telephone or telegraph
companies and other companies providing public communications services. The Fund
may also invest in developing utility technology companies and in holding
companies which derive a substantial portion of their revenues from
utility-related activities. Generally, a holding company will be considered to
derive a substantial portion of its revenues from utility-related activities if
such activities account for at least 40% of its revenues. The Fund may invest up
to 25% of its total assets in convertible securities. When AIM deems it
appropriate, the Fund may also purchase the bonds of such companies. Investments
in non-convertible bonds, however, will not exceed 25% of the Fund's total
assets. The Fund may invest up to 10% of its total assets in lower-rated or
unrated high yield securities. (For a description of the various rating
categories of corporate debt securities in which the Fund may invest, see
Appendix A to this Prospectus.) During the fiscal year ended December 31, 1997,
the Fund invested less than 5% of its net assets in below investment grade debt
securities. The Fund may also invest up to 80% of its total assets in securities
of foreign companies, including investments in American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and underlying securities of
foreign issuers. For a discussion of the investment risks associated with
investments in non-investment grade debt securities and foreign securities, see
"Risk Factors" in this Prospectus. For a further discussion of the Fund's
intended investments, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
A portfolio of utility company securities is subject to a different degree of
volatility than a more broadly diversified portfolio. Economic, operational or
regulatory changes that affect utility companies will have a material impact
upon the value of the securities that the Fund owns. Events, such as changing
weather patterns, emergencies involving nuclear power plants, or rapidly
changing fuel prices that have no direct connection with companies whose
securities are owned by the Fund may affect the prices of those securities.
Moreover, a portfolio of utilities industry securities is subject to the risks
unique to that industry, such as inflationary or other increases in fuel and
operating expenses, possible increases in the interest costs of loans needed for
capital construction programs, compliance with environmental regulations,
possible adverse changes in the regulatory climate and availability of fuel
sources.
A description of the utilities industry is contained in the Statement of
Additional Information.
AIM V.I. GOVERNMENT SECURITIES FUND. The Fund's investment objective is to
achieve a high level of current income consistent with reasonable concern for
safety of principal by investing in debt securities issued, guaranteed or
otherwise backed by the United States Government. The government securities
which may be purchased by the Fund include but are not limited to (1) U.S.
Treasury obligations such as Treasury Bills (maturities of one year or less),
Treasury Notes (maturities of one to ten years) and Treasury Bonds (generally
maturities of greater than ten years) and (2) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities ("Agency Securities") which
are supported by any of the following: (a) the full faith and credit of the U.S.
Treasury, such as obligations of the Government National Mortgage Association
("GNMA"), (b) the right of the issuer to borrow an amount limited to a specific
line of credit from the U.S. Treasury, such as obligations of the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Bank and the U.S.
Postal Service or (c) the credit of the agency or instrumentality, such as
obligations of the Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
Farm Credit System. Although their close relationship with the U.S. Government
is believed to make them high-quality securities with minimal credit risks, the
U.S. Government is not required by law to support the agencies and
instrumentalities listed in (b) and (c), above. Accordingly, such securities may
involve risk of loss of principal and interest; however, historically there have
not been any defaults of such issues. For a listing of some of the types of
Agency Securities in which the Fund may invest, see Appendix B to this
Prospectus. For additional information about the Fund's investment techniques
and strategies, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
The Fund's investments include high coupon U.S. Government Agency
Mortgage-Backed Securities, which provide a higher coupon at the time of
purchase than the prevailing market rate yield. The prices of high coupon U.S.
Government Agency Mortgage-Backed Securities do not tend to rise as rapidly as
those of traditional fixed rate securities at times when interest rates are
decreasing, and tend to decline more slowly at times when interest rates are
increasing. The Fund may purchase such securities at a premium, which means that
a faster principal prepayment rate than expected will reduce the market value of
and income from such securities, while a slower prepayment rate will tend to
increase the market value of and income from such securities.
The composition and weighted average maturity of the Fund's portfolio will
vary from time to time, based upon the determination of AIM of how best to
further the Fund's investment objective. The Fund may invest in government
securities of all maturities, short-term, intermediate-term and long-term. The
Fund intends to maintain a dollar-weighted average portfolio maturity of between
three and ten years. This policy regarding portfolio maturity is a
non-fundamental policy of the Fund.
AIM V.I. GROWTH FUND. The Fund's investment objective is to seek growth of
capital principally through investment in common stocks of seasoned and better
capitalized companies considered by AIM to have strong earnings momentum.
Current income will not be an important criterion of investment selection, and
any such income should be considered incidental. It is anticipated that common
stocks will be the principal form of investment by the Fund. For other types of
investments, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
The Fund's portfolio is primarily comprised of securities of two basic
categories of companies: (1) "core" companies, which AIM considers to have
experienced
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above-average and consistent long-term growth in earnings and to have excellent
prospects for outstanding future growth, and (2) "earnings acceleration"
companies which Fund management believes are currently enjoying a dramatic
increase in profits.
AIM V.I. GROWTH & INCOME FUND. 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 generally investing at least
65% of its net assets in stocks of companies believed by management to have the
potential for above average growth in revenues and earnings. The Fund generally
will also invest at least 80% of its net assets in securities which pay income
to the Fund. For additional information about the Fund's investment techniques
and strategies, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
AIM V.I. HIGH YIELD FUND. The Fund's objective is to achieve a high level of
current income. The Fund seeks to achieve its objective by investing primarily
in publicly traded non-investment grade debt securities. The Fund will also
consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade are considered "high
risk" securities (commonly referred to as junk bonds). The Fund seeks high
income principally by purchasing securities that are rated Baa, Ba or B by
Moody's or BBB, BB or B by S&P, or securities of comparable quality in the
opinion of AIM that are either unrated or rated by other NRSROs. The Fund may
also hold, from time to time, securities rated Caa by Moody's or CCC by S&P, or,
if unrated or rated by other NRSROs, securities of comparable quality as
determined by AIM. It should be noted, however, that achieving the Fund's
investment objective may be more dependent on the credit analysis of AIM, and
less on that of credit rating agencies, than may be the case for funds that
invest in more highly rated bonds. At least 80% of the value of the Fund's total
assets will be invested in debt securities, including convertible debt
securities, and/or cash and cash equivalents. At least 65% of the value of the
Fund's assets will be invested in high yield debt securities. The Fund may also
invest in preferred stocks. For additional information about the Fund's
investment techniques and strategies, see "Certain Investment Strategies and
Techniques" in this Prospectus and "Investment Programs" in the Statement of
Additional Information.
While the securities held by the Fund are expected to provide greater income
and, possibly, opportunity for greater gain than investments in more highly
rated securities, they may be subject to greater risk of loss of income and
principal and are more speculative in nature. The Fund's yield and the net asset
value of its shares may be expected to fluctuate over time. Therefore, an
investment in the Fund may not be appropriate for some investors and should not
constitute a complete investment program for others. See "Risk
Factors -- Non-Investment Grade Debt Securities."
The Fund may invest in both illiquid securities and securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933. See "Illiquid Securities" for further information
regarding such investments.
AIM V.I. INTERNATIONAL EQUITY FUND. The Fund's investment objective is to seek
to provide long-term growth of capital by investing in a diversified portfolio
of international equity securities the issuers of which are considered by AIM to
have strong earnings momentum. Any income realized by the Fund will be
incidental and will not be an important criterion in the selection of portfolio
securities.
In managing the Fund, AIM seeks to apply to a diversified portfolio of
international equity securities substantially the same investment strategy which
it applies to the Growth Fund with respect to that Fund's investment in United
States equities markets. The Fund will utilize to the extent practicable a fully
managed investment policy providing for the selection of securities which meet
certain quantitative standards determined by AIM. AIM will review carefully the
earnings history and prospects for growth of each company considered for
investment by the Fund. It is expected that the Fund's portfolio, when fully
invested, will generally be comprised of two basic categories of foreign
companies: (1) "core" companies, which AIM considers to have experienced
consistent long-term growth in earnings and to have strong prospects for
outstanding future growth, and (2) companies that AIM believes are currently
experiencing a greater than anticipated increase in earnings. If a particular
foreign company meets the quantitative standards determined by AIM, its
securities may be acquired by the Fund regardless of the location of the company
or the percentage of the Fund's investments in the company's country or region.
However, AIM will also consider other factors in making investment decisions for
the Fund, including such factors as the prospects for relative economic growth
among countries or regions, economic and political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security. For
a discussion of the investment risks associated with investments in foreign
securities, see "Risk Factors" in this Prospectus. For a discussion of the
extent of the Fund's intended investment in foreign countries, see "Certain
Investment Strategies and Techniques" in this Prospectus and "Investment
Programs" in the Statement of Additional Information.
AIM V.I. MONEY MARKET FUND. The Fund's investment objective is to seek to
provide as high a level of current income as is consistent with the preservation
of capital and liquidity. The Fund seeks to achieve its objective by investing
in a diversified portfolio of high quality U.S. dollar denominated money market
instruments and other similar instruments with maturities of 397 days or less
from the date of purchase, and will maintain a dollar weighted-average portfolio
maturity of 90 days or less. Securities subject to repurchase agreements may
bear longer maturities.
The Fund invests in a broad range of U.S. Government and foreign government
obligations, and bank and commercial instruments that may be available in the
money markets. Such obligations include U.S. Treasury obligations and repurchase
agreements secured by
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<PAGE> 14
such obligations. The Money Market Fund intends to invest in bankers'
acceptances, certificates of deposit, repurchase agreements, time deposits,
variable rate master demand notes, taxable municipal securities and commercial
paper, and U.S. Government direct obligations and U.S. Government agencies'
securities. Bankers' acceptances, certificates of deposit and time deposits may
be purchased from U.S. or foreign banks. All of these instruments, which are
collectively referred to as "Money Market Obligations," are briefly described in
Appendix C to this Prospectus and are described more fully in the Statement of
Additional Information. For additional information about the Fund's investment
techniques and strategies, see "Certain Investment Strategies and Techniques" in
this Prospectus and "Investment Programs" in the Statement of Additional
Information.
The Fund will limit investments in Money Market Obligations to those which are
denominated in U.S. dollars and which at the date of purchase are "First Tier"
securities as defined in Rule 2a-7 under the 1940 Act, as such Rule may be
amended from time to time. Generally, "First Tier" securities are securities
that are rated in the highest rating category by two NRSROs, or, if only rated
by one NRSRO, are rated in the highest rating category by that NRSRO, or, if
unrated, are determined by AIM (under the supervision of and pursuant to
guidelines established by the Board of Directors) to be of comparable quality to
a rated security that meets the foregoing quality standards. For a more complete
definition of a "First Tier" security, see the definition set forth in the
Statement of Additional Information.
The Money Market Fund may invest up to 100% of its total assets in obligations
issued by banks. While the Fund will limit its investments in bank instruments
to U.S. dollar denominated obligations, it may invest in Eurodollar obligations
(i.e., U.S. dollar-denominated obligations issued by a foreign branch of a
domestic bank), Yankee dollar obligations (i.e., U.S. dollar-denominated
obligations issued by a domestic branch of a foreign bank) and obligations of
foreign branches of foreign banks. The Money Market Fund will limit its
aggregate investments in foreign bank obligations, including Eurodollar
obligations and Yankee dollar obligations, to 25% of its total assets at the
time of purchase, provided that there is no limitation upon the Fund's
investments in (a) Eurodollar obligations, if the domestic parent of the foreign
branch issuing the obligation is unconditionally liable in the event that the
foreign branch for any reason fails to pay on the Eurodollar obligation; and (b)
Yankee dollar obligations, if the U.S. branch of the foreign bank is subject to
the same regulation as U.S. banks. Eurodollar, Yankee dollar and other foreign
bank obligations include time deposits, which are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
For a discussion of the risks pertaining to investments in foreign securities,
see "Risk Factors" in this Prospectus.
AIM V.I. VALUE FUND. 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. For additional information about the Fund's investment
techniques and strategies, see "Certain Investment Strategies and Techniques" in
this Prospectus and "Investment Programs" in the Statement of Additional
Information.
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. Each of the Funds has the
flexibility to invest, to the extent described below, in a variety of
instruments designed to enhance its investment capabilities. Each of the Funds
may 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; the Diversified Income
Fund and the Government Fund may invest in U.S. Government Agency
Mortgage-Backed Securities; each of the Funds may purchase or sell securities on
a delayed delivery or when-issued basis and may borrow money; each of the Funds,
other than the Money Market Fund, may 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.
Each of the Funds, other than the Money Market 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. Each of the Funds, other
than the Money Market 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.
MONEY MARKET OBLIGATIONS. When deemed appropriate for temporary or defensive
purposes, each of the Funds may hold cash or cash equivalent Money Market
Obligations. Of course, the Money Market Fund invests exclusively in Money
Market Obligations.
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While none of the Funds other than the Money Market Fund is 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 that a Fund invests to a significant
degree in these instruments, its ability to achieve its investment objectives
may be adversely affected.
In addition to the Money Market Obligations described above, as a temporary or
defensive measure, and without regard to their respective investment objectives,
AIM may invest all or substantially all of the assets of the Aggressive Growth
Fund, the Balanced Fund, the Diversified Income Fund, the Global Utilities Fund,
the High Yield Fund and the International Fund in cash or Money Market
Obligations, including repurchase agreements, denominated in foreign currencies.
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES. The Diversified Income Fund
and the Government Fund may invest in U.S. Government Agency Mortgage-Backed
Securities. These securities are obligations issued or guaranteed by the United
States Government or by one of its agencies or instrumentalities, including but
not limited to GNMA, FNMA, or FHLMC. U.S. Government Agency Mortgage-Backed
Certificates provide for the pass-through to investors of their pro-rata share
of monthly payments (including any principal prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicers of the underlying mortgage loans. GNMA, FNMA
and FHLMC each guarantee timely distributions of interest to certificate
holders. GNMA and FNMA guarantee timely distributions of scheduled principal.
FHLMC has in the past guaranteed only the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC Gold Participation Certificates now
guarantee timely payment of monthly principal reductions. Although their close
relationship with the U.S. Government is believed to make them high-quality
securities with minimal credit risks, the U.S. Government is not obligated by
law to support either FNMA or FHLMC. However, historically there have not been
any defaults of FNMA or FHLMC issues. See Appendix B for a more complete
description of GNMA securities.
Mortgage-backed securities consist of interests in underlying mortgages
generally with maturities of up to thirty years. However, due to early
unscheduled payments of principal on the underlying mortgages, the securities
have a shorter average life and, therefore, less volatility than a comparable
thirty-year bond. The value of U.S. Government Agency Mortgage-Backed
Securities, like other traditional debt instruments, will tend to move in the
opposite direction compared to interest rates.
CONVERTIBLE SECURITIES. To the extent consistent with their respective
investment objectives, each of the Funds (except the Money Market 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
Funds 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, each applicable Fund invests in such
securities without regard to corporate bond ratings.
FOREIGN SECURITIES. To the extent consistent with their respective investment
objectives, each of the Funds may invest in foreign securities. It is not
anticipated that such foreign securities will constitute more than: (i) 20% of
the value of the total assets of the Balanced Fund, the Capital Appreciation
Fund, the Government Fund, the Growth Fund, the Growth & Income Fund, and the
Money Market Fund); (ii) 25% of the value of the total assets of the Aggressive
Growth Fund, the Capital Development Fund, the High Yield Fund and the Value
Fund; (iii) 50% of the value of the total assets of the Diversified Income Fund;
and (iv) 80% of the value of the total assets of the Global Utilities Fund. The
International Fund will invest at least 70% of its total assets in foreign
securities.
The Diversified Income Fund may invest in debt obligations which may be
denominated in the U.S. dollar or in other currencies issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank,
Asian Development Bank and European Economic Community), and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities. The Diversified Income Fund may also invest in debt
obligations issued by U.S. corporations denominated in non-U.S. dollar
currencies. No more than 25% of the Diversified Income Fund's total assets, at
the time of purchase, will be invested in government securities of any one
foreign country. At the present time, AIM does not intend to invest more than
10% of the Diversified Income Fund's total assets in securities issued by
foreign governments or foreign companies located in developing countries in
various regions of the world. A "developing country" is a country in the initial
stages of its industrial cycle. Investments in emerging markets or developing
countries involve exposure to economic structures that are generally less
diverse and mature and to political systems which can be expected to have less
stability than those of more developed countries. Such countries may have
relatively unstable governments, economies based on only a few industries, and
securities markets which trade only a small number of securities. Historical
experience indicates that emerging markets have been more volatile than the
markets of more mature economies; such markets have also from time to time
provided higher rates of return and greater risks to investors. AIM believes
that these characteristics of emerging markets can be expected to continue in
the future.
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The Global Utilities Fund may invest up to 80% of its total assets in
securities of foreign companies, including investments in ADRs, EDRs and other
securities representing underlying securities of foreign issuers. Under normal
market conditions, the Global Utilities Fund will be invested in securities of
issuers located in at least four countries, one of which will be the United
States, although for defensive purposes, it may invest 100% of its total assets
in securities of U.S. issuers. In some foreign countries, utility companies are
partially owned by government agencies. In some cases, foreign government
agencies may have significant investments in businesses other than utility
companies. Also, investments in securities of foreign issuers may involve other
risks which are not ordinarily associated with investments in domestic issuers.
See "Risk Factors" in this Prospectus. In addition, investors should also be
aware that the Global Utilities Fund may invest in companies located within
emerging or developing countries.
Under normal market conditions the International Fund will invest at least 70%
of its total assets in marketable equity securities (including common and
preferred stock and depositary receipts for stock) and may invest up to 20% of
its total assets in securities exchangeable for or convertible into stock of
foreign companies. The issuers of such securities will, along with their
predecessors, have been in continuous operation for three years or more and
(except in the case of certain ADRs and other securities representing underlying
securities of foreign issuers) will be listed on a recognized foreign securities
exchange or traded in a foreign over-the-counter market.
Under normal market conditions, the International Fund intends to invest in
the securities of foreign companies located in at least four countries outside
the United States. The International Fund will emphasize investment in foreign
companies in the developed countries of Western Europe and the Pacific Basin,
but the Fund may also invest to a lesser extent in the securities of companies
located in developing countries in various regions of the world. At the present
time, AIM does not intend to invest more than 20% of the International Fund's
total assets in securities issued by foreign governments or foreign companies
located in developing countries. For a discussion of the risks pertaining to
investments in foreign obligations, see "Risk Factors" in this Prospectus.
ADRS AND EDRS. To the extent consistent with their respective investment
objectives each of the Funds (except the International Fund which is discussed
separately above) may also invest in securities which are in the form of ADRs,
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. Each of the Funds 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), a 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 Funds will each 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 Funds 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. Each of the Funds may enter into reverse repurchase
agreements in amounts not exceeding 33 1/3% of the value of their respective
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. Each Fund may enter
into delayed delivery agreements and may purchase securities on a "when-issued"
basis.
Delayed delivery agreements are commitments by a 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.
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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 Funds will only make commitments to purchase
such debt securities with the intention of actually acquiring the securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
If a Fund enters into a delayed delivery agreement or purchases a when-issued
security, the Fund will direct its custodian bank to segregate liquid assets 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 such 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 a Fund if, as a result, more than 25% of the Fund's
net assets would become so committed.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Diversified Income Fund and the Government Fund may engage
in dollar roll transactions with respect to mortgage securities issued by GNMA,
FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage security
held in the portfolio to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially similar
security (same type, coupon and maturity) from the institution at a later date
at an agreed upon price. The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories. During the
period between the sale and repurchase, the Fund will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the sale, could
generate income for the Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of
the securities may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. See "Borrowing," below for the applicable limitation on dollar
roll transactions.
BORROWING. Each of the Funds may borrow money to a limited extent from banks
(including the Funds' custodian bank) for temporary or emergency purposes
subject to the limitations under the 1940 Act. Each Fund will restrict
borrowings, reverse repurchase agreements and dollar roll transactions to an
aggregate of 33 1/3% of the Fund's total assets at the time of the transaction.
No Fund will purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets.
ILLIQUID SECURITIES. None of the Funds will invest more than 15% of their
respective net assets in illiquid securities, including restricted securities
which are illiquid. The Money Market Fund will not invest more than 10% of its
net assets in illiquid securities.
RULE 144A SECURITIES. Each of the Funds 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
Funds may each 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. Each Fund (except the Money Market Fund) may,
from time to time, lend securities from their respective portfolios, with a
value not exceeding 33 1/3% of their respective total assets, to banks, brokers
and other financial institutions, and receive in return collateral in the form
of liquid assets 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 applicable 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. Each Fund (except the Money Market 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
15
<PAGE> 18
payment of any further consideration. The Funds 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 applicable Fund's total assets at any
given time.
OPTIONS. Each of the Funds, other than the Money Market 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 or has the
right to acquire 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 liquid assets with a value equal to the exercise price of the put
option.
These Funds may write call options on securities or securities indexes for the
purpose of increasing their return (through receipt of premiums) or to provide a
partial hedge against a decline in the value of their portfolio securities or
both. These Funds 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 a 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.
Each of the Funds noted above 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.
These Funds 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 "collar."
Options purchased or written by a 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 a 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.
Each of the Funds, except the Money Market 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 applicable 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 Funds 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 applicable Fund's total assets. The Funds will not
purchase options if, at the time of the investment, the aggregate premiums paid
for outstanding options will exceed 5% of the applicable Fund's total assets.
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<PAGE> 19
FUTURES AND FORWARD CONTRACTS. Each of the Funds, other than the Money Market
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 their assets or assets
they intend to acquire. In addition, they may purchase and sell stock index
futures contracts to hedge the value of the portfolio against changes in market
conditions. These Funds 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 Funds
are authorized to invest in futures contracts and related options with respect
to non-U.S. instruments, they will limit such investments to those which have
been approved by the Commodity Futures Trading Commission ("CFTC") for
investment by U.S. investors. These Funds 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 a Fund's total assets will be committed to
initial margin deposits required pursuant to futures contracts. Percentage
investment limitations on a Fund's investment in options on futures contracts
are set forth above under "Options."
To the extent that any of the Funds invests in securities denominated in
foreign currencies (which is substantially all of the securities held by the
International Fund and a significant portion of securities held by the
Diversified Income Fund and the Global Utilities Fund), 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, each of
the Funds, other than the Money Market 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 their currency exposure, the Funds may each buy and sell
currencies either in the spot (cash) market or in the forward market (through
forward contracts generally expiring within one year). The Funds may each 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 such a 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 applicable 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 Global Utilities Fund and the International Fund may enter into forward
contracts for transaction hedging purposes with respect to all or a substantial
portion of their trades. The other Funds will commit no more than their
respective 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, a 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. Each of the Funds 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.
The investment objectives and policies stated above are not fundamental
policies of the Fund and may be changed by the Board of Directors of the Company
without shareholder approval. Shareholders will be notified before any material
change in the investment policies stated above become effective.
- --------------------------------------------------------------------------------
RISK FACTORS
Investors should consider carefully the following special factors before
investing in any of the Funds.
SMALL CAPITALIZATION COMPANIES. Investors should realize that equity
securities of small to medium-sized companies may involve greater risk than is
associated with investing in more established companies. Small to medium-sized
companies often have limited product and market diversification, fewer financial
resources or may be dependent on a few key managers. Any one of the foregoing
may change suddenly and have an immediate impact on the value of the company's
securities. Furthermore, whenever the securities markets are experiencing rapid
price changes due to national economic trends, secondary growth securities have
historically been subject to exaggerated price changes.
17
<PAGE> 20
NON-INVESTMENT GRADE DEBT SECURITIES. The Balanced Fund, the Diversified
Income Fund, the High Yield Fund, and to a lesser extent the Global Utilities
Fund, seek to meet their respective investment objectives by investing in
non-investment grade debt securities, commonly known as "junk bonds." While
generally providing greater income and opportunity for gain, non-investment
grade debt securities may be subject to greater risks than higher-rated
securities. Economic downturns tend to disrupt the market for junk bonds and
adversely affect their values. Such economic downturns may be expected to result
in increased price volatility for junk bonds and of the value of shares of the
above-named Funds, and increased issuer defaults on junk bonds.
In addition, many issuers of junk bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, junk bonds are
subordinated to the prior payment of senior indebtedness, which potentially
limits a Fund's ability to fully recover principal or to receive payments when
senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its market value
risk, and ratings may from time to time change to reflect developments regarding
the issuer's financial condition. Junk bonds have speculative characteristics
which are likely to increase in number and significance with each successive
lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the relative
lack of reliable objective data makes it more difficult for the Company's
directors to value a Fund's securities, and judgment plays a more important role
in determining such valuations. Increased illiquidity in the junk bond market
also may affect a Fund's ability to dispose of such securities at desirable
prices.
In the event a Fund experiences an unexpected level of net redemptions, the
Fund could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return. Prices of junk bonds
have been found to be less sensitive to fluctuations in interest rates, and more
sensitive to adverse economic changes and individual corporate developments,
than those of higher-rated debt securities.
PORTFOLIO RATINGS. During the fiscal year ended December 31, 1997, the
percentage of average annual assets of the Diversified Income Fund calculated on
a dollar weighted basis, which was invested in securities within the various
rating categories (based on the higher of S&P and Moody's ratings as described
in Appendix A), and in unrated securities determined by AIM to be of comparable
quality, was as follows:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
AAA/Aaa..................................................... 25.12%
AA/Aa....................................................... 12.28%
A/A......................................................... 15.85%
BBB/Baa..................................................... 17.11%
BB/Ba....................................................... 7.91%
B/B......................................................... 18.36%
CCC/Caa..................................................... 0.47%
CC/Ca....................................................... 0%
C/C......................................................... 0%
Unrated..................................................... 2.90%
-----
Total Average Annual Assets....................... 100%
</TABLE>
FOREIGN SECURITIES. Investments by a Fund in foreign securities whether
denominated in U.S. dollars or foreign currencies, may entail the following
risks set forth below. Investments by a 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
18
<PAGE> 21
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 Funds as discussed in the previous section.
NON-DIVERSIFIED PORTFOLIO (GLOBAL UTILITIES FUND ONLY). The Global Utilities
Fund is a non-diversified portfolio, which means that it may invest a greater
proportion of its assets in the securities of a smaller number of issuers and
therefore may be subject to greater market and credit risk than a more broadly
diversified portfolio. (A diversified portfolio may not invest more than 5% of
its assets in obligations of one issuer, with respect to 75% of its total
assets.)
PORTFOLIO TURNOVER. (All Funds except the Money Market Fund.) Any particular
security will be sold, and the proceeds reinvested, whenever such action is
deemed prudent from the viewpoint of a Fund's investment objective(s), without
regard to the impact on the portfolio turnover rate. Each Fund's historical
portfolio turnover rates are included in the Financial Highlights tables herein.
The estimated portfolio turnover rate for each of the Aggressive Growth Fund,
the Balanced Fund, the Capital Development Fund and the High Yield Fund is less
than 100%. 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 a
Fund, the portion of the Fund's distributions constituting taxable capital gains
may increase. See "Dividends, Distributions and Tax Matters."
- --------------------------------------------------------------------------------
MANAGEMENT
The overall management of the business and affairs of the Funds is vested with
the Company's Board of Directors. The Board of Directors approves all
significant agreements between each of the Funds and persons or companies
furnishing services to a 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 each 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 corporation of AIM. AIM Management is a holding company engaged in the
financial services business and is an indirect wholly owned subsidiary of
AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in institutional investment management and retail
mutual fund businesses in the United States, Europe and the Pacific Region.
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 each Fund pursuant
to a master investment advisory agreement, dated February 28, 1997 (the
"Advisory Agreement"). AIM was organized in 1976, and, together with its
subsidiaries, manages or advises over 50 investment company portfolios
encompassing a broad range of investment objectives.
Under the terms of the Funds' Advisory Agreement, AIM supervises all aspects
of each 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 each Fund which are not required
to be performed by AIM under the Advisory Agreement. Pursuant to a master
administrative services agreement dated May 1, 1998 (the "Administrative
Services Agreement") between the Company and AIM with respect to each 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
master administrative services agreement with substantially similar terms to the
Administrative Services Agreement, was in effect prior to May 1, 1998. AIM is
entitled to receive from each 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 Funds and other funds
advised by AIM in selecting broker-dealers to effect portfolio transactions on
behalf of the Funds.
PORTFOLIO MANAGEMENT. AIM uses a team approach and a disciplined investment
process in providing investment advisory services to all its accounts, including
the Funds. AIM's investment staff consists of approximately 135 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 Funds (except the Money Market Fund, for which no
such disclosure is required) and their titles, if any, with AIM or its
subsidiaries and
19
<PAGE> 22
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:
Robert M. Kippes, Kenneth A. Zschappel and Charles D. Scavone are primarily
responsible for the day-to-day management of the AGGRESSIVE GROWTH FUND'S
portfolio securities. Mr. Kippes 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 1998. He has been associated with AIM and/or
its subsidiaries since 1989 and has been an investment professional since 1988.
Mr. Zschappel is Assistant Vice President of AIM Capital and has been
responsible for the Fund since its inception in 1998. He has been associated
with AIM and/or its subsidiaries since 1990 and has been an investment
professional since 1991. Mr. Scavone is Vice President of AIM Capital and has
been associated with AIM and/or its subsidiaries since 1996. He has been
responsible for the Fund since its inception in 1998 and has been an investment
professional since 1991. Prior to 1996, he was Associate Portfolio Manager for
Van Kampen American Capital Asset Management, Inc. from 1994 to 1996. From 1991
to 1994, he worked in the investments department at Texas Commerce Investment
Management Company, with his last position being Equity Research
Analyst/Assistant Portfolio Manager.
Carolyn L. Gibbs, Claude C. Cody IV, Robert G. Alley and Craig A. Smith are
responsible for the day-to-day management of the BALANCED FUND'S portfolio
securities. Ms. Gibbs is Vice President of AIM Capital and has been responsible
for the Fund since its inception in 1998. She has been associated with AIM
and/or its subsidiaries since 1992 and has been an investment professional since
1987. Prior to 1992, she was a financial analyst for Northwest Airlines. Mr.
Cody is Vice President of AIM Capital and has been responsible for the Fund
since its inception in 1998. He has been associated with AIM and/or its
subsidiaries since 1992 and has been an investment professional since 1976. Mr.
Alley is Senior Vice President of AIM Capital, Vice President of AIM and of the
Company and has been responsible for the Fund since its inception in 1998. He
has been associated with AIM and/or its subsidiaries since 1992 and has been an
investment professional since 1972. Mr. Smith is Vice President of AIM Capital
and also has been responsible for the Fund since its inception in 1998. He has
been associated with AIM and/or its subsidiaries since 1989 and has been an
investment professional since 1988.
Robert M. Kippes, Charles D. Scavone, Jonathan C. Schoolar and David P.
Barnard are responsible for the day-to-day management of the CAPITAL
APPRECIATION FUND'S portfolio securities. Mr. Kippes has been responsible for
the Fund since its inception in 1993. His background is discussed above with
respect to the management of the Aggressive Growth Fund. Mr. Scavone has been
responsible for the fund since 1998. His background is discussed above with
respect to the management of the Aggressive Growth Fund. Mr. Schoolar is Senior
Vice President of AIM Capital, Vice President of AIM and Vice President of the
Company and has been responsible for the Fund since its inception in 1993. He
has been with AIM and/or its subsidiaries since 1986 and has been an investment
professional since 1984. Mr. Barnard is Vice President of AIM Capital and has
been responsible for the Fund since 1993. He has been associated with AIM and/or
its subsidiaries since 1982 and has been an investment professional since 1975.
Edgar M. Larsen, Paul J. Rasplicka and Kenneth A. Zschappel are primarily
responsible for the day-to-day management of CAPITAL DEVELOPMENT FUND'S
portfolio securities. Mr. Larsen is Vice President of AIM Capital. Mr. Larsen
joined AIM in 1996 as a portfolio manager of equity funds. He has been
responsible for the Fund since its inception in 1998 and has been an investment
professional since 1966. Prior to 1996, he was Senior Vice President of John
Hancock Advisers, Inc. in Houston and the portfolio manager of that firm's
emerging growth fund. Mr. Rasplicka is a senior portfolio manager of AIM Capital
and has been responsible for the Fund since its inception in 1998. He has been
associated with AIM and/or its subsidiaries since 1998 and began his investment
career in 1982. Prior to 1998, Mr. Rasplicka was a portfolio manager for INVESCO
Trust Company, an affiliate of AIM, from 1994 to 1998 and a Vice President of
Chase Investment-Counsel from 1992 to 1994. Mr. Zschappel has been responsible
for the Fund since its inception in 1998. His background is discussed above with
respect to the management of the Aggressive Growth Fund.
Robert G. Alley, John L. Pessarra and Carolyn L. Gibbs are responsible for
day-to-day management of the DIVERSIFIED INCOME FUND'S portfolio securities. Mr.
Alley has been responsible for the Fund since its inception in 1993. His
background is discussed above with respect to the management of the Balanced
Fund. Mr. Pessarra is Vice President of AIM Capital and has been associated with
AIM and/or its subsidiaries since 1990. He has been responsible for the Fund
since its inception in 1993, and has been an investment professional since 1984.
Ms. Gibbs is currently Vice President of AIM Capital and has been associated
with AIM and/or its subsidiaries since 1992 and has been an investment
professional since 1995. She has been responsible for the Fund since 1995.
Claude C. Cody IV, Robert G. Alley and Craig A. Smith are responsible for
day-to-day management of the GLOBAL UTILITIES FUND'S portfolio securities. Mr.
Cody has been responsible for the Fund since its inception in 1994. His
background is discussed above with respect to the management of the Balanced
Fund. Mr. Alley has been responsible for the Fund since its inception in 1994.
His background is discussed above with respect to the management of the
Balanced Fund. Mr. Smith has been responsible for the Fund since 1996.
His background is discussed above with respect to the management of the Balanced
Fund.
Karen Dunn Kelley, Meggan M. Walsh and Paula A. Permenter are responsible for
day-to-day management of the GOVERNMENT FUND'S portfolio securities. Ms. Kelley
is Senior Vice President of AIM Capital, Vice President of AIM and of the
Company and has been responsible for the Fund since its inception in 1993. She
has been associated with AIM and/or its subsidiaries since 1989 and has been an
investment professional since 1982. Ms. Walsh is Vice President of AIM Capital
and has been responsible for the Fund since its inception in 1993. She has been
associated with AIM and/or its subsidiaries since 1991 and has been an
investment professional since 1987. She has been responsible for the Fund since
1996. Ms. Permenter has been associated with AIM since 1996 and has been an
20
<PAGE> 23
investment professional since 1988. Prior to 1996, she was an Associate Trader
and Investment Assistant with Van Kampen American Capital Asset Management, Inc.
Monika H. Degan, Jonathan C. Schoolar, Robert M. Kippes and David P. Barnard
are primarily responsible for day-to-day management of the GROWTH FUND'S
portfolio securities. Ms. Degan has been responsible for the Fund since 1998.
She has been associated with AIM and/or its subsidiaries since 1995 and has been
an investment professional since 1990. Mr. Schoolar has been responsible for the
Fund since its inception in 1993. His background is discussed above with respect
to the management of the Capital Appreciation Fund. Mr. Kippes has been
responsible for the Fund since its inception in 1993. His background is
discussed above with respect to the management of the Capital Appreciation Fund.
Mr. Barnard has been responsible for the Fund since its inception in 1993. His
background is discussed above with respect to the management of the Capital
Appreciation Fund.
Brant H. DeMuth, Lanny H. Sachnowitz and Joel E. Dobberpuhl are primarily
responsible for day-to-day management of the GROWTH & INCOME FUND'S portfolio
securities. Mr. DeMuth has been responsible for the Fund since 1998. He has been
associated with AIM and/or its subsidiaries since 1996 and has been an
investment professional since 1987. Prior to 1996, he was a portfolio manager
for the Colorado Public Employee Retirement Association from 1992 to 1996. Mr.
Sachnowitz is Vice President of AIM Capital and has been responsible for the
Fund since its inception in 1994. He has been an investment professional since
1987, and has been associated with AIM and/or its subsidiaries since 1987. Mr.
Dobberpuhl is Vice President of AIM Capital and has been responsible for the
Fund since 1995. He has been an investment professional since 1988 and has been
associated with AIM and/or its subsidiaries since 1990.
John L. Pessarra and Kevin E. Rogers are responsible for the day-to-day
management of the HIGH YIELD FUND'S portfolio securities. Mr. Pessarra has been
responsible for the Fund since its inception in 1998. His background is
discussed above with respect to the management of the Diversified Income Fund.
Mr. Rogers is Vice President of AIM Capital and has been responsible for the
Fund since its inception in 1998. He has been associated with AIM and/or its
subsidiaries since 1991 and has been an investment professional since 1987.
A. Dale Griffin III, Paul A. Rogge, Barrett K. Sides and Clas G. Olsson are
responsible for day-to-day management of the INTERNATIONAL FUND'S portfolio
securities. Mr. Griffin is Vice President of AIM Capital and has been
responsible for the Fund since its inception in 1993. He has been associated
with AIM and/or its subsidiaries since 1989 and has been an investment
professional since 1987. Mr. Rogge is Vice President of AIM Capital and has been
associated with AIM and/or its subsidiaries since 1991. He has been responsible
for the Fund since its inception in 1993 and has been an investment professional
since 1991. Mr. Sides is Assistant Vice President of AIM Capital and has been
associated with AIM and/or its subsidiaries since 1990. He has been responsible
for the Fund since 1995 and has been an investment professional since 1990. Mr.
Olsson has been responsible for the Fund since 1997. He has been associated with
AIM and/or its subsidiaries since 1994 and has been an investment professional
since 1994. Prior to 1994, he was a broker assistant with Merrill Lynch.
Joel E. Dobberpuhl and Robert A. Shelton are responsible for day-to-day
management of the VALUE FUND'S portfolio securities. Mr. Dobberpuhl has been
responsible for the Fund since its inception in 1993. His background is
discussed above with respect to the management of the Growth & Income Fund. Mr.
Shelton has been responsible for the Fund since 1997. He has been associated
with AIM and/or its subsidiaries since 1995 and has been an investment
professional since 1991. Prior to 1995, he was a financial analyst for CS First
Boston.
21
<PAGE> 24
ADVISORY FEES. As compensation for its services AIM is paid an investment
advisory fee, which is calculated separately for each Fund at an annual rate of
the applicable Fund's average daily net assets. For the fiscal year ended
December 31, 1997, compensation paid to AIM pursuant to the Advisory Agreement
and the total expenses of each Fund (except the Aggressive Growth Fund, the
Balanced Fund, the Capital Development Fund and the High Yield Fund) stated as a
percentage of each Fund's average daily net assets, were as follows:
<TABLE>
<CAPTION>
COMPENSATION COMPENSATION
TO AIM EXPENSE RATIO TO AIM EXPENSE RATIO
(AFTER ANY WAIVER AND (AFTER ANY WAIVER AND (BEFORE ANY WAIVER AND (BEFORE ANY WAIVER AND
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
--------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund.......................... 0.63% 0.68% 0.63% 0.68%
AIM V.I. Diversified Income
Fund.......................... 0.60% 0.80% 0.60% 0.80%
AIM V.I. Global Utilities
Fund.......................... 0.65% 1.28% 0.65% 1.28%
AIM V.I. Government Securities
Fund.......................... 0.50% 0.87% 0.50% 0.87%
AIM V.I. Growth Fund............ 0.65% 0.73% 0.65% 0.73%
AIM V.I. Growth & Income Fund... 0.63% 0.69% 0.63% 0.69%
AIM V.I. International Equity
Fund.......................... 0.75% 0.93% 0.75% 0.93%
AIM V.I. Money Market Fund...... 0.40% 0.59% 0.40% 0.59%
AIM V.I. Value Fund............. 0.62% 0.70% 0.62% 0.70%
</TABLE>
Pursuant to the Advisory Agreement, receives a fee from each of the Aggressive
Growth Fund, the Balanced Fund, the Capital Development Fund and the High Yield
Fund calculated at the following annual rates to the average daily net assets of
each Fund for the calendar year computed in the manner used for the
determination of the net asset value of shares of each Fund:
AIM V.I. AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $150 million.......................................... 0.80%
Over $150 million........................................... 0.625%
</TABLE>
AIM V.I. BALANCED FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $150 million.......................................... 0.75%
Over $150 million........................................... 0.50%
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $350 million.......................................... 0.75%
Over $350 million........................................... 0.625%
</TABLE>
AIM V.I. HIGH YIELD FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $200 million.......................................... 0.625%
Next $300 million........................................... 0.55%
Next $500 million........................................... 0.50%
Amount over $1 billion...................................... 0.45%
</TABLE>
AIM may from time to time voluntarily waive or reduce their respective fees.
Fee waivers or reductions, other than those contained in the Advisory Agreement,
may be modified or terminated at any time.
ADMINISTRATOR. AIM provides various administrative services to the Company
pursuant to an Administrative Services Agreement. AIM provides the services of a
principal financial officer of the Company, who maintains the financial accounts
and books and records of the Company and the Funds, including the review of
daily net asset value calculations and the preparation of tax returns. The Funds
22
<PAGE> 25
reimburse AIM for expenses incurred by AIM or its subsidiaries in providing
these services. AIM also provides, or assures that Participating Insurance
Companies will provide, certain services implementing the Company's funding
arrangements with Participating Insurance Companies. These services include:
establishment of compliance procedures; negotiation of participation agreements;
preparation of prospectuses, financial reports and proxy statements for existing
Contractowners; maintenance of master accounts; facilitation of purchases and
redemptions requested by Contractowners; distribution to existing Contractowners
of copies of prospectuses, proxy materials, periodic Fund reports and other
materials; maintenance of records; and Contractowner services and communication.
Effective May 1, 1998, the Funds reimburse AIM for its costs in providing, or
assuring that Participating Insurance Companies provide, these services, in an
amount up to 0.25% of the average net asset value of each Fund in excess of the
net asset value of each Fund on April 30, 1998. However, AIM does not currently
seek reimbursement of (i) the cost of the first three services listed above and
(ii) the cost of any other service in excess of the amount charged by
Participating Insurance Companies. The Funds listed below reimbursed AIM for its
costs in providing administrative services to the Funds, for the fiscal year
ended December 31, 1997, as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF AVERAGE
NET ASSETS
----------
<S> <C>
AIM V.I. Capital Appreciation Fund.......................... 0.01%
AIM V.I. Diversified Income Fund............................ 0.07%
AIM V.I. Global Utilities Fund.............................. 0.29%
AIM V.I. Government Securities Fund......................... 0.14%
AIM V.I. Growth Fund........................................ 0.02%
AIM V.I. Growth & Income Fund............................... 0.01%
AIM V.I. International Equity Fund.......................... 0.03%
AIM V.I. Money Market Fund.................................. 0.06%
AIM V.I. Value Fund......................................... 0.01%
</TABLE>
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 Funds. 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 Funds to insurance company separate accounts.
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
The Company offers the shares of the Funds, 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 ("Policies"). Each separate
account contains divisions, each of which corresponds to a Fund in the Company.
Net purchase payments under the Contracts are placed in one or more of the
divisions of the relevant separate account and the assets of each division are
invested in the shares of the Fund which corresponds to that division. Each
separate account purchases and redeems shares of these Funds for its divisions
at net asset value without sales or redemption charges. Currently several
insurance company separate accounts invest in the Funds.
The Company, in the future, may offer the shares of its Funds 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.
Each 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. Each 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 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. If a material irreconcilable conflict arises between separate accounts
(or Plans), a separate account (or Plan) may be required to withdraw its
participation in a Fund. If it becomes necessary for any separate account (or
Plan) to replace shares of a Fund with another investment, the Fund may have to
liquidate portfolio securities on a disadvantageous basis. At the same time, the
Company and the Participating Insurance Companies (and any Plans investing in
the Company) are subject to conditions imposed by the Securities and Exchange
Commission and
23
<PAGE> 26
designed to prevent or remedy any conflict of interest. In this connection, the
Board of Directors has the obligation to monitor events to identify any material
irreconcilable conflict that may possibly arise and to determine what action, if
any, should be taken to remedy or eliminate the conflict.
- --------------------------------------------------------------------------------
FUTURE FUND CLOSURE
Due to the limited availability of common stocks of small capitalized
companies that meet the AIM's investment criteria for the Aggressive Growth
Fund, the Fund will be closed to new purchasers as soon as reasonably
practicable when the Fund achieves a size in assets under management of $200
million. To the extent that the Fund is closed, shareholders who maintain open
accounts in the Fund will be able to continue to make additional investments in
the Fund.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each of the Funds 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, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of a 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
such Fund. The determination of a Fund's net asset value per share is made in
accordance with generally accepted accounting principles.
VALUATION OF INVESTMENTS OF ALL FUNDS EXCEPT THE MONEY MARKET FUND. Among
other items, a 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.
VALUATION OF THE MONEY MARKET FUND'S INVESTMENTS. The Money Market Fund uses
the amortized cost method of valuing the securities held by the Fund and rounds
the Fund's per share net asset value to the nearest whole cent; therefore, it is
anticipated that the net asset value of the shares of the Fund will remain
constant at $1.00 per share. However, the Company can give no assurance that the
Fund can maintain a $1.00 net asset value per share.
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 that has entered into the futures contract
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 Funds declare and distribute dividends
representing substantially all net investment income as follows:
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
DECLARED PAID
--------- ---------
<S> <C> <C>
AIM V.I. Aggressive Growth Fund............................. annually annually
AIM V.I. Balanced Fund...................................... annually annually
AIM V.I. Capital Appreciation Fund.......................... annually annually
AIM V.I. Capital Development Fund........................... annually annually
AIM V.I. Diversified Income Fund............................ annually annually
AIM V.I. Global Utilities Fund.............................. annually annually
AIM V.I. Government Securities Fund......................... annually annually
AIM V.I. Growth Fund........................................ annually annually
AIM V.I. Growth & Income Fund............................... annually annually
AIM V.I. High Yield Fund.................................... annually annually
AIM V.I. International Equity Fund.......................... annually annually
AIM V.I. Money Market Fund.................................. daily daily
AIM V.I. Value Fund......................................... annually annually
</TABLE>
24
<PAGE> 27
Substantially all net realized capital gains, if any, are distributed on an
annual basis, except for the Money Market Fund, which may distribute net
realized short-term gains more frequently.
All such distributions will be automatically reinvested, at the election of
Participating Insurance Companies, in shares of the Fund issuing the
distribution 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. Each 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, a 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, each 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 whose assets are invested in a Fund will not
be subject to federal income tax on distributions made by the Fund prior to the
receipt of payments under the Contracts, each 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 a Fund to engage in transactions involving options, futures
contracts, forward contracts and foreign currency and related deposits.
Any 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 a Fund in certain
"passive foreign investment companies" may be limited in order to avoid
imposition of a tax on such Fund.
Each Fund investing in foreign securities may be subject to foreign
withholding taxes on income from its investments. In any year in which more than
50% in value of a 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 under which assets are invested in the Funds should refer
to the prospectus for the Contracts for information regarding the tax aspects of
ownership of such Contracts.
- --------------------------------------------------------------------------------
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 thirteen separate portfolios (i.e., the Funds).
The authorized capital stock of the Company consists of 3,500,000,000 shares
of common stock with a par value of $.001 per share, of which 250,000,000 shares
are classified AIM V.I. AGGRESSIVE GROWTH FUND shares, 250,000,000 shares are
classified AIM V.I. BALANCED FUND shares, 250,000,000 shares are classified AIM
V.I. CAPITAL APPRECIATION FUND shares, 250,000,000 shares are classified AIM
V.I. CAPITAL DEVELOPMENT 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 & INCOME FUND
shares, 250,000,000 shares are classified AIM V.I. HIGH YIELD 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 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 Fund will have the
exclusive right to vote on matters pertaining to distribution plans, if any such
plans are adopted, relating solely to such Fund. Shareholders of the Funds do
not have cumulative voting rights.
The Company understands that insurance company separate accounts owning shares
of the Funds will vote their shares in accordance with instructions received
from 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 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 Funds 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.
25
<PAGE> 28
There are no preemptive or conversion rights applicable to any of the
Company's shares. Each Fund's shares, when issued, are fully paid and
non-assessable.
As of February 2, 1998, IDS Life Insurance Company, through its separate
accounts, owned more than 25 percent of the shares of the Growth and Income
Fund, and, therefore, could be deemed to "control" such Fund, as that term is
defined in the Investment Company Act of 1940. As of February 2, 1998,
Connecticut General Life Insurance Company, through its separate accounts, owned
more than 25 percent of the shares of each of the Funds (except the Growth and
Income Fund) and, therefore, could be deemed to "control" each Fund, as that
term is defined in the Investment Company Act of 1940. As of February 2, 1998,
Glenbrook Life & Annuity Company, through its separate accounts, owned more than
25 percent of the shares of the Diversified Income Fund and the Global Utilities
Fund, and, therefore, could be deemed to "control" each Fund, as that term is
defined in the Investment Company Act of 1940. As explained above, however,
insurance company separate accounts generally vote their shares of a Fund in
accordance with instructions received from Contract owners, annuitants and
beneficiaries and, in this sense, would not "control" such Fund.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02110, serves as custodian for the Funds' 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 Funds 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.
26
<PAGE> 29
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF CORPORATE BOND RATINGS
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
Moody's Investors Service, Inc.'s corporate bond ratings are as follows:
*Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
*Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
*A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
*Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard and Poor's Ratings Services classifications are as follows:
*AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
*AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
*A -- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
*BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.
BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-1
<PAGE> 30
BB -- Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB --" rating.
B -- Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB --" rating.
CCC -- Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B --" rating.
CC -- The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C -- The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC --" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 -- The rating "C1" is reserved for income bonds on which no interest is
being paid.
D -- Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal or principal payments are not made on the
date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The rating from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Duff & Phelps fixed-income ratings are as follows:
*AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
*AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
*A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
*BBB+, BBB, BBB- -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in quality rating within this category or
into a higher or lower quality rating grade.
CCC -- Well below investment grade securities. May be in default or have
considerable uncertainty as to timely payment of interest, preferred dividends
and/or principal. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
Fitch Investors Service, Inc.'s bond ratings are as follows:
*AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
*AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
*A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
A-2
<PAGE> 31
*BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB -- Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D -- Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA", "DDD", "DD", or "D" categories.
A-3
<PAGE> 32
APPENDIX B
- --------------------------------------------------------------------------------
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES
The following list includes certain common Agency Securities, as defined in
the Prospectus, and does not purport to be exhaustive.
EXPORT-IMPORT BANK CERTIFICATES -- are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the United States.
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS -- are bonds issued by a
cooperatively owned, nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U. S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS -- are notes and bonds issued by the
Federal Home Loan Bank System.
FHA DEBENTURES -- are debentures issued by the Federal Housing Authority of
the U. S. Government.
FHA INSURED NOTES -- are bonds issued by the Farmers Home Administration of
the U. S. Government.
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS -- are bonds issued and
guaranteed by FHLMC, a corporate instrumentality of the U.S. Government. The
Federal Home Loan Banks own all the capital stock of FHLMC, which obtains its
funds by selling mortgages (as well as participation interests in the mortgages)
and by borrowing funds through the issuance of debentures and otherwise.
FHLMC PARTICIPATION CERTIFICATES OR "FREDDIE MACS" -- represent undivided
interests in specified groups of conventional mortgage loans (and/or
participation interests in those loans) underwritten and owned by FHLMC. At
least 95% of the aggregate principal balance of the whole mortgage loans and/or
participations in a group formed by FHLMC typically consists of single-family
mortgage loans, and not more than 5% consists of multi-family loans. FHLMC
Participation Certificates are not guaranteed by, and do not constitute a debt
or obligation of, the U.S. Government or any Federal Home Loan Bank. FHLMC
Participation Certificates are issued in fully registered form only, in original
unpaid principal balances of $25,000, $100,000, $200,000, $500,000, $1 million
and $5 million. FHLMC guarantees to each registered holder of a Participation
Certificate, to the extent of such holder's pro rata share (i) the timely
payment of interest accruing at the applicable certificate rate on the unpaid
principal balance outstanding on the mortgage loans, and (ii) collection of all
principal on the mortgage loans without any offset or deductions. Pursuant to
these guaranties, FHLMC indemnifies holders of Participation Certificates
against any reduction in principal by reason of charges for property repairs,
maintenance, and foreclosure.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS -- are bonds issued and
guaranteed by FNMA, a federally chartered and privately-owned corporation.
FNMA PASS-THROUGH CERTIFICATES OR "FANNIE MAES" -- are mortgage pass-through
certificates issued and guaranteed by FNMA. FNMA Certificates represent a
fractional undivided ownership interest in a pool of mortgage loans either
provided from FNMA's own portfolio or purchased from primary lenders. The
mortgage loans included in the pool are conventional, insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. FNMA
Certificates are not backed by, nor entitled to, the full faith and credit of
the U.S. Government.
Loans not provided from FNMA's own portfolio are purchased only from primary
lenders that satisfy certain criteria developed by FNMA, including depth of
mortgage origination experience, servicing experience and financial capacity.
FNMA may purchase an entire loan pool from a single lender, and issue
Certificates backed by that loan pool alone, or may package a pool made up of
loans purchased from various lenders.
Various types of mortgage loans, and loans with varying interest rates, may be
included in a single pool, although each pool will consist of mortgage loans
related to one-family or two-to-four family residential properties.
Substantially all FNMA mortgage pools currently consist of fixed interest rate
and growing equity mortgage loans, although FNMA mortgage pools may also consist
of adjustable interest rate mortgage loans or other types of mortgage loans.
Each mortgage loan must conform to FNMA's published requirements or guidelines
with respect to maximum principal amount, loan-to-value ratio, loan term,
underwriting standards and insurance coverage.
All mortgage loans are held by FNMA as trustee pursuant to a trust indenture
for the benefit of Certificate holders. The trust indenture gives FNMA
responsibility for servicing and administering the loans in a pool. FNMA
contracts with the lenders or other servicing institutions to perform all
services and duties customary to the servicing of mortgages, as well as duties
specifically prescribed by FNMA, all under FNMA supervision. FNMA may remove
service providers for cause.
The pass-through rate on FNMA Certificates is the lowest annual interest rate
borne by an underlying mortgage loan in the pool, less a fee to FNMA as
compensation for servicing and for FNMA's guarantee. Lenders servicing the
underlying mortgage loans receive as compensation a portion of the fee paid to
FNMA, the excess yields on pooled loans with coupon rates above the lowest rate
borne by any mortgage loan in the pool and certain other amounts collected, such
as late charges.
B-1
<PAGE> 33
The minimum size of a FNMA pool is $1 million of mortgage loans. Registered
holders purchase Certificates in amounts not less than $25,000.
FNMA Certificates are marketed by the servicing lender banks, usually through
securities dealers. The lender of a single lender pool typically markets all
Certificates based on that pool, and lenders of multiple lender pools market
Certificates based on a pro rata interest in the aggregate pool. The amount of
FNMA Certificates currently outstanding is limited.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR "GINNIE
MAES" -- are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Each mortgage loan included
in the pool is either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled, and, after being approved by GNMA, is offered to investors through
securities dealers. GNMA is a U.S. Government corporation within the Department
of Housing and Urban Development.
GNMA Certificates differ from bonds in that the principal is paid back monthly
by the borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA Certificates are called "modified pass-through" securities
because they entitle the holder to receive its proportionate share of all
interest and principal payments owed on the mortgage pool, net of fees paid to
the issuer and GNMA, regardless of whether or not the mortgagor actually makes
the payment. Payment of principal of and interest on GNMA Certificates of the
"modified pass-through" type is guaranteed by GNMA and backed by the full faith
and credit of the U.S. Government.
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose little risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is
not possible to accurately predict the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with 25- to 30-year maturity,
the type of mortgage which backs the vast majority of GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GENERAL SERVICES ADMINISTRATION ("GSA") PARTICIPATION CERTIFICATES -- are
participation certificates issued by the General Services Administration of the
U.S. Government.
MARITIME ADMINISTRATION BONDS -- are bonds issued and provided by the
Department of Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS -- are short-term project notes and long-term
bonds issued by public housing and urban renewal agencies in connection with
programs administered by the Department of Housing and Urban Development of the
U.S. Government, the payment of which is secured by the U.S. Government.
SBA DEBENTURES -- are debentures fully guaranteed as to principal and interest
by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing
Association.
TITLE XI BONDS -- are bonds issued in accordance with the provisions of Title
XI of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by
the Washington Metropolitan Area Transit Authority and are guaranteed by the
Secretary of Transportation of the U.S. Government.
B-2
<PAGE> 34
APPENDIX C
- --------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET OBLIGATIONS
The following list does not purport to be an exhaustive list of all Money
Market Obligations, and the Funds reserve 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. All variable rate master demand notes acquired by the Money Market Fund
will be payable within a prescribed notice period not to exceed seven days.
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.
C-1
<PAGE> 35
STATEMENT OF
ADDITIONAL INFORMATION
A I M V A R I A B L E I N S U R A N C E F U N D S, I N C.
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
AIM V.I. AGGRESSIVE GROWTH FUND AIM V.I. BALANCED FUND
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. CAPITAL DEVELOPMENT 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. HIGH YIELD FUND
AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. MONEYMARKET FUND
AIM V.I. VALUE FUND
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH
MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P. O. BOX 4739,
HOUSTON, TX 77210-4739
OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS)
OR (800) 347-1919 (ALL OTHERS).
------------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 1998
RELATING TO PROSPECTUS DATED: MAY 1, 1998
<PAGE> 36
TABLE OF CONTENTS
PAGE
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION ABOUT THE FUNDS . . . . . . . . . . . . . . . . . . . . 1
The Company and Its Shares . . . . . . . . . . . . . . . . . . . . 1
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Total Return Calculations . . . . . . . . . . . . . . . . . . . . 2
Historical Portfolio Results . . . . . . . . . . . . . . . . . . . 2
Yield Information . . . . . . . . . . . . . . . . . . . . . . . . 3
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . 4
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . 4
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . 8
Brokerage Commissions Paid . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Money Market Obligations . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . 9
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . 10
Delayed Delivery Agreements . . . . . . . . . . . . . . . . . . . 10
When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . 10
Special Situations . . . . . . . . . . . . . . . . . . . . . . . . 11
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Rule 144A Securities . . . . . . . . . . . . . . . . . . . . . . . 11
Utilities Industry . . . . . . . . . . . . . . . . . . . . . . . . 12
Foreign Exchange Transactions . . . . . . . . . . . . . . . . . . 13
HEDGING AND OTHER INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . 13
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fundamental Restrictions . . . . . . . . . . . . . . . . . . . . . 15
Non-fundamental Restrictions . . . . . . . . . . . . . . . . . . . 16
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . 18
Remuneration of Directors . . . . . . . . . . . . . . . . 22
AIM Funds Retirement Plan for Eligible
Directors/Trustees . . . . . . . . . . . . . . . . . . . 23
Deferred Compensation Agreements . . . . . . . . . . . . . 24
Investment Advisory and Administrative Services Agreements . . . . 25
The Distribution Agreement . . . . . . . . . . . . . . . . . . . . 29
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . 30
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . 31
i
<PAGE> 37
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 32
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . 32
Principal Holders of Securities . . . . . . . . . . . . . . . . . 32
Other Information . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . FS
ii
<PAGE> 38
INTRODUCTION
AIM Variable Insurance Funds, Inc. (the "Company") is a mutual fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective
investors certain information concerning the activities of the fund being
considered for investment. This information is included in Prospectuses dated
May 1, 1998 (referred to collectively as the "Prospectuses" and separately as a
"Prospectus"), which relate to one or more of the thirteen series portfolios of
the Company (referred to collectively as the "Funds" and separately as a
"Fund"). One or more of the Company's thirteen Funds may not be available
under a particular variable annuity contract or variable life insurance policy.
Accordingly, this Statement of Additional Information may contain information
that is not relevant to the investment options under such a contract or policy.
Additional copies of the Prospectuses of the Funds available under a contract
or policy and this Statement of Additional Information may be obtained without
charge by contacting the principal distributor of the Funds' shares, A I M
Distributors, Inc. ("AIM Distributors"), P. O. Box 4739, Houston, TX
77210-4739 or by calling (713) 626-1919. Investors must receive a Prospectus
before they invest. To the extent that this Statement of Additional
Information contains information concerning a Fund that is not available under
a contract or policy, the Statement of Additional Information does not
constitute the offer of the shares of that Fund.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Funds' current Prospectus and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement filed with the SEC. Copies
of the Registration Statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized on January 22, 1993, as a Maryland
corporation, and is registered with the SEC as an open-end, series, management
investment company. The Company currently consists of thirteen separate Funds
as follows: the AIM V.I. Aggressive Growth Fund ("Aggressive Growth Fund"), the
AIM V.I. Balanced Fund ("Balanced Fund"), the AIM V.I. Capital Appreciation
Fund ("Capital Appreciation Fund"), the AIM V.I. Capital Development Fund
("Capital Development Fund"), the AIM Diversified Income Fund ("Diversified
Income Fund"), the AIM V.I. Global Utilities Fund ("Global Utilities Fund")
(formerly known as the AIM V.I. Utilities Fund), the AIM V.I. Government
Securities Fund ("Government Fund"), the AIM Growth Fund ("Growth Fund"), the
AIM V.I. Growth and Income Fund ("Growth and Income Fund"), the AIM V.I. High
Yield Fund ("High Yield Fund), the AIM V.I. International Equity Fund
("International Fund"), the AIM V.I. Money Market Fund ("Money Market Fund"),
the AIM V.I. Value Fund ("Value Fund").
Each share of a Fund is entitled to one vote, to participate equally
in dividends and distributions declared by the Board of Directors with respect
to the Fund and, upon liquidation of the Fund, to participate in its
proportionate share of the net assets allocable to the Fund remaining after
satisfaction of outstanding liabilities of the Fund. Fund shares are fully
paid, non-assessable and fully transferable when issued and have no preemptive,
conversion or exchange rights. Fractional shares have proportionately the same
rights, including voting rights, as are provided for a full share.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company. See "General Information" in the
Prospectus.
1
<PAGE> 39
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share (NAV) over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical investment in a
particular Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that a Fund's performance is not constant over time,
but changes from year to year, and that average annual returns do not represent
the actual year-to-year performance of such Fund.
In addition to average annual returns, each Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for
a single investment, a series of investments, and/or a series of redemptions,
over any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their contributions
to total return. Total returns and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The Funds' (except the Aggressive Growth Fund, the Balanced Fund, the
Capital Development Fund and the High Yield Fund) average annual and cumulative
total return for the fiscal year ended December 31, 1997 and average annual and
cumulative total returns for the period May 5, 1993 (commencement of
operations) through December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Since
Inception
------------------------
Year Ended Average
December 31, Annual Cumulative
1997 Return Return
----------- ------- ----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 13.50% 18.65% 121.79%
AIM V.I. Diversified Income Fund 9.39% 8.22% 44.44%
AIM V.I. Global Utilities Fund* 21.63% 15.15% 67.72%
AIM V.I. Government Securities Fund 8.16% 5.35% 27.45%
AIM V.I. Growth Fund 26.87% 18.20% 117.90%
AIM V.I. Growth and Income Fund 25.72% 21.11% 101.84%
AIM V.I. International Equity Fund 6.94% 12.91% 76.06%
AIM V.I. Money Market Fund 5.14% 4.49% 22.67%
AIM V.I. Value Fund 23.69% 19.76% 131.55%
</TABLE>
* The inception date of the AIM V.I. Global Utilities Fund and
the AIM V.I. Growth and Income Fund was May 2, 1994.
2
<PAGE> 40
The total returns quoted above do not reflect charges levied at the
insurance company separate account level. For a complete description of the
applicable charges, see the fee table in the prospectus for the appropriate
insurance company separate account.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and other
independent services which monitor the performance of mutual funds. The Funds
may also advertise mutual fund performance rankings which have been assigned to
each respective Fund by such monitoring services.
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
The International Fund's performance may also be compared in
advertising to performance of comparative benchmarks such as The Financial
Times--Actuaries World Indices (a wide range of comprehensive measures of stock
price performance for the major stock markets and regional areas), Morgan
Stanley Capital International Indices, including the EAFE Index, Pacific Basin
Index and Pacific Ex Japan Index (a widely recognized series of indices in
international market performance), and indices of stocks comparable to those in
which the Fund invests.
Each Fund's advertising may from time to time include historical
discussions of general economic conditions such as inflation rates and changes
in the stock market, foreign and domestic interest rates and foreign and
domestic political circumstances and events.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information
about mutual funds, variable annuities, variable life insurance, dollar-cost
averaging, stocks, bonds, money markets, certificates of deposit, retirement,
retirement plans, asset allocation, tax-free investing, college planning and
inflation.
YIELD INFORMATION
Quotations of yield on the Money Market Fund may appear from time to
time in the financial press and in advertisements.
The Money Market Fund's yield is its investment income, less expenses,
expressed as a percentage of assets on an annualized basis for an identified
period, usually seven days. The yield is expressed as a simple annualized
yield and as a compounded effective yield. The yield does not reflect the fees
and charges imposed on the assets of the insurance company separate account.
The standard formulas prescribed by the SEC for calculating yield and
effective yield for the Money Market Fund are described below:
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities, unrealized
appreciation and depreciation, and income other than investment income) in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the period, and annualizing the
resulting quotient (base period return) on a 365-day basis. The net change in
account value reflects the value of additional shares purchased with dividends
from the original shares in
3
<PAGE> 41
the account during the period, dividends declared on such additional shares
during the period, and expenses accrued during the period.
The compounded effective yield is computed by determining the
unannualized base period return, adding one to the base period return, raising
the sum to a power equal to 365 divided by the number of days in the period,
and subtracting one from the result. Historical yields are not necessarily
indicative of future yields. Rates of return will vary as interest rates and
other conditions affecting money market instruments change. Yields also depend
on the quality, length of maturity and type of instruments in the Fund's
portfolio and the Fund's operating expenses. Quotations of yield will be
accompanied by information concerning the average weighted maturity of the
Fund. Comparison of the quoted yields of various investments is valid only if
yields are calculated in the same manner and for identical limited periods.
When comparing the yield for a Fund with yields quoted with respect to other
investments, shareholders should consider (a) possible differences in time
periods, (b) the effect of the methods used to calculate quoted yields, (c) the
quality and average-weighted maturity of portfolio investments, expenses,
convenience, liquidity and other important factors, and (d) the taxable or
tax-exempt character of all or part of dividends received.
The simple annualized yield and compounded effective yield for the
Money Market Fund for the 7 days ended December 31, 1997 were 5.29% and 5.43%,
respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the
Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and
sell securities for each Fund, for the selection of broker-dealers, for the
execution of the Fund's investment portfolio transactions, for the allocation
of brokerage fees in connection with such transactions and, where applicable,
for the negotiation of commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain the best net
price and the most favorable execution of the order. While AIM generally seeks
reasonably competitive commission rates, each Fund does not necessarily pay the
lowest commission or spread available.
Purchases and sales of portfolio securities for the Diversified Income
Fund, the Money Market Fund and the Government Fund are generally transacted
with the issuer or a primary market maker. In addition, a portion of the
securities in which the Funds invest may be traded in over-the-counter ("OTC")
markets. In such transactions, the Fund deals directly with the dealers who
make markets in the securities involved, except in those circumstances where
better prices and executions are available elsewhere. Portfolio transactions
placed through dealers serving as primary market makers are effected at net
prices, without commissions as such, but which include compensation to the
dealer in the form of mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. In recent years, however, an increasing
number of overseas stock markets have adopted a system of negotiated rates,
although a number of markets continue to be subject to an established schedule
of minimum commission rates.
Foreign equity securities may be held by the Fund in the form of
American Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers, or
securities convertible into foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Generally, ADRs, in registered form, are
designed for use in the United States securities markets, and EDRs, in bearer
form, are designed for use in European securities markets. ADRs and EDRs
4
<PAGE> 42
may be listed on stock exchanges, or traded in OTC markets in the United States
or Europe, as the case may be. ADRs, like other securities traded in the United
States, will be subject to negotiated commission rates.
The Funds are not under any obligation to deal with any broker or
group of brokers in the execution of transactions in portfolio securities.
Brokers who provide supplemental investment research to AIM may receive orders
for transactions by a Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by AIM under its
agreements with the Fund, and the expenses of AIM will not necessarily be
reduced as a result of the receipt of such supplemental information. Certain
research services furnished by broker-dealers may be useful to AIM in
connection with its services to other advisory clients, including the other
mutual funds advised by AIM (collectively with the Funds, the "AIM Funds").
Also, a Fund may pay a higher price for securities or higher commissions in
recognition of research services furnished by broker-dealers.
AIM may from time to time determine target levels of commission
business for AIM to transact with various brokers on behalf of its clients
(including the Funds) over a certain time period. The target levels will be
determined based upon the following factors, among others: (1) the execution
services provided by the broker; (2) the research services provided by the
broker; (3) certain products and/or services provided to the Funds, the cost of
which will be included in Fund expenses reported to shareholders; and (4) the
broker's attitude toward an interest in mutual funds in general and in the
Funds and the other AIM Funds in particular. No specific formula will be used
in connection with any of the foregoing considerations in determining the
target levels. However, if a broker has indicated a certain level of desired
commissions in return for certain research services provided by the broker,
this factor will be taken into consideration by AIM.
Subject to the overall objective of obtaining best price and execution
for the Funds, AIM may also consider sales of shares by broker-dealers of each
Fund and of the other AIM Funds as well as sales of variable annuity contracts
("Contracts") and variable life insurance policies ("Policies") funded through
the Funds ("selling dealers"), as a factor in the selection of broker-dealers
to execute portfolio transactions for a Fund. Such portfolio transactions may
be executed directly by selling dealers or by other broker-dealers with which
selling dealers have clearing arrangements.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which may be recaptured are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
AIM and its affiliates manage several other investment accounts, some
of which may have investment objectives similar to those of the Funds. It is
possible that, at times, identical securities will be appropriate for
investment by one or more of such investment accounts. The position of each
account, however, in the securities of the same issue may vary and the length
of time that each account may choose to hold its investment in the securities
of the same issue may likewise vary. The timing and amount of purchases by each
account will also be determined by its cash position. If the purchase or sale
of securities is consistent with the investment policies of a Fund(s) and one
or more of these accounts is considered at or about the same time. AIM may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution.
Simultaneous transactions could, however, adversely affect the ability of a
Fund to obtain or dispose of the full amount of a security which it seeks to
purchase or sell.
These combined transactions, and related brokerage charges, will be
allocated among the Fund(s) and such accounts in a manner consistent with
guidelines and procedures approved by the Company's Board of Directors that are
designed to achieve an equitable manner of allocation. In some cases the
procedure for allocating portfolio transactions among the various investment
accounts advised by AIM could have an adverse effect on the price or amount of
securities available to a Fund. In making such allocations, the main factors
considered by AIM are the respective investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment,
5
<PAGE> 43
the size of investment commitments generally held and the judgments of the
persons responsible for recommending the investment.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another investment account
advised by AIM or AIM Capital, when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment
objective(s) and policies of the investment accounts advised by AIM or AIM
Capital. Procedures pursuant to Rule 17a-7 under the Investment Company Act of
1940, as amended (the "1940 Act") regarding transactions between investment
accounts advised by AIM or AIM Capital have been adopted by the Boards of
Directors/Trustees of the various AIM Funds, including the Company. Although
such transactions may result in custodian, tax or other related expenses, no
brokerage commissions or other direct transaction costs are generated by
transactions among the investment accounts advised by AIM or AIM Capital.
SECTION 28(e) STANDARDS
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
AIM may cause a Fund to pay a broker that provides brokerage and research
services to AIM an amount of commission for effecting a securities transaction
for the Fund in excess of the commission another broker would have charged for
effecting that transaction. To obtain the benefit of Section 28(e), AIM must
make a good faith determination that the commissions paid are "reasonable in
relation to the value of the brokerage and research services provided . . .
viewed in terms of either that particular transaction or [its] overall
responsibilities with respect to the accounts as to which [it] exercises
investment discretion" and that the services provided by a broker provide AIM
with lawful and appropriate assistance in the performance of its investment
decision-making responsibilities. Accordingly, the price to a Fund in any
transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM to be beneficial to the
Funds' investment programs. Research services received from brokers supplement
AIM's own research (and the research of sub-advisors to other clients of AIM)
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to AIM and to the Company's directors with
respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically,
orally or in written form. Research services may also include the providing of
equipment used to communicate research information, the arranging of meetings
with management of companies and the providing of access to consultants who
supply research information.
The outside research assistance is useful to AIM since the brokers
utilized by AIM as a group tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, this research provides
AIM with a diverse perspective on financial markets. Research services which
are provided to AIM by brokers are available for the benefit of all accounts
managed or advised by AIM (or by sub-advisors to accounts managed or advised by
AIM). In some cases, the research services are available only from the broker
providing such services. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM is of the
opinion that because the broker research supplements rather than replaces its
research, the receipt of such research does not tend to decrease its expenses,
but tends to improve the quality of its investment advice. However, to the
extent that AIM would have purchased any such research services had such
services not been provided by brokers, the expenses of such services to AIM
could be considered to have been reduced accordingly.
6
<PAGE> 44
For the fiscal year ended December 31, 1997, certain Funds paid
brokerage commissions to certain brokers for research services. The amount of
such transactions and related commissions paid by each Fund were as follows:
<TABLE>
<CAPTION>
Commissions Transactions
----------- ------------
<S> <C> <C>
AIM V. I. Capital Appreciation Fund $ 50,129 $ 52,417,583
AIM V. I. Global Utilities Fund $ 414 $ 259,823
AIM V. I. Growth Fund $ 32,840 $ 39,304,964
AIM V. I. Growth and Income Fund $ 67,602 $ 80,441,980
AIM V. I. International Equity Fund $ 740 $ 851,690
AIM V. I. Value Fund $ 67,610 $ 85,609,060
</TABLE>
As of December 31, 1997, the following Funds entered into
repurchase agreements with the following regular brokers, as that term is
defined in Rule 10b-1 under the 1940 Act, having the noted market values.
<TABLE>
<CAPTION>
GOLDMAN, SMITH BARNEY,
FUNDS SACHS &CO. INC.
<S> <C> <C>
AIM V.I. Capital Appreciation Fund $ 509,896 $ 18,650,989
AIM V.I. Diversified Fund $ -- $ 966,742
AIM V.I. Global Utilities Fund $ -- $ 3,813,559
AIM V.I. Government Securities Fund $ 1,493,291 $ --
AIM V.I. Growth Fund $ -- $ 33,186,429
AIM V.I. Growth and Income Fund $ -- $ 28,276,446
AIM V.I. International Equity Fund $ -- $ 8,056,299
AIM V.I. Money Market Fund $ 4,744,146 $ 10,000,000
AIM V.I. Value Fund $ -- $102,063,243
</TABLE>
The following information regarding securities acquired by the Funds
of their regular brokers, as defined in Rule 10b-1 under the 1940 Act, is as of
December 31, 1997. AIM V.I. Growth and Income Fund held an amount of common
stock issued by Merrill Lynch & Co., Inc. and Morgan Stanley Group, Inc. having
a market value of $6,564,375 and $9,755,625, respectively. AIM V.I. Capital
Appreciation Fund held an amount of common stock issued by Paine Webber Group,
Inc. having a market value of $1,036,875. AIM V.I. Money Market Fund had
entered into master note agreements with Goldman, Sachs & Co., Merrill Lynch &
Co., Inc., J. P. Morgan Securities, Inc. and Morgan Stanley Group Inc. having
market values of $2,060,000, $3,000,000, $2,100,000 and $3,000,000,
respectively. AIM V.I. Value Fund held an amount of common stock issued by
Merrill Lynch & Co., Inc. and Morgan Stanley Group, Inc., having a market value
of $7,585,500 and
7
<PAGE> 45
$5,262,125, respectively. AIM V.I. Weingarten Fund held an amount of common
stock issued by Merrill Lynch & Co., Inc. and Morgan Stanley Group, Inc.
having a market value of $3,063,375 and $886,875, respectively.
PORTFOLIO TURNOVER
The portfolio turnover rate of each Fund is shown under "Financial
Highlights" in the Prospectus. In any particular year, however, market
conditions could result in portfolio activity at a rate greater or lesser than
anticipated. Higher portfolio turnover increases transaction costs to the Fund.
BROKERAGE COMMISSIONS PAID
Brokerage commissions paid by each of the Funds listed below were as
follows for the fiscal years ended December 31, 1997, December 31, 1996, the
eleven months ended December 31, 1995, and for the fiscal year ended January
31, 1995 and for the period May 5, 1993 (date operations commenced) through
January 31, 1994.
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ 644,279 $ 405,056 $ 400,895 $ 161,528
AIM V.I. Diversified Income Fund $ 2,818 $ 1,670 $ 74,475 $ 17,471
AIM V.I. Global Utilities Fund $ 12,208 $ 16,365 $ 24,107 $ 9,280*
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ 621,467 $ 578,444 $ 315,627 $ 173,691
AIM V.I. Growth and Income Fund $ 1,190,597 $ 417,167 $ 177,420 $ 20,436*
AIM V.I. International Equity Fund $ 605,318 $ 557,527 $ 312,071 $ 89,187
AIM V.I. Money Market Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Value Fund $ 1,503,734 $ 1,126,384 $ 862,938 $ 362,126
</TABLE>
* Commissions paid are for the period May 2, 1994 (date operations
commenced) through January 31, 1995.
INVESTMENT PROGRAMS
Information concerning each Fund's fundamental investment objective is
set forth in the Prospectus under the heading "Investment Objectives and
Programs." There can be no assurance that any Fund will achieve its objective.
The principal features of each Fund's investment program and the primary risks
associated with that investment program are discussed in the Prospectus under
the heading "Investment Objectives and Programs--Certain Investment Strategies
and Techniques." The following discussion of investment policies supplements
the discussion of the investment objectives and policies set forth in the
Prospectus.
MONEY MARKET OBLIGATIONS
As set forth in the Prospectus, the Money Market Fund will limit its
purchases of Money Market Obligations to U.S. dollar denominated securities
which are "First Tier" securities, as such term is defined from time to time in
Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"). A First
Tier Security is generally a security that: (i) has received a short-term
rating, or is subject to a guarantee that has received a short-term rating, or,
in either
8
<PAGE> 46
case, is issued by an issuer with a short-term rating from the Requisite
NRSROs(1) in the highest short-term rating category for debt obligations; (ii)
is an unrated security that the Fund's investment adviser has determined are of
comparable quality to a rated security described in (i); (iii) is a security
issued by a registered investment company that is a money market fund; or (iv)
is a Government Security.
Subsequent to its purchase by the Fund, an issue of Money Market
Obligations may cease to be a First Tier security. Subject to certain
exceptions set forth in Rule 2a-7, such an event will not require the
elimination of the security from the Fund, but AIM will consider such an event
to be relevant in its determination of whether the Fund should continue to hold
the security.
REPURCHASE AGREEMENTS
The Funds may each enter into repurchase agreements. A repurchase
agreement is an instrument under which a Fund acquires ownership of a debt
security and the seller (usually a broker or bank) agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the Fund's holding period.
Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, the Funds will not enter into repurchase
agreements expiring in more than seven days. The Fund may, however, enter into
a "continuing contract" or "open" repurchase agreement under which the seller
is under a continuing obligation to repurchase the underlying obligation from
the Fund on demand and the effective interest rate is negotiated on a daily
basis. Repurchase agreements are considered to be loans by the Fund under the
1940 Act. Securities subject to repurchase agreements will be held in the
custodian's account with the Federal Book-Entry System on behalf of the Fund.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund (except the
Money Market Fund) may lend portfolio securities in amounts not to exceed 33
1/3% of a Fund's total assets. Securities loans are made to banks, brokers and
other financial institutions pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent, marked to market on a daily basis. The collateral
received will consist of cash, U.S. Government securities, letters of credit or
such other collateral as may be permitted under each such Fund's investment
program. While the securities are being lent, a Fund will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. A Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. A Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons
deemed by AIM to be of good standing and will not be made unless, in the
judgment of AIM, the consideration to be earned from such loans would justify
the risk.
- -----------------------
(1) "Requisite NRSRO" shall mean (a) any two nationally recognized
statistical rating organizations that have issued a rating with
respect to a security or class of debt obligations of an issuer,
or (b) if only one NRSRO has issued a rating with respect to such
security or issuer at the time the fund acquires the security; that
NRSRO. At present the NRSROs are: Standard & Poors Corp.,
Moody's Investors Service, Inc., Thomson Bankwatch, One, Duff and
Phelps, Inc., Fitch Investors Services, Inc. and, with respect to
certain types of securities, IBCA Ltd and its subsidiary, IBCA, Inc.
Subcategories or gradations in ratings (such as + or - ) do not
count as rating categories.
9
<PAGE> 47
REVERSE REPURCHASE AGREEMENTS
Each of the Funds may enter into reverse repurchase agreements, which
involve the sale of securities (i.e., money market instruments in the case of
the Money Market Fund) held by the Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. The Funds may
employ reverse repurchase agreements when necessary to meet unanticipated net
redemptions so as to avoid liquidating other portfolio securities during
unfavorable market conditions and only in amounts up to 33 1/3% of the value of
each Fund's total assets at the time any such Fund enters into a reverse
repurchase agreement. At the time it enters into a reverse repurchase
agreement, a Fund will segregate liquid assets having a dollar value equal to
the repurchase price. The segregated securities will be marked- to-market, and
additional securities will be segregated if necessary to maintain adequate
coverage. The Funds will utilize reverse repurchase agreements when the
interest income to be earned from portfolio investments which would otherwise
have to be liquidated to meet redemptions is greater than the interest expense
incurred as a result of the reverse repurchase transactions.
DELAYED DELIVERY AGREEMENTS
Each of the Funds may enter into delayed delivery agreements, which
involve commitments by each such Fund to dealers or issuers to acquire
securities or instruments at a specified future date beyond the customary
settlement date for such securities. These commitments fix the payment price
and interest rate to be received on the investment. Delayed delivery agreements
will not be used as a speculative or leverage technique. Rather, from time to
time, AIM can anticipate that cash for investment purposes will result from
scheduled maturities of existing portfolio instruments or from net sales of
shares of the Fund. Until the settlement date, the Fund will segregate cash or
other liquid assets of a dollar value sufficient at all times to make payment
for the delayed delivery securities. The delayed delivery securities, which
will not begin to accrue interest until the settlement date, will be recorded
as an asset of the Fund and will be subject to the risks of market fluctuation.
The purchase price of the delayed delivery securities is a liability of the
Fund until settlement. If cash is not available to the Fund at the time of
settlement, the Fund may be required to dispose of portfolio securities that it
would otherwise hold to maturity in order to meet its obligation to accept
delivery under a delayed delivery agreement. The Board of Directors has
determined that entering into delayed delivery agreements does not present a
materially increased risk of loss to shareholders, but the Board of Directors
may restrict the use of delayed delivery agreements if the risk of loss is
determined to be material or if it affects the constant net asset value of the
Money Market Fund.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" basis.
Many new issues of debt securities are offered on a "when-issued" basis, that
is, the date for delivery of and payment for the securities is not fixed at the
date of purchase, but is set after the securities are issued (normally within
forty-five days after the date of the transaction). The payment obligation and
the interest rate that will be received on the securities are fixed at the time
the buyer enters into the commitment. The Funds will only make commitments to
purchase such debt securities with the intention of actually acquiring such
securities, but the Funds may each sell these securities before the settlement
date if it is deemed advisable. The Fund holds, and maintains until the
settlement date segregated liquid assets of a dollar value sufficient at all
times to make payment for the when-issued securities. The securities will be
marked-to-market and additional assets will be segregated if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in
the Funds' portfolios are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Fund is to remain substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will
be a possibility that the market value of the Fund's assets will fluctuate to a
greater degree. Furthermore, when the time comes for the Fund to meet its
obligations under when-issued commitments, the Fund will do so by using
then-available cash flow, by sale of the segregated securities, by the sale of
other securities or,
10
<PAGE> 48
although it would not normally expect to do so, by directing the sale of the
when-issued securities themselves (which may have a market value greater or
less than the applicable Fund's payment obligation).
A sale of securities to meet such obligations carries with it a
greater potential for the realization of net short-term capital gains, which
are not exempt from federal income taxes. The value of when-issued securities
on the settlement date may be more or less than the purchase price.
SPECIAL SITUATIONS
Although the Capital Appreciation Fund does not currently intend to do
so, it may invest in "special situations." A special situation arises when, in
the opinion of the Fund's management, the securities of a particular company
will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development
applicable to that company, and regardless of general business conditions or
movements of the market as a whole. Developments creating special situations
might include, among others: liquidations, reorganizations, recapitalizations,
mergers, material litigation, technical breakthroughs and new management or
management policies. Although large and well known companies may be involved,
special situations more often involve comparatively small or unseasoned
companies. Investments in unseasoned companies and special situations often
involve much greater risk than is inherent in ordinary investment securities.
WARRANTS
The Aggressive Growth Fund, the Capital Development Fund and the
Growth and Income Fund may, from time to time, invest in warrants. Warrants
are, in effect, longer-term call options. They give the holder the right to
purchase a given number of shares of a particular company at specified prices
within certain periods of time. The purchaser of a warrant expects that the
market price of the security will exceed the purchase price of the warrant plus
the exercise price of the warrant, thus giving him a profit. Of course, since
the market price may never exceed the exercise price before the expiration date
of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form
with other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of a warrant, the current market value
of the underlying security, the life of the warrant and various other
investment factors. The investment in warrants by the Fund, valued at the
lower of cost or market, may not exceed 5% of the value of its net assets and
not more than 2% of such value may be warrants which are not listed on the New
York or American Stock Exchanges.
SHORT SALES
Each of the Funds (except the Money Market Fund) may enter into short
sales transactions from time to time. None of these Funds will make short
sales of securities nor maintain a short position unless at all times when a
short position is open, the Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." Such short sales will be used by each of the Funds for the purpose of
deferring recognition of gain or loss for federal income tax purposes. In no
event may more than 10% of the value of any such Fund's total assets be
deposited or pledged as collateral for such sales at any time.
RULE 144A SECURITIES
Each of the Funds may purchase securities which, while privately
placed, are eligible for purchase and sale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified
institutional buyers, such as the Funds, to trade in privately placed
securities even though such securities are not registered under the 1933 Act.
AIM, under the supervision of the Company's Board of Directors, will consider
whether securities purchased under Rule 144A are illiquid and thus subject to
the Fund's restriction of investing no more than
11
<PAGE> 49
15% of its net assets (10% in the case of the Money Market Fund) in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination AIM will consider the trading
markets for the specific security taking into account the unregistered nature
of a Rule 144A security. In addition, AIM could consider the (i) frequency of
trades and quotes, (ii) number of dealers and potential purchasers, (iii)
dealer undertakings to make a market, and (iv) nature of the security and of
market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to
determine what, if any, action is required to assure that the Fund does not
invest more than 15% of its net assets (10% in the case of the Money Market
Fund) in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of each Fund's investments in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
UTILITIES INDUSTRY
The following is a general description of the particular types of
utilities industries in which the Global Utilities Fund may invest.
Electric Utility Industry. Electric utilities are heavily regulated.
Local rates are subject to the review of state commissions, and sales either
between companies or that cross state lines are subject to review by the
Federal Energy Regulatory Commission. The industry is also subject to
regulation by the SEC under the Public Utility Holding Company Act of 1935. In
addition, companies constructing or operating nuclear powered generating
stations are subject to extensive regulation by the Nuclear Regulatory
Commission.
Electric utility companies are also subject to extensive local
regulation in environmental and site location matters. Future legislation with
regard to the issues of acid rain and toxic and radioactive wastes could have a
significant impact on the manner in which utility companies conduct their
business, and the costs that they incur. Since the late 1970s, investor-owned
utilities have experienced a number of unfavorable regulatory trends, including
increased regulatory resistance to price increases and new legislation
encouraging competition.
Electric utilities have recently become subject to competition in
varying degrees. This competition can have the effect of decreasing revenues
and profit margins.
Natural Gas Industry. The natural gas industry is comprised primarily
of many small distribution companies and a few large interstate pipeline
companies. The Public Utility Holding Company Act of 1935 has generally acted
as a bar to the consolidation of pipeline and distribution companies.
Regulation of these companies is similar to that of electric companies. The
performance of natural gas utilities may also be substantially affected by
fluctuations in energy prices. Competition in the natural gas industry has
resulted in the consolidation of the industry.
Communications Industry. Most of the communications industry capacity
is concentrated in the hands of a few very large publicly-held companies,
unlike the situation in the electric and gas industries. Significant risks for
the investor to overcome still exist, however, including risk relating to
pricing at marginal versus embedded cost. New entrants may have lower costs of
material due to newer technologies or lower standards of reliability than those
heretofore imposed by American Telephone & Telegraph ("AT&T") on the industry.
Accordingly, the marginal cost of incremental service is much lower than the
costs embedded in an existing network. Communications companies are not
subject to the Public Utility Holding Company Act of 1935.
Interstate communications service may be subject to Federal
Communications Commission regulation. Local service may be regulated by the
states. In addition, AT&T and its former subsidiaries are still subject to
judicial review pursuant to the settlement of the antitrust case brought
against them by the Department of Justice.
Water Utility Industry. The water utility industry is composed of
regulated public utilities that are involved in the distribution of drinking
water to densely populated areas. The industry is geographically diverse and
subject to
12
<PAGE> 50
the same rate base and rate of return regulations as are other public
utilities. Demand for water is most heavily influenced by the local weather,
population growth in the service area and new construction. Supplies of clean,
drinkable water are limited and are primarily a function of the amount of past
rainfall.
Other. In addition to the particular types of utilities industries
described above, the Fund may invest in developing utility technology companies
(such as cellular telephone, fiber optics and satellite communications firms)
and in holding companies which derive a substantial portion of their revenues
from utility-related activities.
FOREIGN EXCHANGE TRANSACTIONS
Purchases and sales of foreign securities are usually made with
foreign currencies, and consequently the Funds (except the Government Fund and
the Money Market Fund) may from time to time hold cash balances in the form of
foreign currencies and multinational currency units. Such foreign currencies
and multinational currency units will usually be acquired on a spot (i.e. cash)
basis at the spot rate prevailing in foreign exchange markets and will result
in currency conversion costs to the Fund. A Fund attempts to purchase and sell
foreign currencies on as favorable a basis as practicable; however, some price
spread on foreign exchange transactions (to cover service charges) may be
incurred, particularly when the Fund changes investments from one country to
another, or when U.S. Dollars are used to purchase foreign securities. Certain
countries could adopt policies which would prevent the Fund from transferring
cash out of such countries, and the Fund may be affected either favorably or
unfavorably by fluctuations in relative exchange rates while the Fund holds
foreign currencies.
HEDGING AND OTHER INVESTMENT TECHNIQUES
As described in the Prospectus under "Certain Investment Strategies
and Techniques," each of the Funds, other than the Money Market Fund, may enter
into transactions in options, futures and forward contracts on a variety of
instruments and indexes, in order to protect against declines in the value of
portfolio securities and increases in the cost of securities to be acquired as
well as to increase a Fund's return. The discussion below supplements the
discussion in the Prospectus.
Options. A Fund may write covered call options both to reduce the
risks associated with certain of its investments and to increase total
investment return through the receipt of premiums. In return for the premium
income, the Fund loses any opportunity to profit from an increase in the market
price of the underlying securities, above the exercise price, while the
contract is outstanding, except to the extent the premium represents a profit.
The Fund also retains the risk of loss if the price of the security declines,
although the premium is intended to offset that loss in whole or in part. As
long as its obligations under the option continue, a Fund must assume that the
call may be exercised at any time and that the net proceeds realized from the
sale of the underlying securities pursuant to the call may be substantially
below the prevailing market price.
A Fund may enter into a "closing purchase transaction", by purchasing
an option identical to the one it has written, and terminate its obligations
under the covered call. The Fund will realize a gain (or loss) from a closing
purchase transaction if the amount paid to purchase a call option is less (or
more) than the premium received upon writing the corresponding call option. Any
loss resulting from the exercise or closing out of a call option is likely to
be offset in whole or in part by unrealized appreciation of the underlying
security owned by the Fund primarily because a price increase of a call option
generally reflects an increase in the market price of the securities on which
the option is based. In order to sell portfolio securities that cover a call
option, a Fund will effect a closing purchase transaction so as to close out
any existing covered call option on those securities. A closing purchase
transaction for exchange-traded options may be made only on a national
securities exchange. A liquid secondary market on an exchange may not always
exist for any particular option, or at any particular time, and, for some
options, such as over-the-counter options, no secondary market on an exchange
may exist. If a Fund is unable to effect a closing purchase transaction, the
Fund will not sell the underlying security until the option expires or the Fund
delivers the underlying security upon exercise.
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<PAGE> 51
A Fund may write put options to earn additional income in the form of
option premiums if it expects the price of the underlying securities to remain
stable or rise during the option period so that the option will not be
exercised. A Fund may also write put options if it expects a decline in the
price of the underlying securities and intends to exercise the option at a
price which, offset by the option premium, is less than the current price. The
risk of either strategy is that the price of the underlying securities may
decline by an amount greater than the premium received.
A Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option or to prevent an outstanding put option from being
exercised. If a Fund is able to enter into a closing purchase transaction, the
Fund will realize a profit (or loss) from that transaction if the cost of the
transaction is less (or more) than the premium received from the writing of the
option. After writing a put option, a Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying securities plus the premiums received from the sale of
the option.
The purchase of put options on securities enables a Fund to preserve,
at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Fund may
continue to receive interest or dividend income on the security.
An option on a securities index, unlike a stock option (which gives
the holder the right to purchase or sell a specified stock at a specified
price) gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the difference between the exercise price of the option
and the value of the underlying stock index on the exercise date, multiplied by
(ii) a fixed "index multiplier." A securities index fluctuates with changes in
the market values of the securities included in the index. For example, some
securities index options are based on a broad market index such as the S&P 500
or the NYSE Composite Index, or a narrower market index such as the S&P 100.
Indexes may also be based on an industry or market segment such as the AMEX Oil
and Gas Index or the Computer and Business Equipment Index. Options on stock
indexes are currently traded on the following exchanges, among others: The
Chicago Board Options Exchange, New York Stock Exchange, and American Stock
Exchange. Options on indexes of debt securities and other types of securities
indexes are not currently available. If such options are introduced and traded
on exchanges in the future, the Funds may use them.
The value of securities index options in any investment strategy
depends upon the extent to which price movements in the portion of the
underlying securities correlate with price movements in the selected securities
index. Perfect correlation is not possible because the securities held or to
be acquired by a Fund will not exactly match the composition of the securities
indexes on which options are written. In the purchase of securities index
options the principal risk is that the premium and transaction costs paid by a
Fund in purchasing an option will be lost if the changes (increase in the case
of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option. In writing securities index options, the
principal risk is that a Fund could bear a loss on the options that would be
only partially offset (or not offset at all) by the increased value or reduced
cost of the hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities used
as cover.
The Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of
the Fund's overall position. For example, the Fund may purchase a put option
and write a covered call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. This technique, called a "collar," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the put option.
Another possible combined position would involve writing a covered call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written covered call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Futures Contracts. A futures contract is a bilateral agreement to
buy or sell a security (or deliver a cash settlement price, in the case of an
index future) for a set price in the future. When the contract is entered into,
a good
14
<PAGE> 52
faith deposit, known as initial margin, is made with the broker. Subsequent
daily payments, known as variation margin, are made to and by the broker
reflecting changes in the value of the security or level of the index. Futures
contracts are authorized by boards of trade designated as "contracts markets"
by the Commodity Futures Trading Commission ("CFTC"). Certain results may be
accomplished more quickly, and with lower transaction costs, in the futures
market (because of its greater liquidity) than in the cash market.
A Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits. Positions taken
in the futures markets are typically liquidated through offsetting
transactions, which may result in a gain or a loss, before delivery or cash
settlement is required. However, a Fund may close out a position by making or
taking delivery of the underlying securities wherever it appears economically
advantageous to do so.
Purchases of options on futures contracts may present less risk than
the purchase and sale of the underlying futures contracts, since the potential
loss is limited to the amount of the premium plus related transaction costs. A
call option on a futures contract gives the purchaser the right, in return for
the premium paid, to purchase a futures contract (assume a "long" position) at
a specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a
futures contract (assume a "short" position), for a specified exercise price,
at any time before the option expires.
Positions in futures contracts may be closed out only on an exchange
or a board of trade which provides the market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active market, there may not always be a liquid
market, and it may not be possible to close a futures position at that time; in
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments of maintenance margin. Whenever futures positions are
used to hedge portfolio securities, however, any increase in the price of the
underlying securities held by the Fund may partially or completely offset
losses on the futures contracts.
If a broker or clearing member of an options or futures clearing
corporation were to become insolvent, the Funds could experience delays and
might not be able to trade or exercise options or futures purchased through
that broker. In addition, the Funds could have some or all of their positions
closed out without their consent. If substantial and widespread, these
insolvencies could ultimately impair the ability of the clearing corporations
themselves. While the principal purpose of engaging in these transactions is to
limit the effects of adverse market movements, the attendant expense may cause
the Funds' returns to be less than if the transactions had not occurred. Their
overall effectiveness, therefore, depends on AIM's accuracy in predicting
future changes in interest rate levels or securities price movements, as well
as on the expense of engaging in these transactions.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The following restrictions apply to all of the Funds and are
fundamental. Unless permitted by law, they will not be changed for any Fund
without approval of that Fund's voting securities.
None of the Funds will:
(1) invest for the purpose of exercising control over or management
over a company except that each Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order;
(2) act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the fund may be deemed to be an
underwriter for purposes of the 1933 Act;
15
<PAGE> 53
(3) purchase or sell real estate or any interest therein, except that
each Fund may, as appropriate and consistent with its investment policies and
other investment restrictions, invest in securities of corporate or
governmental entities secured by real estate or marketable interests therein or
securities of issuers that engage in real estate operations or interests
therein, and may hold and sell real estate acquired as a result of ownership in
such securities;
(4) purchase or sell commodity contracts, except that each Fund may,
as appropriate and consistent with its investment policies and other investment
restrictions, enter into futures contracts on securities, securities indices
and currency, options on such futures contracts, forward foreign currency
exchange contracts, forward commitments and repurchase agreements;
(5) make loans, except for collateralized loans of portfolio
securities in an amount not exceeding 33 1/3% of the applicable Fund's total
assets. This restriction does not prevent a Fund from purchasing government
obligations, short-term commercial paper, or publicly traded debt, including
bonds, notes, debentures, certificates of deposit, bankers acceptances and
equipment trust certificates, nor does this restriction apply to loans made
under insurance policies, or through entry into repurchase agreements, to the
extent they may be viewed as loans;
(6) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total assets
at market value at the time of each investment, except that the Money Market
Fund may invest up to 100% of its assets in obligations issued by banks. This
limitation does not apply to the Global Utilities Fund or to investments in
obligations of the U.S. Government or any of its agencies or instrumentalities
but will apply to foreign government obligations unless the Securities and
Exchange Commission permits their exclusion;
(7) issue senior securities, except to the extent permitted by the
1940 Act, including permitted borrowings;
(8) purchase securities of an issuer (other than investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or except that each Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order), if as a result with respect to 75% of the value of the Fund's total
assets, taken at market value, (i) more than 5% of the Fund's total assets
taken at market value would be invested in the securities of such issuer,
except that up to 25% of the Fund's total assets may be invested in securities
issued or guaranteed by any foreign government or its agencies or
instrumentalities, or (ii) such purchase would at the time result in more than
10% of the outstanding voting securities of such issuer being held by the Fund.
As a matter of operating policy, the Money Market Fund will invest no more than
5% of the value of that Fund's total assets in securities, other than U.S.
Government securities of any one issuer, except that the Money Market Fund may
invest up to 25% of its total assets in First Tier Securities (as defined in
Rule 2a-7 under the 1940 Act) of a single issuer for a period of up to three
business days after the purchase of such security. This restriction does not
apply to the Global Utilities Fund; and
(9) Each Fund may, not withstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as that Fund.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Funds but
are not fundamental. They may be changed for any Fund without approval of that
Fund's voting securities.
(1) None of the Funds will invest more than 15% (10% for the Money
Market Fund) of its assets in securities restricted as to disposition under
federal securities laws, or securities otherwise considered illiquid or not
readily marketable, including repurchase agreements having a maturity of more
than seven days.
16
<PAGE> 54
(2) None of the Funds will purchase or retain the securities of any
issuer if, to the knowledge of AIM, those officers and Directors of the
Company, its adviser or distributor owning individually more than 1/2 of 1% of
the securities of such issuer together own more than 5% of the securities of
such issuer.
(3) The Company does not currently intend to invest all of the assets
of any Fund in the securities of a single open-end management investment
company with the same fundamental investment objectives, policies and
limitations as that Fund.
(4) The Fund may not invest in securities issued by other investment
companies except as part of a merger, reorganization or other acquisition and
except to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.
17
<PAGE> 55
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during at least the last five years are set forth below.
<TABLE>
<CAPTION>
POSITIONS HELD WITH
-------------------
NAME, ADDRESS AND AGE REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (78) DIRECTOR AND CHAIRMAN OF THE BOARD OF DIRECTORS,
11 GREENWAY PLAZA, SUITE 100 CHAIRMAN A I M MANAGEMENT GROUP INC., A I M ADVISORS,
HOUSTON, TX 77046 INC., A I M CAPITAL MANAGEMENT, INC.,
A I M DISTRIBUTORS, INC., A I M FUND
SERVICES, INC., AND FUND MANAGEMENT COMPANY;
AND VICE CHAIRMAN AND DIRECTOR, AMVESCAP PLC.
BRUCE L. CROCKETT (53) DIRECTOR DIRECTOR, ACE LIMITED (INSURANCE COMPANY),
906 FROME LANE FORMERLY, DIRECTOR, PRESIDENT AND CHIEF
MCLEAN, VA 22102 EXECUTIVE OFFICER, COMSAT CORPORATION AND
CHAIRMAN, BOARD OF GOVERNORS OF INTELSAT;
(INTERNATIONAL COMMUNICATIONS COMPANY).
OWEN DALY II (73) DIRECTOR DIRECTOR, CORTLAND TRUST INC. (INVESTMENT
SIX BLYTHEWOOD ROAD COMPANY). FORMERLY, DIRECTOR, CF & I STEEL
BALTIMORE, MD 21210 CORP., MONUMENTAL LIFE INSURANCE COMPANY AND
MONUMENTAL GENERAL INSURANCE COMPANY; AND
CHAIRMAN OF THE BOARD OF EQUITABLE
BANCORPORATION.
JACK FIELDS (45) DIRECTOR CHIEF EXECUTIVE OFFICER, TEXANA GLOBAL, INC.
TEXANA GLOBAL, INC. FORMERLY, MEMBER OF THE U.S. HOUSE OF
8810 WILL CLAYTON PARKWAY REPRESENTATIVES.
JETERO PLAZA, SUITE E
HUMBLE, TX 77338
</TABLE>
- -------------------------
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
18
<PAGE> 56
<TABLE>
<CAPTION>
POSITIONS HELD WITH
-------------------
NAME, ADDRESS AND AGE REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
**CARL FRISCHLING (60) DIRECTOR PARTNER, KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE (LAW FIRM); AND DIRECTOR, ERD WASTE, INC.
NEW YORK, NY 10022 (WASTE MANAGEMENT COMPANY), AEGIS CONSUMER
FINANCE (AUTO LEASING COMPANY) AND LAZARD
FUNDS, INC. (INVESTMENT COMPANIES).
FORMERLY, PARTNER, REID & PRIEST (LAW FIRM);
AND, PRIOR THERETO, PARTNER, SPENGLER CARLSON
GUBAR BRODSKY & FRISCHLING (LAW FIRM).
*ROBERT H. GRAHAM (51) DIRECTOR AND DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE
11 GREENWAY PLAZA, SUITE 100 PRESIDENT OFFICER, A I M MANAGEMENT GROUP INC.;
HOUSTON, TX 77046 DIRECTOR AND PRESIDENT, A I M ADVISORS, INC.;
DIRECTOR AND SENIOR VICE PRESIDENT,
A I M CAPITAL MANAGEMENT, INC.,
A I M DISTRIBUTORS, INC., A I M FUND
SERVICES, INC., AND FUND MANAGEMENT COMPANY;
DIRECTOR, AMVESCAP PLC; AND CHAIRMAN OF THE
BOARD OF DIRECTORS OF AIM FUNDS GROUP CANADA,
INC.
JOHN F. KROEGER (73) DIRECTOR DIRECTOR, FLAG INVESTORS INTERNATIONAL FUND,
37 PIPPINS WAY INC., FLAG INVESTORS EMERGING GROWTH FUND,
MORRISTOWN, NJ 07960 INC., FLAG INVESTORS TELEPHONE INCOME FUND,
INC., FLAG INVESTORS EQUITY PARTNERS FUND,
INC., TOTAL RETURN U.S. TREASURY FUND, INC.,
FLAG INVESTORS INTERMEDIATE TERM INCOME FUND,
INC., MANAGED MUNICIPAL FUND, INC., FLAG
INVESTORS VALUE BUILDER FUND, INC., FLAG
INVESTORS MARYLAND INTERMEDIATE TAX-FREE
INCOME FUND, INC., FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC., ALEX. BROWN CASH
RESERVE FUND, INC. AND NORTH AMERICAN
GOVERNMENT BOND FUND, INC. (INVESTMENT
COMPANIES). FORMERLY, CONSULTANT, WENDELL &
STOCKEL ASSOCIATES, INC. (CONSULTING FIRM).
</TABLE>
- -------------------------
** A director who is an "interested person" of the Company as defined in
the 1940 Act.
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
19
<PAGE> 57
<TABLE>
<CAPTION>
POSITIONS HELD WITH
-------------------
NAME, ADDRESS AND AGE REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
LEWIS F. PENNOCK (55) DIRECTOR ATTORNEY IN PRIVATE PRACTICE IN HOUSTON,
6363 WOODWAY, SUITE 825 TEXAS.
HOUSTON, TX 77057
IAN W. ROBINSON (74) DIRECTOR FORMERLY, EXECUTIVE VICE PRESIDENT AND CHIEF
183 RIVER DRIVE FINANCIAL OFFICER, BELL ATLANTIC MANAGEMENT
TEQUESTA, FL 33469 SERVICES, INC. (PROVIDER OF CENTRALIZED
MANAGEMENT SERVICES TO TELEPHONE COMPANIES);
EXECUTIVE VICE PRESIDENT, BELL ATLANTIC
CORPORATION (PARENT OF SEVEN TELEPHONE
COMPANIES); AND VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, BELL TELEPHONE COMPANY OF
PENNSYLVANIA AND DIAMOND STATE TELEPHONE
COMPANY.
LOUIS S. SKLAR (58) DIRECTOR EXECUTIVE VICE PRESIDENT, DEVELOPMENT AND
TRANSCO TOWER, 50TH FLOOR OPERATIONS, HINES INTERESTS LIMITED
2800 POST OAK BLVD. PARTNERSHIP (REAL ESTATE DEVELOPMENT).
HOUSTON, TX 77056
***JOHN J. ARTHUR (53) SENIOR VICE DIRECTOR, SENIOR VICE PRESIDENT AND
11 GREENWAY PLAZA, SUITE PRESIDENT AND TREASURER, A I M ADVISORS, INC.; AND VICE
100 TREASURER PRESIDENT AND TREASURER, A I M MANAGEMENT
HOUSTON, TX 77046 GROUP INC., A I M CAPITAL MANAGEMENT, INC.,
A I M DISTRIBUTORS, INC., A I M FUND
SERVICES, INC., AND FUND MANAGEMENT COMPANY.
GARY T. CRUM (50) SENIOR VICE DIRECTOR AND PRESIDENT, A I M CAPITAL
11 GREENWAY PLAZA, SUITE 100 PRESIDENT MANAGEMENT, INC.; DIRECTOR AND SENIOR VICE
HOUSTON, TX 77046 PRESIDENT, A I M MANAGEMENT GROUP INC. AND
A I M ADVISORS, INC.; AND DIRECTOR,
A I M DISTRIBUTORS, INC. AND AMVESCAP PLC.
</TABLE>
- -------------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
20
<PAGE> 58
<TABLE>
<CAPTION>
POSITIONS HELD WITH
-------------------
NAME, ADDRESS AND AGE REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
***CAROL F. RELIHAN (43) SENIOR VICE DIRECTOR, SENIOR VICE PRESIDENT, GENERAL
11 GREENWAY PLAZA, SUITE PRESIDENT AND COUNSEL AND SECRETARY, A I M ADVISORS, INC.;
100 SECRETARY VICE PRESIDENT, GENERAL COUNSEL AND
HOUSTON, TX 77046 SECRETARY, A I M MANAGEMENT GROUP INC.;
DIRECTOR, VICE PRESIDENT AND GENERAL COUNSEL,
FUND MANAGEMENT COMPANY; GENERAL COUNSEL AND
VICE PRESIDENT, A I M FUND SERVICES, INC.;
AND VICE PRESIDENT, A I M CAPITAL MANAGEMENT,
INC., A I M DISTRIBUTORS, INC.
DANA R. SUTTON (38) VICE PRESIDENT AND VICE PRESIDENT AND FUND CONTROLLER,
11 GREENWAY PLAZA, SUITE 100 ASSISTANT TREASURER A I M ADVISORS, INC.; AND ASSISTANT VICE
HOUSTON, TX 77046 PRESIDENT AND ASSISTANT TREASURER, FUND
MANAGEMENT COMPANY.
ROBERT G. ALLEY (49) VICE PRESIDENT SENIOR VICE PRESIDENT, A I M CAPITAL
11 GREENWAY PLAZA, SUITE 100 MANAGEMENT, INC.; AND VICE PRESIDENT,
HOUSTON, TX 77046 A I M ADVISORS, INC.
STUART W. COCO (42) VICE PRESIDENT SENIOR VICE PRESIDENT, A I M CAPITAL
11 GREENWAY PLAZA, SUITE 100 MANAGEMENT, INC. AND VICE PRESIDENT,
HOUSTON, TX 77046 A I M ADVISORS, INC.
MELVILLE B. COX (54) VICE PRESIDENT VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER,
11 GREENWAY PLAZA, SUITE 100 A I M ADVISORS, INC., A I M CAPITAL
HOUSTON, TX 77046 MANAGEMENT, INC., A I M DISTRIBUTORS, INC.,
A I M FUND SERVICES, INC., AND FUND
MANAGEMENT COMPANY.
KAREN DUNN KELLEY (37) VICE PRESIDENT SENIOR VICE PRESIDENT, A I M CAPITAL
11 GREENWAY PLAZA, SUITE 100 MANAGEMENT, INC. AND VICE PRESIDENT,
HOUSTON, TX 77046 A I M ADVISORS, INC.
JONATHAN C. SCHOOLAR (36) VICE PRESIDENT SENIOR VICE PRESIDENT, A I M CAPITAL
11 GREENWAY PLAZA, SUITE 100 MANAGEMENT, INC.; AND VICE PRESIDENT,
HOUSTON, TX 77046 A I M ADVISORS, INC.
</TABLE>
- -------------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
21
<PAGE> 59
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit
Committee is responsible for meeting with the Company's auditors to review
audit procedures and results and to consider any matters arising from an audit
to be brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, or for
considering such matters as may from time to time be set forth in a Charter
adopted by the Board of Directors and such Committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, or considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such Committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not
interested persons, reviewing from time to time the compensation payable to the
disinterested directors, or considering such matters as may from time to time
be set forth in a charter adopted by the Board of Directors of such Committee.
All of the Company's directors also serve as directors or trustees of
some or all of the other mutual funds advised or managed by AIM. All of the
Company's executive officers hold similar offices with some or all of such
mutual funds.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any Committee thereof. Each director
of the Company who is not also an officer of the Company is compensated for his
services according to a fee schedule which recognizes the fact that such
director also serves as a director or trustee of certain other investment
companies advised or managed by AIM. Each such director receives a fee,
allocated among the AIM Funds for which he serves as a director or trustee,
which consists of an annual retainer component and a meeting fee component.
22
<PAGE> 60
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended December 31, 1997 for each director of the
Company:
<TABLE>
<CAPTION>
RETIREMENT
BENEFITS
AGGREGATE ACCRUED TOTAL
COMPENSATION BY ALL AIM COMPENSATION
DIRECTOR FROM COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3)
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 10,290 67,774 84,000
Owen Daly II 10,290 103,542 84,000
Jack Fields 8,529 0 71,000
Carl Frischling(4) 10,290 96,520 84,000
Robert H. Graham 0 0 0
John F. Kroeger 10,118 94,132 82,500
Lewis F. Pennock 10,290 55,777 84,000
Ian W. Robinson 10,290 85,912 84,000
Louis S. Sklar 10,233 84,370 83,500
</TABLE>
- ----------------------
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended December 31, 1997, including
interest earned thereon, was $50,274.
(2) During the fiscal year ended December 31, 1997, the total amount of
expenses allocated to the Company in respect of such retirement benefits
was $15,926. Data reflects compensation estimated for the calendar
year ended December 31, 1997.
(3) Messrs. Bauer, Crockett, Daly, Fields, Frischling, Graham, Kroeger,
Pennock, Robinson and Sklar each serves as a Director or Trustee of a
total of 11 registered investment companies advised by AIM (comprised of
over 50 portfolios). Data reflects compensation estimated for the
calendar year ended December 31, 1997.
(4) See page 25 for fees paid to Mr. Frischling's law firm.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the calendar
quarter coincident with or following his date of
23
<PAGE> 61
retirement equal to 75% of the retainer paid or accrued by the Applicable AIM
Funds for such director during the twelve-month period immediately preceding
the director's retirement (including amounts deferred under a separate
agreement between the Applicable AIM Funds and the director) for the number of
such director's years of service (not in excess of 10 years of service)
completed with respect to any of the Applicable AIM Funds. Such benefit is
payable to each eligible director in quarterly installments. If an eligible
director dies after attaining the normal retirement date but before receipt of
any benefits under the Plan commences, the director's surviving spouse (if any)
shall receive a quarterly survivor's benefit equal to 50% of the amount payable
to the deceased director, for no more than ten years beginning the first day of
the calendar quarter following the date of the director's death. Payments under
the Plan are not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming a specified level of
compensation and years of service classifications. The estimated credited
years of service as of December 31, 1997 for Messrs. Crockett, Daly, Fields,
Frischling, Kroeger, Pennock, Robinson and Sklar are 10, 11, 0, 20, 20, 16, 10
and 8 years, respectively.
ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of Annual Retainer
Years of Paid By All AIM Funds
Service With
the Applicable
AIM Funds $80,000
-------------- ---------------------
<S> <C>
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral account shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will
be paid in cash, in generally equal quarterly installments over a period of
five (5) or ten (10) years (depending on the Agreement) beginning on the date
the deferring director's retirement benefits commence under the Plan. The
Company's Board of Directors, in its sole discretion, may accelerate or extend
the distribution of such deferral accounts after the deferring director's
termination of service as a director of the Company. If a deferring director
dies prior to the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
single lump sum payment as soon as practicable after such deferring director's
death. The Agreements are not funded and, with respect to the payments
24
<PAGE> 62
of amounts held in the deferral accounts, the deferring directors have the
status of unsecured creditors of the Company and of each other AIM Fund from
which they are deferring compensation.
During the fiscal year ended December 31, 1997, 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, AIM V.I. Money
Market Fund and AIM V.I. Value Fund each paid $5,296, $4,400, $4,254, $4,280,
$4,727, $4,950, $4,684, $4,396 and $5,309, respectively, in legal fees to
Kramer, Levin, Naftalis & Frankel, the law firm in which Mr. Frischling, a
director of the Company, is a partner, as counsel to the Board of Directors.
Investment Advisory and Administrative Services Agreements
Each Fund has entered into a master investment advisory agreement (the
"Advisory Agreement") dated February 28, 1997, and a master administrative
services agreement (the "Administrative Services Agreement"), dated May 1,
1998, with AIM. A prior investment advisory agreement with substantially
identical terms to the Advisory Agreement was in effect prior to February 28,
1997. A prior master administrative services agreement ("Prior Administrative
Services Agreement") with substantially similar terms to the Administrative
Services Agreement, was in effect prior to May 1, 1998. See "Management" in
the Prospectus.
AIM was organized in 1976, and along with its subsidiaries, manages or
advises over 50 investment company portfolios. AIM is a wholly owned
subsidiary of A I M Management Group, Inc. ("AIM Management"), a holding
company that has been engaged in the financial services business since 1976.
The address of AIM is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
AIM Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11
Devonshire Square, London, EC2M 4YR, United Kingdom. AMVESCAP PLC and its
subsidiaries are an independent investment management group engaged in the
business of investment management on an international basis. Certain of the
directors and officers of AIM are also executive officers of the Fund and their
affiliations are shown under "Directors and Officers."
AIM and the Company have adopted a Code of Ethics (the "Code of Ethics")
which requires investment personnel and certain other employees (a) to
pre-clear all personal securities transactions subject to the Code of Ethics,
(b) to file reports or duplicate confirmations regarding such transactions,
(c) to refrain from personally engaging in (i) short- term trading of a
security, (ii) transactions involving a security within seven days of an AIM
Fund transaction involving the same security, and (iii) transactions involving
securities being considered for investment by an AIM Fund and (d) abide by
certain other provisions under the Code of Ethics. The Code of Ethics also
prohibits investment personnel and all other employees from purchasing
securities in an initial public offering. Personal trading reports are
reviewed periodically by AIM, and the Board of Directors reviews quarterly and
annual reports (including information on any substantial violations of the Code
of Ethics). Sanctions for violations of the Code of Ethics may include
censure, monetary penalties, suspension or termination of employment.
The Advisory Agreement for the Funds provides that each Fund will pay
all expenses of the Fund, including, without limitation: brokerage commissions,
taxes, legal, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering
and qualifying shares for sale, expenses relating to directors and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Company on behalf of
the Funds in connection with membership in investment company organizations,
the cost of printing copies of prospectuses and statements of additional
information distributed to the Fund's shareholders; and all other charges and
costs of the Fund's operations unless otherwise explicitly provided.
The Advisory Agreement for the Funds provides that the agreement will
remain in effect for the initial term and continue in effect from year to year
thereafter only if such continuance is specifically approved at least annually
(i) by the Company's Board of Directors or by the vote of a majority of the
outstanding voting securities of the Funds (as defined in the 1940 Act); and
(ii) by the affirmative vote of a majority of the directors who are not parties
to the agreement or "interested persons" of any such party (the "Non-Interested
Directors") by votes cast in person at a meeting called for such purpose. The
Advisory Agreement was initially approved by the Company's Board of
25
<PAGE> 63
Directors (including the affirmative vote of all of the Non-Interested
Directors) on December 11, 1996 and was approved by the Funds' shareholders on
February 7, 1997. The Board of Directors of the Company approved the
continuance of the Agreement until June 30, 1998. The Advisory Agreement
became effective on February 28, 1997. The Advisory Agreement provides that
the Company or AIM may terminate such agreement with respect to any Fund(s) on
sixty (60) days' written notice without penalty. The Advisory Agreement
terminates automatically in the event of its assignment.
Pursuant to the Advisory Agreement, AIM receives a fee from each of AIM
V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital
Appreciation Fund, AIM V.I. Capital Development 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. High
Yield Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund and
AIM V.I. Value Fund calculated at the following annual rate, based on the
average daily net assets of the Fund during the year:
AIM V.I. Capital Appreciation Fund
AIM V.I. Global Utilities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.65%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.60%
</TABLE>
AIM V.I. Aggressive Growth Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $150 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.80%
Over $150 million . . . . . . . . . . . . . . . . . . . . . . . . . . 0.625%
</TABLE>
AIM V.I. Balanced Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $150 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
Over $150 million . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
</TABLE>
AIM V.I. Capital Development Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $350 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
Over $350 million . . . . . . . . . . . . . . . . . . . . . . . . . .0.625%
</TABLE>
26
<PAGE> 64
AIM V.I. Diversified Income Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.60%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . 0.55%
</TABLE>
AIM V.I. Government Securities Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.45%
</TABLE>
AIM V.I. High Yield Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $200 million . . . . . . . . . . . . . . . . . . . . . . . . 0.625%
Next $300 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.55%
Next $500 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
Amount over $1 billion . . . . . . . . . . . . . . . . . . . . . . 0.45%
</TABLE>
AIM V.I. International Equity Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70%
</TABLE>
AIM V.I. Money Market Fund
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.40%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35%
</TABLE>
Each Fund paid to AIM a management fee (net of fee waivers) for the
fiscal years ended December 31, 1997, December 31, 1996, the eleven months
ended December 31, 1995 and the fiscal year ended January 31, 1995, under the
Advisory Agreement and a prior, substantially identical advisory agreement, as
follows:
27
<PAGE> 65
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ 3,083,708 $ 1,884,838 $ 882,870 $ 402,307
AIM V.I. Diversified Income Fund $ 447,539 $ 306,235 $ 193,008 $ 98,044
AIM V.I. Global Utilities Fund $ 106,309 $ 57,054 $ -0- $ -0-*
AIM V.I. Government Securities Fund $ 138,550 $ 107,471 $ 71,080 $ 42,430
AIM V.I. Growth Fund $ 1,453,488 $ 916,484 $ 434,620 $ 231,152
AIM V.I. Growth and Income Fund $ 2,609,695 $ 678,242 $ 46,017 $ -0-*
AIM V.I. International Equity Fund $ 1,519,323 $ 924,578 $ 457,559 $ 317,747
AIM V.I. Money Market Fund $ 254,546 $ 264,855 $ 168,901 $ 85,967
AIM V.I. Value Fund $ 3,303,799 $ 1,955,091 $ 1,078,007 $ 489,030
</TABLE>
* Fees paid were for the period May 2, 1994 (date operations commenced)
through January 31, 1995.
For the fiscal years ended December 31, 1997, December 31, 1996, the
eleven months ended December 31, 1995 and the fiscal year ended January 31,
1995, AIM waived management fees for each Fund as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0- $ 5,046
AIM V.I. Global Utilities Fund $ -0- $ 15,954 $ 32,703 $ 9,264*
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- $ 18,907
AIM V.I. Growth Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0- $ 67,802 $ 20,806*
AIM V.I. International Equity Fund $ -0- $ -0- $ -0- $ 5,010
AIM V.I. Money Market Fund $ -0- $ -0- $ -0- $ 18,531
AIM V.I. Value Fund $ -0- $ -0- $ -0- $ -0-
</TABLE>
* Fees waived were for the period May 2, 1994 (date operations commenced)
through January 31, 1995.
In addition to the management fees paid by each Fund for the fiscal
years ended December 31, 1997, December 31, 1996, the eleven months ended
December 31, 1995 and for the fiscal year ended January 31, 1995 as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Global Utilities Fund $ -0- $ -0- $ 13,800 $ 12,000*
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0- $ -0- $ -0-*
AIM V.I. International Equity Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Money Market Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Value Fund $ -0- $ -0- $ -0- $ -0-
</TABLE>
* Fee amounts are for the period May 2, 1994 (date operations
commenced) through January 31, 1995.
28
<PAGE> 66
The Administrative Services Agreement for the Funds provides that AIM
may perform certain accounting and other administrative services to each Fund
which are not required to be performed by AIM under the Advisory Agreement.
For such services, AIM would be entitled to receive from each Fund
reimbursement of its expenses. In addition, AIM provides, or assures that
Participating Insurance Companies will provide, certain services implementing
the Company's funding arrangements with Participating Insurance Companies.
Effective May 1, 1998, the Funds reimburse AIM for its costs in providing, or
assuring that Participating Insurance Companies provide, these services, in an
amount up to 0.25% of the average net asset value of each Fund in excess of the
net asset value of each Fund on April 30, 1998.
The Administrative Services Agreement for the Funds provides that the
agreement will remain in effect for the initial term and continue in effect
from year to year thereafter only if such continuance is specifically approved
at least annually (i) by the Company's Board of Directors or by the vote of a
majority of the outstanding voting securities of the Funds (as defined in the
1940 Act); and (ii) by the affirmative vote of a majority of the Non-Interested
Directors, by votes cast in person at a meeting called for such purpose. The
agreement terminates automatically in the event of its assignment or in the
event of termination of the Master Investment Advisory Agreement.
For the fiscal years ended December 31, 1997, December 31, 1996, the
eleven months ended December 31, 1995 and for the fiscal year ended January 31,
1995, AIM received reimbursement of administrative services costs from each of
the Funds pursuant to the Prior Administrative Services Agreement as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $43,588 $46,623 $ 33,560 $ 23,992
AIM V.I. Diversified Income Fund $48,683 $49,500 $ 36,406 $ 35,441
AIM V.I. Global Utilities Fund $47,128 $47,729 $ 33,582 $ 13,577*
AIM V.I. Government Securities Fund $37,872 $38,695 $ 30,769 $ 23,230
AIM V.I. Growth Fund $44,692 $39,552 $ 32,425 $ 23,537
AIM V.I. Growth and Income Fund $43,065 $38,784 $ 31,484 $ 13,596*
AIM V.I. International Equity Fund $59,724 $58,644 $ 21,068 $ 12,000
AIM V.I. Money Market Fund $38,289 $29,412 $ 22,997 $ 21,019
AIM V.I. Value Fund $53,632 $47,116 $ 35,540 $ 21,568
</TABLE>
* Fees paid were for the period May 2, 1994 (date operations
commenced) through January 31, 1995.
The Distribution Agreement
The Funds have entered into a master distribution agreement (the
"Distribution Agreement") with AIM Distributors, dated February 28, 1997.
Information concerning AIM Distributors and the continuous offering of the
Funds' shares is set forth in the Prospectus under the heading "Management."
The Distribution Agreement provides that AIM Distributors will bear the
expenses of printing from the final proof and distributing prospectuses and
statements of additional information of the Funds relating to the sale of Fund
shares. The Distribution Agreement provides that the Funds shall bear the
expenses of qualification of shares of the Fund for sale in connection with the
public offering in any jurisdictions where qualification is required by law.
AIM Distributors has not undertaken to sell any specified number of shares of
the Funds.
The Distribution Agreement for the Funds provides that it will
continue in effect for its initial term and from year to year thereafter only
if such continuance is specifically approved at least annually (i) by the
Company's Board of Directors or by the vote of a majority of the outstanding
voting securities of the Funds (as defined in the 1940 Act); and (ii) by the
affirmative vote of a majority of Non-Interested Directors by votes cast in
person at a meeting called
29
<PAGE> 67
for such purpose. The Company or AIM Distributors may terminate its
Distribution Agreement on sixty (60) days' written notice without penalty. The
Distribution Agreement will terminate automatically in the event of its
assignment.
DETERMINATION OF NET ASSET VALUE
For the Money Market Fund: The net asset value per share of the Fund
is determined daily as of the close of trading on 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. Net asset value per share is determined by
dividing the value of the Fund's securities, cash and other assets (including
interest accrued but not collected), less all its liabilities (including
accrued expenses and dividends payable), by the number of shares outstanding of
the Fund and rounding the resulting per share net asset value to the nearest
one cent. Determination of the Fund's net asset value per share is made in
accordance with generally accepted accounting principles.
The securities of the Fund are valued on the basis of amortized cost.
This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if the security were
sold. During such periods, the daily yield on shares of the Fund computed as
described under "Yield Information" may differ somewhat from an identical
computation made by another investment company with identical investments
utilizing available indications as to the market value of its portfolio
securities.
The valuation of the portfolio instruments based upon their amortized
cost and the concomitant maintenance of the net asset value per share of $1.00
for the Fund is permitted in accordance with applicable rules and regulations
of the SEC which require the Fund to adhere to certain conditions. The Fund
will invest only in "Eligible Securities," as defined in Rule 2a-7 of the 1940
Act, which the Fund's Board of Directors has determined present minimal credit
risk. Rule 2a-7 also requires, among other things, that the Fund maintain a
dollar-weighted average portfolio maturity of 90 days or less and purchase only
instruments having remaining maturities of 397 calendar days or less.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share at
$1.00 for the Fund as computed for the purpose of sales and redemptions. Such
procedures include review of the Fund's holdings by the Board of Directors at
such intervals as they may deem appropriate, to determine whether the net asset
value calculated by using available market quotations or other reputable
sources for the Fund deviates from $1.00 per share and, if so, whether such
deviation may result in material dilution or is otherwise unfair to existing
holders of the Fund's shares. In the event the Board of Directors determines
that such a deviation exists for the Fund, it will take such corrective action
as the Board of Directors deems necessary and appropriate with respect to the
Fund, including the sale of portfolio instruments prior to maturity to realize
capital gains or losses or to shorten the average portfolio maturity; the
withholding of dividends; redemption of shares in kind; or the establishment of
a net asset value per share by using available market quotations.
The Fund intends to comply with any amendments made to Rule 2a-7 which
may require corresponding changes in the Fund's procedures which are designed
to stabilize the Fund's price per share at $1.00.
For All Other Funds: The net asset value per share of each Fund is
normally determined daily as of the close of trading on the NYSE (generally
4:00 p.m. Eastern time) on each business day of the Company. 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 closing prices which are available 15 minutes after the close
of trading of the NYSE will generally be used. Net asset value per share is
determined by dividing the value of the Fund's securities, cash and other
assets (including interest accrued but not collected), less all its liabilities
(including accrued expenses and
30
<PAGE> 68
dividends payable), by the total number of shares outstanding. Determination
of the Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
Each equity security held by the Fund is valued at its last sales
price on the exchange where the security is principally traded or, lacking any
sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Debt securities are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Company's officers
in a manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. 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.
Generally, trading in foreign securities is substantially completed
each day at various times prior to the close of the NYSE. The values of such
foreign securities used in computing the net asset value of each Fund's shares
are determined at such times as trading is completed. Foreign currency
exchange rates are also generally determined prior the close of the NYSE.
Occasionally, events affecting the values of such foreign securities and such
foreign securities exchange rates may occur after the time at which such values
are determined and prior to the close of the NYSE that will not be reflected in
the computation of a Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
Each Fund is treated as a separate association taxable as a
corporation.
Each Fund intends to qualify under the Internal Revenue Code of 1986,
as amended (the "Code"), as a regulated investment company ("RIC") for each
taxable year. Accordingly, each Fund must, among other things, meet the
following requirements: A. Each Fund must generally derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing
in such stock, securities or currencies. B. Each Fund must diversify its
holdings so that, at the end of each fiscal quarter or within 30 days
thereafter: (i) at least 50% of the market value of the Fund's assets is
represented by cash, cash items (including receivables), U.S. Government
securities, securities of other RICs, and other securities, with such other
securities limited, with respect to any one issuer, to an amount not greater
than 5% of the Fund's assets and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other RICs).
The Code imposes a nondeductible 4% excise tax on a RIC that fails to
distribute during each calendar year at least 98% of its ordinary income for
the calendar year and at least 98% of its capital gain net income for the
12-month period ending on October 31 of the calendar year. Each Fund intends
to make sufficient distributions to avoid imposition of the excise tax.
31
<PAGE> 69
As a RIC, each Fund will not be subject to federal income tax on its
income and gains distributed to shareholders if it distributes at least (i) 90%
of its investment company taxable income for the taxable year; and (ii) 90% of
the excess of its tax-exempt interest income under Code Section 103(a) over its
deductions disallowed under Code Sections 265 and 171(a)(2).
Each Fund intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on each Fund by the 1940 Act and Subchapter M of the Code, place certain
limitations on (i) the assets of the insurance company separate accounts that
may be invested in securities of a single issuer and (ii) eligible investors.
Because section 817(h) and those regulations treat the assets of each Fund as
assets of the corresponding division of the insurance company separate
accounts, each Fund intends to comply with these diversification requirements.
Specifically, the regulations provide that, except as permitted by the "safe
harbor" described below, as of the end of each calendar quarter or within 30
days thereafter no more than 55% of a Fund's total assets may be represented by
any one investment, no more than 70% by any two investments, no more than 80%
by any three investments and no more than 90% by any four investments. For
this purpose, all securities of the same issuer are considered a single
investment, and while each U.S. Government agency and instrumentality is
considered a separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered the same
issuer. The regulations also provide that a Fund's shareholders are limited,
generally, to life insurance company separate accounts, general accounts of the
same life insurance company, an investment adviser or affiliate in connection
with the creation or management of a Fund or the trustee of a qualified pension
plan. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of a Fund to satisfy the section 817(h)
requirements would result in taxation of and treatment of the Contract holders
investing in a corresponding division other than as described in the applicable
prospectuses of the various insurance company separate accounts.
MISCELLANEOUS INFORMATION
AUDIT REPORTS
The Company furnishes semi-annual reports containing information about
the Funds and their operations, including a list of the investments held in
each Fund's portfolio and their respective financial statements. Financial
statements, audited by independent auditors, will be issued annually. The firm
of Tait, Weller & Baker, Two Penn Center Plaza, Philadelphia, PA 19102, serves
as the auditors of each Fund.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the
Company on certain federal securities law matters.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, MA 02110, is custodian of all securities and cash of the Funds.
The custodian attends to the collection of principal and income, pays and
collects all monies for securities bought and sold by the Portfolios, and
performs certain other ministerial duties. State Street also acts as transfer
and dividend disbursing agent for the Funds. These services do not include any
supervisory function over management or provide any protection against any
possible depreciation of assets. The Funds pay State Street such compensation
as may be agreed upon from time to time.
32
<PAGE> 70
PRINCIPAL HOLDERS OF SECURITIES
To the best of the knowledge of each Fund, the names of the record
holders of 5% or more of the outstanding shares of the Fund as of February 2,
1998, and the percentage of the outstanding shares of such Fund owned by such
shareholders as of such date are set out below. The address of the CG Variable
Annuity Separate Account is Connecticut General Life Insurance Company, 900
Cottage Grove Road, Hartford, CT 06152-2321. The address of Glenbrook Life and
Annuity Company is 3100 Sanders Road, N4C, Northbrook, IL 60062. The address
of IDS Life Insurance Company is IDS Tower 10, T27/52, Minneapolis, MN 55440.
The address of Merrill Lynch Life Insurance Company is 800 Scudders Mill Road,
Plainsboro, NJ 08536.
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 62.52%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 19.49%
Merrill Lynch Life Insurance Company -0- -0- 12.08%
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 70.20%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 26.92%*
</TABLE>
- -------------------------
* A shareholder who beneficially owns more than 25% of the voting
securities of a Fund may be presumed to "control" the Fund. The Funds
understand that insurance company separate accounts owning shares of
the Funds will vote their shares in accordance with instructions
received from Contract owners, annuitants and beneficiaries. If an
insurance company determines, however, that it is permitted to vote
any such shares of the Funds in its own right, it may elect to do so,
subject to the then current interpretation of the 1940 Act and the
rules thereunder.
33
<PAGE> 71
AIM V.I. GLOBAL UTILITIES FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 68.99%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 26.62%*
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 64.98%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 20.12%
First Citicorp Life -0- -0- 8.20%
</TABLE>
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 74.71%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 23.10%
</TABLE>
- --------------------------
* A shareholder who beneficially owns more than 25% of the voting
securities of a Fund may be presumed to "control" the Fund. The Funds
understand that insurance company separate accounts owning shares of
the Funds will vote their shares in accordance with instructions
received from Contract owners, annuitants and beneficiaries. If an
insurance company determines, however, that it is permitted to vote
any such shares of the Funds in its own right, it may elect to do so,
subject to the then current interpretation of the 1940 Act and the
rules thereunder.
34
<PAGE> 72
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
IDS Life Insurance Company -0- -0- 46.89%*
CG Variable Annuity -0- -0- 20.70%
Separate Account
Glenbrook Life & Annuity Company -0- -0- 12.04%
Pruco Life Insurance Company -0- -0- 6.71%
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 71.47%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 22.36%
</TABLE>
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 73.83%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 24.87%
</TABLE>
- --------------------------
* A shareholder who beneficially owns more than 25% of the voting
securities of a Fund may be presumed to "control" the Fund. The Funds
understand that insurance company separate accounts owning shares of
the Funds will vote their shares in accordance with instructions
received from Contract owners, annuitants and beneficiaries. If an
insurance company determines, however, that it is permitted to vote
any such shares of the Funds in its own right, it may elect to do so,
subject to the then current interpretation of the 1940 Act and the
rules thereunder.
35
<PAGE> 73
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ---- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 56.64%*
Separate Account
Merrill Lynch Life Insurance Company -0- -0- 15.93%
Glenbrook Life & Annuity Company -0- -0- 14.45%
</TABLE>
- --------------------------
* A shareholder who beneficially owns more than 25% of the voting
securities of a Fund may be presumed to "control" the Fund. The Funds
understand that insurance company separate accounts owning shares of
the Funds will vote their shares in accordance with instructions
received from Contract owners, annuitants and beneficiaries. If an
insurance company determines, however, that it is permitted to vote
any such shares of the Funds in its own right, it may elect to do so,
subject to the then current interpretation of the 1940 Act and the
rules thereunder.
INVESCO Trust Company provided the initial capitalization of the AIM
V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital
Development Fund and AIM V.I. High Yield Fund and, accordingly, as of the date
of this Statement of Additional Information, owned all the outstanding shares
of common stock of the Funds. Although the Funds expect that the sale of its
shares to the public pursuant to the Prospectus will promptly reduce the
percentage of such shares owned by INVESCO Trust Company to less than 1% of the
total shares outstanding, as long as INVESCO Trust Company owns over 25% of the
shares of the Fund that are outstanding, it may be presumed to be in "control"
of the Fund, as defined in the 1940 Act.
As of February 2, 1998, the directors and officers of the Company as a
group owned beneficially less than 1% of the outstanding shares of the Company.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Funds
have filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Funds and the securities offered hereby. The Registration Statement is
available for inspection by the public at the SEC in Washington, D.C.
36
<PAGE> 74
FINANCIAL STATEMENTS
FS
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Capital Appreciation Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Capital Appreciation Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations), through January 31, 1994 in conformity with
generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. CAPITAL APPRECIATION FUND
FS-1
<PAGE> 76
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
COMMON STOCKS - 94.71%
AEROSPACE/DEFENSE - 0.34%
BE Aerospace, Inc.(a) 27,500 $ 735,625
- ---------------------------------------------------------------------
Precision Castparts Corp. 17,000 1,025,313
- ---------------------------------------------------------------------
1,760,938
- ---------------------------------------------------------------------
AIR FREIGHT - 0.35%
AirNet Systems, Inc.(a) 20,000 430,000
- ---------------------------------------------------------------------
CNF Transportation Inc. 36,700 1,408,363
- ---------------------------------------------------------------------
1,838,363
- ---------------------------------------------------------------------
AIRLINES - 0.12%
Southwest Airlines Co. 24,900 613,163
- ---------------------------------------------------------------------
BANKS (REGIONAL) - 0.64%
AmSouth Bancorporation 25,000 1,357,812
- ---------------------------------------------------------------------
North Fork Bancorporation, Inc. 18,100 607,479
- ---------------------------------------------------------------------
TCF Financial Corp. 40,000 1,357,500
- ---------------------------------------------------------------------
3,322,791
- ---------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.08%
Coca-Cola Enterprises Inc. 11,800 419,637
- ---------------------------------------------------------------------
BIOTECHNOLOGY - 0.07%
Curative Technologies, Inc.(a) 12,600 382,725
- ---------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.22%
CanWest Global Communications Corp. (Canada) 77,700 1,398,600
- ---------------------------------------------------------------------
Chancellor Media Corp.(a) 3,636 271,337
- ---------------------------------------------------------------------
Clear Channel Communications, Inc.(a) 27,600 2,192,475
- ---------------------------------------------------------------------
Heftel Broadcasting Corp.(a) 22,100 1,033,175
- ---------------------------------------------------------------------
Jacor Communications, Inc.(a) 27,500 1,460,937
- ---------------------------------------------------------------------
6,356,524
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 3.01%
ADC Telecommunications, Inc.(a) 116,700 4,872,225
- ---------------------------------------------------------------------
Brightpoint, Inc.(a) 67,200 932,400
- ---------------------------------------------------------------------
DSC Communications Corp.(a) 107,300 2,575,200
- ---------------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 35,000 892,500
- ---------------------------------------------------------------------
PairGain Technologies, Inc.(a) 63,100 1,222,562
- ---------------------------------------------------------------------
REMEC, Inc.(a) 7,500 168,750
- ---------------------------------------------------------------------
Scientific-Atlanta, Inc. 49,000 820,750
- ---------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Sweden) 21,420 799,234
- ---------------------------------------------------------------------
Tellabs, Inc.(a) 64,800 3,426,300
- ---------------------------------------------------------------------
15,709,921
- ---------------------------------------------------------------------
SHARES MARKET
VALUE
COMPUTERS (HARDWARE) - 2.55%
Citrix Systems, Inc.(a) 10,000 $ 760,000
- ---------------------------------------------------------------------
Comdisco, Inc. 68,500 2,290,468
- ---------------------------------------------------------------------
Compaq Computer Corp. 41,500 2,342,156
- ---------------------------------------------------------------------
Concord EFS, Inc.(a) 118,200 2,940,225
- ---------------------------------------------------------------------
Dell Computer Corp.(a) 34,000 2,856,000
- ---------------------------------------------------------------------
IDX Systems Corp.(a) 19,600 725,200
- ---------------------------------------------------------------------
Micron Electronics, Inc.(a) 29,800 271,925
- ---------------------------------------------------------------------
Sun Microsystems, Inc.(a) 28,300 1,128,463
- ---------------------------------------------------------------------
13,314,437
- ---------------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.34%
Bay Networks, Inc.(a) 120,800 3,087,950
- ---------------------------------------------------------------------
Cisco Systems, Inc.(a) 34,950 1,948,463
- ---------------------------------------------------------------------
Newbridge Networks Corp. (Canada)(a) 56,000 1,953,000
- ---------------------------------------------------------------------
6,989,413
- ---------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.11%
Adaptec, Inc.(a) 77,700 2,884,612
- ---------------------------------------------------------------------
EMC Corp.(a) 129,200 3,544,925
- ---------------------------------------------------------------------
Iomega Corp.(a) 114,000 1,417,875
- ---------------------------------------------------------------------
Lexmark International Group, Inc.(a) 19,200 729,600
- ---------------------------------------------------------------------
MicroTouch Systems, Inc.(a) 5,400 85,050
- ---------------------------------------------------------------------
SMART Modular Technologies, Inc.(a) 15,000 345,000
- ---------------------------------------------------------------------
Storage Technology Corp.(a) 32,600 2,019,164
- ---------------------------------------------------------------------
11,026,226
- ---------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 8.42%
America Online, Inc.(a) 7,700 686,744
- ---------------------------------------------------------------------
Applied Voice Technology, Inc.(a) 10,000 282,500
- ---------------------------------------------------------------------
Aspect Development, Inc.(a) 12,500 650,000
- ---------------------------------------------------------------------
Autodesk, Inc. 38,500 1,424,500
- ---------------------------------------------------------------------
Avant! Corp.(a) 28,600 479,050
- ---------------------------------------------------------------------
BMC Software, Inc.(a) 66,700 4,377,188
- ---------------------------------------------------------------------
Broderbund Software, Inc.(a) 35,000 896,875
- ---------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 135,900 3,329,550
- ---------------------------------------------------------------------
CBT Group PLC-ADR (Ireland)(a) 900 73,913
- ---------------------------------------------------------------------
Computer Associates International, Inc. 56,250 2,974,219
- ---------------------------------------------------------------------
Compuware Corp.(a) 156,600 5,011,200
- ---------------------------------------------------------------------
Electronic Arts, Inc.(a) 45,000 1,701,563
- ---------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 4,600 76,475
- ---------------------------------------------------------------------
HBO & Co. 94,688 4,545,024
- ---------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-2
<PAGE> 77
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES) - (CONTINUED)
Microsoft Corp.(a) 18,300 $ 2,365,275
- -----------------------------------------------------------------------
Network Associates, Inc.(a) 7,900 417,713
- -----------------------------------------------------------------------
Oracle Corp.(a) 30,662 684,146
- -----------------------------------------------------------------------
Parametric Technology Co.(a) 59,800 2,833,025
- -----------------------------------------------------------------------
Platinum Technology, Inc.(a) 66,800 1,887,100
- -----------------------------------------------------------------------
Security Dynamics Technologies, Inc.(a) 34,400 1,229,800
- -----------------------------------------------------------------------
Sterling Commerce, Inc.(a) 75,055 2,884,927
- -----------------------------------------------------------------------
Sterling Software, Inc.(a) 16,800 688,800
- -----------------------------------------------------------------------
Symantec Corp.(a) 38,000 833,625
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 69,000 2,466,750
- -----------------------------------------------------------------------
Tecnomatix Technologies Ltd. (Israel)(a) 18,600 627,750
- -----------------------------------------------------------------------
Wind River Systems(a) 15,000 595,313
- -----------------------------------------------------------------------
44,023,025
- -----------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.29%
Action Performance Companies, Inc.(a) 16,000 606,000
- -----------------------------------------------------------------------
Blyth Industries, Inc.(a) 30,400 910,100
- -----------------------------------------------------------------------
1,516,100
- -----------------------------------------------------------------------
CONSUMER FINANCE - 3.35%
Aames Financial Corp. 30,150 390,066
- -----------------------------------------------------------------------
Capital One Financial Corp. 39,100 2,118,731
- -----------------------------------------------------------------------
ContiFinancial Corp.(a) 15,000 377,813
- -----------------------------------------------------------------------
FIRSTPLUS Financial Group, Inc.(a) 48,000 1,842,000
- -----------------------------------------------------------------------
Household International, Inc. 39,600 5,051,475
- -----------------------------------------------------------------------
IMC Mortgage Co.(a) 62,000 736,250
- -----------------------------------------------------------------------
MBNA Corp. 103,988 2,840,159
- -----------------------------------------------------------------------
Money Store, Inc. (The) 40,000 840,000
- -----------------------------------------------------------------------
Providian Financial Corp. 20,000 903,750
- -----------------------------------------------------------------------
SLM Holding Corp. 17,500 2,434,688
- -----------------------------------------------------------------------
17,534,932
- -----------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.94%
Cardinal Health, Inc. 43,025 3,232,253
- -----------------------------------------------------------------------
McKesson Corp. 15,600 1,687,725
- -----------------------------------------------------------------------
4,919,978
- -----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.84%
American Power Conversion Corp.(a) 49,800 1,176,525
- -----------------------------------------------------------------------
Avid Technology, Inc.(a) 18,700 500,225
- -----------------------------------------------------------------------
AVX Corp. 39,300 724,594
- -----------------------------------------------------------------------
Berg Electronics Corp.(a) 27,200 618,800
- -----------------------------------------------------------------------
Black Box Corp.(a) 19,400 686,275
- -----------------------------------------------------------------------
HADCO Corp.(a) 17,500 791,875
- -----------------------------------------------------------------------
Kemet Corp.(a) 39,000 755,625
- -----------------------------------------------------------------------
Molex, Inc. 4,300 138,138
- -----------------------------------------------------------------------
Molex, Inc.-Class A 13,133 377,552
- -----------------------------------------------------------------------
Sanmina Corp.(a) 25,000 1,693,750
- -----------------------------------------------------------------------
Sawtek Inc.(a) 14,900 392,988
- -----------------------------------------------------------------------
SCI Systems, Inc.(a) 92,400 4,025,175
- -----------------------------------------------------------------------
Solectron Corp.(a) 39,200 1,629,250
- -----------------------------------------------------------------------
Symbol Technologies, Inc. 35,000 1,321,250
- -----------------------------------------------------------------------
14,832,022
- -----------------------------------------------------------------------
SHARES MARKET
VALUE
<S> <C> <C>
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.82%
Arrow Electronics, Inc.(a) 50,400 $ 1,634,850
- -----------------------------------------------------------------------
Avnet, Inc. 28,100 1,854,600
- -----------------------------------------------------------------------
Kent Electronics Corp.(a) 31,600 793,950
- -----------------------------------------------------------------------
4,283,400
- -----------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.79%
Methode Electronics, Inc.-Class A 39,450 641,063
- -----------------------------------------------------------------------
Perkin-Elmer Corp. 36,200 2,572,463
- -----------------------------------------------------------------------
Tektronix, Inc. 23,100 916,781
- -----------------------------------------------------------------------
4,130,307
- -----------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 5.72%
Altera Corp.(a) 69,000 2,285,625
- -----------------------------------------------------------------------
ANADIGICS, Inc.(a) 25,000 753,125
- -----------------------------------------------------------------------
Analog Devices, Inc.(a) 64,700 1,791,381
- -----------------------------------------------------------------------
ASM Lithography Holding N.V. (Netherlands)(a) 11,600 783,000
- -----------------------------------------------------------------------
Atmel Corp.(a) 74,400 1,381,050
- -----------------------------------------------------------------------
Burr-Brown Corp.(a) 27,700 889,863
- -----------------------------------------------------------------------
Dallas Semiconductor Corp. 38,400 1,564,800
- -----------------------------------------------------------------------
Intel Corp. 18,800 1,320,700
- -----------------------------------------------------------------------
Lattice Semiconductor Corp.(a) 32,400 1,534,950
- -----------------------------------------------------------------------
Linear Technology Corp. 45,100 2,598,888
- -----------------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 137,800 4,754,100
- -----------------------------------------------------------------------
Microchip Technology, Inc.(a) 107,500 3,225,000
- -----------------------------------------------------------------------
National Semiconductor Corp.(a) 103,000 2,671,563
- -----------------------------------------------------------------------
PMC-Sierra, Inc.(a) 25,000 775,000
- -----------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR
(Taiwan)(a) 19,000 345,563
- -----------------------------------------------------------------------
Texas Instruments, Inc. 20,000 900,000
- -----------------------------------------------------------------------
Unitrode Corp.(a) 14,000 301,000
- -----------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 18,000 679,500
- -----------------------------------------------------------------------
Xilinx, Inc.(a) 38,000 1,332,375
- -----------------------------------------------------------------------
29,887,483
- -----------------------------------------------------------------------
ENTERTAINMENT - 0.20%
Regal Cinemas, Inc.(a) 37,500 1,045,313
- -----------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 1.41%
Applied Materials, Inc.(a) 35,700 1,075,463
- -----------------------------------------------------------------------
BMC Industries, Inc. 5,000 80,625
- -----------------------------------------------------------------------
Etec Systems, Inc.(a) 10,000 465,000
- -----------------------------------------------------------------------
KLA-Tencor Corp.(a) 47,600 1,838,550
- -----------------------------------------------------------------------
Lam Research Corp.(a) 52,700 1,541,475
- -----------------------------------------------------------------------
Novellus Systems, Inc.(a) 41,000 1,324,813
- -----------------------------------------------------------------------
Teradyne, Inc.(a) 33,000 1,056,000
- -----------------------------------------------------------------------
7,381,926
- -----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.36%
MGIC Investment Corp. 78,000 5,187,000
- -----------------------------------------------------------------------
Newcourt Credit Group, Inc. (Canada) 9,900 330,413
- -----------------------------------------------------------------------
SunAmerica, Inc. 37,500 1,603,125
- -----------------------------------------------------------------------
7,120,538
- -----------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-3
<PAGE> 78
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
FOOTWEAR - 0.26%
Adidas A.G. (Germany) 4,000 $ 526,070
- ----------------------------------------------------------------------
Wolverine World Wide, Inc. 37,900 857,488
- ----------------------------------------------------------------------
1,383,558
- ----------------------------------------------------------------------
GAMING, LOTTERY & PARI-MUTUEL COMPANIES - 0.20%
International Game Technology 26,700 674,175
- ----------------------------------------------------------------------
MGM Grand, Inc.(a) 10,000 360,625
- ----------------------------------------------------------------------
1,034,800
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.29%
Alpharma, Inc. 12,750 277,313
- ----------------------------------------------------------------------
Biovail Corporation International (Canada)(a) 10,000 390,625
- ----------------------------------------------------------------------
Columbia Laboratories, Inc.(a) 20,000 317,500
- ----------------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 32,300 1,481,763
- ----------------------------------------------------------------------
Elan Corp. PLC-ADR (Ireland)(a) 64,200 3,286,238
- ----------------------------------------------------------------------
Forest Laboratories, Inc.(a) 21,200 1,045,425
- ----------------------------------------------------------------------
Jones Medical Industries, Inc. 47,500 1,816,875
- ----------------------------------------------------------------------
Mylan Laboratories, Inc. 60,300 1,262,531
- ----------------------------------------------------------------------
Parexel International Corp.(a) 13,300 492,100
- ----------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 50,000 1,621,875
- ----------------------------------------------------------------------
11,992,245
- ----------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 2.92%
Health Management Associates, Inc.-Class A(a) 201,768 5,094,642
- ----------------------------------------------------------------------
Quorum Health Group, Inc.(a) 69,500 1,815,688
- ----------------------------------------------------------------------
Tenet Healthcare Corp.(a) 148,465 4,917,903
- ----------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 68,400 3,445,650
- ----------------------------------------------------------------------
15,273,883
- ----------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 1.82%
Beverly Enterprises, Inc.(a) 90,000 1,170,000
- ----------------------------------------------------------------------
Health Care and Retirement Corp.(a) 70,000 2,817,500
- ----------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 199,500 5,536,125
- ----------------------------------------------------------------------
9,523,625
- ----------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 1.20%
American Oncology Resources, Inc.(a) 10,000 160,000
- ----------------------------------------------------------------------
Concentra Managed Care, Inc.(a) 41,500 1,400,625
- ----------------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 21,800 1,308,000
- ----------------------------------------------------------------------
HealthCare COMPARE Corp.(a) 24,100 1,232,113
- ----------------------------------------------------------------------
PhyCor, Inc.(a) 81,300 2,195,100
- ----------------------------------------------------------------------
6,295,838
- ----------------------------------------------------------------------
MARKET
SHARES VALUE
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.54%
Arterial Vascular Engineering, Inc.(a) 15,200 $ 988,000
- ----------------------------------------------------------------------
Biomet, Inc. 37,200 953,250
- ----------------------------------------------------------------------
Dentsply International, Inc. 32,000 976,000
- ----------------------------------------------------------------------
Guidant Corp. 21,600 1,344,600
- ----------------------------------------------------------------------
Henry Schein, Inc.(a) 28,485 996,975
- ----------------------------------------------------------------------
Medtronic, Inc. 33,500 1,752,469
- ----------------------------------------------------------------------
Physician Sales & Service, Inc.(a) 33,000 709,500
- ----------------------------------------------------------------------
Quintiles Transnational Corp.(a) 35,600 1,361,700
- ----------------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 12,000 780,750
- ----------------------------------------------------------------------
Stryker Corp. 14,200 528,950
- ----------------------------------------------------------------------
Sybron International Corp.(a) 61,800 2,900,738
- ----------------------------------------------------------------------
13,292,932
- ----------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 2.21%
American HomePatient, Inc.(a) 22,050 518,175
- ----------------------------------------------------------------------
Covance, Inc.(a) 82,525 1,640,184
- ----------------------------------------------------------------------
FPA Medical Management, Inc.(a) 56,600 1,054,175
- ----------------------------------------------------------------------
Lincare Holdings, Inc.(a) 40,500 2,308,500
- ----------------------------------------------------------------------
Omnicare, Inc. 143,900 4,460,900
- ----------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 15,000 249,375
- ----------------------------------------------------------------------
PharMerica, Inc.(a) 40,959 424,950
- ----------------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 31,333 861,658
- ----------------------------------------------------------------------
Transition Systems, Inc.(a) 600 13,275
- ----------------------------------------------------------------------
11,531,192
- ----------------------------------------------------------------------
HOMEBUILDING - 0.29%
Clayton Homes, Inc. 65,000 1,170,000
- ----------------------------------------------------------------------
Oakwood Homes Corp. 10,100 335,194
- ----------------------------------------------------------------------
1,505,194
- ----------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.28%
Leggett & Platt, Inc. 35,000 1,465,625
- ----------------------------------------------------------------------
HOUSEWARES - 0.05%
Central Garden and Pet Co.(a) 10,000 262,500
- ----------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.64%
Everest Reinsurance Holdings, Inc. 35,000 1,443,750
- ----------------------------------------------------------------------
Executive Risk Inc. 4,400 307,175
- ----------------------------------------------------------------------
HCC Insurance Holdings, Inc. 9,200 195,500
- ----------------------------------------------------------------------
Mercury General Corp. 25,000 1,381,250
- ----------------------------------------------------------------------
3,327,675
- ----------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.20%
Paine Webber Group Inc. 30,000 1,036,875
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-4
<PAGE> 79
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
INVESTMENT MANAGEMENT - 0.54%
Franklin Resources, Inc. 11,500 $ 999,779
- -----------------------------------------------------------------
T. Rowe Price Associates, Inc. 29,000 1,823,375
- -----------------------------------------------------------------
2,823,154
- -----------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.64%
Callaway Golf Co. 16,900 482,706
- -----------------------------------------------------------------
GTECH Holdings Corp.(a) 21,300 680,269
- -----------------------------------------------------------------
Harley-Davidson, Inc. 53,600 1,467,300
- -----------------------------------------------------------------
North Face, Inc. (The)(a) 12,500 275,000
- -----------------------------------------------------------------
Speedway Motorsports, Inc.(a) 17,900 444,144
- -----------------------------------------------------------------
3,349,419
- -----------------------------------------------------------------
LODGING (HOTELS) - 0.47%
Choice Hotels International, Inc.(a) 36,000 576,000
- -----------------------------------------------------------------
Promus Hotel Corp.(a) 42,544 1,786,838
- -----------------------------------------------------------------
Sunburst Hospitality Corp.(a) 12,000 118,500
- -----------------------------------------------------------------
2,481,338
- -----------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.02%
AMETEK, Inc. 9,000 243,000
- -----------------------------------------------------------------
Hillenbrand Industries, Inc. 26,200 1,341,113
- -----------------------------------------------------------------
Pentair, Inc. 14,500 521,094
- -----------------------------------------------------------------
Thermo Electron Corp.(a) 44,300 1,971,350
- -----------------------------------------------------------------
Tyco International Ltd. (Bermuda) 27,936 1,258,866
- -----------------------------------------------------------------
5,335,423
- -----------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.74%
Cognex Corp.(a) 42,500 1,158,125
- -----------------------------------------------------------------
Diebold, Inc. 32,100 1,625,063
- -----------------------------------------------------------------
US Filter Corp.(a) 36,100 1,080,740
- -----------------------------------------------------------------
3,863,928
- -----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.20%
Herman Miller, Inc. 14,000 763,875
- -----------------------------------------------------------------
HON INDUSTRIES, Inc. 4,900 289,100
- -----------------------------------------------------------------
1,052,975
- -----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 8.60%
Baker Hughes, Inc. 38,500 1,679,563
- -----------------------------------------------------------------
BJ Services Co.(a) 43,000 3,093,313
- -----------------------------------------------------------------
Camco International, Inc. 41,500 2,643,031
- -----------------------------------------------------------------
Cooper Cameron Corp.(a) 44,000 2,684,000
- -----------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 30,200 545,488
- -----------------------------------------------------------------
Diamond Offshore Drilling, Inc. 37,500 1,804,688
- -----------------------------------------------------------------
ENSCO International, Inc. 42,500 1,423,750
- -----------------------------------------------------------------
EVI, Inc.(a) 35,600 1,842,300
- -----------------------------------------------------------------
MARKET
SHARES VALUE
OIL & GAS (DRILLING & EQUIPMENT) - (CONTINUED)
Falcon Drilling Co., Inc.(a) 59,000 $ 2,068,688
- -----------------------------------------------------------------
Global Industries Ltd.(a) 85,000 1,445,000
- -----------------------------------------------------------------
Global Marine, Inc.(a) 27,000 661,500
- -----------------------------------------------------------------
Halliburton Co. 19,200 997,200
- -----------------------------------------------------------------
Input/Output, Inc.(a) 58,500 1,736,719
- -----------------------------------------------------------------
Lone Star Technologies, Inc.(a) 27,000 766,125
- -----------------------------------------------------------------
Marine Drilling Companies, Inc.(a) 64,800 1,344,600
- -----------------------------------------------------------------
Nabors Industries, Inc.(a) 57,400 1,804,513
- -----------------------------------------------------------------
National-Oilwell, Inc.(a) 36,600 1,251,263
- -----------------------------------------------------------------
Noble Drilling Corp.(a) 45,000 1,378,125
- -----------------------------------------------------------------
Petroleum Geo-Services ASA-ADR (Norway)(a) 15,000 971,250
- -----------------------------------------------------------------
Precision Drilling Corp. (Canada)(a) 60,000 1,462,500
- -----------------------------------------------------------------
Pride International, Inc.(a) 79,500 2,007,375
- -----------------------------------------------------------------
Rowan Companies, Inc.(a) 41,000 1,250,500
- -----------------------------------------------------------------
Santa Fe International Corp. 14,100 573,694
- -----------------------------------------------------------------
Smith International, Inc.(a) 35,300 2,166,538
- -----------------------------------------------------------------
Transocean Offshore Inc. 49,000 2,361,188
- -----------------------------------------------------------------
Varco International, Inc.(a) 116,600 2,499,613
- -----------------------------------------------------------------
Veritas DGC, Inc.(a) 35,800 1,414,100
- -----------------------------------------------------------------
Weatherford Enterra, Inc.(a) 25,000 1,093,750
- -----------------------------------------------------------------
44,970,374
- -----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.08%
Apache Corp. 30,000 1,051,875
- -----------------------------------------------------------------
Burlington Resources, Inc. 29,100 1,304,044
- -----------------------------------------------------------------
Ocean Energy, Inc.(a) 26,000 1,282,125
- -----------------------------------------------------------------
Pioneer Natural Resources Co. 13,000 376,188
- -----------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 80,000 900,000
- -----------------------------------------------------------------
Stolt Comex Seaway, S.A. (United Kingdom)(a) 15,000 750,000
- -----------------------------------------------------------------
5,664,232
- -----------------------------------------------------------------
PERSONAL CARE - 0.54%
Perrigo Co.(a) 75,000 1,003,125
- -----------------------------------------------------------------
Rexall Sundown, Inc.(a) 60,200 1,817,288
- -----------------------------------------------------------------
2,820,413
- -----------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 0.28%
Xerox Corp. 19,600 1,446,725
- -----------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.36%
AES Corp.(a) 40,000 1,865,000
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-5
<PAGE> 80
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
RESTAURANTS - 1.39%
Apple South, Inc. 77,800 $ 1,021,125
- -----------------------------------------------------------------
Applebee's International, Inc. 53,600 968,150
- -----------------------------------------------------------------
Brinker International, Inc.(a) 36,600 585,600
- -----------------------------------------------------------------
CKE Restaurants, Inc. 35,900 1,512,288
- -----------------------------------------------------------------
Cracker Barrel Old Country Store, Inc. 40,000 1,335,000
- -----------------------------------------------------------------
Foodmaker, Inc.(a) 10,000 150,625
- -----------------------------------------------------------------
Outback Steakhouse, Inc.(a) 21,000 603,750
- -----------------------------------------------------------------
Starbucks Corp.(a) 28,200 1,082,175
- -----------------------------------------------------------------
7,258,713
- -----------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.60%
Eagle Hardware & Garden, Inc.(a) 37,500 726,563
- -----------------------------------------------------------------
Fastenal Co. 14,500 554,625
- -----------------------------------------------------------------
Home Depot, Inc. 10,950 644,681
- -----------------------------------------------------------------
Lowe's Companies, Inc. 25,000 1,192,188
- -----------------------------------------------------------------
3,118,057
- -----------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 2.09%
Best Buy Co., Inc.(a) 36,800 1,357,000
- -----------------------------------------------------------------
CHS Electronics, Inc.(a) 75,000 1,284,375
- -----------------------------------------------------------------
CompUSA, Inc.(a) 116,700 3,617,700
- -----------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 40,700 1,185,388
- -----------------------------------------------------------------
Tech Data Corp.(a) 89,900 3,494,863
- -----------------------------------------------------------------
10,939,326
- -----------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.67%
Kohl's Corp.(a) 18,400 1,253,500
- -----------------------------------------------------------------
Nordstrom, Inc. 28,100 1,696,538
- -----------------------------------------------------------------
Proffitt's, Inc.(a) 20,200 574,438
- -----------------------------------------------------------------
3,524,476
- -----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.81%
Consolidated Stores Corp.(a) 95,162 4,181,180
- -----------------------------------------------------------------
Dollar General Corp. 24,002 870,073
- -----------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 37,650 1,557,769
- -----------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 55,750 1,937,313
- -----------------------------------------------------------------
Ross Stores, Inc. 24,600 894,825
- -----------------------------------------------------------------
9,441,160
- -----------------------------------------------------------------
RETAIL (DRUG STORES) - 0.68%
CVS Corp. 7,773 497,958
- -----------------------------------------------------------------
Rite Aid Corp. 52,280 3,068,183
- -----------------------------------------------------------------
3,566,141
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.92%
American Stores Co. 11,100 228,244
- -----------------------------------------------------------------
Kroger Co.(a) 103,500 3,823,031
- -----------------------------------------------------------------
Quality Food Centers, Inc.(a) 14,800 991,600
- -----------------------------------------------------------------
Safeway, Inc.(a) 78,700 4,977,775
- -----------------------------------------------------------------
10,020,650
- -----------------------------------------------------------------
SHARES MARKET
VALUE
RETAIL (GENERAL MERCHANDISE) - 0.88%
Costco Companies, Inc.(a) 17,400 $ 776,475
- -----------------------------------------------------------------
Dayton Hudson Corp. 28,800 1,944,000
- -----------------------------------------------------------------
Fred Meyer, Inc.(a) 51,600 1,876,950
- -----------------------------------------------------------------
4,597,425
- -----------------------------------------------------------------
RETAIL (HOME SHOPPING) - 0.78%
CDW Computer Centers, Inc.(a) 58,500 3,049,313
- -----------------------------------------------------------------
Micro Warehouse, Inc.(a) 72,900 1,016,044
- -----------------------------------------------------------------
4,065,357
- -----------------------------------------------------------------
RETAIL (SPECIALTY) - 3.95%
AutoZone, Inc.(a) 20,000 580,000
- -----------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 45,500 1,751,750
- -----------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 19,100 250,688
- -----------------------------------------------------------------
General Nutrition Companies, Inc.(a) 39,200 1,332,800
- -----------------------------------------------------------------
Hollywood Entertainment Corp.(a) 67,800 720,375
- -----------------------------------------------------------------
Inacom Corp.(a) 20,600 578,088
- -----------------------------------------------------------------
Michaels Stores, Inc.(a) 57,500 1,681,875
- -----------------------------------------------------------------
Office Depot, Inc.(a) 84,400 2,020,325
- -----------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 25,600 614,400
- -----------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 30,100 731,806
- -----------------------------------------------------------------
Staples, Inc.(a) 135,925 3,771,919
- -----------------------------------------------------------------
Tiffany & Co. 41,100 1,482,169
- -----------------------------------------------------------------
Toys "R" Us, Inc.(a) 28,400 892,825
- -----------------------------------------------------------------
Viking Office Products, Inc.(a) 117,300 2,558,606
- -----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 39,600 1,658,250
- -----------------------------------------------------------------
20,625,876
- -----------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 0.67%
Gap, Inc. 49,050 1,738,209
- -----------------------------------------------------------------
The TJX Companies, Inc. 51,500 1,770,313
- -----------------------------------------------------------------
3,508,522
- -----------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.16%
Dime Bancorp, Inc. 27,300 825,825
- -----------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.31%
Omnicom Group, Inc. 38,800 1,644,150
- -----------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.27%
Avis Rent A Car, Inc.(a) 30,000 958,125
- -----------------------------------------------------------------
Cendant Corp.(a) 42,535 1,462,136
- -----------------------------------------------------------------
Cerner Corp.(a) 74,200 1,567,475
- -----------------------------------------------------------------
Cintas Corp. 8,000 312,000
- -----------------------------------------------------------------
Equity Corp. International(a) 13,800 319,125
- -----------------------------------------------------------------
Service Corp. International 129,000 4,764,931
- -----------------------------------------------------------------
Stewart Enterprises, Inc.- Class A 53,750 2,506,094
- -----------------------------------------------------------------
11,889,886
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-6
<PAGE> 81
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
SERVICES (COMPUTER SYSTEMS) - 1.29%
Cambridge Technology Partners, Inc.(a) 17,800 $ 740,925
- -------------------------------------------------------------------
Gartner Group, Inc.(a) 70,500 2,626,125
- -------------------------------------------------------------------
Shared Medical Systems Corp. 25,600 1,689,600
- -------------------------------------------------------------------
SunGard Data Systems Inc.(a) 55,200 1,711,200
- -------------------------------------------------------------------
6,767,850
- -------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 2.47%
Affiliated Computer Services, Inc.(a) 30,500 802,531
- -------------------------------------------------------------------
The BISYS Group, Inc.(a) 12,000 399,000
- -------------------------------------------------------------------
Ceridian Corp.(a) 25,700 1,177,381
- -------------------------------------------------------------------
CSG Systems International, Inc.(a) 27,400 1,096,000
- -------------------------------------------------------------------
DST Systems, Inc.(a) 34,800 1,485,525
- -------------------------------------------------------------------
Equifax, Inc. 14,000 496,125
- -------------------------------------------------------------------
Fiserv, Inc.(a) 51,900 2,549,588
- -------------------------------------------------------------------
National Data Corp. 22,500 812,813
- -------------------------------------------------------------------
Paychex, Inc. 67,350 3,409,594
- -------------------------------------------------------------------
PMT Services, Inc.(a) 50,500 700,688
- -------------------------------------------------------------------
12,929,245
- -------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.13%
AccuStaff, Inc.(a) 29,300 673,900
- -------------------------------------------------------------------
SPECIALTY PRINTING - 0.25%
Valassis Communications, Inc.(a) 35,000 1,295,000
- -------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.32%
Nokia Oy A.B.-Class A (Finland) 4,300 300,553
- -------------------------------------------------------------------
Nokia Oy A.B.-Class A-ADR (Finland) 19,600 1,372,000
- -------------------------------------------------------------------
1,672,553
- -------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.44%
Billing Information Concepts(a) 31,000 1,488,000
- -------------------------------------------------------------------
CIENA Corp.(a) 39,100 2,389,988
- -------------------------------------------------------------------
LCI International, Inc.(a) 118,600 3,646,950
- -------------------------------------------------------------------
7,524,938
- -------------------------------------------------------------------
TELEPHONE - 0.27%
Cincinnati Bell, Inc. 46,300 1,435,300
- -------------------------------------------------------------------
TEXTILES (APPAREL) - 1.52%
Jones Apparel Group, Inc.(a) 44,900 1,930,700
- -------------------------------------------------------------------
Liz Claiborne, Inc. 41,500 1,735,210
- -------------------------------------------------------------------
Nautica Enterprises, Inc.(a) 51,600 1,199,700
- -------------------------------------------------------------------
St. John Knits, Inc. 26,700 1,068,000
- -------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 57,100 2,005,630
- -------------------------------------------------------------------
7,939,240
- -------------------------------------------------------------------
TEXTILES (SPECIALTY) - 0.39%
Unifi, Inc. 49,500 2,014,031
- -------------------------------------------------------------------
TRUCKS & PARTS - 0.05%
Wabash National Corp. 10,000 284,375
- -------------------------------------------------------------------
SHARES MARKET
VALUE
WASTE MANAGEMENT - 1.06%
Thermo Instrument Systems, Inc.(a) 42,125 $ 1,450,680
- ----------------------------------------------------------------
USA Waste Services, Inc.(a) 104,675 4,108,497
- ----------------------------------------------------------------
5,559,177
- ----------------------------------------------------------------
Total Common Stocks 495,129,258
- ----------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.07%
FINANCIAL (DIVERSIFIED) - 0.07%
MGIC Investment Corp.-$3.12 Conv. Pfd. 3,500 388,500
- ----------------------------------------------------------------
RIGHTS - 0.07%
FINANCIAL (DIVERSIFIED) - 0.07%
Newcourt Credit Group, Inc. (Canada) 11,400 374,775
- ----------------------------------------------------------------
PRINCIPAL
AMOUNT
CONVERTIBLE CORPORATE BONDS - 0.14%
COMPUTERS (PERIPHERALS) - 0.14%
EMC Corp., 3.25%,
03/15/02, Conv. Sub. Notes $ 550,000 742,363
- ----------------------------------------------------------------
REPURCHASE AGREEMENTS - 3.67%(b)
Goldman Sachs & Co., 6.53%,
01/02/98(c) 509,896 509,896
- ----------------------------------------------------------------
Smith Barney, Inc., 6.75%,
01/02/98(d) 18,650,989 18,650,989
- ----------------------------------------------------------------
Total Repurchase Agreements 19,160,885
- ----------------------------------------------------------------
TOTAL INVESTMENTS - 98.66% 515,795,781
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.34% 6,984,297
- ----------------------------------------------------------------
NET ASSETS - 100.00% $522,780,078
================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Government obligations,
0% to 14% due 01/08/98 to 05/15/21 with a market value at 12/31/97 of
$918,902,583.
(d) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with a market. value at 12/31/97 of
$408,000,323.
Abbreviations:
ADR - American Depositary Receipt
Conv.- Convertible
Pfd. - Preferred
Sub. - Subordinated
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-7
<PAGE> 82
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $404,013,692) $515,795,781
- ----------------------------------------------------------------------
Receivables for:
Investments sold 9,116,531
- ----------------------------------------------------------------------
Capital stock sold 344,734
- ----------------------------------------------------------------------
Dividends and interest 129,747
- ----------------------------------------------------------------------
Investment for deferred compensation plan 19,105
- ----------------------------------------------------------------------
Organizational costs, net 965
- ----------------------------------------------------------------------
Other assets 970
- ----------------------------------------------------------------------
Total assets 525,407,833
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,977,594
- ----------------------------------------------------------------------
Capital stock reacquired 301,121
- ----------------------------------------------------------------------
Deferred compensation plan 19,105
- ----------------------------------------------------------------------
Accrued advisory fees 287,049
- ----------------------------------------------------------------------
Accrued directors' fees 2,657
- ----------------------------------------------------------------------
Accrued administrative services fees 3,404
- ----------------------------------------------------------------------
Accrued operating expenses 36,825
- ----------------------------------------------------------------------
Total liabilities 2,627,755
- ----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $522,780,078
======================================================================
Capital shares, $.001 par value per share:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 24,031,390
======================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 21.75
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $19,940 foreign withholding tax) $ 1,141,020
- ---------------------------------------------------------------------------
Interest 3,099,764
- ---------------------------------------------------------------------------
Total investment income 4,240,784
- ---------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,083,708
- ---------------------------------------------------------------------------
Administrative services fees 43,588
- ---------------------------------------------------------------------------
Custodian fees 85,219
- ---------------------------------------------------------------------------
Directors' fees and expenses 10,814
- ---------------------------------------------------------------------------
Organizational costs 2,892
- ---------------------------------------------------------------------------
Other 105,711
- ---------------------------------------------------------------------------
Total expenses 3,331,932
- ---------------------------------------------------------------------------
Less: Expenses paid indirectly (5,157)
- ---------------------------------------------------------------------------
Net expenses 3,326,775
- ---------------------------------------------------------------------------
Net investment income 914,009
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 11,600,242
- ---------------------------------------------------------------------------
Foreign currencies (1,983)
- ---------------------------------------------------------------------------
Futures contracts 4,557,682
- ---------------------------------------------------------------------------
16,155,941
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 36,215,593
- ---------------------------------------------------------------------------
Futures contracts (261,890)
- ---------------------------------------------------------------------------
35,953,703
- ---------------------------------------------------------------------------
Net gain on investment securities, foreign currencies and
futures contracts 52,109,644
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $53,023,653
- ---------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-8
<PAGE> 83
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 914,009 $ 521,505
- ------------------------------------------------------------------------------
Net realized gain on sales of investment
securities, foreign currencies and futures
contracts 16,155,941 6,958,471
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and futures contracts 35,953,703 36,611,035
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 53,023,653 44,091,011
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (536,874) (546,109)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (6,902,664) --
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 107,132,798 114,365,840
- ------------------------------------------------------------------------------
Net increase in net assets 152,716,913 157,910,742
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 370,063,165 212,152,423
- ------------------------------------------------------------------------------
End of year $522,780,078 $370,063,165
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $394,408,721 $287,275,923
- ------------------------------------------------------------------------------
Undistributed net investment income 876,543 491,407
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies and futures
contracts 15,712,724 6,467,448
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and futures contracts 111,782,090 75,828,387
- ------------------------------------------------------------------------------
$522,780,078 $370,063,165
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Capital Appreciation Fund (the "Fund"). The Fund's investment
objective is to seek capital appreciation through investments in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts and variable life
insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date, or absent a last sales price, at the mean of the closing bid and
asked prices. Debt obligations (including convertible bonds) are valued on
the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market quotations are not readily available or are questionable are valued
at fair value as determined in good faith by or under the supervision of
the Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which
they are
AIM V.I. CAPITAL APPRECIATION FUND
FS-9
<PAGE> 84
determined and the close of the New York Stock Exchange which will not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997,
undistributed net investment income was increased by $8,001 and
undistributed net realized gains decreased by $8001 in order to comply with
the requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contract at the
end of each day's trading. Variation margin payments are made or received
depending upon whether unrealized gains or losses are incurred. When the
contracts are closed, the Fund recognizes a realized gain or loss equal to
the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Organizational Costs - Organizational costs for the Fund of $14,461 are
being amortized over five years.
F. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
G. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $43,588 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$5,296 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion
of the Fund's expenses related to pricing services used by the Fund which
reduced the Fund's expenses by $1,946 during the year ended December 31, 1997.
The Fund also received reductions in custodian fees of $3,211 under an expense
offset arrangement. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $5,157 during the year ended
December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest director's fees, if
so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1997 was
$405,928,809 and $281,447,431, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $131,285,959
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (20,124,306)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $111,161,650
===========================================================================
</TABLE>
Cost of investments for tax purposes is $404,634,128.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold 9,656,144 $202,278,514 7,080,357 $129,652,839
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 357,327 7,439,538 28,864 546,109
- -----------------------------------------------------------------------------
Reacquired (5,025,910) (102,585,254) (887,800) (15,833,108)
- -----------------------------------------------------------------------------
4,987,561 $107,132,798 6,221,421 $114,365,840
=============================================================================
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-10
<PAGE> 85
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------- -----------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00
- ------------------------ -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.03 0.02 0.04 0.05 --
- ------------------------ -------- -------- -------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 2.58 2.89 4.46 (0.54) 2.59
- ------------------------ -------- -------- -------- ------- -------
Total from investment
operations 2.61 2.91 4.50 (0.49) 2.59
- ------------------------ -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.02) (0.03) -- (0.04) (0.01)
- ------------------------ -------- -------- -------- ------- -------
Dividends from net
realized gains (0.27) -- -- -- --
- ------------------------ -------- -------- -------- ------- -------
Total distributions (0.29) (0.03) -- (0.04) (0.01)
- ------------------------ -------- -------- -------- ------- -------
Net asset value, end of
period $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
======================== ======== ======== ======== ======= =======
Total return(a) 13.51% 17.58% 37.38% (3.91)% 25.90%
======================== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $522,642 $370,063 $212,152 $88,177 $35,354
======================== ======== ======== ======== ======= =======
Ratio of expenses to
average net assets 0.68%(b)(c) 0.73% 0.75%(d) 0.84% 1.06%(d)
======================== ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets 0.18%(b) 0.18% 0.39%(d) 0.46% 0.07%(d)
======================== ======== ======== ======== ======= =======
Portfolio turnover rate 65% 59% 37% 81% 34%
======================== ======== ======== ======== ======= =======
Average brokerage
commission rate(e) $ 0.0577 $ 0.0592 N/A N/A N/A
======================== ======== ======== ======== ======= =======
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $493,118,049.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid
expenses, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid
on applicable purchases and sales of securities for the period divided by
the total number of related shares purchased and sold, which is required
to be disclosed for fiscal years beginning September 1, 1995 and
thereafter.
AIM V.I. CAPITAL APPRECIATION FUND
FS-11
<PAGE> 86
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Diversified Income Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Diversified Income Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations), through January 31, 1994 in conformity with
generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. DIVERSIFIED INCOME FUND
FS-12
<PAGE> 87
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 65.11%
AGRICULTURAL PRODUCTS - 0.17%
Hines Horticulture, Inc., Series B Sr. Gtd. Sub.
Notes, 11.75%, 10/15/05 $ 140,000 $ 154,700
- -------------------------------------------------------------------------------
AIRLINES - 3.05%
Airplanes Pass Through Trust, Sub. Bonds, 10.875%,
03/15/19 300,000 337,689
- -------------------------------------------------------------------------------
America West Airlines, Pass Through Certificates,
6.86%, 07/02/04 882,000 888,632
- -------------------------------------------------------------------------------
Delta Air Lines, Inc., Deb., 9.00%,
05/15/16 825,000 975,488
- -------------------------------------------------------------------------------
United Air Lines, Inc., Pass Through Certificates,
9.56%, 10/19/18 425,000 522,640
- -------------------------------------------------------------------------------
2,724,449
- -------------------------------------------------------------------------------
AUTOMOBILES - 0.55%
General Motors Corp., Deb., 8.80%, 03/01/21 400,000 491,084
- -------------------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 1.02%
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 800,000 913,944
- -------------------------------------------------------------------------------
BANKS (MONEY CENTER) - 1.55%
Bankers Trust New York Corp., Gtd. Notes, 7.875%,
02/25/27 600,000 618,579
- -------------------------------------------------------------------------------
Deutsche Bank Financial, Gtd. Unsec. Sub. Deb., 6.70%,
12/13/06 750,000 766,283
- -------------------------------------------------------------------------------
1,384,862
- -------------------------------------------------------------------------------
BANKS (REGIONAL) - 1.51%
Mercantile Bank,
Sub. Notes, 6.375%, 01/15/04 300,000 299,106
- -------------------------------------------------------------------------------
Unsec. Sub. Notes, 7.30%, 06/15/07 1,000,000 1,052,930
- -------------------------------------------------------------------------------
1,352,036
- -------------------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 1.27%
Coca-Cola Enterprises, Inc., Putable Notes, 6.72%,
06/20/20(b) 5,000,000 1,132,650
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.18%
Cablevision Systems Corp., Sr. Notes, 7.875%, 12/15/07 500,000 513,125
- -------------------------------------------------------------------------------
Capstar Broadcasting Partners, Sr. Disc. Notes,
12.75%, 02/01/09(c) 490,000 355,250
- -------------------------------------------------------------------------------
Comcast Cable Communications, Notes, 8.50%, 05/01/27 500,000 583,750
- -------------------------------------------------------------------------------
Diamond Cable Communications PLC (United Kingdom), Sr.
Yankee Disc. Notes, 10.75%, 02/15/07(c) 1,160,000 794,600
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
BROADCASTING (TELEVISION, RADIO & CABLE) - (CONTINUED)
EchoStar DBS Corp., Sr. Sec. Gtd. Notes, 12.50%,
07/01/02 $ 430,000 $ 468,700
- -------------------------------------------------------------------------------
Knology Holdings Inc., Units, 11.875%, 10/15/07
(acquired 11/14/97; cost $310,500)(c)(d)(e) 600,000 327,000
- -------------------------------------------------------------------------------
Rifkin Acquisition Partners L.L.P., Sr. Sub. Notes,
11.125%, 01/15/06 100,000 111,000
- -------------------------------------------------------------------------------
TCI Communications Inc., Sr. Notes, 8.00%, 08/01/05 850,000 911,081
- -------------------------------------------------------------------------------
TeleWest Communications PLC (United Kingdom), Sr.
Yankee Disc. Deb., 11.00%, 10/01/07(c) 300,000 234,750
- -------------------------------------------------------------------------------
United International Holdings, Inc., Sr. Sec. Disc.
Notes, 10.53%, 11/15/99(b) 400,000 330,000
- -------------------------------------------------------------------------------
4,629,256
- -------------------------------------------------------------------------------
CHEMICALS - 3.70%
Nova Chemicals Ltd. (Canada), Yankee Deb., 7.00%,
08/15/26 750,000 770,925
- -------------------------------------------------------------------------------
Solutia Inc., Bonds, 6.72%, 10/15/37 750,000 763,148
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes,
11.75%, 08/15/06 220,000 225,500
- -------------------------------------------------------------------------------
Union Carbide Corp., Putable Deb., 6.79%, 06/01/25 1,500,000 1,540,800
- -------------------------------------------------------------------------------
3,300,373
- -------------------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.23%
Foamex International, Inc., Sr. Sub. Notes, 13.50%,
08/15/05 180,000 206,100
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.11%
Northern Telecom (Canada), Notes, 6.00%, 09/01/03 100,000 99,069
- -------------------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.34%
Commemorative Brands, Sr. Sub. Notes, 11.00%, 01/15/07 300,000 302,250
- -------------------------------------------------------------------------------
CONSUMER FINANCE - 2.10%
GMAC, Notes, 9.00%, 10/15/02 750,000 834,510
- -------------------------------------------------------------------------------
Household Finance Corp., Notes, 7.125%, 09/01/05 1,000,000 1,038,960
- -------------------------------------------------------------------------------
1,873,470
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 0.58%
MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02 190,000 190,475
- -------------------------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes, 11.25%, 04/01/07 300,000 324,750
- -------------------------------------------------------------------------------
515,225
- -------------------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.38%
AmeriServ Food Co., Gtd. Sr. Sub. Notes, 10.125%,
07/15/07 320,000 337,600
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-13
<PAGE> 88
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
ELECTRIC COMPANIES - 0.81%
El Paso Electric Co.,
Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 $ 500,000 $ 553,575
- ------------------------------------------------------------------------------
Series E Sec. First Mortgage Bonds, 9.40%, 05/01/11 150,000 169,620
- ------------------------------------------------------------------------------
723,195
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.44%
Electronic Retailing Systems International, Inc., Sr.
Disc. Notes, 13.25%, 02/01/04(c) 590,000 395,300
- ------------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.20%
Advanced Micro Devices, Inc., Sr. Sec. Notes, 11.00%,
08/01/03 170,000 182,538
- ------------------------------------------------------------------------------
ENTERTAINMENT - 3.13%
Ascent Entertainment Group, Sr. Discount Notes,
11.875%, 12/15/04 (acquired 12/17/97-12/18/97; cost
$339,390)(c)(d) 600,000 351,000
- ------------------------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.125%, 01/15/13 500,000 597,270
- ------------------------------------------------------------------------------
Notes, 8.18%, 08/15/07 750,000 823,665
- ------------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 500,000 506,925
- ------------------------------------------------------------------------------
Viacom, Inc., Sr. Notes, 7.75%, 06/01/05 500,000 513,855
- ------------------------------------------------------------------------------
2,792,715
- ------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 2.69%
Associates Corp. of North America, Series B Sr. Deb.,
7.95%, 02/15/10 750,000 839,175
- ------------------------------------------------------------------------------
Finova Capital Corp., Unsec. Notes, 7.40%, 05/06/06 750,000 790,493
- ------------------------------------------------------------------------------
U.S. West Capital Funding Inc., Gtd. Notes, 6.95%,
01/15/37 750,000 775,403
- ------------------------------------------------------------------------------
2,405,071
- ------------------------------------------------------------------------------
FOODS - 2.03%
ConAgra Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,385,332
- ------------------------------------------------------------------------------
Del Monte Corp./Foods Co., Sr. Unsec. Sub. Notes,
12.25%, 04/15/07 380,000 431,300
- ------------------------------------------------------------------------------
1,816,632
- ------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.68%
Coast Hotels & Casinos Inc., Series B Sec. First
Mortgage Gtd. Notes, 13.00%, 12/15/02 180,000 204,300
- ------------------------------------------------------------------------------
Venetian Casino Resort LLC, Mortgage Notes, 12.25%,
11/15/04 (acquired 11/06/97; cost $400,000)(d) 400,000 402,500
- ------------------------------------------------------------------------------
606,800
- ------------------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.86%
Tenet Healthcare Corp., Sr. Notes, 8.00%, 01/15/05 750,000 765,000
- ------------------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 1.21%
Paragon Health Network, Inc., Sr. Sub Notes, 10.50%,
11/01/07 (acquired 10/30/97; cost $416,899)(c)(d) 700,000 435,750
- ------------------------------------------------------------------------------
Sun Healthcare Group, Inc., Sr. Sub. Notes, 9.50%,
07/01/07 (acquired 07/01/97; cost $617,500)(d) 620,000 641,700
- ------------------------------------------------------------------------------
1,077,450
- ------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.45%
Alaris Medical Systems, Sr. Unsec. Gtd. Sub. Deb.,
9.75%, 12/01/06 $ 300,000 $ 316,500
- -------------------------------------------------------------------------------
Dade International Inc., Series B Sr. Sub. Notes,
11.125%, 05/01/06 80,000 88,800
- -------------------------------------------------------------------------------
405,300
- -------------------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.36%
Dynacare Inc. (Canada), Sr. Yankee Notes, 10.75%,
01/15/06 300,000 317,250
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.46%
Zeta Consumer Products, Sr. Notes, 11.25%, 11/30/07
(acquired 11/20/97; cost $400,000)(d) 400,000 409,000
- -------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.99%
Americo Life Inc., Sr. Sub. Notes, 9.25%, 06/01/05 75,000 77,063
- -------------------------------------------------------------------------------
Torchmark Corp., Notes, 7.875%, 05/15/23 750,000 808,005
- -------------------------------------------------------------------------------
885,068
- -------------------------------------------------------------------------------
IRON & STEEL - 0.69%
GS Industries, Inc., Sr. Gtd. Notes, 12.00%, 09/01/04 350,000 384,563
- -------------------------------------------------------------------------------
Gulf States Steel Corp., First Mortgage Notes, 13.50%,
04/15/03 230,000 233,450
- -------------------------------------------------------------------------------
618,013
- -------------------------------------------------------------------------------
LODGING - HOTELS - 1.95%
Booth Creek Ski Holdings, Sr. Notes, 12.50%, 03/15/07 390,000 384,150
- -------------------------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb., 7.375%, 11/15/15 750,000 770,663
- -------------------------------------------------------------------------------
John Q. Hammons Hotels Inc., Sec. First Mortgage
Notes, 9.75%, 10/01/05 550,000 585,750
- -------------------------------------------------------------------------------
1,740,563
- -------------------------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.49%
Elgin National Industries, Sr. Notes, 11.00%, 11/01/07
(acquired 11/03/97; cost $320,000)(d) 320,000 333,600
- -------------------------------------------------------------------------------
Fairfield Manufacturing Co., Inc., Sr. Sub. Notes,
11.375%, 07/01/01 100,000 106,000
- -------------------------------------------------------------------------------
439,600
- -------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.82%
MMI Products Inc., Sr. Unsec. Sub. Notes, 11.25%,
04/15/07 380,000 416,100
- -------------------------------------------------------------------------------
Simmons Co., Sr. Sub. Notes, 10.75%, 04/15/06 300,000 318,750
- -------------------------------------------------------------------------------
734,850
- -------------------------------------------------------------------------------
METALS MINING - 0.42%
Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%,
11/01/05 370,000 377,337
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-14
<PAGE> 89
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NATURAL GAS - 1.98%
Enron Corp.,
Notes, 6.75%, 08/01/09 $ 750,000 $ 759,052
- -------------------------------------------------------------------------------
Sr. Sub. Deb., 6.75%, 07/01/05 450,000 453,577
- -------------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 525,000 559,125
- -------------------------------------------------------------------------------
1,771,754
- -------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.35%
United Stationer Supply, Sr. Sub. Notes, 12.75%,
05/01/05 275,000 314,187
- -------------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 0.98%
Gulf Canada Resources, Ltd. (Canada), Sr. Yankee
Unsec. Notes, 8.35%, 08/01/06 800,000 871,856
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.07%
Falcon Drilling Co., Inc., Series B Sr. Notes, 9.75%,
01/15/01 60,000 63,150
- -------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.89%
Abraxas Petroleum Corp., Series B Sr. Notes, 11.50%,
11/01/04 125,000 137,500
- -------------------------------------------------------------------------------
Centaur Mining & Exploration, Ltd., Co. (Australia),
Sr. Gtd. Notes, 11.00%, 12/01/07 (acquired 11/24/97;
cost $550,000)(d) 550,000 555,500
- -------------------------------------------------------------------------------
Southwest Royalties, Inc., Sr. Gtd. Notes, 10.50%,
10/15/04 (acquired 10/08/97; cost $482,066)(d) 480,000 477,600
- -------------------------------------------------------------------------------
Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%,
06/01/07 500,000 516,380
- -------------------------------------------------------------------------------
1,686,980
- -------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.06%
Indah Kiat Fin Mauritius (Indonesia), Sr. Gtd. Unsec.
Notes, 10.00%, 07/01/07 (acquired 06/26/97; cost
$635,821)(d) 640,000 534,400
- -------------------------------------------------------------------------------
Pindo Deli Pulp & Paper, Gtd. Notes, 10.75%, 10/01/07
(acquired 10/14/97-10/16/97; cost $473,250)(d) 470,000 406,550
- -------------------------------------------------------------------------------
940,950
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.32%
Panda Global Energy Co. (China), Sr. Yankee Sec. Gtd.
Notes, 12.50%, 04/15/04 310,000 283,650
- -------------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 1.59%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 892,282
- -------------------------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%, 10/01/26 500,000 524,135
- -------------------------------------------------------------------------------
1,416,417
- -------------------------------------------------------------------------------
RAILROAD - 0.77%
Norfolk Southern Corp., Putable Bonds, 7.05%, 05/01/37 650,000 689,006
- -------------------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.23%
Loehmann's Holdings, Inc., Sr. Unsec. Notes, 11.875%,
05/15/03 200,000 208,500
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
RETAIL (FOOD CHAINS) - 0.96%
Great Atlantic & Pacific Tea Co., Inc. (Canada),
Yankee Gtd. Notes, 7.78%, 11/01/00 (acquired
10/18/95; cost $500,000)(d) $ 500,000 $ 516,452
- -------------------------------------------------------------------------------
Jitney-Jungle Stores of America Inc., Sr. Gtd. Notes,
12.00%, 03/01/06 300,000 341,250
- -------------------------------------------------------------------------------
857,702
- -------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.56%
Big 5 Corp., Sr. Notes, 10.875%, 11/15/07 (acquired
11/07/97-11/24/97; cost $497,484)(d) 500,000 500,000
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.80%
CSK Auto Inc., Sr. Gtd. Sub. Deb., 11.00%, 11/01/06 100,000 110,500
- -------------------------------------------------------------------------------
Icon Health & Fitness, Series B Sr. Sub. Notes,
13.00%, 07/15/02 150,000 168,375
- -------------------------------------------------------------------------------
United Auto Group, Inc., Sr. Sub. Notes, 11.00%,
07/15/07 (acquired 07/22/97; cost $296,250)(d) 300,000 296,250
- -------------------------------------------------------------------------------
Wilson's - The Leather Experts, Inc., Sr. Notes,
11.25%, 08/15/04 (acquired 08/14/97; cost
$140,000)(d) 140,000 138,600
- -------------------------------------------------------------------------------
713,725
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.24%
J. Crew Operating Corp., Sr. Sub. Notes, 10.375%,
10/15/07 (acquired 10/14/97; cost $240,000)(d) 240,000 213,600
- -------------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.47%
Sovereign Bancorp, Inc., Sub. Notes, 8.00%, 03/15/03 400,000 421,488
- -------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.36%
MDC Communications Corp. (Canada), Sr. Yankee Unsec.
Sub. Notes, 10.50%, 12/01/06 300,000 318,750
- -------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.59%
Dialog Corp. PLC (United Kingdom), Sr. Sub. Notes,
11.00%, 11/15/07 (acquired 11/10/97; cost
$350,000)(d) 350,000 364,875
- -------------------------------------------------------------------------------
Laidlaw Inc. (Canada), Yankee Deb., 6.65%, 10/01/04 550,000 553,899
- -------------------------------------------------------------------------------
Pegasus Shipping Hellas, Co. (Bermuda), Gtd. Sr.
Mortgage Notes, 11.875%, 11/15/04 (acquired 11/19/97;
cost $483,000)(d) 500,000 497,500
- -------------------------------------------------------------------------------
1,416,274
- -------------------------------------------------------------------------------
SHIPPING - 1.15%
Hutchison Whampoa Ltd. (Cayman Islands), Series D Sr.
Yankee Gtd. Unsec. Unsub. Deb., 6.988%, 08/01/37
(acquired 10/02/97; cost $753,008)(d) 750,000 700,830
- -------------------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Yankee Unsec. Notes, 10.50%,
12/15/05 300,000 327,750
- -------------------------------------------------------------------------------
1,028,580
- -------------------------------------------------------------------------------
SOVERIGN DEBT - 1.81%
Province of Manitoba (Canada), Yankee Bonds, 7.75%,
07/17/16 700,000 801,290
- -------------------------------------------------------------------------------
Province of Quebec (Canada), Yankee Deb., 6.29%, 03/06/26 800,000 816,920
- -------------------------------------------------------------------------------
1,618,210
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-15
<PAGE> 90
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 2.46%
Clearnet Communications Inc. (Canada), Sr. Yankee
Unsec. Disc. Notes, 14.75%, 12/15/05(c) $ 110,000 $ 88,137
- --------------------------------------------------------------------------------
GST Equipment Funding, Sr. Sec. Notes, 13.25%, 05/01/07 300,000 342,750
- --------------------------------------------------------------------------------
Nextel Communications, Sr. Disc. Notes, 9.75%, 10/31/07
(acquired 10/22/97-10/23/97; cost $602,450)(c)(d) 1,000,000 620,000
- --------------------------------------------------------------------------------
Orion Network Systems, Inc., Units, 11.25%, 01/15/07(f) 580,000 659,750
- --------------------------------------------------------------------------------
Pricellular Wireless Corp., Sr. Notes, 10.75%, 11/01/04 230,000 251,275
- --------------------------------------------------------------------------------
Sygnet Wireless Inc., Sr. Unsec. Notes, 11.50%,
10/01/06 220,000 238,700
- --------------------------------------------------------------------------------
2,200,612
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.80%
Bell Canada, Yankee Deb., 9.50%, 10/15/10 (Canada) 350,000 440,821
- --------------------------------------------------------------------------------
Esprit Telecom Group PLC (United Kingdom), Sr. Yankee
Notes, 11.50%, 12/15/07 350,000 362,250
- --------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 650,000 680,251
- --------------------------------------------------------------------------------
PhoneTel Technologies, Inc., Sr. Unsec. Gtd. Notes,
12.00%, 12/15/06 120,000 125,100
- --------------------------------------------------------------------------------
1,608,422
- --------------------------------------------------------------------------------
TELEPHONE - 0.62%
ESAT Holdings Ltd. (Ireland), Sr. Yankee Notes, 12.50%,
02/01/07(c) 470,000 338,400
- --------------------------------------------------------------------------------
Hermes Europe Railtel BV (Netherlands), Sr. Yankee
Notes, 11.50%, 08/15/07 (acquired 08/14/97; cost
$193,238)(d) 190,000 211,850
- --------------------------------------------------------------------------------
550,250
- --------------------------------------------------------------------------------
TRUCKERS - 0.80%
AmeriTruck Distribution Corp., Series B Sr. Sub. Notes,
12.25%, 11/15/05 300,000 298,500
- --------------------------------------------------------------------------------
Travelcenters of America Inc., Sr. Gtd. Unsec. Sub.
Deb., 10.25%,
04/01/07 400,000 422,000
- --------------------------------------------------------------------------------
720,500
- --------------------------------------------------------------------------------
TRUCKS & PARTS - 0.13%
Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%,
11/15/06 110,000 118,800
- --------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.70%
Allied Waste Industries, Inc., Sr. Disc. Notes, 11.30%,
06/01/07 (acquired 05/01/97; cost $516,924)(c)(d) 900,000 636,750
- --------------------------------------------------------------------------------
WMX Technologies, Inc., Unsec. Notes, 7.10%, 08/01/26 850,000 879,725
- --------------------------------------------------------------------------------
1,516,475
- --------------------------------------------------------------------------------
Total U.S. Dollar Denominated Non-Convertible Bonds &
Notes 58,158,588
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 9.89%(g)
CANADA - 5.74%
Bank of Montreal (Banks - Money Center), Sub. Deb.,
7.92%, 07/31/12 CAD 850,000 $ 670,323
- -------------------------------------------------------------------------------
Bell Mobility Cellular Inc. (Telecommunications -
Cellular/Wireless), Deb., 6.55%, 06/02/08 750,000 528,320
- -------------------------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas - Exploration &
Production), Deb., 11.00%, 10/31/00 450,000 352,965
- -------------------------------------------------------------------------------
Clearnet Communications Inc. (Telecommunications -
Cellular/Wireless), Sr. Disc. Notes, 11.75%,
08/13/07 (acquired 07/31/97-11/04/97; cost
$630,905)(c)(d) 1,500,000 666,527
- -------------------------------------------------------------------------------
Microcell Telecommunications (Telecommunications -
Cellular/Wireless), Sr. Disc. Notes, 11.125%,
10/15/07 (acquired 10/08/97; cost $424,107)(c)(d) 1,000,000 388,370
- -------------------------------------------------------------------------------
NAV Canada (Services - Commercial & Consumer), Bonds,
7.40%, 06/01/27 1,000,000 798,642
- -------------------------------------------------------------------------------
Telegobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 850,000 660,086
- -------------------------------------------------------------------------------
Trans-Canada Pipelines (Natural Gas),
Series Q Deb., 10.625%, 10/20/09 500,000 475,953
- -------------------------------------------------------------------------------
Unsec. Medium Term Notes, 8.55%, 02/01/06 280,000 226,819
- -------------------------------------------------------------------------------
Westcoast Energy, Inc. (Oil & Gas - Exploration &
Production), Deb., 6.45%, 12/18/06 (acquired
12/18/96; cost $369,585)(d) 500,000 358,770
- -------------------------------------------------------------------------------
5,126,775
- -------------------------------------------------------------------------------
GERMANY - 2.94%
Daimler-Benz A.G. (Automobiles), Gtd. Unsub.
Eurobonds, 4.125%, 07/05/03 DEM 570,000 443,580
- -------------------------------------------------------------------------------
International Bank for Reconstruction & Development
(Banks-Money Center), Unsec. Global Bonds, 7.125%,
04/12/05)(b) DEM 725,000 446,324-
- -------------------------------------------------------------------------------
LKB Global (Financial-Diversified), Gtd. Notes,
6.00%, 01/25/06 3,000,000 1,728,460
- -------------------------------------------------------------------------------
2,618,364
- -------------------------------------------------------------------------------
NEW ZEALAND - 0.32%
International Bank for Reconstruction & Development
(Banks-Money Center), Sr. Notes, 13.31%, 08/20/07(b) NZD1,000,000 288,693
- -------------------------------------------------------------------------------
UNITED KINGDOM - 0.89%
Sutton Bridge Financial Ltd. (Financial-Diversified),
Gtd. Eurobonds, 8.625%, 06/30/22 (acquired 05/29/97;
cost $733,585)(d) GBP 450,000 799,106
- -------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Non-Convertible
Bonds & Notes 8,832,938
- -------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS &
NOTES - 2.42%(g)
FRANCE - 0.32%
Societe Generale (Banks-Money Center), Conv. Deb.,
3.50%, 01/01/00 FRF1,419,000 288,352
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-16
<PAGE> 91
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
JAPAN - 1.13%
Matsushita Electric Industrial Co. Ltd.
(Electrical Equipment), Conv. Bonds, 1.30%,
03/29/02 JPY 50,000,000 $ 475,798
- ----------------------------------------------------------------------------
Sony Corp. (Electrical Equipment), Conv. Deb.,
1.40%, 03/31/05 8,000,000 90,986
- ----------------------------------------------------------------------------
Toyota Motor Corp. (Automobiles), Conv. Bonds,
1.20%, 01/28/98 30,000,000 438,845
- ----------------------------------------------------------------------------
1,005,629
- ----------------------------------------------------------------------------
UNITED KINGDOM - 0.97%
British Airport Authority PLC (Airlines), Conv.
Bonds, 5.75%, 03/29/06 GBP 500,000 866,340
- ----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible
Bonds & Notes 2,160,321
- ----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES - 15.51%(g)
AUSTRALIA - 0.67%
Queensland Treasury Corp., Gtd. Bonds, 6.50%,
06/14/05 AUD 900,000 600,090
- ----------------------------------------------------------------------------
CANADA - 2.91%
Canadian Government, Bonds, 7.00%, 12/01/06 CAD 1,000,000 767,454
- ----------------------------------------------------------------------------
Municipal Finance Authority of British Columbia,
Unsec. Bonds, 7.75%, 12/01/05 500,000 393,356
- ----------------------------------------------------------------------------
Ontario Province
Sr. Unsec. Unsub. Deb, 6.875%, 09/15/00 GBP 465,000 759,821
- ----------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Bonds, 8.00%, 03/11/03 CAD 750,000 581,521
- ----------------------------------------------------------------------------
Quebec (Province of), Deb., 9.375%, 01/16/23 100,000 95,116
- ----------------------------------------------------------------------------
2,597,268
- ----------------------------------------------------------------------------
GERMANY - 0.68%
Bundesrepublic Deutschland, Bonds, 6.875%,
05/12/05 DEM 1,000,000 610,962
- ----------------------------------------------------------------------------
ITALY - 0.35%
Republic of Italy, Conv. Eurobonds, 6.50%,
06/28/01 ITL400,000,000 312,323
- ----------------------------------------------------------------------------
NEW ZEALAND - 3.08%
Federal National Mortgage Association, Notes,
7.25%, 06/20/02 NZD 1,250,000 710,149
- ----------------------------------------------------------------------------
New Zealand Government,
Bonds, 8.00%, 02/15/01 750,000 442,479
- ----------------------------------------------------------------------------
Bonds, 10.00%, 03/15/02 1,800,000 1,144,973
- ----------------------------------------------------------------------------
Bonds, 8.00%, 04/15/04 750,000 454,128
- ----------------------------------------------------------------------------
2,751,729
- ----------------------------------------------------------------------------
SWEDEN - 2.75%
Swedish Government,
Bonds, 10.25%, 05/05/03 SEK 6,000,000 911,044
- ----------------------------------------------------------------------------
Bonds, 6.00%, 02/09/05 6,000,000 762,225
- ----------------------------------------------------------------------------
Bonds, 6.50%, 10/25/06 6,000,000 783,516
- ----------------------------------------------------------------------------
2,456,785
- ----------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
UNITED KINGDOM - 5.07%
Federal National Mortgage Association, Sr. Unsec.
Notes, 6.875%, 06/07/02 GBP 450,000 $ 741,312
- -------------------------------------------------------------------------------
United Kingdom Treasury,
Bonds, 8.00%, 12/07/00 400,000 679,729
- -------------------------------------------------------------------------------
Bonds, 7.50% 12/07/06 450,000 795,991
- -------------------------------------------------------------------------------
Gtd. Notes, 7.25%, 03/30/98 1,000,000 1,643,122
- -------------------------------------------------------------------------------
Gtd. Notes, 7.00%, 11/06/01 400,000 664,639
- -------------------------------------------------------------------------------
4,524,793
- -------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Government Bonds & Notes 13,853,950
- -------------------------------------------------------------------------------
SHARES
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 2.25%
BANKS (REGIONAL) - 0.60%
Westpac Banking Corp. STRYPES Trust - $3.135 Conv.
Pfd. 16,000 536,000
- -------------------------------------------------------------------------------
ENTERTAINMENT - 0.00%
Time Warner Inc.-Series M, $102.50 PIK Conv. Pfd. 1 1,154
- -------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.40%
Conseco Inc.-$4.278 Conv. PRIDES 8,000 1,248,000
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.25%
Citizens Utilities Co.-$2.50 Conv. Pfd. 4,700 224,425
- -------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 2,009,579
- -------------------------------------------------------------------------------
COMMON STOCK - 0.02%
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Nextel Communications, Inc. 743 19,318
- -------------------------------------------------------------------------------
WARRANTS - 0.05%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00%
Wireless One, Inc., expiring 10/19/00(h) 420 0
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.01%
Electronic Retailing Systems, expiring 01/24/98(h) 590 11,800
- -------------------------------------------------------------------------------
GAMING, LOTTERY & PARI-MUTUEL COMPANIES - 0.00%
Boomtown, Inc., expiring 11/01/98 (acquired 11/03/93;
cost $0)(d)(h) 150 2
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.01%
MVE Inc., expiring 02/15/02(h) 190 5,700
- -------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel Corp., expiring 04/15/03(h) 230 1,035
- -------------------------------------------------------------------------------
PERSONAL CARE - 0.01%
IHF Capital Inc., expiring 11/14/99 (acquired
11/04/94-12/07/94; cost $150)(d)(h) 150 7,575
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-17
<PAGE> 92
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Clearnet Communications Inc. (Canada), expiring
09/15/05(h) 891 $ 8,464
- ---------------------------------------------------------------------------
Orion Network Systems, Inc., expiring 01/15/07(h) 580 8,120
- ---------------------------------------------------------------------------
16,584
- ---------------------------------------------------------------------------
TELEPHONE - 0.00%
ESAT Holdings Ltd, expiring 02/01/07 (acquired
06/16/97; cost $0)(d)(h) 470 1,763
- ---------------------------------------------------------------------------
Total Warrants 44,459
- ---------------------------------------------------------------------------
PRINCIPAL
U.S. TREASURY SECURITIES - 0.46% AMOUNT
Notes, 6.50%, 05/31/01 $ 400,000 409,740
- ---------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 0.69%
Tennessee Valley Authority, Bonds, 5.98%, 04/01/36 600,000 614,082
- ---------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.08%(i)
Smith Barney, Inc. 6.75%, 01/02/98(j) 966,742 966,742
- ---------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.48% 87,069,717
- ---------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.52% 2,248,935
- ---------------------------------------------------------------------------
NET ASSETS - 100.00% $89,318,652
===========================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Principal amount is in U.S. Dollars, except as indicated by note (g).
(b) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount
(c) Discounted bond at purchase. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $11,793,420
which represented 13.20% of the Fund's net assets.
(e) Issued as a unit. This unit includes one Sr. Note plus one warrant to
purchase 0.003734 shares of preferred stock.
(f) Issued as a unit. This unit includes one Sr. Note plus warrants to purchase
0.8463 shares of common stock.
(g) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(h) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(i) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S.Government obligations, 0%
to 13.875%, due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations:
AUD-Austrailian Dollar PIK-Payment in Kind
CAD-Canadian Dollar Pfd.-Preferred
Conv.-Convertible PRIDES-Preferred Redeemable Increased Dividend Equity
Deb.-Debenture Security
DEM-German Deutschemark Sec.-Secured
Disc.-Discounted SEK-Swedish Krona
FRF-French Franc Sr.-Senior
GBP-British Pound Sterling STRYPES-Structured Yield Product Exchangeable for
Gtd.-Guaranteed Stock
ITL-Italian Lire Sub.-Subordinated
JPY-Japanese Yen Unsec.-Unsecured
NZD-New Zealand Dollar Unsub.-Unsubordinated
Wt.-Warrants
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-18
<PAGE> 93
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $84,751,367) $87,069,717
- ---------------------------------------------------------------------
Foreign currencies, at market value (cost $72,375) 72,202
- ---------------------------------------------------------------------
Receivables for:
Forward currency contracts 509,198
- ---------------------------------------------------------------------
Capital stock sold 75,556
- ---------------------------------------------------------------------
Dividends and interest 1,662,634
- ---------------------------------------------------------------------
Investment for deferred compensation plan 16,957
- ---------------------------------------------------------------------
Organizational costs, net 965
- ---------------------------------------------------------------------
Other assets 126
- ---------------------------------------------------------------------
Total assets 89,407,355
- ---------------------------------------------------------------------
LIABILITIES:
Payables for deferred compensation plan 16,957
- ---------------------------------------------------------------------
Accrued advisory fees 44,572
- ---------------------------------------------------------------------
Accrued administrative service fees 4,150
- ---------------------------------------------------------------------
Accrued directors' fees 2,234
- ---------------------------------------------------------------------
Accrued operating expenses 20,790
- ---------------------------------------------------------------------
Total liabilities 88,703
- ---------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $89,318,652
=====================================================================
Capital shares, $.001 par value per share:
Authorized 250,000,000
=====================================================================
Outstanding 7,914,436
=====================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 11.29
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $5,682,303
- -------------------------------------------------------------------------------
Dividends 64,710
- -------------------------------------------------------------------------------
Total investment income 5,747,013
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 447,539
- -------------------------------------------------------------------------------
Administrative services fees 48,683
- -------------------------------------------------------------------------------
Custodian fees 39,847
- -------------------------------------------------------------------------------
Directors' fees and expenses 8,076
- -------------------------------------------------------------------------------
Organizational costs 2,892
- -------------------------------------------------------------------------------
Other 51,031
- -------------------------------------------------------------------------------
Total expenses 598,068
- -------------------------------------------------------------------------------
Less: Expenses paid indirectly (1,513)
- -------------------------------------------------------------------------------
Net expenses 596,555
- -------------------------------------------------------------------------------
Net investment income 5,150,458
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities 676,109
- -------------------------------------------------------------------------------
Foreign currencies (439,310)
- -------------------------------------------------------------------------------
Forward currency contracts 838,669
- -------------------------------------------------------------------------------
1,075,468
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 282,391
- -------------------------------------------------------------------------------
Foreign currencies (9,268)
- -------------------------------------------------------------------------------
Forward currency contracts 422,581
- -------------------------------------------------------------------------------
695,704
- -------------------------------------------------------------------------------
Net gain on investment securities, foreign currencies and forward
currency contracts 1,771,172
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,921,630
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-19
<PAGE> 94
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,150,458 $ 3,620,192
- -----------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies and forward currency contracts 1,075,468 967,204
- -----------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies and forward
currency contracts 695,704 685,218
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 6,921,630 5,272,614
- -----------------------------------------------------------------------------
Distributions to shareholders from net investment
income (77,788) (3,857,482)
- -----------------------------------------------------------------------------
Net equalization credits -- 905,775
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 18,851,039 16,672,719
- -----------------------------------------------------------------------------
Net increase in net assets 25,694,881 18,993,626
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 63,623,771 44,630,145
- -----------------------------------------------------------------------------
End of year $89,318,652 $63,623,771
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $80,655,246 $59,753,245
- -----------------------------------------------------------------------------
Undistributed net investment income 4,195,077 1,655,895
- -----------------------------------------------------------------------------
Undistributed net realized gain on investment
securities, foreign currencies and forward
currency contracts 1,653,803 95,809
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and forward currency contracts 2,814,526 2,118,822
- -----------------------------------------------------------------------------
$89,318,652 $63,623,771
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Diversified Income Fund (the "Fund"). The Fund's investment
objective is to seek to achieve a high level of current income. The Fund will
seek to achieve its objective by investing primarily in a diversified
portfolio of foreign and U.S. government and corporate debt securities,
including lower rated high yield debt securities (commonly known as "junk
bonds"). These high yield bonds may involve special risks in addition to the
risks associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--Debt obligations are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as institution-size trading in similar
groups of securities, developments related to special securities, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which
prices are not provided by the pricing service and which are listed or
traded on an exchange are valued at the last sales price on the exchange
where the security is principally traded or, lacking any sales on a
particular day, at the mean between the closing bid and asked prices on
that day unless the Board of Directors, or persons designated by the Board
of Directors, determines that the over-the-counter quotations more closely
reflect the current market value of the security. Securities traded in the
over-the-counter market, except (i) securities priced by the pricing
service, (ii) securities for which representative exchange prices are
available, and (iii) securities reported in the NASDAQ National Market
System, are valued at the mean between representative last bid and asked
prices obtained from
AIM V.I. DIVERSIFIED INCOME FUND
FS-20
<PAGE> 95
an electronic quotation reporting system, if such prices are available, or
from established market makers. Each security reported in the NASDAQ National
Market System is valued at the last sales price on the valuation date or
absent a last sales price, at the mean of the closing bid and asked prices.
Securities for which market quotations are either not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Fund's officers in accordance with methods which
are specifically authorized by the Board of Directors. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities as well
as corporate bonds and U.S. Government securities is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under
the supervision of the Board of Directors.
B. Foreign Currency Translation - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts - A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between
currencies. The Fund may also enter into a currency contract for the amount
of a purchase or sale of a security denominated in a foreign currency in
order to "lock-in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding contracts at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO
SETTLEMENT ---------------------- UNREALIZED
DATE DELIVER RECEIVE VALUE APPRECIATION
- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
01/14/98 JPY 5,000,000 $ 41,841 $ 38,294 $ 3,547
01/28/98 DEM 3,350,000 1,894,796 1,865,325 29,471
01/29/98 SEK 19,000,000 2,554,450 2,395,003 159,447
01/30/98 GBP 1,375,000 2,296,800 2,267,448 29,352
02/06/98 JPY 31,000,000 257,903 237,433 20,470
02/18/98 NZD 3,800,000 2,367,400 2,209,406 157,994
02/20/98 DEM 2,400,000 1,402,361 1,338,028 64,333
02/27/98 GBP 1,400,000 2,339,302 2,316,645 22,657
03/05/98 JPY 93,000,000 733,207 712,328 20,879
03/19/98 NZD 1,400,000 814,800 814,585 215
03/31/98 GBP 1,000,000 1,663,250 1,662,417 833
----------- ----------- --------
$16,366,110 $15,856,912 $509,198
========
</TABLE>
D. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. It is the policy of the Fund not to amortize premiums on
bonds for financial reporting purposes. Realized gains or losses from
securities transactions are recorded on the identified cost basis.
On December 31, 1997, undistributed net investment income was reduced by
$482,526 and undistributed net realized gains increased by $482,526 in order
to comply with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
E. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. Equalization - The Fund previously followed the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
repurchases of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
net income when the transaction is recorded so that the undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares. During the year ended December 31, 1997, the Fund discontinued
equalization accounting and reclassified the cumulative equalization debits
of $2,050,962 from undistributed net investment income to paid-in capital.
This change has no effect on the net assets, the results of operations or
net asset value per share of the Fund.
G. Organizational Costs - Organizational costs of the Fund of $14,461 are being
amortized over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of
the first $250 million of the Fund's average daily net assets, plus 0.55% of
such Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $48,683 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,400 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to
the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion of
the Fund's expenses related to pricing services used by the Fund which reduced
the Fund's expenses by $290 during the year ended December 31, 1997. The Fund
also received reductions in custodian fees of $1,223 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $1,513 during the year ended December 31, 1997.
AIM V.I. DIVERSIFIED INCOME FUND
FS-21
<PAGE> 96
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest directors' fees,
if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $61,998,858 and $37,621,437, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $4,207,440
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,889,813)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $2,317,627
=========================================================================
</TABLE>
Cost of investments for tax purposes is $84,752,090.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,860,755 $ 30,505,544 2,366,508 $ 22,865,918
- ------------------------- ---------- ------------ ---------- ------------
Issued as reinvestment of
distributions 6,908 77,788 377,444 3,857,482
- ------------------------- ---------- ------------ ---------- ------------
Reacquired (1,114,698) (11,732,293) (1,044,208) (10,050,681)
- ------------------------- ---------- ------------ ---------- ------------
1,752,965 $ 18,851,039 1,699,744 $ 16,672,719
========== ============ ========== ============
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------- -----------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00
- ------------------------ ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.73 0.73 0.69 0.76 0.54
- ------------------------ ------- ------- ------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 0.24 0.28 0.94 (1.42) 0.29
- ------------------------ ------- ------- ------- ------- -------
Total from investment
operations 0.97 1.01 1.63 (0.66) 0.83
- ------------------------ ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.01) (0.68) (0.75) (0.68) (0.35)
- ------------------------ ------- ------- ------- ------- -------
Distributions from net
realized capital
gains -- -- -- -- (0.02)
- ------------------------ ------- ------- ------- ------- -------
Total distributions (0.01) (0.68) (0.75) (0.68) (0.37)
- ------------------------ ------- ------- ------- ------- -------
Net asset value, end of
period $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
- ------------------------ ======= ======= ======= ======= =======
Total return(a) 9.39% 10.19% 18.11% (6.35)% 8.33%
- ------------------------ ======= ======= ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $89,319 $63,624 $44,630 $25,271 $14,530
- ------------------------ ======= ======= ======= ======= =======
Ratio of expenses to
average net assets(b) 0.80%(c)(d) 0.86% 0.88%(e) 0.91% 1.05%(e)
- ------------------------ ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets(f) 6.90%(c) 7.09% 7.65%(e) 8.07% 6.78%(e)
- ------------------------ ======= ======= ======= ======= =======
Portfolio turnover rate 52% 76% 72% 100% 57%
- ------------------------ ======= ======= ======= ======= =======
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.03% and 1.69% (annualized) for January 31, 1995 and 1994, respectively.
(c) Ratios are based on average net assets of $74,589,876.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have
remained the same.
(e) Annualized.
(f) After fee waivers and/or expense reimbursement. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 7.95% and 6.14% (annualized) for January 31, 1995 and
1994, respectively.
AIM V.I. DIVERSIFIED INCOME FUND
FS-22
<PAGE> 97
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Global Utilities Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1997, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the
period then ended, the eleven month period ended December 31, 1995 and the
period May 2, 1994 (commencement of operations) through January 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Global Utilities Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995 and the period May 2, 1994 (commencement of operations)
through January 31, 1995, in conformity with generally accepted accounting
principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GLOBAL UTILITIES FUND
FS-23
<PAGE> 98
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 44.14%
BROADCASTING (TELEVISION, RADIO, & CABLE) - 0.54%
Univision Communications Inc.(a) 1,700 $ 118,681
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.65%
ADC Telecommunications, Inc.(a) 4,800 200,400
- ---------------------------------------------------------------------
Excel Switching Corp(a) 400 7,150
- ---------------------------------------------------------------------
Lucent Technologies, Inc. 2,000 159,750
- ---------------------------------------------------------------------
NEXTLINK Communications, Inc.-Class A(a) 1,100 23,444
- ---------------------------------------------------------------------
Qwest Communications International Inc.(a) 2,200 130,900
- ---------------------------------------------------------------------
Tellabs, Inc.(a) 1,200 63,450
- ---------------------------------------------------------------------
585,094
- ---------------------------------------------------------------------
ELECTRIC COMPANIES - 14.74%
Allegheny Energy, Inc. 8,300 269,750
- ---------------------------------------------------------------------
Carolina Power & Light Co. 4,400 186,725
- ---------------------------------------------------------------------
CINergy Corp. 4,500 172,406
- ---------------------------------------------------------------------
DQE, Inc. 7,700 270,462
- ---------------------------------------------------------------------
Edison International 4,800 130,500
- ---------------------------------------------------------------------
FPL Group, Inc. 6,200 366,963
- ---------------------------------------------------------------------
IPALCO Enterprises, Inc. 2,000 83,875
- ---------------------------------------------------------------------
New Century Energies, Inc. 4,600 220,513
- ---------------------------------------------------------------------
New York State Electric & Gas Corp. 5,000 177,500
- ---------------------------------------------------------------------
NIPSCO Industries, Inc. 6,000 296,625
- ---------------------------------------------------------------------
Pinnacle West Capital Corp. 11,400 483,075
- ---------------------------------------------------------------------
Public Service Company of New Mexico 3,600 85,275
- ---------------------------------------------------------------------
Sierra Pacific Resources 3,300 123,750
- ---------------------------------------------------------------------
Southern Co. 8,200 212,175
- ---------------------------------------------------------------------
Teco Energy, Inc. 6,200 174,375
- ---------------------------------------------------------------------
3,253,969
- ---------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.45%
Superior TeleCom Inc.(a) 2,900 100,230
- ---------------------------------------------------------------------
NATURAL GAS - 7.97%
Coastal Corp. (The) 1,400 86,713
- ---------------------------------------------------------------------
Columbia Gas System, Inc. 2,000 157,125
- ---------------------------------------------------------------------
El Paso Natural Gas Co. 7,800 518,700
- ---------------------------------------------------------------------
Energen Corp. 1,400 55,650
- ---------------------------------------------------------------------
KN Energy, Inc. 2,700 145,800
- ---------------------------------------------------------------------
Public Service Company of North Carolina, Inc. 3,000 68,625
- ---------------------------------------------------------------------
Sonat, Inc. 5,100 233,325
- ---------------------------------------------------------------------
Williams Companies, Inc. (The) 17,400 493,725
- ---------------------------------------------------------------------
1,759,663
- ---------------------------------------------------------------------
MARKET
SHARES VALUE
POWER PRODUCERS (INDEPENDENT) - 1.12%
AES Corp.(a) 2,000 $ 93,250
- ------------------------------------------------------------------------
Calenergy, Inc.(a) 5,400 155,250
- ------------------------------------------------------------------------
248,500
- ------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 4.45%
Alexandria Real Estate Equities, Inc. 2,300 72,594
- ------------------------------------------------------------------------
Boston Properties, Inc. 3,100 102,493
- ------------------------------------------------------------------------
Cali Realty Corp. 3,100 127,100
- ------------------------------------------------------------------------
Captec Net Lease Realty, Inc. 2,900 49,844
- ------------------------------------------------------------------------
CCA Prison Realty Trust(a) 3,000 133,875
- ------------------------------------------------------------------------
Crescent Real Estate Equities, Co. 1,600 63,000
- ------------------------------------------------------------------------
Entertainment Properties Trust(a) 2,200 42,625
- ------------------------------------------------------------------------
Golf Trust of America, Inc. 800 23,200
- ------------------------------------------------------------------------
Imperial Credit Commercial Mortgage Investment Corp. 2,200 32,175
- ------------------------------------------------------------------------
Meditrust Corp. 1,562 57,208
- ------------------------------------------------------------------------
Parkway Properties, Inc. 1,100 37,744
- ------------------------------------------------------------------------
Patriot American Hospitality, Inc. 4,199 120,984
- ------------------------------------------------------------------------
Public Storage, Inc. 1,500 44,063
- ------------------------------------------------------------------------
Starwood Lodging Trust 1,300 75,237
- ------------------------------------------------------------------------
982,142
- ------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.28%
IXC Communications, Inc.(a) 2,600 81,575
- ------------------------------------------------------------------------
WinStar Communications, Inc.(a) 4,500 112,219
- ------------------------------------------------------------------------
WorldCom, Inc.(a) 2,968 89,782
- ------------------------------------------------------------------------
283,576
- ------------------------------------------------------------------------
TELEPHONE - 10.94%
Ameritech Corp. 5,100 410,550
- ------------------------------------------------------------------------
BellSouth Corp. 6,900 388,556
- ------------------------------------------------------------------------
Century Telephone Enterprises 5,200 259,025
- ------------------------------------------------------------------------
Cincinnati Bell, Inc. 18,500 573,500
- ------------------------------------------------------------------------
Electric Lightwave, Inc.-Class A(a) 6,300 93,712
- ------------------------------------------------------------------------
GTE Corp. 2,600 135,850
- ------------------------------------------------------------------------
McLeodUSA Inc.-Class A(a) 2,700 86,400
- ------------------------------------------------------------------------
SBC Communications, Inc. 4,500 329,625
- ------------------------------------------------------------------------
Teleport Communications Group Inc.-Class A(a) 2,500 137,188
- ------------------------------------------------------------------------
2,414,406
- ------------------------------------------------------------------------
Total Domestic Common Stocks 9,746,261
- ------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 2.60%
INVESTMENT BANKING/BROKERAGE - 0.11%
Salomon Inc.-$3.48 Conv. Pfd. 400 23,700
- ------------------------------------------------------------------------
NATURAL GAS - 0.43%
MCN Corp.-$2.013 Conv. Pfd. PRIDES 2,800 95,900
- ------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-24
<PAGE> 99
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
POWER PRODUCERS (INDEPENDENT) - 1.39%
AES Trust I-$2.69 Conv. Pfd. 3,000 $ 215,250
- ------------------------------------------------------------------------------
AES Trust II-$2.75 Conv. Pfd. (Acquired 10/24/97;
Cost $60,000)(b) 1,200 62,550
- ------------------------------------------------------------------------------
Citizens Utilities Co.-$2.50 Conv. Pfd. 600 28,650
- ------------------------------------------------------------------------------
306,450
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.67%
WorldCom, Inc.-$2.68 Conv. Pfd. 1,400 147,000
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 573,050
- ------------------------------------------------------------------------------
DOMESTIC NON-CONVERTIBLE PREFERRED STOCKS - 0.30%
ENTERTAINMENT - 0.30%
Time Warner Inc.-Series M, $102.50 PIK Pfd. 58 65,767
- ------------------------------------------------------------------------------
Total Domestic Non-Convertible Preferred Stocks 65,767
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 26.97%
ARGENTINA - 0.41%
Central Costanera S.A.-Class B (Electric Companies) 20,700 53,830
- ------------------------------------------------------------------------------
Telefonica de Argentina S.A.-ADR (Telephone) 1,000 37,250
- ------------------------------------------------------------------------------
91,080
- ------------------------------------------------------------------------------
AUSTRALIA - 0.14%
Telstra Corp. Ltd. (Telephone)(a) 14,380 30,366
- ------------------------------------------------------------------------------
AUSTRIA - 0.47%
Oesterreichische Elektrizitaetswirtschafts A.G.-Class A
(Electric Companies) 970 102,901
- ------------------------------------------------------------------------------
BELGIUM - 0.42%
Electrabel S.A. (Electric Companies) 400 92,521
- ------------------------------------------------------------------------------
BRAZIL - 1.70%
Centrais Eletricas de Santa Catarina S.A. (Electric
Companies) 40,000 49,819
- ------------------------------------------------------------------------------
Companhia Paranaense de Energia-Copel (Electric
Companies)(a) 3,100 42,431
- ------------------------------------------------------------------------------
Eletricidade de Sao Paulo S.A. (Electric Companies)(a) 270 50,804
- ------------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-Telebras-ADR
(Telephone) 2,000 232,875
- ------------------------------------------------------------------------------
375,929
- ------------------------------------------------------------------------------
CANADA - 1.40%
MetroNet Communications Corp.-Class B (Communications
Equipment)(a) 1,800 31,275
- ------------------------------------------------------------------------------
Philip Services Corp. (Waste Management)(a) 3,500 50,313
- ------------------------------------------------------------------------------
TELUS Corp. (Telecommunications-Cellular/Wireless) 4,300 95,385
- ------------------------------------------------------------------------------
Westcoast Energy Inc. (Natural Gas) 5,500 126,500
- ------------------------------------------------------------------------------
Westshore Terminals Inc. (Services-Facilities &
Environmental) 2,200 5,542
- ------------------------------------------------------------------------------
309,015
- ------------------------------------------------------------------------------
MARKET
SHARES VALUE
CHILE - 1.29%
Cia. de Telecomunicaciones de Chile S.A.-ADR (Telephone) 6,300 $ 188,213
- -------------------------------------------------------------------------------
Enersis S.A.-ADR (Electric Companies) 3,300 95,700
- -------------------------------------------------------------------------------
283,913
- -------------------------------------------------------------------------------
DENMARK - 0.22%
Tele Danmark A.S.-ADR (Telephone) 1,600 49,300
- -------------------------------------------------------------------------------
FINLAND - 0.32%
Nokia Oy A.B.-Class A-ADR (Communications Equipment) 1,000 70,000
- -------------------------------------------------------------------------------
GERMANY - 2.20%
RWE A.G. (Electric Companies) 2,200 118,010
- -------------------------------------------------------------------------------
VEBA A.G. (Manufacturing-Diversified) 3,435 233,901
- -------------------------------------------------------------------------------
Viag A.G. (Manufacturing-Diversified) 250 134,658
- -------------------------------------------------------------------------------
486,569
- -------------------------------------------------------------------------------
FRANCE - 0.33%
France Telecom S.A.-ADR (Telecommunications-
Cellular/Wireless)(a) 2,000 72,000
- -------------------------------------------------------------------------------
HONG KONG - 0.20%
China Telecom Ltd.-ADR (Telecommunications-
Cellular/Wireless)(a) 1,300 43,631
- -------------------------------------------------------------------------------
HUNGARY - 0.36%
Magyar Tavkozlesi ADR (Telecommunications-Long
Distance)(a) 3,100 80,600
- -------------------------------------------------------------------------------
INDONESIA - 0.11%
PT Indosat-ADR (Telephone) 1,300 25,106
- -------------------------------------------------------------------------------
ISRAEL - 0.50%
ECI Telecommunications Ltd. (Communications Equipment) 2,700 68,850
- -------------------------------------------------------------------------------
Gilat Communications Ltd. (Communications Equipment)(a) 5,800 42,775
- -------------------------------------------------------------------------------
111,625
- -------------------------------------------------------------------------------
ITALY - 2.40%
Telecom Italia Mobile S.p.A. (Telecommunications-
Cellular/Wireless) 38,025 175,444
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 55,277 353,598
- -------------------------------------------------------------------------------
529,042
- -------------------------------------------------------------------------------
JAPAN - 0.45%
Nippon Telegraph & Telephone Corp. (Telephone) 50 42,889
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp.-ADR (Telephone) 1,300 56,306
- -------------------------------------------------------------------------------
99,195
- -------------------------------------------------------------------------------
NETHERLANDS - 0.43%
Royal PTT Nederland N.V. (Telephone) 280 11,682
- -------------------------------------------------------------------------------
Royal PTT Nederland N.V.-ADR (Telephone) 2,000 83,000
- -------------------------------------------------------------------------------
94,682
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-25
<PAGE> 100
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NEW ZEALAND - 1.08%
Sky Network Television Ltd. (Broadcasting-Television,
Radio & Cable)(a) 1,700 $ 25,500
- ----------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd.-ADR (Telephone) 5,500 213,125
- ----------------------------------------------------------------------------
238,625
- ----------------------------------------------------------------------------
PERU - 0.37%
Luz Del Sur S.A. (Power Producers-Independent)(a) 1,700 29,325
- ----------------------------------------------------------------------------
Telefonica del Peru S.A.-ADR (Telephone)(a) 2,200 51,288
- ----------------------------------------------------------------------------
80,613
- ----------------------------------------------------------------------------
PORTUGAL - 1.27%
Electricidade de Portugal, S.A.-ADR (Electric
Companies)(a) 1,000 38,750
- ----------------------------------------------------------------------------
Portugal Telecom S.A.-ADR (Telephone) 4,700 220,900
- ----------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless)(a) 200 21,400
- ----------------------------------------------------------------------------
281,050
- ----------------------------------------------------------------------------
SPAIN - 1.92%
Autopistas Concesionaria Espanola S.A. (Services-
Commercial & Consumer) 3,900 52,350
- ----------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 15,700 206,619
- ----------------------------------------------------------------------------
Telefonica de Espana-ADR (Telephone) 1,800 163,913
- ----------------------------------------------------------------------------
422,882
- ----------------------------------------------------------------------------
SWEDEN - 0.64%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 3,800 141,788
- ----------------------------------------------------------------------------
UNITED KINGDOM - 7.70%
Energy Group PLC (Power Producers-Independent)(a) 2,000 89,250
- ----------------------------------------------------------------------------
Hyder PLC (Water Utilities) 4,210 66,930
- ----------------------------------------------------------------------------
National Grid Group PLC (Electric Companies) 12,134 57,593
- ----------------------------------------------------------------------------
National Power PLC (Electric Companies) 22,950 226,152
- ----------------------------------------------------------------------------
National Power PLC-ADR (Electric Companies) 900 35,662
- ----------------------------------------------------------------------------
PowerGen PLC (Electric Companies) 38,650 502,736
- ----------------------------------------------------------------------------
PowerGen PLC-ADR (Electric Companies) 1,100 58,438
- ----------------------------------------------------------------------------
Scottish Power PLC (Electric Companies) 15,950 140,932
- ----------------------------------------------------------------------------
Southern Electric PLC (Electric Companies) 9,706 80,660
- ----------------------------------------------------------------------------
United Utilities PLC (Water Utilities) 14,725 188,632
- ----------------------------------------------------------------------------
Wessex Water PLC (Water Utilities) 11,650 98,154
- ----------------------------------------------------------------------------
Yorkshire Water PLC (Water Utilities) 19,580 155,962
- ----------------------------------------------------------------------------
1,701,101
- ----------------------------------------------------------------------------
VENEZUELA - 0.64%
Cia. Anonima Nacional Telefonos de Venezuela
(Telecommunications-Long Distance)(a) 3,400 141,525
- ----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests 5,955,059
- ----------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
DOMESTIC NON-CONVERTIBLE BONDS & NOTES - 6.55%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.48%
Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 $ 100,000 $ 106,875
- ------------------------------------------------------------------------------
CONSUMER FINANCE - 0.37%
GMAC, Notes, 9.00%, 10/15/02 75,000 83,451
- ------------------------------------------------------------------------------
ELECTRIC COMPANIES - 0.84%
El Paso Electric Co., Series D Sec. 1st Mortgage Bonds,
8.90%, 02/01/06 75,000 83,036
- ------------------------------------------------------------------------------
Western Resources Inc., Sr. Notes, 7.125%, 08/01/09 100,000 102,984
- ------------------------------------------------------------------------------
186,020
- ------------------------------------------------------------------------------
ENTERTAINMENT - 1.26%
Time Warner, Inc.
Deb., 9.125%, 01/15/13 100,000 119,454
- ------------------------------------------------------------------------------
Notes, 8.18%, 08/15/07 75,000 82,367
- ------------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 75,000 76,039
- ------------------------------------------------------------------------------
277,860
- ------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.49%
California Energy Co., Notes, 10.25%, 01/15/04 100,000 108,000
- ------------------------------------------------------------------------------
NATURAL GAS - 0.58%
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 75,000 79,875
- ------------------------------------------------------------------------------
PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 48,915
- ------------------------------------------------------------------------------
128,790
- ------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.48%
Tennessee Gas Pipeline Co., Bonds, 7.00%, 03/15/27 100,000 105,440
- ------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.29%
AES Corp., Sr. Sub. Notes, 10.25%, 07/15/06 75,000 81,563
- ------------------------------------------------------------------------------
Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 81,700
- ------------------------------------------------------------------------------
Indiana Michigan Power, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 93,421 122,242
- ------------------------------------------------------------------------------
285,505
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.74%
AT&T Corp., Sr. Notes, 7.75%, 03/01/07 150,000 164,414
- ------------------------------------------------------------------------------
Total Domestic Non-Convertible Bonds & Notes 1,446,355
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-26
<PAGE> 101
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN NON-CONVERTIBLE BONDS & NOTES - 2.25%
CANADA - 2.25%(c)
Bell Canada (Telecommunications-Cellular/Wireless),
Series EW Deb., 8.80%, 08/17/05 CAD 50,000 $ 41,062
- -------------------------------------------------------------------------------
Unsec. Deb., 10.875, 10/11/04 50,000 44,131
- -------------------------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas-Exploration &
Production), Deb., 11.00%, 10/31/00 100,000 78,437
- -------------------------------------------------------------------------------
Ontario Hydro (Electric Companies), Global Bonds,
9.00%, 06/24/02 100,000 79,414
- -------------------------------------------------------------------------------
Telegobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 100,000 77,657
- -------------------------------------------------------------------------------
Trans-Canada Pipelines (Oil & Gas-Exploration & Production),
Series Q Deb., 10.625%, 10/20/09 125,000 118,988
- -------------------------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 70,000 56,705
- -------------------------------------------------------------------------------
Total Foreign Non-Convertible Bonds & Notes 496,394
- -------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 1.41%
U.S. TREASURY BONDS - 0.71%
7.625%, 02/15/25 $ 130,000 157,822
- -------------------------------------------------------------------------------
U.S. TREASURY NOTES - 0.70%
6.625%, 06/30/01 150,000 154,260
- -------------------------------------------------------------------------------
Total U.S. Treasury Securities 312,082
- -------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement) 18,594,968
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 17.27%(d)
Smith Barney, Inc., 6.75%, 01/02/98(e) 3,813,559 3,813,559
- -------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 101.49% 22,408,527
- -------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (1.49%) (329,666)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $ 22,078,861
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
market value of this security at 12/31/97 represented 0.28% of the Fund's
net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
Canadian dollars.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreements. The collateral is
marked to market daily to ensure its market value as being 102% of the
sales price of the repurchase agreement. The investments in some
repurchase agreements are through participation in joint accounts with
other mutual funds, private accounts, and certain non-registered
investment companies managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 at $408,000,323.
Abbreviations:
ADR-American Depositary Receipt
CAD-Canadian dollars
Conv.-Convertible
Deb.-Debentures
Gtd.-Guaranteed
Pfd.-Preferred
PIK-Payment in Kind
PRIDES-Preferred Redeemable Increased Dividend Equity Securities
Sec.-Secured
Sr.-Senior
Sub.-Subordinated
Unsec.-Unsecured
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-27
<PAGE> 102
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $13,970,866) $18,594,968
- ---------------------------------------------------------------------
Repurchase agreement (cost $3,813,559) 3,813,559
- ---------------------------------------------------------------------
Foreign currencies, at market value (cost $3,234) 3,246
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 67,399
- ---------------------------------------------------------------------
Investments sold 39,932
- ---------------------------------------------------------------------
Dividends and interest 91,910
- ---------------------------------------------------------------------
Investment for deferred compensation plan 13,684
- ---------------------------------------------------------------------
Total assets 22,624,698
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 503,055
- ---------------------------------------------------------------------
Deferred compensation plan 13,684
- ---------------------------------------------------------------------
Accrued advisory fees 11,266
- ---------------------------------------------------------------------
Accrued directors' fees 1,839
- ---------------------------------------------------------------------
Accrued administrative services fees 3,629
- ---------------------------------------------------------------------
Accrued operating expenses 12,364
- ---------------------------------------------------------------------
Total liabilities 545,837
- ---------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $22,078,861
- ---------------------------------------------------------------------
Capital shares, $.001 par value per share:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 1,446,729
- ---------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $15.26
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $18,882 foreign withholding tax) $ 376,432
- -----------------------------------------------------------------------------
Interest 290,021
- -----------------------------------------------------------------------------
Total investment income 666,453
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 106,309
- -----------------------------------------------------------------------------
Administrative services fees 47,128
- -----------------------------------------------------------------------------
Custodian fees 17,887
- -----------------------------------------------------------------------------
Directors' fees and expenses 7,826
- -----------------------------------------------------------------------------
Professional fees 20,236
- -----------------------------------------------------------------------------
Other 8,597
- -----------------------------------------------------------------------------
Total expenses 207,983
- -----------------------------------------------------------------------------
Less:Expenses paid indirectly (179)
- -----------------------------------------------------------------------------
Net expenses 207,804
- -----------------------------------------------------------------------------
Net investment income 458,649
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCY TRANSACTIONS AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 181,733
- -----------------------------------------------------------------------------
Foreign currency transactions (16,050)
- -----------------------------------------------------------------------------
Futures contracts 10,462
- -----------------------------------------------------------------------------
176,145
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 2,780,466
- -----------------------------------------------------------------------------
Foreign currency transactions (759)
- -----------------------------------------------------------------------------
2,779,707
- -----------------------------------------------------------------------------
Net gain on investment securities, foreign currency transactions
and futures contracts 2,955,852
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,414,501
=============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-28
<PAGE> 103
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 458,649 $ 400,253
- --------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currency transactions and futures contracts 176,145 67,729
- --------------------------------------------------------------------------------
Net unrealized appreciation of investment securities
and foreign currency transactions 2,779,707 880,598
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,414,501 1,348,580
- --------------------------------------------------------------------------------
Distributions to shareholders from net investment
income -- (410,247)
- --------------------------------------------------------------------------------
Distributions from net realized capital gains (6,795) (74,178)
- --------------------------------------------------------------------------------
Net increase from capital stock transactions 5,095,582 4,317,451
- --------------------------------------------------------------------------------
Net increase in net assets 8,503,288 5,181,606
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 13,575,573 8,393,967
- --------------------------------------------------------------------------------
End of year $22,078,861 $13,575,573
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $16,836,039 $11,740,457
- --------------------------------------------------------------------------------
Undistributed net investment income (loss) 439,576 (3,023)
- --------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currency transactions
and futures contracts 179,652 (5,748)
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 4,623,594 1,843,887
- --------------------------------------------------------------------------------
$22,078,861 $13,575,573
================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Global Utilities Fund (the "Fund"). The Fund's investment
objective is to achieve a high level of current income, and as a secondary
objective the Fund seeks to achieve capital appreciation, by investing
primarily in the common and preferred stocks of public utility companies
(either domestic or foreign). Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations either are not readily available or are questionable
are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such
AIM V.I. GLOBAL UTILITIES FUND
FS-29
<PAGE> 104
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Realized gains or losses from securities transactions
are recorded on the identified cost basis. On December 31, 1997
undistributed net investment income was decreased and undistributed net
realized gains increased by $16,050 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts 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 contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the amount of a purchase or sale of a security denominated in a foreign
currency in order to "lock-in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $47,128 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,254 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $65 during the year ended December 31, 1997. The Fund also
received reductions in custodian fees of $114 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $179 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $7,558,487 and $3,982,219, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $4,712,475
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (88,373)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $4,624,102
=========================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold 505,614 $ 6,971,987 578,877 $ 6,900,184
- ------------------------------------------------------------------------
Issued as reinvestment of
distributions 459 6,795 39,804 484,425
- ------------------------------------------------------------------------
Reacquired (140,799) (1,883,200) (258,571) (3,067,158)
- ------------------------------------------------------------------------
365,274 $ 5,095,582 360,110 $ 4,317,451
========================================================================
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-30
<PAGE> 105
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, the
eleven months ended December 31, 1995 and the period May 2, 1994 (date
operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JANUARY 31,
1997 1996 1995 1995
------- ------- ------ -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.55 $11.64 $9.69 $10.00
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.32 0.40 0.29 0.27
- -----------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.40 0.99 1.98 (0.33)
- -----------------------------------------------------------------------------------
Total from investment
operations 2.72 1.39 2.27 (0.06)
- -----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.41) (0.31) (0.25)
- -----------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.01) (0.07) (0.01) --
- -----------------------------------------------------------------------------------
Total distributions (0.01) (0.48) (0.32) (0.25)
- -----------------------------------------------------------------------------------
Net asset value, end of
period $ 15.26 $12.55 $11.64 $ 9.69
===================================================================================
Total return(a) 21.63% 12.07% 23.73% (0.56)%
===================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $22,079 $13,576 $8,394 $2,958
===================================================================================
Ratio of expenses to
average net assets 1.28%(b)(c) 1.40%(d) 1.47%(d)(e) 1.31%(e)(f)
===================================================================================
Ratio of net investment
income to average net
assets 2.81%(b) 3.56%(d) 3.76%(d)(e) 4.39%(e)(f)
===================================================================================
Portfolio turnover rate 28% 47% 58% 69%
===================================================================================
Average brokerage
commission rate paid(g) $0.0365 $0.0477 N/A N/A
===================================================================================
</TABLE>
(a) Totals return are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $16,297,147.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have
remained the same.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average net assets prior to fee waivers and/or
expense reimbursements were 1.55%, 3.42%, 2.44% (annualized) and 2.79%
(annualized) for 1996 and 1995, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average net assets prior to fee waivers and/or
expense reimbursements were 2.80% and 2.90%, respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. GLOBAL UTILITIES FUND
FS-31
<PAGE> 106
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Government Securities Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Government Securities Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993
(commencement of operations) through January 31, 1994, in conformity with
generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GOVERNMENT SECURITIES FUND
FS-32
<PAGE> 107
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 77.17%
FEDERAL FARM CREDIT BANK - 0.59%
Medium term notes
5.96%, 07/14/03 $ 200,000 $ 200,504
- ----------------------------------------------------------
FEDERAL HOME LOAN BANK BOARD - 7.06%
Debentures
8.375%, 10/25/99 150,000 156,620
- ----------------------------------------------------------
6.00%, 06/27/00 250,000 251,220
- ----------------------------------------------------------
5.97%, 12/11/00 1,000,000 1,004,790
- ----------------------------------------------------------
7.31%, 07/06/01 500,000 523,005
- ----------------------------------------------------------
8.17%, 12/16/04 400,000 449,296
- ----------------------------------------------------------
2,384,931
- ----------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") -
14.03%
Debentures
6.13%, 08/19/99 150,000 150,825
- ----------------------------------------------------------
Pass through certificates
6.00%, 11/01/08 to 08/01/10 832,849 823,996
- ----------------------------------------------------------
6.50%, 12/01/08 to 07/01/23 1,454,590 1,456,294
- ----------------------------------------------------------
7.00%, 11/01/10 to 01/01/26 1,778,087 1,809,874
- ----------------------------------------------------------
10.50%, 08/01/19 258,784 284,338
- ----------------------------------------------------------
8.50%, 08/01/24 206,125 216,044
- ----------------------------------------------------------
4,741,371
- ----------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
("FNMA") - 41.22%
Debentures
7.55%, 04/22/02 400,000 425,244
- ----------------------------------------------------------
8.50%, 02/01/05 500,000 523,305
- ----------------------------------------------------------
Medium term notes
7.375%, 03/28/05 300,000 324,159
- ----------------------------------------------------------
Pass through certificates
5.504%, 06/02/99 500,000 498,795
- ----------------------------------------------------------
6.24%, 02/01/06 490,964 493,498
- ----------------------------------------------------------
6.625%, 02/01/07 664,965 687,940
- ----------------------------------------------------------
7.50%, 11/01/09 to 07/01/27 3,774,432 3,873,116
- ----------------------------------------------------------
6.50%, 10/01/10 to 06/01/23 582,304 583,737
- ----------------------------------------------------------
7.00%, 07/01/11 to 12/01/27 5,671,038 5,742,794
- ----------------------------------------------------------
8.50%, 09/01/24 294,970 309,255
- ----------------------------------------------------------
STRIPS(a)
7.37%, 10/09/19 1,800,000 470,124
- ----------------------------------------------------------
13,931,967
- ----------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 9.45%
Pass through certificates
9.50%, 08/15/03 to 09/15/16 $ 90,877 $ 98,796
- ----------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 175,375 190,075
- ----------------------------------------------------------------
11.00%, 10/15/15 45,876 51,424
- ----------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 43,969 48,641
- ----------------------------------------------------------------
6.50%, 12/15/23 463,594 462,579
- ----------------------------------------------------------------
8.00%, 07/15/26 1,263,321 1,312,666
- ----------------------------------------------------------------
7.50%, 05/15/27 1,004,475 1,030,521
- ----------------------------------------------------------------
3,194,702
- ----------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.93%
Debentures
7.30%, 01/31/02 300,000 315,321
- ----------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 2.38%
Debentures
5.629%, 02/22/99 500,000 499,670
- ----------------------------------------------------------------
5.55%, 12/15/99 150,000 149,393
- ----------------------------------------------------------------
6.50%, 08/01/02 150,000 153,732
- ----------------------------------------------------------------
802,795
- ----------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY - 1.51%
Debentures
6.375%, 06/15/05 500,000 511,605
- ----------------------------------------------------------------
Total U.S. Government Agency Securities 26,083,196
- ----------------------------------------------------------------
U.S. TREASURY SECURITIES - 17.23%
U.S. TREASURY NOTES & BONDS - 16.17%
5.625%, 11/30/99 1,000,000 999,560
- ----------------------------------------------------------------
6.125%, 12/31/01 1,500,000 1,521,030
- ----------------------------------------------------------------
6.00%, 07/31/02 300,000 303,360
- ----------------------------------------------------------------
6.625%, 05/15/07 500,000 529,475
- ----------------------------------------------------------------
6.125%, 08/15/07 500,000 514,010
- ----------------------------------------------------------------
6.875%, 08/15/25 500,000 557,695
- ----------------------------------------------------------------
6.375%, 08/15/27 500,000 527,670
- ----------------------------------------------------------------
6.125%, 11/15/27 500,000 513,895
- ----------------------------------------------------------------
5,466,695
- ----------------------------------------------------------------
U.S. TREASURY STRIPS(a) - 1.06%
6.80%, 11/15/18 1,250,000 356,675
- ----------------------------------------------------------------
Total U.S. Treasury Securities 5,823,370
- ----------------------------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-33
<PAGE> 108
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT - 4.42%(b)
Goldman, Sachs & Co., 6.53%, 01/02/98(c) $1,493,291 $ 1,493,291
- ----------------------------------------------------------------
TOTAL INVESTMENTS - 98.82% 33,399,857
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.18% 399,939
- ----------------------------------------------------------------
NET ASSETS - 100.00% $33,799,796
================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) STRIPS are traded on a discount basis. In such cases the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Government obligations,
0% to 14%, due 01/08/98 to 08/15/23 with an aggregate market value at
12/31/97 of $918,902,583.
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-34
<PAGE> 109
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $32,662,725) $ 33,399,857
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 173,205
- ----------------------------------------------------------------------
Interest 258,350
- ----------------------------------------------------------------------
Investment for deferred compensation plan 16,668
- ----------------------------------------------------------------------
Organizational costs, net 967
- ----------------------------------------------------------------------
Other assets 2,813
- ----------------------------------------------------------------------
Total assets 33,851,860
- ----------------------------------------------------------------------
LIABILITIES:
Deferred compensation payable 16,668
- ----------------------------------------------------------------------
Accrued advisory fees 14,074
- ----------------------------------------------------------------------
Accrued directors' fees 2,519
- ----------------------------------------------------------------------
Accrued administrative service fees 2,920
- ----------------------------------------------------------------------
Accrued operating expenses 15,883
- ----------------------------------------------------------------------
Total liabilities 52,064
- ----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 33,799,796
======================================================================
Capital shares, $.001 par value per share:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 3,167,800
======================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $10.67
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $1,862,279
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 138,550
- --------------------------------------------------------------------------
Administrative services fees 37,872
- --------------------------------------------------------------------------
Custodian fees 13,275
- --------------------------------------------------------------------------
Directors' fees and expenses 8,571
- --------------------------------------------------------------------------
Professional fees 23,862
- --------------------------------------------------------------------------
Organizational costs 2,903
- --------------------------------------------------------------------------
Other 16,788
- --------------------------------------------------------------------------
Total expenses 241,821
- --------------------------------------------------------------------------
Net investment income 1,620,458
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Net realized gain (loss) on sales of investment securities (100,162)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities 728,502
- --------------------------------------------------------------------------
Net gain on investment securities 628,340
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,248,798
==========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-35
<PAGE> 110
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,620,458 $ 1,246,854
- ----------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities (100,162) (33,180)
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities 728,502 (626,394)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 2,248,798 587,280
- ----------------------------------------------------------------------------
Distributions to shareholders from net investment
income (15,600) (1,251,057)
- ----------------------------------------------------------------------------
Net equalization credits -- 247,547
- ----------------------------------------------------------------------------
Net increase from capital stock transactions 7,040,082 5,397,355
- ----------------------------------------------------------------------------
Net increase in net assets 9,273,280 4,981,125
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 24,526,516 19,545,391
- ----------------------------------------------------------------------------
End of year $33,799,796 $24,526,516
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $31,984,676 $24,348,661
- ----------------------------------------------------------------------------
Undistributed net investment income 1,585,397 653,121
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (507,409) (483,896)
- ----------------------------------------------------------------------------
Unrealized appreciation of investment securities 737,132 8,630
- ----------------------------------------------------------------------------
$33,799,796 $24,526,516
============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Government Securities Fund (the "Fund"). The Fund's investment
objective is to achieve a high level of current income consistent with
reasonable concern for safety of principal by investing in debt securities
issued, guaranteed or otherwise backed by the U.S. Government. Currently,
shares of the Fund are sold only to insurance company separate accounts to
fund the benefits of variable annuity contracts and variable life insurance
policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - Debt obligations that are issued or guaranteed by the
U.S. Government, its agencies, authorities, and instrumentalities are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which market prices are not provided by the pricing service
are valued at the mean between last bid and asked prices based upon quotes
furnished by independent sources. Securities for which market quotations
are either not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Distributions to shareholders are recorded on the ex-dividend date.
Realized gains or losses from securities transactions are recorded on the
identified cost basis. On December 31, 1997, undistributed net realized
gain (loss) was increased and undistributed
AIM V.I. GOVERNMENT SECURITIES FUND
FS-36
<PAGE> 111
net investment income decreased by $76,649 as a result of permanent book/tax
differences due to the differing book/tax treatment for principal paydown
losses on mortgage back securities. Net assets of the Fund were unaffected by
the reclassifications discussed above.
C. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $507,409, which expires, if
not previously utilized, through the year 2004. The Fund cannot distribute
capital gains to shareholders until the tax loss carryforwards have been
utilized.
D. Equalization - The Fund previously followed the accounting practice known
as equalization by which a portion of the proceeds from sales and costs of
repurchases of Fund shares, equivalent on a per share basis to the amount
of undistributed net investment income, is credited or charged to
undistributed net income when the transaction is recorded so that the
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares. During the year ended December 31, 1997, the
Fund discontinued equalization accounting and reclassified the cumulative
equalization debits of $595,933 from undistributed net investment income to
paid-in capital. This change has no effect on the net assets, the results
of operations or net asset value per share of the Fund.
E. Organizational Costs - Organizational costs for the Fund of $14,461 are
being amortized over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment
advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of
0.50% of the first $250 million of the Fund's average daily net assets, plus
0.45% of the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $37,872 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,280 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest a director's
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $24,965,236 and $16,850,495, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $757,075
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (19,943)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $737,132
=======================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Sold 1,272,288 $13,023,561 872,793 $8,373,957
- ------------------------------------------------------------------------
Issued as reinvestment of
distributions 1,468 15,600 126,754 1,220,637
- ------------------------------------------------------------------------
Reacquired (591,274) (5,999,079) (435,586) (4,197,239)
- ------------------------------------------------------------------------
682,482 $ 7,040,082 563,961 $5,397,355
========================================================================
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-37
<PAGE> 112
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------- -------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00
- --------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.59 0.58 0.54 0.53 0.38
- --------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.22 (0.35) 0.74 (0.88) 0.10
- --------------------------------------------------------------------------------------
Total from investment
operations 0.81 0.23 1.28 (0.35) 0.48
- --------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01) (0.53) (0.50) (0.50) (0.24)
- --------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
======================================================================================
Total return(a) 8.16% 2.29% 13.84% (3.42)% 4.78%
======================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $33,800 $24,527 $19,545 $12,887 $10,643
======================================================================================
Ratio of expenses to
average net assets 0.87%(b) 0.91% 1.19%(c) 0.95%(d) 1.00%(c)(d)
======================================================================================
Ratio of net investment
income to average net
assets 5.85%(b) 5.80% 5.78%(c) 5.51%(e) 4.74%(c)(e)
======================================================================================
Portfolio turnover rate 66% 32% 41% 29% 0%
======================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $27,710,072.
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.10% and 1.80% (annualized) for January, 1995 and 1994, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.35% and 3.94% (annualized) for January, 1995 and
1994, respectively.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-38
<PAGE> 113
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the two years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund, as of December 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the two
years in the period then ended, the eleven month period ended December 31,
1995, the year ended January 31, 1995, and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GROWTH FUND
FS-39
<PAGE> 114
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 79.51%
AEROSPACE/DEFENSE - 0.64%
Coltec Industries, Inc.(a) 6,500 $ 150,718
- ---------------------------------------------------------------
Sundstrand Corp. 30,000 1,511,250
- ---------------------------------------------------------------
1,661,968
- ---------------------------------------------------------------
AGRICULTURAL PRODUCTS - 0.64%
DIMON, Inc. 23,600 619,500
- ---------------------------------------------------------------
Universal Corp. 25,000 1,028,124
- ---------------------------------------------------------------
1,647,624
- ---------------------------------------------------------------
AIR FREIGHT - 0.23%
CNF Transportation Inc. 15,500 594,812
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.31%
Federal-Mogul Corp. 16,200 656,100
- ---------------------------------------------------------------
MascoTech, Inc. 8,400 154,350
- ---------------------------------------------------------------
810,450
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.55%
First Union Corp. 28,000 1,435,000
- ---------------------------------------------------------------
BANKS (MONEY CENTER) - 2.43%
BankAmerica Corp. 18,000 1,314,000
- ---------------------------------------------------------------
Chase Manhattan Corp. 35,000 3,832,500
- ---------------------------------------------------------------
Citicorp 9,000 1,137,936
- ---------------------------------------------------------------
6,284,436
- ---------------------------------------------------------------
BANKS (REGIONAL) - 0.26%
North Fork Bancorporation, Inc. 20,000 671,250
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.66%
Chancellor Media Corp.(a) 11,100 828,338
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 16,500 876,562
- ---------------------------------------------------------------
1,704,900
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.56%
Crompton & Knowles Corp. 28,000 742,000
- ---------------------------------------------------------------
Millennium Chemicals Inc. 30,000 706,875
- ---------------------------------------------------------------
1,448,875
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.52%
Lucent Technologies, Inc.(b)(c) 22,000 1,757,250
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 16,000 808,000
- ---------------------------------------------------------------
Tellabs, Inc.(a) 26,000 1,374,750
- ---------------------------------------------------------------
3,940,000
- ---------------------------------------------------------------
COMPUTERS (HARDWARE) - 2.96%
Compaq Computer Corp. 37,500 2,116,405
- ---------------------------------------------------------------
Dell Computer Corp.(a) 20,000 1,680,000
- ---------------------------------------------------------------
International Business Machines Corp. 37,000 3,868,812
- ---------------------------------------------------------------
7,665,217
- ---------------------------------------------------------------
MARKET
SHARES VALUE
COMPUTERS (NETWORKING) - 0.26%
Cisco Systems, Inc.(a) 12,000 $ 669,000
- -----------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.53%
EMC Corp.(a) 50,000 1,371,873
- -----------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 4.45%
America Online, Inc.(a)(b)(c) 15,500 1,382,404
- -----------------------------------------------------------------
BMC Software, Inc.(a) 20,000 1,312,500
- -----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 31,000 759,500
- -----------------------------------------------------------------
Computer Associates International, Inc. 34,500 1,824,186
- -----------------------------------------------------------------
Compuware Corp.(a) 40,000 1,280,000
- -----------------------------------------------------------------
Microsoft Corp.(a) 32,000 4,136,000
- -----------------------------------------------------------------
Unisys Corp.(a) 60,000 832,500
- -----------------------------------------------------------------
11,527,090
- -----------------------------------------------------------------
CONSUMER FINANCE - 2.55%
ContiFinancial Corp.(a) 12,800 322,400
- -----------------------------------------------------------------
FIRSTPLUS Financial Group, Inc.(a) 42,000 1,611,750
- -----------------------------------------------------------------
Household International, Inc. 10,000 1,275,625
- -----------------------------------------------------------------
Money Store, Inc. (The) 29,000 609,000
- -----------------------------------------------------------------
SLM Holding Corp. 20,000 2,782,500
- -----------------------------------------------------------------
6,601,275
- -----------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 1.15%
AmeriSource Health Corp.-Class A(a) 24,000 1,398,000
- -----------------------------------------------------------------
Cardinal Health, Inc. 9,000 676,125
- -----------------------------------------------------------------
Sysco Corp. 20,000 911,250
- -----------------------------------------------------------------
2,985,375
- -----------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.31%
American Power Conversion Corp.(a) 20,000 472,500
- -----------------------------------------------------------------
General Electric Co. 46,700 3,426,612
- -----------------------------------------------------------------
SCI Systems, Inc.(a) 7,800 339,788
- -----------------------------------------------------------------
Solectron Corp.(a) 22,600 939,312
- -----------------------------------------------------------------
Symbol Technologies, Inc. 21,200 800,300
- -----------------------------------------------------------------
5,978,512
- -----------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.59%
Perkin-Elmer Corp. 5,500 390,844
- -----------------------------------------------------------------
Waters Corp.(a) 30,500 1,147,562
- -----------------------------------------------------------------
1,538,406
- -----------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.34%
Intel Corp. 12,600 885,150
- -----------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.21%
Applied Materials, Inc.(a)(b)(c) 18,000 542,250
- -----------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-40
<PAGE> 115
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED) - 3.22%
American Express Co. 17,000 $ 1,517,250
- ---------------------------------------------------------------------
Amresco, Inc.(a) 33,000 998,250
- ---------------------------------------------------------------------
Fannie Mae 30,000 1,711,875
- ---------------------------------------------------------------------
Freddie Mac 36,000 1,509,750
- ---------------------------------------------------------------------
MBIA, Inc. 12,600 841,836
- ---------------------------------------------------------------------
MGIC Investment Corp. 13,000 864,500
- ---------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 15,000 886,875
- ---------------------------------------------------------------------
8,330,336
- ---------------------------------------------------------------------
FOODS - 0.33%
ConAgra, Inc.(b) 22,000 721,874
- ---------------------------------------------------------------------
Sara Lee Corp. 2,300 129,518
- ---------------------------------------------------------------------
851,392
- ---------------------------------------------------------------------
FOOTWEAR - 0.26%
Wolverine World Wide, Inc. 30,000 678,750
- ---------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 2.97%
Abbott Laboratories 14,000 917,874
- ---------------------------------------------------------------------
American Home Products Corp. 11,800 902,700
- ---------------------------------------------------------------------
Bristol-Myers Squibb Co.(b) 24,100 2,280,462
- ---------------------------------------------------------------------
Johnson & Johnson 20,000 1,317,500
- ---------------------------------------------------------------------
Warner-Lambert Co. 18,400 2,281,600
- ---------------------------------------------------------------------
7,700,136
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.64%
Dura Pharmaceuticals, Inc.(a) 12,700 582,612
- ---------------------------------------------------------------------
ICN Pharmaceuticals, Inc. 38,300 1,869,519
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 55,000 1,784,062
- ---------------------------------------------------------------------
4,236,193
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 3.11%
Lilly (Eli) & Co. 15,000 1,044,375
- ---------------------------------------------------------------------
Merck & Co., Inc. 41,000 4,356,250
- ---------------------------------------------------------------------
Pfizer Inc. 14,300 1,066,244
- ---------------------------------------------------------------------
Schering-Plough Corp. 25,500 1,584,188
- ---------------------------------------------------------------------
8,051,057
- ---------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.58%
Quorum Health Group, Inc.(a) 37,000 966,625
- ---------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 10,700 539,012
- ---------------------------------------------------------------------
1,505,637
- ---------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.64%
Health Care and Retirement Corp.(a) 6,700 269,675
- ---------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 50,000 1,387,500
- ---------------------------------------------------------------------
1,657,175
- ---------------------------------------------------------------------
MARKET
SHARES VALUE
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.79%
Arterial Vascular Engineering, Inc.(a) 26,200 $ 1,703,000
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 40,000 2,000,000
- ------------------------------------------------------------------------
DePuy, Inc. 7,800 224,250
- ------------------------------------------------------------------------
Guidant Corp. 15,000 933,750
- ------------------------------------------------------------------------
Stryker Corp. 29,800 1,110,050
- ------------------------------------------------------------------------
Sybron International Corp.(a) 26,400 1,239,150
- ------------------------------------------------------------------------
7,210,200
- ------------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.44%
Furniture Brands International, Inc.(a) 21,000 430,500
- ------------------------------------------------------------------------
Maytag Corp. 19,200 716,400
- ------------------------------------------------------------------------
1,146,900
- ------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.72%
Dial Corp. (The) 40,000 832,500
- ------------------------------------------------------------------------
Procter & Gamble Co. 13,000 1,037,563
- ------------------------------------------------------------------------
1,870,063
- ------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.55%
Conseco, Inc. 30,000 1,363,125
- ------------------------------------------------------------------------
Equitable Companies, Inc. 20,000 995,000
- ------------------------------------------------------------------------
Nationwide Financial Services, Inc.-Class A(a) 25,000 903,125
- ------------------------------------------------------------------------
Torchmark Corp. 18,000 757,125
- ------------------------------------------------------------------------
4,018,375
- ------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 2.20%
Ace, Ltd. 14,400 1,389,600
- ------------------------------------------------------------------------
Allmerica Financial Corp. 16,000 799,000
- ------------------------------------------------------------------------
American International Group, Inc. 8,600 935,250
- ------------------------------------------------------------------------
Travelers Group, Inc. 47,602 2,564,558
- ------------------------------------------------------------------------
5,688,408
- ------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.93%
Allstate Corp. 19,900 1,808,412
- ------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 35,000 1,443,750
- ------------------------------------------------------------------------
EXEL Ltd. 13,200 836,550
- ------------------------------------------------------------------------
Fremont General Corp. 16,500 903,375
- ------------------------------------------------------------------------
4,992,087
- ------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.18%
Merrill Lynch & Co., Inc. 42,000 3,063,375
- ------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.85%
Franklin Resources, Inc. 12,350 1,073,678
- ------------------------------------------------------------------------
T. Rowe Price Associates, Inc. 18,000 1,131,750
- ------------------------------------------------------------------------
2,205,428
- ------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.36%
Harley-Davidson, Inc. 33,500 917,062
- ------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-41
<PAGE> 116
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LODGING (HOTELS) - 1.40%
Carnival Corp.-Class A 31,000 $ 1,716,625
- ------------------------------------------------------------------
Host Marriott Corp.(a) 7,400 145,225
- ------------------------------------------------------------------
ITT Corp. 14,000 1,160,250
- ------------------------------------------------------------------
Promus Hotel Corp.(a) 14,460 607,320
- ------------------------------------------------------------------
3,629,420
- ------------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.82%
Dover Corp.(a) 37,800 1,365,525
- ------------------------------------------------------------------
Ingersoll-Rand Co. 18,450 747,225
- ------------------------------------------------------------------
2,112,750
- ------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.47%
Carlisle Companies, Inc. 4,000 171,000
- ------------------------------------------------------------------
Crane Co. 6,600 286,275
- ------------------------------------------------------------------
Eaton Corp. 7,500 669,375
- ------------------------------------------------------------------
Thermo Electron Corp.(a) 45,000 2,002,500
- ------------------------------------------------------------------
U.S. Industries, Inc. 22,500 677,812
- ------------------------------------------------------------------
3,806,962
- ------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.31%
Diebold, Inc. 15,650 792,280
- ------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 4.31%
BJ Services Co.(a) 18,500 1,330,844
- ------------------------------------------------------------------
Cooper Cameron Corp.(a) 22,000 1,342,000
- ------------------------------------------------------------------
Diamond Offshore Drilling, Inc. 30,000 1,443,750
- ------------------------------------------------------------------
ENSCO International, Inc.(a) 19,000 636,500
- ------------------------------------------------------------------
Halliburton Co. 12,000 623,250
- ------------------------------------------------------------------
Nabors Industries, Inc.(a) 40,000 1,257,500
- ------------------------------------------------------------------
Newpark Resources, Inc.(a) 15,600 273,000
- ------------------------------------------------------------------
Santa Fe International Corp. 30,500 1,240,968
- ------------------------------------------------------------------
Schlumberger Ltd. 17,200 1,384,600
- ------------------------------------------------------------------
Transocean Offshore Inc. 2,300 110,830
- ------------------------------------------------------------------
Western Atlas Inc.(a) 20,500 1,517,000
- ------------------------------------------------------------------
11,160,242
- ------------------------------------------------------------------
PERSONAL CARE - 1.16%
Avon Products, Inc. 25,000 1,534,375
- ------------------------------------------------------------------
Gillette Co. 14,500 1,456,344
- ------------------------------------------------------------------
2,990,719
- ------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.63%
AES Corp.(a) 35,000 1,631,875
- ------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 0.63%
Gannett Co., Inc. 14,000 865,375
- ------------------------------------------------------------------
New York Times Co.-Class A 11,700 773,663
- ------------------------------------------------------------------
1,639,038
- ------------------------------------------------------------------
MARKET
SHARES VALUE
REAL ESTATE INVESTMENT TRUST - 1.16%
Crescent Real Estate Equities, Co. 20,000 $ 787,500
- ------------------------------------------------------------------
Patriot American Hospitality, Inc. 32,000 922,000
- ------------------------------------------------------------------
Starwood Lodging Trust 22,000 1,273,250
- ------------------------------------------------------------------
2,982,750
- ------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.32%
Home Depot, Inc.(b)(c) 13,950 821,306
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.56%
CompUSA, Inc.(a) 38,100 1,181,100
- ------------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 45,000 1,310,625
- ------------------------------------------------------------------
Tech Data Corp.(a) 39,900 1,551,112
- ------------------------------------------------------------------
4,042,837
- ------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.81%
Federated Department Stores, Inc. 15,000 645,938
- ------------------------------------------------------------------
Nordstrom, Inc. 1,900 114,712
- ------------------------------------------------------------------
Proffitt's, Inc.(a) 47,000 1,336,562
- ------------------------------------------------------------------
2,097,212
- ------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.94%
Consolidated Stores Corp.(a) 23,750 1,043,516
- ------------------------------------------------------------------
Family Dollar Stores, Inc. 19,200 562,800
- ------------------------------------------------------------------
Ross Stores, Inc. 23,000 836,625
- ------------------------------------------------------------------
2,442,941
- ------------------------------------------------------------------
RETAIL (DRUG STORES) - 1.01%
CVS Corp. 18,000 1,153,125
- ------------------------------------------------------------------
Rite Aid Corp. 25,000 1,467,188
- ------------------------------------------------------------------
2,620,313
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.70%
Albertson's, Inc. 24,200 1,146,475
- ------------------------------------------------------------------
Kroger Co.(a) 47,000 1,736,063
- ------------------------------------------------------------------
Safeway, Inc.(a)(b) 24,000 1,518,000
- ------------------------------------------------------------------
4,400,538
- ------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 2.22%
Costco Companies, Inc.(a) 38,000 1,695,750
- ------------------------------------------------------------------
Dayton Hudson Corp. 24,500 1,653,750
- ------------------------------------------------------------------
Fred Meyer, Inc.(a) 40,000 1,455,000
- ------------------------------------------------------------------
Wal-Mart Stores, Inc. 24,100 950,444
- ------------------------------------------------------------------
5,754,944
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 1.04%
Bed Bath & Beyond, Inc.(a)(b)(c) 18,000 693,000
- ------------------------------------------------------------------
Office Depot, Inc.(a) 57,300 1,371,618
- ------------------------------------------------------------------
Payless ShoeSource, Inc.(a) 9,500 637,688
- ------------------------------------------------------------------
2,702,306
- ------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-42
<PAGE> 117
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL) - 0.41%
Intimate Brands, Inc. 9,900 $ 238,218
- --------------------------------------------------------------------------
TJX Companies, Inc. 24,000 825,000
- --------------------------------------------------------------------------
1,063,218
- --------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 1.43%
Ahmanson (H.F.) & Co. 28,700 1,921,105
- --------------------------------------------------------------------------
Charter One Financial, Inc. 10,840 684,275
- --------------------------------------------------------------------------
Washington Mutual, Inc. 17,000 1,084,812
- --------------------------------------------------------------------------
3,690,192
- --------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.52%
Outdoor Systems, Inc.(a) 19,800 759,825
- --------------------------------------------------------------------------
Universal Outdoor Holdings, Inc. 11,400 592,800
- --------------------------------------------------------------------------
1,352,625
- --------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.14%
Cendant Corp.(b)(c) 84,108 2,891,228
- --------------------------------------------------------------------------
Service Corp. International 71,700 2,648,454
- --------------------------------------------------------------------------
5,539,682
- --------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.50%
Equifax, Inc. 65,600 2,324,700
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 11,400 560,024
- --------------------------------------------------------------------------
National Data Corp. 27,264 984,910
- --------------------------------------------------------------------------
3,869,634
- --------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.25%
AccuStaff, Inc.(a) 28,100 646,300
- --------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.56%
AT&T Corp. 25,000 1,531,250
- --------------------------------------------------------------------------
CIENA Corp.(a) 15,000 916,875
- --------------------------------------------------------------------------
MCI Communications Corp. 20,000 856,250
- --------------------------------------------------------------------------
WorldCom, Inc.(a) 24,000 726,000
- --------------------------------------------------------------------------
4,030,375
- --------------------------------------------------------------------------
TELEPHONE - 0.60%
Bell Atlantic Corp. 17,000 1,547,000
- --------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.29%
Warnaco Group, Inc. (The) 23,800 746,725
- --------------------------------------------------------------------------
TOBACCO - 0.56%
Philip Morris Companies, Inc. 32,000 1,450,000
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 0.32%
USA Waste Services, Inc.(a) 20,900 820,324
- --------------------------------------------------------------------------
Total Domestic Common Stocks 204,470,545
- --------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.15%
FINANCIAL (DIVERSIFIED) - 0.89%
MGIC Investment Corp.-$3.12 Conv. Pfd. 15,000 1,665,000
- --------------------------------------------------------------------------
SunAmerica, Inc.-Series E, $3.10 Dep. Conv. Pfd. 4,900 637,000
- --------------------------------------------------------------------------
2,302,000
- --------------------------------------------------------------------------
MARKET
SHARES VALUE
LODGING (HOTELS) - 0.26%
Host Marriott Corp., $3.375 Conv. Pfd. 10,950 $ 672,746
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 2,974,746
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE NOTES - 0.67%
ELECTRICAL EQUIPMENT - 0.67%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%,
05/01/06(d) (acquired 10/31/96-12/06/96; cost
$1,166,399) $ 923,000 1,728,945
- ------------------------------------------------------------------------------
Total Domestic Convertible Corporate Notes 1,728,945
- ------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 6.27%
BERMUDA - 0.52%
Tyco International Ltd. (Manufacturing-Diversified) 30,000 1,351,875
CANADA - 0.77%
Northern Telecom Ltd.-ADR (Communications
Equipment)(b)(c) 9,300 827,700
- ------------------------------------------------------------------------------
Philip Services Corp. (Waste Management)(a) 80,000 1,150,000
- ------------------------------------------------------------------------------
1,977,700
- ------------------------------------------------------------------------------
FRANCE - 1.77%
Banque Nationale de Paris (Banks-Major Regional) 26,000 1,381,972
- ------------------------------------------------------------------------------
ELF Aquitaine S.A. (Oil & Gas-Drilling & Equipment) 11,000 1,279,388
- ------------------------------------------------------------------------------
Renault S.A. (Automobiles)(b) 22,500 632,922
- ------------------------------------------------------------------------------
Societe Generale (Banks-Major Regional) 9,500 1,294,342
- ------------------------------------------------------------------------------
4,588,624
- ------------------------------------------------------------------------------
GERMANY - 0.15%
Adidas A.G. (Footwear) 2,950 387,976
- ------------------------------------------------------------------------------
IRELAND - 0.24%
Elan Corp. PLC-ADR (Health Care-Drugs-Generic &
Other)(a) 12,100 619,368
- ------------------------------------------------------------------------------
NETHERLANDS - 0.36%
Akzo Nobel N.V. (Chemicals-Diversified) 5,450 939,668
- ------------------------------------------------------------------------------
SINGAPORE - 0.11%
Asia Pulp & Paper Co. Ltd.-ADR (Paper & Forest
Products) 28,100 282,756
- ------------------------------------------------------------------------------
SWEDEN - 0.46%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 32,000 1,194,000
- ------------------------------------------------------------------------------
SWITZERLAND - 1.33%
Novartis A.G. (Healthcare-Diversified) 570 924,324
- ------------------------------------------------------------------------------
UBS-Union Bank of Switzerland (Banks-Major Regional) 1,750 2,528,908
- ------------------------------------------------------------------------------
3,453,232
- ------------------------------------------------------------------------------
UNITED KINGDOM - 0.56%
SmithKline Beecham PLC-ADR (Health Care-Drugs-Major
Pharmaceuticals) 28,200 1,450,536
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interest 16,245,735
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-43
<PAGE> 118
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.33%
SWITZERLAND - 0.33%
Sandoz Capital BVI Ltd. (Financial-Diversified), Sr.
Conv. Deb., 2.00%, 10/06/02 (acquired 11/04/96-
11/08/96; cost $612,162)(d) $ 550,000 $ 848,375
- -------------------------------------------------------------------------------
Total Foreign Convertible Bonds 848,375
- -------------------------------------------------------------------------------
Total Investments, excluding repurchase agreements 226,268,346
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 12.82%(e)
Smith Barney, Inc., 6.75%, 01/02/98(f) 33,186,429 33,186,429
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.23% 259,454,775
- -------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.23)% (603,005)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $258,851,770
===============================================================================
</TABLE>
Investment Abbreviations:
ADR-American Depositary Receipt
Conv.-Convertible
Deb.-Debentures
Pfd.-Preferred
Sr.-Senior
Sub.-Subordinated
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) A portion of this security is subject to put options purchased. See Note 8.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $2,577,320 which
represented 1.00% of the Fund's net assets.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreements entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
December 31, 1997 of $408,000,323.
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-44
<PAGE> 119
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market
value (cost $173,804,805) $226,268,346
- ----------------------------------------------------------------------
Repurchase agreements (cost $33,186,249) 33,186,429
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 104,657
- ----------------------------------------------------------------------
Investments sold 1,355,180
- ----------------------------------------------------------------------
Dividends and interest 171,225
- ----------------------------------------------------------------------
Options written 137,059
- ----------------------------------------------------------------------
Organizational costs, net 965
- ----------------------------------------------------------------------
Investment for deferred compensation plan 17,734
- ----------------------------------------------------------------------
Other assets 1,495
- ----------------------------------------------------------------------
Total assets 261,243,090
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,327,198
- ----------------------------------------------------------------------
Capital stock reacquired 139,112
- ----------------------------------------------------------------------
Options purchased 731,831
- ----------------------------------------------------------------------
Deferred compensation plan 17,734
- ----------------------------------------------------------------------
Accrued advisory fees 134,357
- ----------------------------------------------------------------------
Accrued directors' fees 2,202
- ----------------------------------------------------------------------
Accrued administrative services fees 3,053
- ----------------------------------------------------------------------
Accrued operating expenses 35,833
- ----------------------------------------------------------------------
Total liabilities 2,391,320
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $258,851,770
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 13,054,326
======================================================================
Net asset value, offering and redemption price per share $19.83
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $18,515 foreign withholding tax) $ 1,864,707
- ----------------------------------------------------------------------------
Interest 990,927
- ----------------------------------------------------------------------------
Total investment income 2,855,634
- ----------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,453,488
- ----------------------------------------------------------------------------
Administrative services fees 44,692
- ----------------------------------------------------------------------------
Custodian fees 68,311
- ----------------------------------------------------------------------------
Directors' fees and expenses 8,967
- ----------------------------------------------------------------------------
Organizational costs 2,892
- ----------------------------------------------------------------------------
Other 67,219
- ----------------------------------------------------------------------------
Total expenses 1,645,569
- ----------------------------------------------------------------------------
Less: Expenses paid indirectly (1,708)
- ----------------------------------------------------------------------------
Net expenses 1,643,861
- ----------------------------------------------------------------------------
Net investment income 1,211,773
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities 19,739,112
- ----------------------------------------------------------------------------
Foreign currencies (41,236)
- ----------------------------------------------------------------------------
Futures contracts 2,272,116
- ----------------------------------------------------------------------------
Options contracts 139,988
- ----------------------------------------------------------------------------
22,109,980
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 28,602,661
- ----------------------------------------------------------------------------
Foreign currencies 351
- ----------------------------------------------------------------------------
Futures contracts (83,436)
- ----------------------------------------------------------------------------
Options contracts (449,591)
- ----------------------------------------------------------------------------
28,069,985
- ----------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures
and options contracts 50,179,965
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $51,391,738
============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-45
<PAGE> 120
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,211,773 $ 1,113,772
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and options
contracts 22,109,980 8,362,709
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies and options
contracts 28,069,985 13,695,426
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 51,391,738 23,171,907
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (1,119,140) (662,515)
- ------------------------------------------------------------------------------
Distributions to shareholders from realized
capital gains (8,443,286) (7,442,940)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 38,384,566 60,971,328
- ------------------------------------------------------------------------------
Net increase in net assets 80,213,878 76,037,780
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 178,637,892 102,600,112
- ------------------------------------------------------------------------------
End of year $258,851,770 $178,637,892
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $183,975,681 $145,591,115
- ------------------------------------------------------------------------------
Undistributed net investment income 1,182,806 1,090,173
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
options contracts 21,643,385 7,976,691
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and options
contracts 52,049,898 23,979,913
- ------------------------------------------------------------------------------
$258,851,770 $178,637,892
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Growth Fund (the "Fund"). The Fund's investment objective is
to seek growth of capital principally through investment in common stocks of
seasoned and better capitalized companies considered by AIM to have strong
earnings momentum. Currently, shares of the Fund are sold only to insurance
company separate accounts to fund the benefits of variable annuity contracts
and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. If no mean is available, as is the case
in some foreign markets, the closing bid will be used absent a last sales
price. Each security reported on the NASDAQ National Market System is valued
at the last sales price on the valuation date or absent a last sales price,
at the mean of the closing bid and asked prices. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued at the mean between last bid and asked prices based upon
quotes furnished by independent sources. Securities for which market
quotations either are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
AIM V.I. GROWTH FUND
FS-46
<PAGE> 121
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Organizational Costs - Organizational costs of $14,461 are being amortized
over five years.
E. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts 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 contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
F. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
G. Put options - The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The option's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
H. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
I. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $44,692 for such
services.
AIM V.I. GROWTH FUND
FS-47
<PAGE> 122
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,727 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion of
the Fund's expenses related to pricing services used by the Fund which reduced
the Fund's expenses by $863 during the year ended December 31, 1997. The Fund
also received reductions in custodian fees of $845 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $1,708 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees,
if so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1997 was
$278,678,426 and $271,014,953, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $54,538,052
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,523,682)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $52,014,370
==========================================================================
</TABLE>
Cost of investments for tax purposes is $174,253,976.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold 2,757,339 $ 51,600,352 3,676,649 $57,637,947
- ----------------------------------------------------------------------------
Issued as reinvestment of
distributions 492,909 9,562,426 511,063 8,105,455
- ----------------------------------------------------------------------------
Reacquired (1,185,922) (22,778,212) (304,826) (4,772,074)
- ----------------------------------------------------------------------------
2,064,326 $ 38,384,566 3,882,886 $60,971,328
============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of year 824 $ 342,973
------------------------------------------------
Written 5,180 1,732,123
------------------------------------------------
Closed (2,655) (1,028,115)
------------------------------------------------
Exercised (1,251) (372,509)
------------------------------------------------
Expired (283) (142,568)
------------------------------------------------
End of year 1,815 $ 531,904
================================================
Open call options written at December 31, 1997 were as follows:
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- --------- ----------- --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online Inc. Jan. 98 80 155 $ 80,782 $158,875 $ (78,093)
Applied Materials Jan. 98 37.50 90 25,042 1,406 23,636
Bed Bath & Beyond, Inc. Feb. 98 35 180 25,334 84,375 (59,041)
Bristol-Myers Squibb Co. Jan. 98 95 241 106,562 52,719 53,843
ConAgra, Inc. Mar. 98 37.50 220 39,214 9,625 29,589
Cendant Corp. Jan. 98 75 350 61,044 266,875 (205,831)
Home Depot, Inc. Jan. 98 55 139 44,757 54,731 (9,974)
Lucent Technologies,
Inc. Jan. 98 85 220 64,495 15,125 49,370
Northern Telecom Ltd. Mar. 98 95 93 52,512 41,269 11,243
Safeway, Inc. Jan. 98 60 127 32,162 46,831 (14,669)
----- -------- -------- ---------
1,815 $531,904 $731,831 $(199,927)
===== ======== ======== =========
</TABLE>
AIM V.I. GROWTH FUND
FS-48
<PAGE> 123
NOTE 8 - PUT OPTIONS CONTRACTS PURCHASED
Transactions in put options purchased during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- ---------
<S> <C> <C>
Beginning of year -- $ --
----------------------------------------
Purchased 2,047 565,769
----------------------------------------
Closed (500) (182,680)
----------------------------------------
Expired (230) (32,315)
----------------------------------------
End of year 1,317 $ 350,774
========================================
</TABLE>
Open put options held at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS PAID MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online Inc. January 70 155 $ 70,928 $ 3,875 $ (67,053)
Applied Materials, Inc. January 32.50 180 51,165 57,375 6,210
Bed Bath & Beyond, Inc. February 30 180 26,415 3,938 (22,477)
Cendant Corp. January 65 350 75,521 6,563 (68,958)
Home Depot, Inc. January 50 139 14,178 1,303 (12,875)
Lucent Technologies,
Inc. January 75 220 72,160 19,250 (52,910)
Northern Telecom Ltd. March 85 93 40,407 44,755 4,347
----- -------- -------- ---------
1,317 $350,774 $137,058 $(213,716)
===== ======== ======== =========
</TABLE>
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------- -----------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00
- ------------------------ -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.08 0.07 0.09 0.06 0.02
- ------------------------ -------- -------- -------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 4.27 2.52 3.65 (0.88) 1.59
- ------------------------ -------- -------- -------- ------- -------
Total from investment
operations 4.35 2.59 3.74 (0.82) 1.61
- ------------------------ -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.09) (0.06) (0.01) (0.06) (0.02)
- ------------------------ -------- -------- -------- ------- -------
Distributions from net
realized gains (0.68) (0.72) -- -- --
- ------------------------ -------- -------- -------- ------- -------
Total distributions (0.77) (0.78) (0.01) (0.06) (0.02)
- ------------------------ -------- -------- -------- ------- -------
Net asset value, end of
period $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
======================== ======== ======== ======== ======= =======
Total return(a) 26.87% 18.09% 34.89% (7.11)% 16.07%
======================== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $258,852 $178,638 $102,600 $45,497 $25,115
======================== ======== ======== ======== ======= =======
Ratio of expenses to
average net assets 0.73%(b)(c) 0.78% 0.84%(d) 0.95% 0.85%(d)(e)
======================== ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets 0.54%(b) 0.79% 0.95%(d) 0.71% 0.51%(d)(e)
======================== ======== ======== ======== ======= =======
Portfolio turnover rate 132% 143% 125% 179% 99%
======================== ======== ======== ======== ======= =======
Average brokerage
commission rate paid(f) $ 0.0618 $ 0.0629 N/A N/A N/A
======================== ======== ======== ======== ======= =======
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $224,542,366.
(c) Ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the ratio of expenses to average net assets would
have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursement. Annualized
ratios of expenses and net investment income (loss) to average
net assets prior to fee waivers and/or expense reimbursements
were 1.50% and (0.14)%, respectively.
(f) The average commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities
for the period divided by the total number of related shares
purchased and sold, which is required to be disclosed for fiscal
years beginning September 1, 1995 and thereafter.
AIM V.I. GROWTH FUND
FS-49
<PAGE> 124
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth and Income Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995 and the
period May 2, 1994 (commencement of operations) through January 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth and Income Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995 and the period May 2, 1994 (commencement of operations)
through January 31, 1995, in conformity with generally accepted accounting
principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GROWTH AND INCOME FUND
FS-50
<PAGE> 125
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
COMMON STOCKS - 80.98%
AIRLINES - 0.68%
Continental Airlines, Inc(a) 90,000 $ 4,331,250
- ----------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.72%
Lear Corp.(a) 70,000 3,325,000
- ----------------------------------------------------------------------
Tower Automotive, Inc.(a) 30,000 1,261,875
- ----------------------------------------------------------------------
4,586,875
- ----------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 2.33%
Banc One Corp. 70,000 3,801,875
- ----------------------------------------------------------------------
Schweizerischer Bankverein (Switzerland)(a) 10,000 3,106,397
- ----------------------------------------------------------------------
UBS-Union Bank of Switzerland (Switzerland) 4,000 5,780,362
- ----------------------------------------------------------------------
Wells Fargo & Co. 6,500 2,206,344
- ----------------------------------------------------------------------
14,894,978
- ----------------------------------------------------------------------
BANKS (MONEY CENTER) - 4.03%
BankAmerica Corp. 55,000 4,015,000
- ----------------------------------------------------------------------
Chase Manhattan Corp. 135,000 14,782,500
- ----------------------------------------------------------------------
Citicorp 55,000 6,954,062
- ----------------------------------------------------------------------
25,751,562
- ----------------------------------------------------------------------
BANKS (REGIONAL) - 0.29%
Marshall & Ilsley Corp. 30,000 1,863,750
- ----------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.20%
Lubrizol Corp. (The) 35,000 1,290,625
- ----------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.46%
ADC Telecommunications, Inc.(a) 95,000 3,966,250
- ----------------------------------------------------------------------
Comverse Technology, Inc.(a) 35,000 1,365,000
- ----------------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 80,000 2,040,000
- ----------------------------------------------------------------------
Lucent Technologies, Inc. 25,000 1,996,875
- ----------------------------------------------------------------------
Nokia Oyj - Class A - A-ADR (Finland) 25,000 1,750,000
- ----------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Sweden) 45,000 1,679,062
- ----------------------------------------------------------------------
Tellabs, Inc.(a) 55,000 2,908,125
- ----------------------------------------------------------------------
15,705,312
- ----------------------------------------------------------------------
COMPUTERS (HARDWARE) - 2.72%
Compaq Computer Corp. 100,000 5,643,750
- ----------------------------------------------------------------------
Dell Computer Corp.(a)(b) 30,000 2,520,000
- ----------------------------------------------------------------------
International Business Machines Corp. 65,000 6,796,563
- ----------------------------------------------------------------------
Sun Microsystems, Inc.(a) 60,000 2,392,500
- ----------------------------------------------------------------------
17,352,813
- ----------------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.08%
Bay Networks, Inc.(a) 140,000 3,578,750
- ----------------------------------------------------------------------
Cisco Systems, Inc.(a) 60,000 3,345,000
- ----------------------------------------------------------------------
6,923,750
- ----------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.43%
EMC Corp.(a) 100,000 2,743,750
- ----------------------------------------------------------------------
SHARES MARKET
VALUE
COMPUTERS (SOFTWARE & SERVICES) - 3.56%
America Online, Inc.(a)(b) 40,000 $ 3,567,500
- ----------------------------------------------------------------------
Computer Associates International, Inc. 150,000 7,931,250
- ----------------------------------------------------------------------
Compuware Corp.(a) 44,000 1,408,000
- ----------------------------------------------------------------------
HBO & Co. 50,000 2,400,000
- ----------------------------------------------------------------------
Microsoft Corp.(a) 40,000 5,170,000
- ----------------------------------------------------------------------
Sterling Commerce, Inc.(a) 60,000 2,306,250
- ----------------------------------------------------------------------
22,783,000
- ----------------------------------------------------------------------
CONSUMER FINANCE - 1.58%
Household International, Inc. 40,000 5,102,500
- ----------------------------------------------------------------------
MBNA Corp. 80,000 2,185,000
- ----------------------------------------------------------------------
SLM Holding Corp. 20,000 2,782,500
- ----------------------------------------------------------------------
10,070,000
- ----------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 1.44%
AmeriSource Health Corp.-Class A(a) 21,300 1,240,725
- ----------------------------------------------------------------------
Bergen Brunswig Corp.-Class A 100,000 4,212,500
- ----------------------------------------------------------------------
Cardinal Health, Inc. 30,000 2,253,750
- ----------------------------------------------------------------------
Sysco Corp. 32,500 1,480,781
- ----------------------------------------------------------------------
9,187,756
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.03%
General Electric Co.(b) 90,000 6,603,750
- ----------------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.18%
Kent Electronics Corp.(a) 45,000 1,130,625
- ----------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.73%
Intel Corp. 45,000 3,161,250
- ----------------------------------------------------------------------
Microchip Technology, Inc.(a) 50,000 1,500,000
- ----------------------------------------------------------------------
4,661,250
- ----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 5.82%
American Express Co. 70,000 6,247,500
- ----------------------------------------------------------------------
CIT Group, Inc. (The)(a) 35,000 1,128,750
- ----------------------------------------------------------------------
Fannie Mae 135,000 7,703,437
- ----------------------------------------------------------------------
Freddie Mac 175,000 7,339,063
- ----------------------------------------------------------------------
MBIA, Inc. 50,000 3,340,625
- ----------------------------------------------------------------------
MGIC Investment Corp. 25,000 1,662,500
- ----------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 165,000 9,755,625
- ----------------------------------------------------------------------
37,177,500
- ----------------------------------------------------------------------
FOODS - 0.54%
Ralston-Ralston Purina Group 16,000 1,487,000
- ----------------------------------------------------------------------
Sara Lee Corp. 35,000 1,970,938
- ----------------------------------------------------------------------
3,457,938
- ----------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.36%
Mirage Resorts, Inc.(a) 100,000 2,275,000
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-51
<PAGE> 126
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED) - 4.39%
Abbott Laboratories 25,000 $ 1,639,063
- -----------------------------------------------------------------------
American Home Products Corp.(b) 100,000 7,650,000
- -----------------------------------------------------------------------
Bristol-Myers Squibb Co. 85,000 8,043,125
- -----------------------------------------------------------------------
Johnson & Johnson 50,000 3,293,750
- -----------------------------------------------------------------------
Warner-Lambert Co. 60,000 7,440,000
- -----------------------------------------------------------------------
28,065,938
- -----------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.44%
Lilly (Eli) & Co. 30,000 2,088,750
- -----------------------------------------------------------------------
Merck & Co., Inc. 70,000 7,437,500
- -----------------------------------------------------------------------
Pfizer Inc. 115,000 8,574,688
- -----------------------------------------------------------------------
SmithKline Beecham PLC-ADR (United Kingdom) 200,000 10,287,500
- -----------------------------------------------------------------------
28,388,438
- -----------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.78%
Health Management Associates, Inc.-Class A(a) 65,000 1,641,250
- -----------------------------------------------------------------------
Tenet Healthcare Corp.(a) 100,000 3,312,500
- -----------------------------------------------------------------------
4,953,750
- -----------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.28%
HEALTHSOUTH Corp.(a) 65,000 1,803,750
- -----------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 1.17%
MedPartners, Inc.(a) 250,000 5,593,750
- -----------------------------------------------------------------------
PhyCor, Inc.(a) 70,000 1,890,000
- -----------------------------------------------------------------------
7,483,750
- -----------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.85%
Arterial Vascular Engineering, Inc.(a) 61,600 4,004,000
- -----------------------------------------------------------------------
Boston Scientific Corp.(a) 44,000 2,018,500
- -----------------------------------------------------------------------
Henry Schein, Inc.(a) 70,000 2,450,000
- -----------------------------------------------------------------------
Medtronic, Inc. 64,000 3,348,000
- -----------------------------------------------------------------------
11,820,500
- -----------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.65%
Covance, Inc.(a) 45,000 894,375
- -----------------------------------------------------------------------
Omnicare, Inc. 105,000 3,255,000
- -----------------------------------------------------------------------
4,149,375
- -----------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.16%
Leggett & Platt, Inc. 24,900 1,042,688
- -----------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.59%
Colgate-Palmolive Co. 65,000 4,777,500
- -----------------------------------------------------------------------
Kimberly-Clark Corp. 60,000 2,958,750
- -----------------------------------------------------------------------
Procter & Gamble Co. (The) 30,000 2,394,375
- -----------------------------------------------------------------------
10,130,625
- -----------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.54%
Provident Companies, Inc. 90,000 3,476,250
- -----------------------------------------------------------------------
SHARES MARKET
VALUE
INSURANCE (MULTI-LINE) - 2.47%
Ace, Ltd. 40,000 $ 3,860,000
- -------------------------------------------------------------------------
American International Group, Inc. 65,000 7,068,750
- -------------------------------------------------------------------------
Travelers Group, Inc. 90,000 4,848,750
- -------------------------------------------------------------------------
15,777,500
- -------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.56%
Allstate Corp. 90,000 8,178,750
- -------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A 40,000 1,760,000
- -------------------------------------------------------------------------
9,938,750
- -------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.64%
E*TRADE Group, Inc.(a) 170,000 3,910,000
- -------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 90,000 6,564,375
- -------------------------------------------------------------------------
10,474,375
- -------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.44%
Franklin Resources, Inc. 32,000 2,782,000
- -------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 1.42%
Brunswick Corp. 300,000 9,093,750
- -------------------------------------------------------------------------
LODGING-HOTELS - 0.68%
Carnival Corp.-Class A 41,600 2,303,600
- -------------------------------------------------------------------------
ITT Corp.(a) 25,000 2,071,875
- -------------------------------------------------------------------------
4,375,475
- -------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.94%
Eaton Corp. 25,000 2,231,250
- -------------------------------------------------------------------------
Hillenbrand Industries, Inc. 30,000 1,535,625
- -------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 50,000 2,253,125
- -------------------------------------------------------------------------
6,020,000
- -------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.34%
Diebold, Inc. 43,500 2,202,188
- -------------------------------------------------------------------------
NATURAL GAS - 0.52%
El Paso Natural Gas Co. 50,000 3,325,000
- -------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.77%
Boise Cascade Office Products Corp.(a) 10,400 155,350
- -------------------------------------------------------------------------
Danka Business Systems PLC-ADR (United Kingdom) 89,200 1,421,625
- -------------------------------------------------------------------------
Wallace Computer Services, Inc. 85,900 3,339,363
- -------------------------------------------------------------------------
4,916,338
- -------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 1.38%
Exxon Corp. 55,000 3,365,312
- -------------------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New York Shares
(Netherlands) 60,000 3,251,250
- -------------------------------------------------------------------------
YPF Sociedad Anonima-ADR (Argentina) 65,000 2,222,188
- -------------------------------------------------------------------------
8,838,750
- -------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-52
<PAGE> 127
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT) - 2.32%
BJ Services Co.(a) 45,000 $ 3,237,188
- -----------------------------------------------------------------------
EVI, Inc.(a)(b) 45,000 2,328,750
- -----------------------------------------------------------------------
Halliburton 47,500 2,467,031
- -----------------------------------------------------------------------
Hvide Marine, Inc.-Class A(a) 60,000 1,545,000
- -----------------------------------------------------------------------
Petroleum Geo-Services ASA-ADR (Norway)(a) 35,000 2,266,250
- -----------------------------------------------------------------------
Santa Fe International Corp. 60,000 2,441,250
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 3,500 277,375
- -----------------------------------------------------------------------
Transocean Offshore Inc. 6,100 276,788
- -----------------------------------------------------------------------
14,839,632
- -----------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.45%
Tosco Corp. 76,000 2,873,750
- -----------------------------------------------------------------------
PERSONAL CARE - 1.16%
Avon Products, Inc.(b) 55,000 3,375,625
- -----------------------------------------------------------------------
Gillette Co. 40,000 4,017,500
- -----------------------------------------------------------------------
7,393,125
- -----------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 0.52%
Xerox Corp. 45,000 3,321,562
- -----------------------------------------------------------------------
PUBLISHING - 0.38%
Dow Jones & Co., Inc. 45,000 2,415,937
- -----------------------------------------------------------------------
RAILROADS - 0.03%
Kansas City Southern Industries, Inc. 5,700 180,975
- -----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 1.71%
Cali Realty Corp. 50,000 2,050,000
- -----------------------------------------------------------------------
Crescent Real Estate Equities, Co. 60,000 2,362,500
- -----------------------------------------------------------------------
Patriot American Hospitality, Inc. 80,000 2,305,000
- -----------------------------------------------------------------------
Starwood Lodging 40,000 2,315,000
- -----------------------------------------------------------------------
Vornado Realty Trust 40,000 1,877,500
- -----------------------------------------------------------------------
10,910,000
- -----------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONIC) - 0.56%
CompUSA, Inc.(a)(b) 115,000 3,565,000
- -----------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 1.85%
Carson Pirie Scott & Co.(a) 35,000 1,754,375
- -----------------------------------------------------------------------
Federated Department Stores, Inc.(a) 50,000 2,153,125
- -----------------------------------------------------------------------
J.C. Penney Co., Inc. 55,000 3,317,187
- -----------------------------------------------------------------------
Kohl's Corp.(a) 30,000 2,043,750
- -----------------------------------------------------------------------
Proffitt's, Inc.(a) 90,000 2,559,375
- -----------------------------------------------------------------------
11,827,812
- -----------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.31%
Consolidated Stores Corp.(a) 45,000 1,977,187
- -----------------------------------------------------------------------
RETAIL (DRUG STORES) - 0.32%
Walgreen Co. 65,000 2,039,375
- -----------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.40%
Albertson's, Inc. 30,200 1,430,725
- -----------------------------------------------------------------------
Blue Square-Israel Ltd.-ADR (Israel) 90,000 1,113,750
- -----------------------------------------------------------------------
2,544,475
- -----------------------------------------------------------------------
SHARES MARKET
VALUE
RETAIL (GENERAL MERCHANDISE) - 0.35%
Costco Companies, Inc.(a) 50,000 $ 2,231,250
- ----------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.77%
Corporate Express, Inc.(a) 280,000 3,605,000
- ----------------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 53,200 1,293,425
- ----------------------------------------------------------------------
4,898,425
- ----------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.20%
Stage Stores, Inc.(a) 35,000 1,308,125
- ----------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.80%
Washington Mutual, Inc. 80,000 5,105,000
- ----------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 3.57%
Cendant Corp.(a)(b) 301,000 10,346,875
- ----------------------------------------------------------------------
Service Corp. International 275,000 10,157,812
- ----------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 50,000 2,331,250
- ----------------------------------------------------------------------
22,835,937
- ----------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.07%
Ceridian Corp.(a) 55,000 2,519,687
- ----------------------------------------------------------------------
Equifax, Inc. 60,000 2,126,250
- ----------------------------------------------------------------------
Fiserv, Inc.(a) 45,000 2,210,625
- ----------------------------------------------------------------------
6,856,562
- ----------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.33%
AT&T Corp. 55,000 3,368,750
- ----------------------------------------------------------------------
MCI Communications Corp. 120,000 5,137,500
- ----------------------------------------------------------------------
8,506,250
- ----------------------------------------------------------------------
TELEPHONE - 2.17%
Cincinnati Bell, Inc. 330,000 10,230,000
- ----------------------------------------------------------------------
SBC Communications, Inc. 50,000 3,662,500
- ----------------------------------------------------------------------
13,892,500
- ----------------------------------------------------------------------
TOBACCO - 1.91%
Philip Morris Companies, Inc. 270,000 12,234,375
- ----------------------------------------------------------------------
WASTE MANAGEMENT - 0.61%
USA Waste Services, Inc.(a) 100,000 3,925,000
- ----------------------------------------------------------------------
Total Common Stocks 517,532,928
- ----------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 5.42%
HEALTH CARE (MANAGED CARE) - 0.69%
Medpartners Inc.-$1.44 Conv. Pfd. 200,000 4,400,000
- ----------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.22%
Conseco Inc.-$4.278 Conv. PRIDES 50,000 7,800,000
- ----------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.11%
Hvide Capital Trust-$3.25 Conv. Pfd. (Acquired
06/24/97; Cost $600,000)(c) 12,000 682,092
- ----------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.15%
Tosco Financial Trust-$2.875 Conv. Pfd. 15,300 1,000,238
- ----------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.57%
AES Trust I-Series A-$2.69 Conv. Pfd. 51,000 3,659,250
- ----------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.36%
TJX Companies, Inc.-Series E-$7.00 Conv. Pfd. 6,000 2,280,000
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-53
<PAGE> 128
<TABLE>
<CAPTION>
SHARES MARKET
VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER) - 0.17%
Automatic Common Exchange Security Trust II-$1.55
Conv. Pfd. 45,000 $ 1,057,500
- ------------------------------------------------------------------------------
SHIPPING - 0.18%
CNF Trust I-$2.50 Conv. Pfd. 20,000 1,170,000
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.97%
WorldCom, Inc.-$2.68 Dep. Conv. Pfd. 120,000 12,600,000
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 34,649,080
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
CONVERTIBLE CORPORATE BONDS - 6.27%
COMPUTERS (SOFTWARE & SERVICES) - 0.59%
Platinum Technology, Inc., Conv. Sub. Notes, 6.25%,
12/15/02 (Acquired 12/11/97; Cost $1,997,000)(c) $ 2,000,000 2,147,500
- ------------------------------------------------------------------------------
Veritas Software Corp., Conv. Sub. Notes, 5.25%,
11/01/04 (Acquired 10/09/97; Cost $1,500,000)(c) 1,500,000 1,627,500
- ------------------------------------------------------------------------------
3,775,000
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.44%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06
(Acquired 10/24/96-12/04/97; Cost $2,409,413)(c) 1,500,000 2,809,770
- ------------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.22%
Analog Devices, Conv. Sub. Notes, 3.50%, 12/01/00 1,000,000 1,419,680
- ------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.44%
Dura Pharmaceuticals Inc., Sub. Notes, 3.50%,
07/15/02 2,500,000 2,810,350
- ------------------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 1.04%
NCS Healthcare Inc., Conv. Sub. Notes, 5.75%,
08/15/04 2,500,000 2,550,550
- ------------------------------------------------------------------------------
Omnicare, Inc., Sub. Deb., 5.00%, 12/01/07 (Acquired
12/04/97; Cost $4,000,000)(c) 4,000,000 4,060,000
- ------------------------------------------------------------------------------
6,610,550
- ------------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.39%
Thermo Electron Corp., Conv. Sub. Deb., 4.25%,
01/01/03 (Acquired 06/20/97-06/27/97; Cost
$2,294,492)(c) 2,000,000 2,500,000
- ------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.40%
U.S. Filter Corp., Conv. Sub. Notes, 4.50%, 12/15/01 2,500,000 2,575,000
- ------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.35%
Danka Business Systems PLC, Conv. Sub. Notes, 6.75%,
04/01/02 (United Kingdom) 2,500,000 2,237,450
- ------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.04%
Diamond Offshore Drilling, Inc., Conv. Sub. Notes,
3.75%, 02/15/07 3,500,000 4,795,420
- ------------------------------------------------------------------------------
Nabors Industries, Inc., Conv. Sub. Notes, 5.00%,
05/15/06 1,000,000 1,837,670
- ------------------------------------------------------------------------------
6,633,090
- ------------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.21%
Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 1,000,000 1,347,170
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET VALUE
RETAIL (SPECIALTY) - 0.36%
Staples Inc., Conv. Sub. Deb., 4.50%, 10/01/00
(Acquired 10/23/97-12/30/97; Cost $2,299,750)(c) $ 1,750,000 $ 2,303,438
- ------------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.49%
Career Horizons, Inc., Conv. Bonds, 7.00%, 11/01/02 1,500,000 3,100,500
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.30%
Tel-Save Holdings, Inc., Sub. Notes, Conv., 5.00%,
12/15/04 (Acquired 12/05/97; Cost $2,000,000)(c) 2,000,000 1,930,000
- ------------------------------------------------------------------------------
Total Convertible Corporate Bonds 40,051,998
- ------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 5.24%
9.125%, 05/15/99(d) 9,000,000 9,405,720
- ------------------------------------------------------------------------------
11.75%, 02/15/01(d) 10,000,000 11,731,000
- ------------------------------------------------------------------------------
13.125%, 05/15/01(d) 5,000,000 6,134,500
- ------------------------------------------------------------------------------
13.375%, 08/15/01 5,000,000 6,244,250
- ------------------------------------------------------------------------------
Total U.S. Treasury Securities 33,515,470
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT(e) - 4.42%
Smith Barney, Inc. 6.75%, 01/02/98(f) 28,276,446 28,276,446
- ------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 102.33% 654,025,922
- ------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (2.33)% (14,913,377)
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $639,112,545
==============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security
(b) A portion of these securities are subject to call options written. See
Note 7.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of the securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $18,060,300,
which represented 2.83% of the Fund's net assets.
(d) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See note 9.
(e) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor.
(f) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S.Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Investment Abbreviations:
ADR--American Depositary Receipt
Conv.--Convertible
Deb.--Debentures
Dep.--Depositary
Pfd.--Preferred
PRIDES--Preferred Redemption Increase Dividend Equity Security
Sub.--Subordinated
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-54
<PAGE> 129
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $566,330,159) $654,025,922
- ----------------------------------------------------------------------
Cash 16,995
- ----------------------------------------------------------------------
Receivables for:
Investments sold 9,550,866
- ----------------------------------------------------------------------
Capital stock sold 978,416
- ----------------------------------------------------------------------
Dividends and interest 1,693,975
- ----------------------------------------------------------------------
Options purchased 145,453
- ----------------------------------------------------------------------
Variation margin 37,500
- ----------------------------------------------------------------------
Investment for deferred compensation plan 14,757
- ----------------------------------------------------------------------
Other assets 12,621
- ----------------------------------------------------------------------
Total assets 666,476,505
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 26,264,800
- ----------------------------------------------------------------------
Capital stock reacquired 93,155
- ----------------------------------------------------------------------
Options written 609,300
- ----------------------------------------------------------------------
Deferred compensation plan 14,757
- ----------------------------------------------------------------------
Accrued advisory fees 322,312
- ----------------------------------------------------------------------
Accrued administrative services fees 3,500
- ----------------------------------------------------------------------
Accrued directors' fees 1,653
- ----------------------------------------------------------------------
Accrued operating expenses 54,483
- ----------------------------------------------------------------------
Total liabilities 27,363,960
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $639,112,545
======================================================================
Capital shares, $.001 par value per share:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 33,868,543
======================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 18.87
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $36,441 foreign withholding tax) $ 5,115,419
- -----------------------------------------------------------------------------
Interest 2,487,104
- -----------------------------------------------------------------------------
Total investment income 7,602,523
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,609,695
- -----------------------------------------------------------------------------
Administrative services fees 43,065
- -----------------------------------------------------------------------------
Custodian fees 84,481
- -----------------------------------------------------------------------------
Directors' fees and expenses 9,116
- -----------------------------------------------------------------------------
Other 93,580
- -----------------------------------------------------------------------------
Total expenses 2,839,937
- -----------------------------------------------------------------------------
Less: Expenses paid indirectly (5,032)
- -----------------------------------------------------------------------------
Net expenses 2,834,905
- -----------------------------------------------------------------------------
Net investment income 4,767,618
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCY TRANSACTIONS, FUTURES, AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 9,687,148
- -----------------------------------------------------------------------------
Foreign currency transactions 80,193
- -----------------------------------------------------------------------------
Future contracts (236,996)
- -----------------------------------------------------------------------------
Option contracts 205,761
- -----------------------------------------------------------------------------
9,736,106
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
- -----------------------------------------------------------------------------
Investment securities 67,471,540
- -----------------------------------------------------------------------------
Futures contracts (277,200)
- -----------------------------------------------------------------------------
Option contracts (204,922)
- -----------------------------------------------------------------------------
66,989,418
- -----------------------------------------------------------------------------
Net gain from investment securities, foreign currency
transactions, futures and option contracts 76,725,524
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $81,493,142
=============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-55
<PAGE> 130
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,767,618 $ 2,140,854
- -------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currency transactions, futures and option
contracts 9,736,106 465,498
- -------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, futures and option contracts 66,989,418 17,682,951
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 81,493,142 20,289,303
- -------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (326,695) (1,850,460)
- -------------------------------------------------------------------------------
Distributions from net realized gains (490,042) (401,149)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 349,104,509 152,726,725
- -------------------------------------------------------------------------------
Net increase in net assets 429,780,914 170,764,419
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 209,331,631 38,567,212
- -------------------------------------------------------------------------------
End of year $639,112,545 $209,331,631
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $537,626,187 $188,521,678
- -------------------------------------------------------------------------------
Undistributed net investment income 4,850,844 329,728
- -------------------------------------------------------------------------------
Undistributed net realized gain on sales of
investment securities, foreign currency
transactions, futures and option contracts 9,421,873 256,002
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currency transactions and option
contracts 87,213,641 20,224,223
- -------------------------------------------------------------------------------
$639,112,545 $209,331,631
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Growth and Income Fund (the "Fund"). The Fund's investment
objective is to seek growth of capital, with current income as a secondary
objective. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between the last bid and
asked prices based upon quotes furnished by independent sources. Securities
for which market quotations either are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors. Short-term obligations having 60 days
or less to maturity are valued at amortized cost which approximates market
value. Generally, trading in foreign securities is
AIM V.I. GROWTH AND INCOME FUND
FS-56
<PAGE> 131
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which will
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Realized gains or losses from securities transactions
are recorded on the identified cost basis. On December 31, 1997
undistributed net investment income was increased and undistributed net
realized gains decreased by $80,193 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes -- It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts -- The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts 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 contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. Covered Call Options -- The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written. The Fund will
not write a covered call option if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 25% of the net assets of the
Fund.
H. Put options -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
options's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The options's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting
AIM V.I. GROWTH AND INCOME FUND
FS-57
<PAGE> 132
services to the Fund. During the year ended December 31, 1997, AIM was
reimbursed $43,065 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,950 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $1,957 during the year ended December 31, 1997. The Fund
also received reductions in custodian fees of $3,075 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $5,032 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $892,669,891 and $547,036,684, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $94,187,176
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,077,496)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $86,109,680
==========================================================================
</TABLE>
Cost of investments for tax purposes is $567,916,242.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 20,645,975 $361,699,824 10,983,786 $153,919,542
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 44,268 816,737 154,220 2,251,608
- ------------------------------------------------------------------------------
Reacquired (745,032) (13,412,052) (255,903) (3,444,425)
- ------------------------------------------------------------------------------
19,945,211 $349,104,509 10,882,103 $152,726,725
==============================================================================
</TABLE>
NOTE 7 - OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of year -- $ --
- -----------------------------------------
Written 10,942 2,589,611
- -----------------------------------------
Closed (5,011) (1,443,882)
- -----------------------------------------
Exercised (140) (65,272)
- -----------------------------------------
Expired (2,691) (456,212)
- -----------------------------------------
End of year 3,100 $624,245
=========================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-58
<PAGE> 133
Open call option contracts written at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 1997 MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ----- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online, Inc. Jan $ 90 150 $ 35,500 $ 48,750 $ (13,250)
- --------------------------------------------------------------------------------------
American Home Products
Corp. Jan 80 300 19,399 14,063 5,336
- --------------------------------------------------------------------------------------
Avon Products, Inc. Jan 55 250 170,869 165,625 5,244
- --------------------------------------------------------------------------------------
Cendant Corp. Feb 35 900 91,993 137,812 (45,819)
- --------------------------------------------------------------------------------------
CompUSA, Inc. Feb 35 600 80,697 101,175 (20,478)
- --------------------------------------------------------------------------------------
Dell Computer Corp. Jan 100 250 28,937 6,250 22,687
- --------------------------------------------------------------------------------------
EVI, Inc. Feb 55 450 139,270 73,125 66,145
- --------------------------------------------------------------------------------------
General Electric Co. Mar 75 200 57,580 62,500 (4,920)
- --------------------------------------------------------------------------------------
3,100 $624,245 $609,300 $ 14,945
======================================================================================
</TABLE>
NOTE 8 - PUT OPTIONS WRITTEN
Transactions in put options purchased during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION
CONTRACTS
-------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- ---------
<S> <C> <C>
Beginning of year -- $ --
- ---------------------------------------
Purchased 2,437 484,119
- ---------------------------------------
Closed (475) (118,799)
- ---------------------------------------
End of year 1,962 $365,320
=======================================
</TABLE>
Open put option contracts purchased at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 1997 MARKET APPRECIATION
MONTH PRICE CONTRACTS PAID VALUE (DEPRECIATION)
-------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
American Home Products
Corp. Apr $70 300 $ 85,367 $ 58,125 $ (27,242)
- ---------------------------------------------------------------------------------------
Diamond Offshore
Drilling, Inc. Jan 40 400 72,700 7,500 (65,200)
- ---------------------------------------------------------------------------------------
EVI, Inc. Jan 40 225 65,600 2,813 (62,787)
- ---------------------------------------------------------------------------------------
EVI, Inc. Jan 45 225 51,300 10,547 (40,753)
- ---------------------------------------------------------------------------------------
Halliburton Co. Jan 45 237 31,817 7,406 (24,411)
- ---------------------------------------------------------------------------------------
Nabors Industries, Inc. Jan 30 275 33,619 51,562 17,943
- ---------------------------------------------------------------------------------------
Santa Fe International
Corp. Jan 35 300 24,917 7,500 (17,417)
- ---------------------------------------------------------------------------------------
1,962 $365,320 $145,453 $(219,867)
=======================================================================================
</TABLE>
NOTE 9- OPEN FUTURES CONTRACTS
On December 31, 1997, $538,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF MONTH/ APPRECIATION
CONTRACTS COMMITMENT (DEPRECIATION)
--------- ---------- --------------
<S> <C> <C> <C>
Russell 2000 Index 30 Mar 98 $(354,625)
- -------------------------------------------------------
S&P 500 Index 30 Mar 98 77,425
- -------------------------------------------------------
$(277,200)
=======================================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-59
<PAGE> 134
NOTE 10 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, the
eleven months ended December 31, 1995 and the period May 2, 1994 (date
operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
December 31,
--------------------------------- January 31,
1997 1996 1995 1995
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.03 $ 12.68 $ 9.98 $10.00
- -------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.13 0.16 0.14 0.11
- -------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 3.74 2.36 3.11 (0.02)
- -------------------------------------------------------------------------------
Total from investment
operations 3.87 2.52 3.25 0.09
- -------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01) (0.14) (0.14) (0.11)
- -------------------------------------------------------------------------------
Distributions from
capital gains (0.02) (0.03) (0.41) --
- -------------------------------------------------------------------------------
Total distributions (0.03) (0.17) (0.55) (0.11)
- -------------------------------------------------------------------------------
Net asset value, end of
period $ 18.87 $ 15.03 $ 12.68 $ 9.98
===============================================================================
Total return(a) 25.72% 19.95% 32.65% 0.90%
===============================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $639,113 $209,332 $38,567 $7,380
===============================================================================
Ratio of expenses to
average net assets 0.69%(b)(c) 0.78% 0.78%(d) 1.07%(d)(e)
===============================================================================
Ratio of net investment
income to average net
assets 1.15%(b) 2.05% 1.92%(d) 1.95%(d)(e)
===============================================================================
Portfolio turnover rate 135% 148% 145% 96%
===============================================================================
Average brokerage
commission rate paid(f) $ 0.0612 $ 0.0644 N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $414,115,808.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.72% (annualized) and 1.30% (annualized),
respectively.
(f) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. GROWTH AND INCOME FUND
FS-60
<PAGE> 135
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. International Equity Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. Where brokers did not reply to our confirmation requests, we carried
out other appropriate auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. International Equity Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. INTERNATIONAL EQUITY FUND
FS-61
<PAGE> 136
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 94.10%
ARGENTINA - 2.81%
Banco de Galicia y Buenos Aires S.A. de C.V.-ADR
(Banks-Regional) 35,574 $ 916,031
- ------------------------------------------------------------------------------
Banco Rio de La Plata S.A. (Banks-Money Center)(a) 40,000 560,000
- ------------------------------------------------------------------------------
Perez Companc S.A.-Class B (Oil & Gas-Refining &
Marketing) 167,141 1,193,614
- ------------------------------------------------------------------------------
Telefonica de Argentina S.A.-ADR (Telephone) 41,000 1,527,250
- ------------------------------------------------------------------------------
YPF Sociedad Anonima-ADR (Oil-International
Integrated) 50,400 1,723,050
- ------------------------------------------------------------------------------
5,919,945
- ------------------------------------------------------------------------------
AUSTRALIA - 1.92%
Boral Ltd. (Engineering & Construction) 402,000 1,016,574
- ------------------------------------------------------------------------------
Coca-Cola Amatil Ltd. (Beverages-Non-Alcoholic) 80,241 599,638
- ------------------------------------------------------------------------------
QBE Insurance Group Ltd. (Insurance-Property-
Casualty) 231,019 1,039,963
- ------------------------------------------------------------------------------
Telstra Corp. Ltd. (Telephone) 157,160 331,870
- ------------------------------------------------------------------------------
Westpac Banking Corp., Ltd. (Banking) 168,000 1,074,793
- ------------------------------------------------------------------------------
4,062,838
- ------------------------------------------------------------------------------
AUSTRIA - 0.75%
OMV A.G. (Oil & Gas-Refining & Marketing) 6,500 900,526
- ------------------------------------------------------------------------------
VA Technologie A.G. (Engineering & Construction) 4,550 690,884
- ------------------------------------------------------------------------------
1,591,410
- ------------------------------------------------------------------------------
BELGIUM - 1.21%
Barco Industries (Manufacturing-Diversified) 4,000 734,123
- ------------------------------------------------------------------------------
COLRUYT S.A. (Retail-Food Chains) 1,500 766,174
- ------------------------------------------------------------------------------
UCB S.A. (Manufacturing-Diversified) 320 1,056,274
- ------------------------------------------------------------------------------
2,556,571
- ------------------------------------------------------------------------------
BRAZIL - 2.19%
Companhia Energetica de Minas Gerais (Electric
Companies) 17,000 738,614
- ------------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Petrobras, Pfd. (Oil & Gas-
Exploration & Production) 3,013 704,645
- ------------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-Telebras-ADR
(Telephone) 14,700 1,711,631
- ------------------------------------------------------------------------------
Telecomunicacoes de Sao Paulo S.A.-TELESP, Pfd.
(Telephone) 5,500 1,463,595
- ------------------------------------------------------------------------------
4,618,485
- ------------------------------------------------------------------------------
CANADA - 3.59%
Bank of Montreal (Banks-Money Center) 11,800 523,096
- ------------------------------------------------------------------------------
Canadian National Railway Co. (Railroads) 9,000 425,250
- ------------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas-
Exploration & Production)(a) 33,000 706,623
- ------------------------------------------------------------------------------
MARKET
SHARES VALUE
CANADA - (CONTINUED)
Canadian Pacific, Ltd. (Railroads) 15,000 $ 408,750
- ------------------------------------------------------------------------------
Magna International, Inc.-Class A (Machinery-
Diversified) 10,050 630,125
- ------------------------------------------------------------------------------
Northern Telecom Ltd.-ADR (Communications Equipment) 6,000 534,000
- ------------------------------------------------------------------------------
Petro-Canada (Oil-Domestic Integrated) 54,000 982,471
- ------------------------------------------------------------------------------
Royal Bank of Canada (Savings & Loan Companies) 18,800 994,563
- ------------------------------------------------------------------------------
Suncor, Inc. (Oil-International Integrated) 38,000 1,302,963
- ------------------------------------------------------------------------------
Toronto-Dominion Bank (Banks-Regional) 28,100 1,057,892
- ------------------------------------------------------------------------------
7,565,733
- ------------------------------------------------------------------------------
CHILE - 0.64%
Cia. de Telecomunicaciones de Chile S.A.-ADR
(Telephone) 25,500 761,813
- ------------------------------------------------------------------------------
Quinenco S.A.-ADR (Financial-Diversified)(a) 50,500 580,750
- ------------------------------------------------------------------------------
1,342,563
- ------------------------------------------------------------------------------
DENMARK - 1.17%
Novo Nordisk A/S (Health Care-Drugs-Generic & Other) 17,200 2,460,048
- ------------------------------------------------------------------------------
FINLAND - 0.46%
Nokia Oy A.B.-Class A (Telecommunications-
Cellular/Wireless) 14,000 978,545
- ------------------------------------------------------------------------------
FRANCE - 10.47%
Accor S.A. (Lodging-Hotels) 2,900 539,188
- ------------------------------------------------------------------------------
Alcatel Alsthom (Manufacturing-Diversified) 8,000 1,016,865
- ------------------------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 13,000 1,005,915
- ------------------------------------------------------------------------------
Banque Nationale de Paris (Banks-Major Regional) 24,300 1,291,613
- ------------------------------------------------------------------------------
Cap Gemini Sogeti S.A. (Computers-Software &
Services) 16,000 1,311,955
- ------------------------------------------------------------------------------
Compagnie Francaise d'Etudes et de Construction
Technip (Oil & Gas-Refining & Marketing) 4,250 448,409
- ------------------------------------------------------------------------------
Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 9,000 1,046,772
- ------------------------------------------------------------------------------
Essilor International (Manufacturing-Specialized) 2,275 680,402
- ------------------------------------------------------------------------------
Lafarge S.A. (Engineering & Construction) 13,600 892,355
- ------------------------------------------------------------------------------
Legrand S.A. (Housewares) 3,000 597,657
- ------------------------------------------------------------------------------
Pinault-Printemps-Redoute S.A. (Retail-General
Merchandise) 3,560 1,899,337
- ------------------------------------------------------------------------------
Promodes (Retail-Food Chains) 2,750 1,140,940
- ------------------------------------------------------------------------------
Renault S.A.(Automobiles)(a) 45,000 1,265,847
- ------------------------------------------------------------------------------
Renault S.A.(Automobiles) (Acquired 07/31/97; cost
$581,584)(a)(b) 21,000 590,729
- ------------------------------------------------------------------------------
Rexel S.A. (Distributors-Food & Health) 2,000 623,079
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-62
<PAGE> 137
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - (CONTINUED)
Rhone-Poulenc-Class A (Chemicals-Diversified) 26,500 $ 1,187,073
- ------------------------------------------------------------------------------
Schneider S.A. (Housewares) 15,800 857,928
- ------------------------------------------------------------------------------
Societe BIC S.A. (Office Equipment & Supplies) 22,000 1,605,815
- ------------------------------------------------------------------------------
Societe Generale (Banks-Major Regional) 17,000 2,316,192
- ------------------------------------------------------------------------------
Sodexho S.A. (Services-Commercial & Consumer) 900 481,964
- ------------------------------------------------------------------------------
Total S.A.-Class B (Oil & Gas-Refining & Marketing) 10,300 1,120,960
- ------------------------------------------------------------------------------
Valeo S.A. (Auto Parts & Equipment) 2,500 169,561
- ------------------------------------------------------------------------------
22,090,556
- ------------------------------------------------------------------------------
GERMANY - 5.43%
Adidas A.G. (Footwear) 4,100 539,222
- ------------------------------------------------------------------------------
Adidas A.G. (Footwear) (Acquired 04/11/97; cost
$837,524)(b) 7,950 1,045,564
- ------------------------------------------------------------------------------
Allianz A.G. (Insurance-Multi-Line) 2,300 595,775
- ------------------------------------------------------------------------------
Bayerische Vereinsbank A.G. (Banks-Major Regional) 18,000 1,177,654
- ------------------------------------------------------------------------------
Commerzbank A.G. (Banks-Major Regional) 29,500 1,160,978
- ------------------------------------------------------------------------------
Continental A.G. (Auto Parts & Equipment) 28,000 617,899
- ------------------------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major Regional) 24,000 1,107,282
- ------------------------------------------------------------------------------
Henkel KGaA (Chemicals-Diversified) 12,650 798,096
- ------------------------------------------------------------------------------
Mannesmann A.G. (Machinery-Diversified) 2,380 1,202,568
- ------------------------------------------------------------------------------
Porsche A.G. (Automobiles) 300 500,278
- ------------------------------------------------------------------------------
SAP A.G. (Computers-Software & Services) 2,650 805,017
- ------------------------------------------------------------------------------
SAP A.G., Pfd. (Computers-Software & Services) 2,700 883,241
- ------------------------------------------------------------------------------
VEBA A.G. (Manufacturing-Diversified) 15,000 1,021,401
- ------------------------------------------------------------------------------
11,454,975
- ------------------------------------------------------------------------------
HONG KONG - 3.99%
Cheung Kong (Holdings) Ltd. (Land Development) 86,000 563,234
- ------------------------------------------------------------------------------
China Telecom (Hong Kong) Ltd.-ADR
(Telecommunications-Cellular/Wireless)(a) 16,900 567,206
- ------------------------------------------------------------------------------
Cosco Pacific Ltd. (Financial-Diversified) 962,000 782,114
- ------------------------------------------------------------------------------
First Pacific Company Ltd. (Distributors-Food &
Health) 1,137,368 550,411
- ------------------------------------------------------------------------------
Hong Kong & China Gas Co. Ltd. (Natural Gas) 878,352 1,700,256
- ------------------------------------------------------------------------------
HSBC Holdings PLC (Banks-Major Regional) 48,000 1,183,120
- ------------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail-Food Chains) 242,000 1,517,770
- ------------------------------------------------------------------------------
New World Infrastructure Ltd. (Services-Commercial &
Consumer)(a) 290,000 653,052
- ------------------------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 460,000 483,804
- ------------------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Land Development) 59,600 415,331
- ------------------------------------------------------------------------------
8,416,298
- ------------------------------------------------------------------------------
INDONESIA - 0.61%
Gulf Indonesia Resources Ltd. (Oil-International
Integrated)(a) 45,700 1,005,400
- ------------------------------------------------------------------------------
MARKET
SHARES VALUE
<S> <C> <C>
INDONESIA - (CONTINUED)
PT Indosat (Telecommunications-Cellular/Wireless) 91,000 $ 168,764
- -------------------------------------------------------------------------------
PT Indosat-ADR (Telecommunications-Cellular/Wireless) 6,400 123,600
- -------------------------------------------------------------------------------
1,297,764
- -------------------------------------------------------------------------------
IRELAND - 0.67%
Bank of Ireland (Banks-Major Regional) 38,500 591,211
- -------------------------------------------------------------------------------
Elan Corp. PLC-ADR (Health Care-Drugs-Generic &
Other)(a) 16,000 819,000
- -------------------------------------------------------------------------------
1,410,211
- -------------------------------------------------------------------------------
ITALY - 4.61%
Assicurazioni Generali (Insurance-Multi-Line) 49,100 1,208,237
- -------------------------------------------------------------------------------
Credito Italiano S.p.A. (Banks-Major Regional) 610,000 1,886,897
- -------------------------------------------------------------------------------
Ente Nazionale Idrocarburi S.p.A. (Oil & Gas-Refining
& Marketing) 201,000 1,147,825
- -------------------------------------------------------------------------------
Istituto Mobiliare Italiano S.p.A. (Banks-Major
Regional) 81,000 960,324
- -------------------------------------------------------------------------------
Pirelli S.p.A. (Electrical Equipment) 387,441 1,026,970
- -------------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications-
Cellular/Wireless) 365,000 1,684,076
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 283,333 1,812,434
- -------------------------------------------------------------------------------
9,726,763
- -------------------------------------------------------------------------------
JAPAN - 13.87%
Advantest Corp. (Electronics-Instrumentation) 24,530 1,390,227
- -------------------------------------------------------------------------------
Bridgestone Corp. (Auto Parts & Equipment) 47,000 1,018,687
- -------------------------------------------------------------------------------
Canon, Inc. (Office Equipment & Supplies) 80,000 1,862,602
- -------------------------------------------------------------------------------
Fuji Photo Film Co. (Leisure Time-Products) 52,000 1,991,269
- -------------------------------------------------------------------------------
Hitachi Cable, Ltd. (Metal Fabricators) 124,000 795,834
- -------------------------------------------------------------------------------
Honda Motor Co., Ltd. (Automobiles) 61,000 2,237,803
- -------------------------------------------------------------------------------
Hoya Corp.(Manufacturing-Specialized) 24,000 753,619
- -------------------------------------------------------------------------------
Ibiden Co., Ltd. (Electronics-Component Distributors) 118,000 1,427,893
- -------------------------------------------------------------------------------
Matsushita Electric Industrial Co. Ltd. (Electrical
Equipment) 57,000 833,806
- -------------------------------------------------------------------------------
Minebea Company Ltd. (Electronics-Component
Distributors) 157,000 1,683,388
- -------------------------------------------------------------------------------
Murata Manufacturing Co., Ltd. (Electronics-
Component Distributors) 31,000 778,739
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. (Telephone) 2,320 1,990,044
- -------------------------------------------------------------------------------
Nippon Television Network (Broadcasting-Television,
Radio & Cable) 2,690 789,056
- -------------------------------------------------------------------------------
NTT Data Communications Systems Co. (Computers-
Software & Services) 450 2,422,838
- -------------------------------------------------------------------------------
Ricoh Corp. Ltd. (Office Equipment & Supplies) 108,000 1,339,971
- -------------------------------------------------------------------------------
Rohm Co. (Electronics-Component Distributors) 20,000 2,037,221
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-63
<PAGE> 138
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
JAPAN - (CONTINUED)
SMC Corp.(Machinery-Diversified) 10,200 $ 898,369
- -------------------------------------------------------------------------------
Sony Corp. (Electronics-Component Distributors) 23,000 2,043,348
- -------------------------------------------------------------------------------
TDK Corp. (Electrical Equipment) 24,000 1,808,685
- -------------------------------------------------------------------------------
Tokyo Electron Ltd. (Electronics-Semiconductors) 36,500 1,168,492
- -------------------------------------------------------------------------------
29,271,891
- -------------------------------------------------------------------------------
MEXICO - 5.10%
Cifra S.A. de C.V. (Retail-General Merchandise) 538,000 1,206,592
- -------------------------------------------------------------------------------
Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 31,600 1,832,800
- -------------------------------------------------------------------------------
Fomento Economico Mexicano, S.A. de C.V.-Class B
(Beverages-Alcoholic) 232,000 1,862,784
- -------------------------------------------------------------------------------
Grupo Industrial Maseca S.A. de C.V.-Class B (Foods) 646,200 667,779
- -------------------------------------------------------------------------------
Grupo Televisa S.A.-GDR (Entertainment)(a) 35,600 1,377,275
- -------------------------------------------------------------------------------
Kimberly-Clark de Mexico, S.A. de C.V.-Class A (Paper
& Forest Products) 322,000 1,552,048
- -------------------------------------------------------------------------------
Panamerican Beverages, Inc.-Class A (Beverages-Non-
Alcoholic) 60,200 1,964,025
- -------------------------------------------------------------------------------
TV Azteca, S.A. de C.V.-ADR (Broadcasting-Television,
Radio & Cable)(a) 13,400 302,337
- -------------------------------------------------------------------------------
10,765,640
- -------------------------------------------------------------------------------
NETHERLAND - 5.24%
Akzo Nobel N.V. (Chemicals-Diversified) 7,350 1,267,260
- -------------------------------------------------------------------------------
CMG PLC (Computers-Software & Services) 35,400 883,407
- -------------------------------------------------------------------------------
Getronics N.V. (Computers-Software & Services) 29,200 930,299
- -------------------------------------------------------------------------------
Koninklijke Ahold N.V. (Retail-Food Chains) 38,000 991,394
- -------------------------------------------------------------------------------
Koninklijke Nutricia Verenigde Bedrijven N.V. (Foods) 15,000 454,960
- -------------------------------------------------------------------------------
Koninklijke Pakhoed N.V. (Shipping) 24,700 712,623
- -------------------------------------------------------------------------------
Oce-Van Der Grinten N.V. (Office Equipment &
Supplies) 4,500 490,469
- -------------------------------------------------------------------------------
Philips Electronics N.V. (Household Furniture &
Appliances) 16,400 983,523
- -------------------------------------------------------------------------------
Randstad Holdings N.V. (Services-Commercial &
Consumer) 13,000 489,187
- -------------------------------------------------------------------------------
Royal Dutch Petroleum Co. (Oil-International
Integrated) 18,000 988,040
- -------------------------------------------------------------------------------
Stork N.V. (Manufacturing-Diversified) 13,000 448,795
- -------------------------------------------------------------------------------
Vendex International N.V. (Retail-General
Merchandise) 20,500 1,131,334
- -------------------------------------------------------------------------------
VNU-Verenigde Nederlandse Uitgeversbedrijven Verenigd
Bezit (Publishing) 32,500 916,825
- -------------------------------------------------------------------------------
Wolters Kluwer N.V. (Specialty Printing) 2,900 374,577
- -------------------------------------------------------------------------------
11,062,693
- -------------------------------------------------------------------------------
NORWAY - 0.63%
Petroleum Geo-Services A.S.A. (Oil-International
Integrated)(a) 21,000 1,322,644
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE
PHILIPPINES - 0.36%
Metro Pacific Corp. (Manufacturing-Diversified) 4,745,440 $ 131,232
- -------------------------------------------------------------------------------
Philippine Long Distance Telephone Co. (Telephone) 16,660 361,995
- -------------------------------------------------------------------------------
Philippine Long Distance Telephone Co.-ADR
(Telephone) 11,600 261,000
- -------------------------------------------------------------------------------
754,227
- -------------------------------------------------------------------------------
PORTUGAL - 1.69%
Cimpor-Cimentos de Portugal S.A. (Construction-Cement
& Aggregates) 17,650 462,610
- -------------------------------------------------------------------------------
Electricidade de Portugal, S.A.-ADR (Electric
Companies)(a) 13,800 534,750
- -------------------------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 50,000 2,320,021
- -------------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless)(a) 2,400 255,713
- -------------------------------------------------------------------------------
3,573,094
- -------------------------------------------------------------------------------
SINGAPORE - 0.96%
City Developments Ltd. (Land Development) 155,000 717,295
- -------------------------------------------------------------------------------
DBS Land Ltd. (Land Development) 408,000 624,527
- -------------------------------------------------------------------------------
Overseas Union Bank Ltd. (Banks-Major Regional) 181,200 693,408
- -------------------------------------------------------------------------------
2,035,230
- -------------------------------------------------------------------------------
SPAIN - 2.35%
Banco Bilbao Vizcaya, S.A. (Banks-Major Regional) 42,900 1,388,231
- -------------------------------------------------------------------------------
Endesa S.A. (Electric Companies) 49,200 873,554
- -------------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 83,800 1,102,849
- -------------------------------------------------------------------------------
Telefonica de Espana (Telephone) 56,000 1,598,950
- -------------------------------------------------------------------------------
4,963,584
- -------------------------------------------------------------------------------
SWEDEN - 2.06%
Electrolux A.B. (Household Furniture & Appliances) 15,700 1,089,522
- -------------------------------------------------------------------------------
Hennes & Mauritz A.B.-Class B (Retail-Specialty-
Apparel) 37,000 1,631,003
- -------------------------------------------------------------------------------
Sparbanken Sverige A.B.-Class A (Banks-Major
Regional) 52,000 1,182,131
- -------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 12,000 447,750
- -------------------------------------------------------------------------------
4,350,406
- -------------------------------------------------------------------------------
SWITZERLAND - 4.85%
Ciba Specialty Chemicals A.G. (Chemicals-
Specialty)(a) 11,800 1,404,858
- -------------------------------------------------------------------------------
Clariant A.G. (Chemicals-Specialty) 1,900 1,586,042
- -------------------------------------------------------------------------------
Credit Suisse Group (Banks-Major Regional) 7,700 1,190,694
- -------------------------------------------------------------------------------
Holderbank Financiere Glarus A.G.-Class B
(Construction-Cement & Aggregates) 1,190 970,565
- -------------------------------------------------------------------------------
Nestle S.A. (Foods) 770 1,153,288
- -------------------------------------------------------------------------------
Novartis A.G. (Health Care-Diversified) 1,368 2,218,378
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-64
<PAGE> 139
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWITZERLAND - (CONTINUED)
Schweizerischer Bankverein (Banks-Major Regional) 3,300 $ 1,025,111
- -------------------------------------------------------------------------------
Zurich Versicherungs-Gesellschaft (Insurance-Multi-
Line) 1,450 690,523
- -------------------------------------------------------------------------------
10,239,459
- -------------------------------------------------------------------------------
TAIWAN - 0.10%
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR
(Electronics-Semiconductors)(a) 12,000 218,250
- -------------------------------------------------------------------------------
UNITED KINGDOM - 16.37%
Airtours PLC (Services-Commercial & Consumer) 45,150 919,486
- -------------------------------------------------------------------------------
Amersham International PLC (Health Care-Drugs-Generic
& Other) 21,000 780,149
- -------------------------------------------------------------------------------
Barclays PLC (Banks-Major Regional) 25,000 664,330
- -------------------------------------------------------------------------------
Blue Circle Industries PLC (Construction-Cement &
Aggregates) 155,000 869,337
- -------------------------------------------------------------------------------
Bodycote International PLC (Chemicals-Specialty) 40,500 600,965
- -------------------------------------------------------------------------------
Bodycote International PLC (Chemicals-Specialty),
Rts. expiring 01/09/98 10,125 66,515
- -------------------------------------------------------------------------------
British Aerospace PLC (Aerospace/Defense) 42,000 1,196,780
- -------------------------------------------------------------------------------
British Petroleum Co. PLC (Oil & Gas-Refining &
Marketing) 140,000 1,839,432
- -------------------------------------------------------------------------------
Cable & Wireless PLC (Telecommunications-
Cellular/Wireless) 117,000 1,028,029
- -------------------------------------------------------------------------------
Compass Group PLC (Services-Commercial & Consumer) 78,000 959,494
- -------------------------------------------------------------------------------
Dixons Group PLC (Retail-Specialty) 107,000 1,073,719
- -------------------------------------------------------------------------------
EMAP PLC (Publishing) 62,500 929,981
- -------------------------------------------------------------------------------
General Electric Co. PLC (Manufacturing-Diversified) 168,100 1,089,132
- -------------------------------------------------------------------------------
GKN PLC (Manufacturing-Diversified) 50,000 1,024,005
- -------------------------------------------------------------------------------
Granada Group PLC (Leisure Time-Products) 43,000 656,776
- -------------------------------------------------------------------------------
Hays PLC (Services-Commercial & Consumer) 104,000 1,386,932
- -------------------------------------------------------------------------------
Kingfisher PLC (Retail-Department Stores) 80,000 1,114,170
- -------------------------------------------------------------------------------
Ladbroke Group PLC (Leisure Time-Products) 365,200 1,583,467
- -------------------------------------------------------------------------------
Lloyds TSB Group PLC (Banks-Major Regional) 57,000 736,742
- -------------------------------------------------------------------------------
Misys PLC (Services-Commercial & Consumer) 25,000 755,481
- -------------------------------------------------------------------------------
Next PLC (Retail-General Merchandise) 97,500 1,108,093
- -------------------------------------------------------------------------------
Pearson PLC (Specialty Printing) 95,000 1,234,144
- -------------------------------------------------------------------------------
Provident Financial PLC (Consumer Finance) 92,800 1,219,281
- -------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 145,000 2,302,821
- -------------------------------------------------------------------------------
Rentokil Initial PLC (Services-Commercial & Consumer) 274,000 1,192,510
- -------------------------------------------------------------------------------
Royal & Sun Alliance Insurance Group PLC (Insurance-
Multi-Line) 133,000 1,338,992
- -------------------------------------------------------------------------------
Siebe PLC (Electronics-Component/Distributors) 38,000 745,791
- -------------------------------------------------------------------------------
Smiths Industries PLC (Machinery-Diversified) 26,000 362,105
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - (CONTINUED)
Tarmac PLC (Engineering & Construction) 844,500 $ 1,581,140
- ------------------------------------------------------------------------------
Unilever PLC (Foods) 208,000 1,779,782
- ------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications-
Cellular/Wireless) 185,000 1,333,835
- ------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/Marketing) 240,000 1,068,184
- ------------------------------------------------------------------------------
34,541,600
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests 198,591,423
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT(c)
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.80%(c)
FRANCE - 0.47%
AXA-UAP (Insurance-Multi-Line), Conv. Sr. Deb.,
4.50%, 01/01/99 FRF 3,307,500 986,177
- ------------------------------------------------------------------------------
HONG KONG - 0.13%
New World Infrastructure Ltd. (Services-Commercial
& Consumer), Conv. Bonds, 5.00%, 07/15/01 HKD 280,000 278,600
- ------------------------------------------------------------------------------
JAPAN - 0.20%
Ricoh Co., Ltd. (Office Equipment & Supplies),
Conv. Bonds, 0.35%, 03/31/03 JPY40,000,000 416,328
- ------------------------------------------------------------------------------
Total Foreign Convertible Bonds 1,681,105
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 3.82%(d)
Smith Barney, Inc., 6.75%, 01/02/98(e) $ 8,056,299 8,056,299
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.72% 208,328,827
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.28% 2,693,758
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $211,022,585
==============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
market value of these securities at December 31 , 1997 was $1,636,293
which represented 0.78% of the Fund's net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized $395,097,000 U. S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations
ADR-American Depositary Receipt HKD -Hong Kong dollar
Conv.-Convertible JPY -Japanese Yen
Deb.-Debentures Pfd.-Preferred
FRF-French Franc Rts. -Rights
GDR-Global Depositary Receipt Sr. -Senior
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-65
<PAGE> 140
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $168,107,886) $208,328,827
- ----------------------------------------------------------------------
Foreign currencies, at market value (cost $1,156,244) 1,138,250
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 125,981
- ----------------------------------------------------------------------
Foreign currency sold 8,691
- ----------------------------------------------------------------------
Investments sold 2,416,689
- ----------------------------------------------------------------------
Dividends and interest 309,815
- ----------------------------------------------------------------------
Organizational costs, net 964
- ----------------------------------------------------------------------
Investment for deferred compensation plan 17,615
- ----------------------------------------------------------------------
Total assets 212,346,832
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 204,927
- ----------------------------------------------------------------------
Foreign currency purchased 667
- ----------------------------------------------------------------------
Investments purchased 918,035
- ----------------------------------------------------------------------
Deferred compensation plan 17,615
- ----------------------------------------------------------------------
Accrued advisory fees 134,159
- ----------------------------------------------------------------------
Accrued administrative services fees 4,547
- ----------------------------------------------------------------------
Accrued directors' fees 1,609
- ----------------------------------------------------------------------
Accrued operating expenses 42,688
- ----------------------------------------------------------------------
Total liabilities 1,324,247
- ----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $211,022,585
======================================================================
Capital shares, $.001 par value per share:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 12,319,556
- ----------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $17.13
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $404,480 foreign withholding tax) $ 2,884,830
- ----------------------------------------------------------------------------
Interest 366,128
- ----------------------------------------------------------------------------
Total investment income 3,250,958
- ----------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,519,323
- ----------------------------------------------------------------------------
Administrative services fees 59,724
- ----------------------------------------------------------------------------
Custodian fees 226,066
- ----------------------------------------------------------------------------
Directors' fees and expenses 8,453
- ----------------------------------------------------------------------------
Organizational costs 2,892
- ----------------------------------------------------------------------------
Other 62,939
- ----------------------------------------------------------------------------
Total expenses 1,879,397
- ----------------------------------------------------------------------------
Less: Expenses paid indirectly (1,205)
- ----------------------------------------------------------------------------
Net expenses 1,878,192
- ----------------------------------------------------------------------------
Net investment income 1,372,766
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
AND FOREIGN CURRENCIES:
Net realized gain (loss) on sales of:
Investment securities (523,791)
- ----------------------------------------------------------------------------
Foreign currencies (219,642)
- ----------------------------------------------------------------------------
(743,433)
- ----------------------------------------------------------------------------
NET UNREALIZED APPRECIATION (DEPRECIATION) OF:
Investment securities 11,912,209
- ----------------------------------------------------------------------------
Foreign currencies (33,863)
- ----------------------------------------------------------------------------
11,878,346
- ----------------------------------------------------------------------------
Net gain on investment securities and foreign currencies 11,134,913
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,507,679
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-66
<PAGE> 141
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,372,766 $ 962,870
- -------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities and foreign currencies (743,433) 4,388,374
- -------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and foreign currencies 11,878,346 17,071,573
===============================================================================
Net increase in net assets resulting from
operations 12,507,679 22,422,817
===============================================================================
Distributions to shareholders from net investment
income (955,397) (377,734)
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (3,362,028) --
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 37,094,253 61,436,140
- -------------------------------------------------------------------------------
Net increase in net assets 45,284,507 83,481,223
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 165,738,078 82,256,855
- -------------------------------------------------------------------------------
End of year $211,022,585 $165,738,078
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $170,283,064 $133,188,811
- -------------------------------------------------------------------------------
Undistributed net investment income 1,134,854 937,128
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities and foreign currencies (580,780) 3,305,038
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 40,185,447 28,307,101
- -------------------------------------------------------------------------------
$211,022,585 $165,738,078
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to AIM V.I. International Equity Fund (the "Fund"). The Fund's investment
objective is to seek to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities the issuers of which
are considered by AIM to have strong earnings momentum. Currently, shares of
the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations either are not readily available or are questionable
are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in
AIM V.I. INTERNATIONAL EQUITY FUND
FS-67
<PAGE> 142
foreign securities is substantially completed each day at various times prior
to the close of the New York Stock Exchange. The values of such securities
used in computing the net asset value of the Fund's shares are determined as
of such times. Foreign currency exchange rates are also generally determined
prior to the close of the New York Stock Exchange. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the New York
Stock Exchange which will not be reflected in the computation of the Fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board of
Directors.
B. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
C. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
D. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997
undistributed net investment income was decreased and undistributed net
realized gain (loss) increased by $219,643 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
E. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. Organizational Costs - Organizational costs of $14,461 are being amortized
over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of
the first $250 million of the Fund's average daily net assets, plus 0.70% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $59,724 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,684 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $715 during the year ended December 31, 1997. The Fund also
received reductions in custodian fees of $490 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $1,205 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $145,204,122 and $110,775,339, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $48,320,669
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,100,740)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $40,219,929
==========================================================================
</TABLE>
Cost of investments for tax purposes is $168,108,898.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold 2,963,552 $ 50,938,182 4,432,824 $66,189,679
- ----------------------------------------------------------------------------
Issued as reinvestment of
distributions 257,449 4,317,425 23,877 377,734
- ----------------------------------------------------------------------------
Reacquired (1,031,143) (18,161,354) (347,543) (5,131,273)
- ----------------------------------------------------------------------------
2,189,858 $ 37,094,253 4,109,158 $61,436,140
============================================================================
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-68
<PAGE> 143
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
--------------------------------- -------------------
1997 1996 1995 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00
- --------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.10 0.07 0.07 0.06 --
- --------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 1.03 2.67 2.58 (1.49) 2.49
- --------------------------------------------------------------------------------------------
Total from investment
operations 1.13 2.74 2.65 (1.43) 2.49
- --------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.08) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.28) -- -- -- --
- --------------------------------------------------------------------------------------------
Total distributions (0.36) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------
Net asset value, end of
period $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
============================================================================================
Total return(a) 6.94% 20.05% 24.04% (11.48)% 24.90%
============================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $211,023 $165,738 $82,257 $55,019 $23,533
============================================================================================
Ratio of expenses to
average net assets 0.93%(b)(c) 0.96% 1.15%(d) 1.27%(e) 1.98%(d)(e)
============================================================================================
Ratio of net investment
income to average net
assets 0.68%(b) 0.78% 0.75%(d) 0.60%(f) (0.15)%(d)(f)
============================================================================================
Portfolio turnover rate 57% 59% 67% 64% 26%
============================================================================================
Average brokerage
commission rate paid(g) $ 0.0173 $ 0.0209 N/A N/A N/A
============================================================================================
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $202,576,375.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.28% and 3.06% (annualized), for January 1995 and 1994 respectively.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.59% and (1.23)% (annualized), for January 1995 and
1994 respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-69
<PAGE> 144
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Money Market Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1997, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the
period then ended, the eleven month period ended December 31, 1995, the year
ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Money Market Fund, as of December 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
two years in the period then ended, the eleven month period ended December 31,
1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement
of operations), through January 31, 1994, in conformity with generally
accepted accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. MONEY MARKET FUND
FS-70
<PAGE> 145
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
COMMERCIAL PAPER - 53.34%(a)
ASSET-BACKED SECURITIES - 15.35%
Ciesco, L.P.,
5.67%, 02/09/98 $1,000 $ 993,858
- -----------------------------------------------------------------------
Clipper Receivables Corp.,
6.00%, 01/28/98 1,067 1,062,198
- -----------------------------------------------------------------------
Fleet Funding Corp.,
5.83%, 01/30/98 2,900 2,886,380
- -----------------------------------------------------------------------
Preferred Receivables Funding Corp.,
5.64%, 01/06/98 1,075 1,074,158
- -----------------------------------------------------------------------
Sheffield Receivables Corp.,
5.81%, 02/02/98 3,000 2,984,507
- -----------------------------------------------------------------------
9,001,101
- -----------------------------------------------------------------------
AUTOMOBILE - 1.68%
Daimler-Benz North America Corp.,
5.75%, 03/26/98 1,000 986,583
- -----------------------------------------------------------------------
BROADCAST MEDIA - 1.67%
Scripps (E. W.) Co.,
5.74%, 03/12/98 992 980,928
- -----------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES - 5.10%
International Business Machines Corp.,
6.25%, 01/15/98 3,000 2,992,708
- -----------------------------------------------------------------------
DRUGS - 4.09%
Novartis Finance Corp.,
6.35%, 01/06/98 2,400 2,397,883
- -----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.55%
Hitachi America, Ltd.,
5.95%, 01/29/98 1,500 1,493,058
- -----------------------------------------------------------------------
FINANCE (BUSINESS CREDIT) - 7.71%
General Electric Capital Corp.,
5.70%, 02/27/98 1,000 990,975
- -----------------------------------------------------------------------
5.68%, 03/03/98 1,548 1,533,101
- -----------------------------------------------------------------------
National Rural Utilities Cooperative Finance Corp.,
5.54%, 01/14/98 2,000 1,995,999
- -----------------------------------------------------------------------
4,520,075
- -----------------------------------------------------------------------
FINANCE (MISCELLANEOUS) - 1.70%
USAA Capital Corp.,
6.50%, 01/16/98 1,000 997,292
- -----------------------------------------------------------------------
FINANCE (PERSONAL CREDIT) - 2.97%
Associates Corp. of North America,
5.68%, 02/11/98 1,750 1,738,679
- -----------------------------------------------------------------------
FOOD PROCESSING - 3.39%
Cargill Financial Services Corp.,
5.57%, 02/20/98 2,000 1,984,527
- -----------------------------------------------------------------------
PAR
(000) VALUE
INSURANCE (LIFE & HEALTH) - 1.68%
MetLife Funding Inc.,
5.71%, 03/20/98 $1,000 $ 987,628
- ----------------------------------------------------------------------------
MACHINERY - 1.70%
Dover Corp.,
6.50%, 01/16/98 1,000 997,292
- ----------------------------------------------------------------------------
METAL MINING - 2.04%
RTZ America, Inc.,
5.57%, 01/07/98 1,200 1,198,886
- ----------------------------------------------------------------------------
OIL & GAS (INTEGRATED) - 1.71%
Shell Martinez Refining Co.,
5.81%, 03/11/98(b) 1,000 1,000,000
- ----------------------------------------------------------------------------
Total Commercial Paper 31,276,640
- ----------------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 17.33%(c)
Goldman, Sachs & Co.,
5.6875%, 04/20/98(d) 2,060 2,060,000
- ----------------------------------------------------------------------------
Merrill Lynch Mortgage Capital Inc.,
7.05%, 08/17/98(e) 3,000 3,000,000
- ----------------------------------------------------------------------------
Morgan (J.P.) Securities, Inc.,
6.82%, 04/06/98(f) 2,100 2,100,000
- ----------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co.,
6.85%, 05/26/98(g) 3,000 3,000,000
- ----------------------------------------------------------------------------
Total Master Note Agreements 10,160,000
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 4.26%
Federal National Mortgage Association,
5.504%, 06/02/99(h) 2,000 2,000,000
- ----------------------------------------------------------------------------
Student Loan Marketing Association,
5.619%, 08/20/98(h) 500 499,973
- ----------------------------------------------------------------------------
Total U.S. Government Agency Securities 2,499,973
- ----------------------------------------------------------------------------
Total Investments, excluding Repurchase Agreements 43,936,613
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 25.15%(i)
Goldman, Sachs & Co.,
6.53%, 01/02/98(j) 4,744 4,744,154
- ----------------------------------------------------------------------------
Smith Barney, Inc.,
6.75%, 01/02/98(k) 10,000 10,000,000
- ----------------------------------------------------------------------------
Total Repurchase Agreements 14,744,154
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.08% 58,680,767(1)
- ----------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.08%) (46,146)
- ----------------------------------------------------------------------------
NET ASSETS - 100.00% $58,634,621
============================================================================
</TABLE>
AIM V.I. MONEY MARKET FUND
FS-71
<PAGE> 146
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Some commercial paper is traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) Trust certificates representing an interest in a trust (comprised of
eligible debt obligations) entitling the Fund to receive interest. The Fund
has the right, upon seven calendar days' notice to the trustee, to put its
certificates to the trust at par value plus accrued interest. Because trust
certificates involve a trust and a third party put feature, they involve
complexities and potential risks that may not be present where the debt
obligation is owned directly. Rate shown is the rate in effect on 12/31/97.
(c) The investments in master note agreements are through participation in
joint accounts with other mutual funds, private accounts, and certain
nonregistered investment companies managed by the investment advisor or its
affiliates.
(d) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 7 business days' notice to the issuer. Interest
rates on master notes are redetermined periodically. Rate shown is the rate
in effect on 12/31/97.
(e) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 2 days' notice to the issuer. Interest rates on
master notes are redetermined periodically. Rate shown is the rate in
effect on 12/31/97.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 7 days' notice to the issuer. Interest rates on
master notes are redetermined periodically. Rate shown is the rate in
effect on 12/31/97.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 3 business days' written notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on 12/31/97.
(h) Interest rates are redetermined weekly. Rate shown is the rate in effect on
12/31/97.
(i) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Treasury obligations, 0%
to 14% due 01/08/98 to 08/15/23 with an aggregate market value at 12/31/97
of $918,902,583.
(k) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
(l) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-72
<PAGE> 147
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at
value (amortized cost) $ 43,936,613
- ----------------------------------------------------------------------
Repurchase agreements 14,744,154
- ----------------------------------------------------------------------
Interest receivable 69,211
- ----------------------------------------------------------------------
Organizational costs, net 964
- ----------------------------------------------------------------------
Investment for deferred compensation plan 17,151
- ----------------------------------------------------------------------
Other assets 11,335
- ----------------------------------------------------------------------
Total assets 58,779,428
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 89,207
- ----------------------------------------------------------------------
Deferred compensation plan 17,151
- ----------------------------------------------------------------------
Accrued advisory fees 20,245
- ----------------------------------------------------------------------
Accrued administrative services fees 2,858
- ----------------------------------------------------------------------
Accrued directors' fees 1,843
- ----------------------------------------------------------------------
Accrued operating expenses 13,503
- ----------------------------------------------------------------------
Total liabilities 144,807
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 58,634,621
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 58,634,564
======================================================================
Net asset value, offering and redemption price per share $ 1.00
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $3,562,612
- -----------------------------------------------------------------
EXPENSES:
Advisory fees 254,546
- -----------------------------------------------------------------
Administrative services fees 38,289
- -----------------------------------------------------------------
Custodian fees 25,713
- -----------------------------------------------------------------
Directors' fees and expenses 7,904
- -----------------------------------------------------------------
Legal fees 18,787
- -----------------------------------------------------------------
Organizational costs 2,892
- -----------------------------------------------------------------
Other 24,587
- -----------------------------------------------------------------
Total expenses 372,718
- -----------------------------------------------------------------
Less: Expenses paid indirectly (160)
- -----------------------------------------------------------------
Net expenses 372,558
- -----------------------------------------------------------------
Net investment income 3,190,054
- -----------------------------------------------------------------
Net increase in net assets resulting from operations $3,190,054
=================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-73
<PAGE> 148
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,190,054 $ 3,207,475
- ----------------------------------------------------------------------------
Net realized gain on sales of investment
securities -- 16,294
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,190,054 3,223,769
- ----------------------------------------------------------------------------
Distributions to shareholders from net investment
income (3,190,054) (3,207,475)
- ----------------------------------------------------------------------------
Net increase (decrease) from capital stock
transactions (4,894,872) (1,992,555)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets (4,894,872) (1,976,261)
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 63,529,493 65,505,754
- ----------------------------------------------------------------------------
End of year $58,634,621 $63,529,493
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $58,634,564 $63,529,436
- ----------------------------------------------------------------------------
Undistributed net realized gain on sales of
investment securities 57 57
- ----------------------------------------------------------------------------
$58,634,621 $63,529,493
============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Money Market Fund (the "Fund"). The Fund's investment
objective is to seek to provide as high a level of current income as is
consistent with the preservation of capital and liquidity. Currently, shares
of the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - The Fund's securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter, assumes a
constant amortization to maturity of any discount or premiums.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is recorded as earned from settlement date and is
recorded on the accrual basis. Distributions to shareholders are declared and
paid daily.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements. The Fund has a
capital loss carryforward (which may be carried forward to offset future
taxable gains, if any) of $846 which expires, if not previously utilized,
in the year 2003. The Fund cannot distribute capital gains to shareholders
until the tax loss carryforwards have been utilized.
D. Organizational Costs - Organizational costs of $14,461 are being amortized
over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.40% of
the first $250 million of the Fund's average daily net assets, plus 0.35% of
the Fund's average daily net assets in excess of $250 million.
AIM V.I. MONEY MARKET FUND
FS-74
<PAGE> 149
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $38,289 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,396 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $160 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $160 during the year ended December
31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest directors' fees,
if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 88,948,357 $ 88,948,357 76,145,573 $ 76,145,573
- ---------------------- ----------- ------------ ----------- ------------
Issued as reinvestment
of distributions 3,190,054 3,190,054 3,207,475 3,207,475
- ---------------------- ----------- ------------ ----------- ------------
Reacquired (97,033,283) (97,033,283) (81,345,603) (81,345,603)
- ---------------------- ----------- ------------ ----------- ------------
(4,894,872) $ (4,894,872) (1,992,555) $ (1,992,555)
=========== ============ =========== ============
</TABLE>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------- -------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.04 0.02
- ----------------------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.05) (0.05) (0.05) (0.04) (0.02)
- ----------------------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ======= ======= ======= ======= =======
Total return 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a)
- ----------------------- ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period
(000s omitted) $58,635 $63,529 $65,506 $31,017 $13,891
- ----------------------- ======= ======= ======= ======= =======
Ratio of expenses to
average net assets 0.59%(b)(c) 0.55% 0.53%(a) 0.63%(d) 0.95%(a)(e)
- ----------------------- ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets 5.01%(b) 4.84% 5.40%(a) 4.14%(d) 2.29%(a)(e)
- ----------------------- ======= ======= ======= ======= =======
</TABLE>
(a) Annualized.
(b) Ratios are based on average net assets of $63,641,415.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers
and/or expense reimbursements the ratios of expenses and net investment
income to average net assets were 0.70% and 4.07%, respectively.
(e) After fee waivers and/or expense reimbursements. Prior to fee waivers
and/or expense reimbursements the annualized ratios of expenses and net
investment income to average net assets were 1.53% and 1.70%,
respectively.
AIM V.I. MONEY MARKET FUND
FS-75
<PAGE> 150
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Value Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the two years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Value Fund, as of December 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the two
years in the period then ended, the eleven month period ended December 31,
1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement
of operations) through January 31, 1994 in conformity with generally accepted
accounting principles.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. VALUE FUND
FS-76
<PAGE> 151
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 65.86%
AEROSPACE/DEFENSE - 0.69%
Boeing Co. (The) 33,000 $ 1,614,937
- -----------------------------------------------------------
Lockheed Martin Corp. 1,800 177,300
- -----------------------------------------------------------
Orbital Sciences Corp.(a) 20,100 597,975
- -----------------------------------------------------------
Precision Castparts Corp. 38,800 2,340,125
- -----------------------------------------------------------
4,730,337
- -----------------------------------------------------------
AIR FREIGHT - 0.26%
Airborne Freight Corp. 18,200 1,130,675
- -----------------------------------------------------------
Federal Express Corp.(a) 11,400 696,112
- -----------------------------------------------------------
1,826,787
- -----------------------------------------------------------
AIRLINES - 0.66%
Continental Airlines, Inc.(a) 94,000 4,523,750
- -----------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.86%
Banc One Corp. 103,000 5,594,185
- -----------------------------------------------------------
Wachovia Corp. 4,600 373,175
- -----------------------------------------------------------
5,967,360
- -----------------------------------------------------------
BANKS (MONEY CENTER) - 5.00%
BankAmerica Corp.(b) 166,000 12,118,000
- -----------------------------------------------------------
Chase Manhattan Corp. 92,600 10,139,700
- -----------------------------------------------------------
Citicorp(b) 97,000 12,264,438
- -----------------------------------------------------------
34,522,138
- -----------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE) - 0.33%
US West Media Group(a) 78,300 2,260,912
- -----------------------------------------------------------
BUILDING MATERIALS - 0.18%
Masco Corp. 25,000 1,271,875
- -----------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.39%
Cytec Industries Inc.(a) 58,000 2,722,375
- -----------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.30%
Comverse Technology, Inc.(a) 54,000 2,106,000
- -----------------------------------------------------------
COMPUTERS (HARDWARE) - 1.71%
Compaq Computer Corp. 52,000 2,934,750
- -----------------------------------------------------------
Stratus Computer, Inc.(a) 37,000 1,399,063
- -----------------------------------------------------------
Sun Microsystems, Inc.(a) 187,000 7,456,625
- -----------------------------------------------------------
11,790,438
- -----------------------------------------------------------
COMPUTERS (NETWORKING) - 0.31%
Bay Networks, Inc.(a) 84,000 2,147,250
- -----------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.95%
Adaptec, Inc.(a) 50,000 1,856,250
- -----------------------------------------------------------
Quantum Corp.(a)(b) 234,000 4,694,625
- -----------------------------------------------------------
6,550,875
- -----------------------------------------------------------
MARKET
SHARES VALUE
COMPUTERS (SOFTWARE & SERVICES) - 3.27%
America Online, Inc.(a) 13,000 $ 1,159,438
- -----------------------------------------------------------------
American Management Systems, Inc.(a) 41,000 799,500
- -----------------------------------------------------------------
Autodesk, Inc. 10,000 370,000
- -----------------------------------------------------------------
Computer Associates International, Inc. 230,500 12,187,687
- -----------------------------------------------------------------
Network Associates, Inc.(a) 42,168 2,229,622
- -----------------------------------------------------------------
Sybase, Inc.(a) 150,000 1,996,875
- -----------------------------------------------------------------
Unisys Corp.(a) 275,000 3,815,625
- -----------------------------------------------------------------
22,558,747
- -----------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.30%
American Greetings Corp.-Class A 53,000 2,073,625
- -----------------------------------------------------------------
CONSUMER FINANCE - 1.19%
Household International, Inc. 24,500 3,125,281
- -----------------------------------------------------------------
MBNA Corp. 89,000 2,430,812
- -----------------------------------------------------------------
SLM Holding Corp. 19,000 2,643,375
- -----------------------------------------------------------------
8,199,468
- -----------------------------------------------------------------
ELECTRIC COMPANIES - 0.34%
Allegheny Energy, Inc. 37,200 1,209,000
- -----------------------------------------------------------------
Carolina Power & Light Co. 13,700 581,394
- -----------------------------------------------------------------
Wisconsin Energy Corp. 18,700 537,625
- -----------------------------------------------------------------
2,328,019
- -----------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.82%
American Power Conversion Corp.(a) 125,000 2,953,124
- -----------------------------------------------------------------
AVX Corp. 9,700 178,844
- -----------------------------------------------------------------
SCI Systems, Inc.(a) 45,000 1,960,313
- -----------------------------------------------------------------
Symbol Technologies, Inc. 14,800 558,700
- -----------------------------------------------------------------
5,650,981
- -----------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.12%
Waters Corp.(a) 21,900 823,988
- -----------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.67%
Maxim Integrated Products, Inc.(a) 65,000 2,242,500
- -----------------------------------------------------------------
Microchip Technology, Inc.(a) 37,000 1,110,000
- -----------------------------------------------------------------
National Semiconductor Corp.(a) 50,000 1,296,875
- -----------------------------------------------------------------
4,649,375
- -----------------------------------------------------------------
ENTERTAINMENT - 0.54%
Viacom, Inc.-Class B(a) 89,700 3,716,944
- -----------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 4.99%
Ambac Financial Group, Inc. 63,000 2,898,000
- -----------------------------------------------------------------
Fannie Mae 207,000 11,811,937
- -----------------------------------------------------------------
Freddie Mac 254,000 10,652,125
- -----------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-77
<PAGE> 152
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED) - (CONTINUED)
MBIA, Inc. 57,400 $ 3,835,038
- ---------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 89,000 5,262,125
- ---------------------------------------------------------------------
34,459,225
- ---------------------------------------------------------------------
FOODS - 0.19%
Interstate Bakeries Corp. 34,400 1,285,700
- ---------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 0.75%
Bristol-Myers Squibb Co. 55,000 5,204,375
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.90%
ICN Pharmaceuticals, Inc. 85,060 4,151,991
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 64,200 2,082,488
- ---------------------------------------------------------------------
6,234,479
- ---------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.67%
Quorum Health Group, Inc.(a) 138,050 3,606,556
- ---------------------------------------------------------------------
Tenet Healthcare Corp.(a)(b) 31,000 1,026,875
- ---------------------------------------------------------------------
4,633,431
- ---------------------------------------------------------------------
HEALTH CARE (LONG-TERM CARE) - 0.46%
Genesis Health Ventures, Inc.(a) 62,500 1,648,438
- ---------------------------------------------------------------------
Health Care and Retirement Corp.(a) 38,400 1,545,600
- ---------------------------------------------------------------------
3,194,038
- ---------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 2.12%
MedPartners, Inc.(a) 462,030 10,337,921
- ---------------------------------------------------------------------
PhyCor, Inc.(a) 160,000 4,320,000
- ---------------------------------------------------------------------
14,657,921
- ---------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.61%
Allegiance Corp. 26,500 939,094
- ---------------------------------------------------------------------
Baxter International Inc. 91,000 4,589,813
- ---------------------------------------------------------------------
Becton, Dickinson & Co. 42,000 2,100,000
- ---------------------------------------------------------------------
Sybron International Corp.(a) 74,800 3,510,924
- ---------------------------------------------------------------------
11,139,831
- ---------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.25%
FPA Medical Management, Inc.(a) 10,500 195,563
- ---------------------------------------------------------------------
Omnicare, Inc. 50,000 1,550,000
- ---------------------------------------------------------------------
1,745,563
- ---------------------------------------------------------------------
HOMEBUILDING - 0.08%
Clayton Homes, Inc. 30,000 540,000
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.45%
Colgate-Palmolive Co. 42,000 3,087,000
- ---------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.42%
Conseco, Inc. 122,000 5,543,375
- ---------------------------------------------------------------------
Equitable Companies, Inc. 21,000 1,044,750
- ---------------------------------------------------------------------
Provident Companies, Inc. 84,000 3,244,500
- ---------------------------------------------------------------------
9,832,625
- ---------------------------------------------------------------------
MARKET
SHARES VALUE
INSURANCE (MULTI-LINE) - 5.11%
Ace, Ltd. 68,000 $ 6,562,000
- ----------------------------------------------------------------------
American International Group, Inc.(b) 165,000 17,943,750
- ----------------------------------------------------------------------
CIGNA Corp. 8,400 1,453,725
- ----------------------------------------------------------------------
Hartford Financial Services Group Inc. (The) 67,000 6,268,688
- ----------------------------------------------------------------------
Travelers Group, Inc. 57,000 3,070,875
- ----------------------------------------------------------------------
35,299,038
- ----------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 5.58%
Allstate Corp. 274,100 24,908,838
- ----------------------------------------------------------------------
Chubb Corp. 12,000 907,500
- ----------------------------------------------------------------------
Exel Ltd. 110,000 6,971,250
- ----------------------------------------------------------------------
Progressive Corp. 32,000 3,836,000
- ----------------------------------------------------------------------
Transatlantic Holdings, Inc. 27,050 1,934,075
- ----------------------------------------------------------------------
38,557,663
- ----------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.10%
Merrill Lynch & Co., Inc. 104,000 7,585,500
- ----------------------------------------------------------------------
LODGING (HOTELS) - 2.06%
Carnival Corp.-Class A 150,000 8,306,250
- ----------------------------------------------------------------------
Host Marriott Corp.(a) 34,000 667,250
- ----------------------------------------------------------------------
Promus Hotel Corp.(a) 58,100 2,440,200
- ----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 52,100 2,777,581
- ----------------------------------------------------------------------
14,191,281
- ----------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.63%
Eaton Corp. 17,800 1,588,650
- ----------------------------------------------------------------------
Hillenbrand Industries, Inc. 22,000 1,126,125
- ----------------------------------------------------------------------
Tyco International Ltd. 36,200 1,631,263
- ----------------------------------------------------------------------
4,346,038
- ----------------------------------------------------------------------
NATURAL GAS - 1.00%
El Paso Natural Gas Co. 71,500 4,754,750
- ----------------------------------------------------------------------
Williams Companies, Inc. (The) 76,000 2,156,500
- ----------------------------------------------------------------------
6,911,250
- ----------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.14%
Wallace Computer Services, Inc. 25,400 987,425
- ----------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.80%
Baker Hughes, Inc. 26,000 1,134,250
- ----------------------------------------------------------------------
BJ Services Co.(a) 30,000 2,158,125
- ----------------------------------------------------------------------
Cooper Cameron Corp.(a) 20,000 1,220,000
- ----------------------------------------------------------------------
Noble Drilling Corp.(a) 32,000 980,000
- ----------------------------------------------------------------------
5,492,375
- ----------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.52%
Tosco Corp. 95,280 3,602,775
- ----------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 1.19%
Xerox Corp. 111,000 8,193,188
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-78
<PAGE> 153
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING - 0.04%
Meredith Corp. 7,100 $ 253,381
- --------------------------------------------------------------------
RAILROADS - 0.25%
Kansas City Southern Industries, Inc. 55,000 1,746,250
- --------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 0.30%
Cali Realty Corp. 50,000 2,050,000
- --------------------------------------------------------------------
RESTAURANTS - 0.36%
Cracker Barrel Old Country Store, Inc. 61,800 2,062,575
- --------------------------------------------------------------------
Papa John's International, Inc.(a) 11,700 408,038
- --------------------------------------------------------------------
2,470,613
- --------------------------------------------------------------------
RETAIL (COMPUTER & ELECTRONICS) - 0.43%
CompUSA, Inc.(a) 39,000 1,209,000
- --------------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 54,000 1,572,750
- --------------------------------------------------------------------
Tech Data Corp.(a)(b) 5,200 202,150
- --------------------------------------------------------------------
2,983,900
- --------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.84%
Kroger Co.(a) 72,500 2,677,969
- --------------------------------------------------------------------
Safeway, Inc.(a) 49,900 3,156,175
- --------------------------------------------------------------------
5,834,144
- --------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.43%
Dayton-Hudson Corp. 44,000 2,970,000
- --------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.50%
Corporate Express, Inc.(a) 270,000 3,476,250
- --------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.86%
Charter One Financial, Inc. 19,950 1,259,344
- --------------------------------------------------------------------
Washington Mutual, Inc. 72,820 4,646,826
- --------------------------------------------------------------------
5,906,170
- --------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.89%
Cendant Corp.(a) 50,465 1,734,738
- --------------------------------------------------------------------
Service Corp. International 170,000 6,279,375
- --------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 108,000 5,035,500
- --------------------------------------------------------------------
13,049,613
- --------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.15%
National Data Corp. 29,000 1,047,625
- --------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.31%
AccuStaff, Inc.(a) 93,000 2,139,000
- --------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.17%
Nextel Communications, Inc.(a) 46,200 1,201,200
- --------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 6.36%
AT&T Corp.(b) 69,700 4,269,125
- --------------------------------------------------------------------
LCI International, Inc.(a) 73,800 2,269,350
- --------------------------------------------------------------------
MCI Communications Corp. 315,000 13,485,937
- --------------------------------------------------------------------
Sprint Corp. 48,100 2,819,862
- --------------------------------------------------------------------
WorldCom, Inc.(a) 698,019 21,115,075
- --------------------------------------------------------------------
43,959,349
- --------------------------------------------------------------------
MARKET
SHARES VALUE
TOBACCO-1.57%
Philip Morris Companies, Inc.(b) 240,000 $ 10,875,000
- -------------------------------------------------------------------------------
WASTE MANAGEMENT - 0.49%
USA Waste Services, Inc.(a) 86,000 3,375,500
- -------------------------------------------------------------------------------
Total Domestic Common Stocks 454,939,960
- -------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 11.79%
BRAZIL - 0.34%
Uniao de Bancos Brasileiros S.A.-GDR (Banks-
Regional)(a) 73,000 2,349,688
- -------------------------------------------------------------------------------
CANADA - 4.56%
Bank of Montreal (Banks-Money Center) 42,000 1,861,866
- -------------------------------------------------------------------------------
Canadian National Railway Co.-ADR (Railroads) 35,000 1,653,750
- -------------------------------------------------------------------------------
Philip Services Corp.-ADR (Waste Management)(a) 113,000 1,624,375
- -------------------------------------------------------------------------------
Royal Bank of Canada (Banks-Major Regional) 498,200 26,355,915
- -------------------------------------------------------------------------------
31,495,906
- -------------------------------------------------------------------------------
DENMARK-0.27%
Novo Nordisk A/S (Health Care-Drugs-Generic & Other) 13,000 1,859,338
- -------------------------------------------------------------------------------
FINLAND - 0.73%
Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 72,000 5,040,000
- -------------------------------------------------------------------------------
ITALY - 1.11%
Credito Italiano S.p.A. (Banks-Major Regional) 1,200,000 3,711,928
- -------------------------------------------------------------------------------
Istituto Mobiliare Italiano S.p.A. (Banks-Major
Regional) 185,000 2,193,332
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 280,083 1,791,645
- -------------------------------------------------------------------------------
7,696,905
- -------------------------------------------------------------------------------
NETHERLANDS - 0.29%
Akzo Nobel N.V. (Chemicals-Diversified) 11,500 1,982,788
- -------------------------------------------------------------------------------
PHILIPPINES - 0.01%
Metro Pacific Corp. (Manufacturing-Diversified) 1,145,130 31,668
- -------------------------------------------------------------------------------
PORTUGAL - 0.07%
Portugal Telecom S.A. (Telephone) 10,700 496,485
- -------------------------------------------------------------------------------
SPAIN - 0.14%
Endesa S.A. (Electric Companies) 21,400 379,961
- -------------------------------------------------------------------------------
Telefonica de Espana (Telephone) 19,900 568,198
- -------------------------------------------------------------------------------
948,159
- -------------------------------------------------------------------------------
SWEDEN - 1.27%
Nordbanken Holding AB (Banks-Major Regional) 665,000 3,760,564
- -------------------------------------------------------------------------------
Sparbanken Sverige A.B.-Class A (Banks-Major
Regional) 189,150 4,300,000
- -------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 20,000 746,250
- -------------------------------------------------------------------------------
8,806,814
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-79
<PAGE> 154
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWITZERLAND - 0.59%
Novartis A.G. (Health Care-Diversified) 2,520 $ 4,086,486
- ------------------------------------------------------------------------------
UNITED KINGDOM - 2.41%
Danka Business Systems PLC-ADR (Office Equipment &
Supplies) 64,700 1,031,156
- ------------------------------------------------------------------------------
Ladbroke Group PLC (Leisure Time-Products) 250,000 1,083,951
- ------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 142,900 2,269,470
- ------------------------------------------------------------------------------
SmithKline Beecham PLC-ADR (Health Care-Drugs-Major
Pharmaceutical)(b) 237,100 12,195,831
- ------------------------------------------------------------------------------
Standard Chartered PLC (Banks-Major Regional) 9,666 103,190
- ------------------------------------------------------------------------------
16,683,598
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 81,477,835
- ------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.38%
HEALTH CARE (MANAGED CARE) - 0.14%
Medpartners Inc. - $1.44 Conv. Pfd. 43,000 946,000
- ------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.08%
Conseco Inc.-$4.278 Conv. PRIDES 3,600 561,600
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE) - 0.16%
WorldCom, Inc.-$2.68 Conv. Pfd. 10,400 1,092,000
- ------------------------------------------------------------------------------
Total Convertible Preferred Stocks 2,599,600
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES - 0.94%
U.S. TREASURY BILLS(C) - 0.94%
5.31%, 01/08/98 6,500,000 6,497,985
- ------------------------------------------------------------------------------
Total Investments, excluding repurchase agreements 545,515,380
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 24.67%(d)
SBC Warburg, Inc.
6.55%, 01/02/98(e) 68,385,924 68,385,924
- ------------------------------------------------------------------------------
Smith Barney, Inc.
6.75%, 01/02/98(f) 102,063,243 102,063,243
==============================================================================
Total Repurchase Agreements 170,449,167
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 103.64% 715,964,547
- ------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (3.64%) (25,123,054)
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $690,841,493
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at
the time of purchase by the Fund.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$500,181,944. Collateralized by $601,835,000 U.S. Government obligations,
0% to 10.75% due 05/21/98 to 08/15/23 with an aggregate market value at
12/31/97 of $510,077,411.
(f) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Investment Abbreviations:
ADR-American Depositary Receipt
GDR-Global Depositary Receipt
Conv.-Convertible
Pfd. -Preferred
PRIDES-Preferred Redemption Increase Dividend Equity Security
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-80
<PAGE> 155
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements at market
value (cost $444,423,441) $545,515,380
- ----------------------------------------------------------------------
Repurchase agreements (cost $170,449,167) 170,449,167
- ----------------------------------------------------------------------
Cash 21,147
- ----------------------------------------------------------------------
Foreign currencies, at market value (cost $401,576) 395,713
- ----------------------------------------------------------------------
Receivables for:
Investments sold 3,513,484
- ----------------------------------------------------------------------
Capital stock sold 896,072
- ----------------------------------------------------------------------
Dividends and interest 645,292
- ----------------------------------------------------------------------
Options written 15,614
- ----------------------------------------------------------------------
Investment for deferred compensation plan 19,336
- ----------------------------------------------------------------------
Organizational costs, net 964
- ----------------------------------------------------------------------
Other assets 21,828
- ----------------------------------------------------------------------
Total assets 721,493,997
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 29,455,924
- ----------------------------------------------------------------------
Capital stock reacquired 2,277
- ----------------------------------------------------------------------
Options written 719,781
- ----------------------------------------------------------------------
Deferred compensation 19,336
- ----------------------------------------------------------------------
Accrued advisory fees 354,260
- ----------------------------------------------------------------------
Accrued directors' fees 2,624
- ----------------------------------------------------------------------
Accrued administrative services fees 4,212
- ----------------------------------------------------------------------
Accrued operating expenses 94,090
- ----------------------------------------------------------------------
Total liabilities 30,652,504
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $690,841,493
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 33,161,794
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share $20.83
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31 , 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $195,995 foreign withholding tax) $ 6,123,798
- --------------------------------------------------------------------------
Interest 3,138,907
- --------------------------------------------------------------------------
Total investment income 9,262,705
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,303,799
- --------------------------------------------------------------------------
Administrative service fees 53,632
- --------------------------------------------------------------------------
Custodian fees 174,624
- --------------------------------------------------------------------------
Directors' fees and expenses 10,946
- --------------------------------------------------------------------------
Organizational costs 2,892
- --------------------------------------------------------------------------
Other 141,677
- --------------------------------------------------------------------------
Total expenses 3,687,570
- --------------------------------------------------------------------------
Less: Expenses paid indirectly (3,824)
- --------------------------------------------------------------------------
Net expenses 3,683,746
- --------------------------------------------------------------------------
Net investment income 5,578,959
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 46,384,362
- --------------------------------------------------------------------------
Foreign currencies 10,509
- --------------------------------------------------------------------------
Option contracts 1,476,233
- --------------------------------------------------------------------------
47,871,104
- --------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 51,082,762
- --------------------------------------------------------------------------
Foreign currencies 33,204
- --------------------------------------------------------------------------
Option contracts 370,110
- --------------------------------------------------------------------------
51,486,076
- --------------------------------------------------------------------------
Net gain on investment securities, foreign currencies and
option contracts 99,357,180
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $104,936,139
==========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-81
<PAGE> 156
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,578,959 $ 6,092,474
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and option contracts 47,871,104 19,315,881
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies and option
contracts 51,486,076 19,921,129
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 104,936,139 45,329,484
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (6,026,082) (1,864,217)
- ------------------------------------------------------------------------------
Distributions to shareholders from realized
capital gains (18,500,854) (18,073,097)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 240,697,144 87,131,189
- ------------------------------------------------------------------------------
Net increase in net assets 321,106,347 112,523,359
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 369,735,146 257,211,787
- ------------------------------------------------------------------------------
End of year $690,841,493 $369,735,146
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $536,384,006 $295,686,862
- ------------------------------------------------------------------------------
Undistributed net investment income 5,579,627 6,016,241
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
option contracts 47,575,497 18,215,756
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 101,302,363 49,816,287
- ------------------------------------------------------------------------------
$690,841,493 $369,735,146
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Value Fund (the "Fund"). 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. Currently, shares of the
Fund are sold only to insurance company separate accounts to fund the benefits
of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date, or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations are either not readily available or are questionable
are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares
AIM V.I. VALUE FUND
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<PAGE> 157
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997,
undistributed net investment income was increased and undistributed net
realized gains reduced by $10,509 in order to comply with the requirements
of the American Institute of Certified Public Accountants Statement of
Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Organizational Costs - Organizational costs for the Fund of $14,461 are
being amortized over five years.
E. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contract at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contract may not correlate with changes in the securities being hedged.
F. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
G. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a currency contract for
the amount of a purchase or sale of a security denominated in a foreign
currency in order to "lock-in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "market-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I
M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $53,632 for such
services.
AIM V.I. VALUE FUND
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<PAGE> 158
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$5,309 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion of
the Fund's expenses related to pricing services used by the Fund which reduced
the Fund's expenses by $2,218 during the year ended December 31, 1997. The
Fund also received reductions in custodian fees of $1,606 under an expense
offset arrangement. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $3,824 during the year ended
December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest a director's
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1997 was
$715,432,710 and $593,497,504, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
Aggregate unrealized appreciation of investment securities $109,556,705
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (10,333,119)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 99,223,586
===========================================================================
Cost of investments for tax purposes is $446,291,794.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold 12,245,239 $244,753,656 5,143,694 $86,219,671
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 1,188,320 24,526,936 1,179,025 19,937,315
- -----------------------------------------------------------------------------
Reacquired (1,424,104) (28,583,448) (1,140,219) (19,025,797)
- -----------------------------------------------------------------------------
12,009,455 $240,697,144 5,182,500 $87,131,189
=============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Beginning of year 3,487 $1,119,905
Written 7,780 3,228,715
Closed (1,470) (675,031)
Exercised (3,000) (1,220,728)
Expired (4,695) (1,511,273)
------ ----------
End of year 2,102 $ 941,588
====== ==========
</TABLE>
Open call options written at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM DECEMBER 31, 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corp. Apr.98 60 200 $119,898 $103,750 $ 16,148
AT&T Corp. Apr.98 65 100 36,761 31,250 5,511
American International
Group, Inc. Feb.98 100 250 161,495 262,500 (101,005)
BankAmerica Corp. Apr.98 80 150 84,397 45,000 39,397
Citicorp Apr.98 135 250 255,836 168,750 87,087
Philip Morris Companies,
Inc. Jan.98 45 250 39,874 27,344 12,530
Quantum Corp. Feb.98 27.5 428 137,811 16,050 121,761
SmithKline Beecham PLC Jan.98 50 200 60,648 44,375 16,273
Tech Data Corp. Jan.98 45 24 4,978 450 4,528
Tenet Healthcare Corp. Feb.98 35 250 39,890 20,312 19,577
----- -------- -------- ---------
2,102 $941,588 $719,781 $ 221,807
===== ======== ======== =========
</TABLE>
AIM V.I. VALUE FUND
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<PAGE> 159
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------- ------------------
1997 1996 1995 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00
- ------------------------- -------- -------- -------- -------- -------
Income from investment
operations:
Net investment income 0.08 0.30 0.11 0.10 0.02
- ------------------------- -------- -------- -------- -------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 4.05 2.09 4.18 (0.35) 2.17
- ------------------------- -------- -------- -------- -------- -------
Total from investment
operations 4.13 2.39 4.29 (0.25) 2.19
- ------------------------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net
investment income (0.19) (0.10) (0.01) (0.09) (0.02)
- ------------------------- -------- -------- -------- -------- -------
Distributions from
realized capital gains (0.59) (0.92) -- -- --
- ------------------------- -------- -------- -------- -------- -------
Total distributions (0.78) (1.02) (0.01) (0.09) (0.02)
- ------------------------- -------- -------- -------- -------- -------
Net asset value, end of
period $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
- ------------------------- -------- -------- -------- -------- -------
Total return(a) 23.69% 15.02% 36.25% (2.03)% 21.94%
- ------------------------- -------- -------- -------- -------- -------
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $690,841 $369,735 $257,212 $109,257 $38,255
- ------------------------- -------- -------- -------- -------- -------
Ratio of expenses to
average net assets 0.70%(b)(c) 0.73% 0.75%(d) 0.82% 1.00%(d)(e)
- ------------------------- -------- -------- -------- -------- -------
Ratio of net investment
income to average net
assets 1.05%(b) 2.00% 1.11%(d) 1.17% 0.51%(d)(e)
- ------------------------- -------- -------- -------- -------- -------
Portfolio turnover rate 127% 129% 145% 143% 87%
- ------------------------- -------- -------- -------- -------- -------
Average brokerage
commission rate paid(f) $ 0.0487 $ 0.0429 N/A N/A N/A
- ------------------------- -------- -------- -------- -------- -------
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $529,874,605.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Annualized ratios of
expenses and net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 1.35% and 0.16%, respectively.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
AIM V.I. VALUE FUND
FS-85
<PAGE> 160
PART C
OTHER INFORMATION
Item 24. (a) Financial Statements:
In Part A:
Financial Highlights for the fiscal years ended December
31, 1997, 1996, 1995 and January 31, 1995 and 1994 for
the AIM V.I. Capital Appreciation Fund, the AIM V.I.
Diversified Income Fund, the AIM V.I. Global Utilities
Fund, the AIM V.I. Government Securities Fund, the AIM
V.I. Growth Fund, the AIM V.I. Growth and Income Fund,
the AIM V.I. International Equity Fund, the AIM V.I.
Money Market Fund and the AIM V.I. Value Fund.
In Part B:
Report of Independent Auditors, Schedule of Investments,
Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets, and
Notes to Financial Statements for the fiscal years ended
December 31, 1997, 1996, 1995 and January 31, 1995 and
1994 for the AIM V.I. Capital Appreciation Fund, the AIM
V.I. Diversified Income Fund, the AIM V.I. Global
Utilities Fund, the AIM V.I. Government Securities Fund,
the AIM V.I. Growth Fund, the AIM V.I. Growth and
Income Fund, the AIM V.I. International Equity Fund,
the AIM V.I. Money Market Fund and the AIM V.I. Value
Fund.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
(1) - (a) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the
State of Maryland on February 4, 1998, is hereby filed electronically.
- (b) Amendment to Articles of Incorporation of Registrant, as filed with the State of
Maryland on April 12, 1995, was filed as an Exhibit to Registrant's Post-Effective Amendment
No. 6 on April 26, 1995, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (c) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the
State of Maryland on April 12, 1994, were filed as an Exhibit to Registrant's Post-Effective
Amendment No. 3 on May 2, 1994, and were filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by reference.
</TABLE>
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<TABLE>
<S> <C> <C>
- (d) Amendment to Articles of Incorporation of Registrant, as filed with the State of
Maryland on April 15, 1993, was filed as an Exhibit to Registrant's Pre-Effective Amendment
No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (e) Amendment to Articles of Incorporation of Registrant, as filed with the State of
Maryland on April 13, 1993, was filed as an Exhibit to Registrant's Pre-Effective Amendment
No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (f) Articles of Incorporation of Registrant, as filed with the State of Maryland on January
22, 1993, were filed as an Exhibit to Registrant's Initial Registration Statement on
January 25, 1993, and were filed electronically as an Exhibit to Post-Effective Amendment
No. 7 on April 29, 1996, and are incorporated herein by reference.
(2) - (a) Amended and Restated Bylaws, dated effective December 11, 1996, were filed as an Exhibit
to Post-Effective Amendment No. 8 on April 23, 1997 and are incorporated herein by
reference.
(b) First Amendment, dated March 14, 1995, to By-Laws of Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996.
- (c) By-Laws of Registrant were filed as an Exhibit to Registrant's Initial Registration
Statement on January 25, 1993 and were filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996.
(3) - Voting Trust Agreements - None.
(4) - (a) Form of Specimen Certificate for the AIM V.I. Global Utilities Fund was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 6 on April 26, 1995.
- (b) Form of Specimen Certificates for the AIM V.I. Growth and Income Fund and the AIM V.I.
Utilities Fund (presently the AIM V.I. Global Utilities Fund) were filed as an Exhibit to
Registrant's Post-Effective Amendment No. 2 on March 2, 1994.
- (c) Form of Specimen Certificates were filed as an Exhibit to Registrant's Pre-Effective
Amendment No. 1 on April 19, 1993.
(5) - (a) Form of Amendment No. 1 to Master Investment Advisory Agreement, between Registrant
and A I M Advisors, Inc. is hereby filed electronically.
</TABLE>
C-2
<PAGE> 162
<TABLE>
<S> <C> <C>
- (b) Copy of Master Investment Advisory Agreement, dated February 28, 1997, between
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No.
8 on April 23, 1997 and incorporated herein by reference.
- (c) Copy of Amendment, dated April 28, 1994, to Master Investment Advisory Agreement, dated
October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as
an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996.
- (d) Copy of Master Investment Advisory Agreement, dated October 18, 1993, between Registrant
and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment
No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996.
- (e) Copy of Investment Advisory Agreement, dated March 31, 1993, between Registrant and
A I M Advisors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1
on April 19, 1993.
(6) - (a) Form of Amendment No. 1 to Master Distribution Agreement, between Registrant and
A I M Distributors, Inc. is hereby filed electronically.
- (b) Copy of Master Distribution Agreement, dated February 28, 1997, between Registrant and
A I M Distributors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 8 on
April 23, 1997 and is incorporated herein by reference.
- (c) Copy of Amendment, dated April 28, 1994, to Master Distribution Agreement, dated October
18, 1993, between Registrant and AIM Distributors, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as
an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996.
- (d) Copy of Master Distribution Agreement, dated October 18, 1993, between Registrant and
A I M Distributors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment
No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996.
- (e) Copy of Distribution Agreement, dated March 31, 1993, between Registrant and
A I M Distributors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment
No. 1 on April 19, 1993.
(7) - (a) Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, as
restated September 18, 1995, was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
</TABLE>
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<PAGE> 163
<TABLE>
<S> <C> <C>
- (b) Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994.
(c) Form of Deferred Compensation Agreement is hereby filed electronically.
- (d) Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors, as
approved on December 5, 1995, was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (e) Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994.
(8) - (a) Copy of Amendment No. 2, dated September 19, 1995, to Custodian Agreement, dated March
31, 1993, between Registrant and State Street Bank and Trust Company was filed
electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is
incorporated herein by reference.
- (b) Copy of Amendment No.1, dated April 25, 1994, to Custodian Agreement, dated March 31,
1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as
an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein
by reference.
- (c) Copy of Custodian Agreement, dated March 31, 1993, between Registrant and State Street
Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No.
1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
(9) - (a) Copy of Amendment No.1, dated April 25, 1994, to Transfer Agency Agreement, dated March
19, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically
as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated
herein by reference.
- (b) Copy of Transfer Agency Agreement, dated March 19, 1993, between Registrant and State
Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
</TABLE>
C-4
<PAGE> 164
<TABLE>
<S> <C>
- (c) Form of Master Administrative Services Agreement, dated May 1, 1998, between
Registrant and A I M Advisors, Inc. is hereby filed electronically.
- (d) Copy of Master Administrative Services agreement dated February 28, 1997, between
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 8 on April 23, 1997.
- (e) Copy of Amendment No.1, dated April 28, 1994, to Master Administrative Services
Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as
an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed
electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996.
- (f) Copy of Master Administrative Services Agreement, dated October 18, 1993, between the
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996.
- (g) Copy of Administrative Services Agreement, dated March 31, 1993, between the Registrant
and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No.
1 on April 19, 1993.
- (h) Copy of Participation Agreement, dated April 30, 1997, between Registrant and Prudential
Insurance Company of America is hereby filed electronically.
- (i) Copy of Participation Agreement, dated November 4, 1997, between Registrant and
Nationwide Life Insurance Company is hereby filed electronically.
- (j) Copy of Participation Agreement, dated December 31, 1997, between Registrant and Cova
Financial Services Life Insurance Company is hereby filed electronically.
- (k) Copy of Participation Agreement, dated December 31, 1997, between Registrant and Cova
Financial Life Insurance Company is hereby filed electronically.
- (l) Copy of Participation Agreement, dated November 20, 1997, between Registrant and AIG
Life Insurance Company is hereby filed electronically.
- (m) Copy of Participation Agreement, dated November 20, 1997, between Registrant and
American International Life Assurance Company of New York is hereby filed electronically.
</TABLE>
C-5
<PAGE> 165
<TABLE>
<S> <C>
- (n) Copy of Participation Agreement, dated October 30, 1997, between Registrant and American
Enterprise Life Insurance Company is hereby filed electronically.
- (o) Copy of Participation Agreement, dated October 30, 1997, between Registrant and American
Centurion Life Assurance Company is hereby filed electronically.
- (p) Copy of Letter Agreement, dated October 30, 1997, between American Enterprise Life
Insurance Company, American Centurion Life Assurance Company, A I M Advisors, Inc. and
A I M Distributors, Inc. is hereby filed electronically.
- (q) Copy of Participation Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver is hereby filed electronically.
- (r) Copy of Participation Agreement, dated February 14, 1997, between Registrant and Pruco
Life Insurance Company of New Jersey was filed as an Exhibit to Post-Effective Amendment No.
8 on April 23, 1997 and is incorporated herein by reference.
- (s) Copy of Side Letter Agreement, dated December 18, 1996, between Registrant, A I M
Distributors, Inc. and Merrill, Lynch, Pierce, Fenner & Smith, Incorporated was filed as an
Exhibit to Post-Effective Amendment No. 8 on April 23, 1997 and is incorporated herein by
reference.
- (t) Copy of Amendment No. 1, dated May 1, 1997, to Participation Agreement dated December
18, 1996, by and between Registrant and ML Life Insurance Company of New York is hereby
filed electronically.
- (u) Copy of Participation Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 8 on
April 23, 1997 and is incorporated herein by reference.
- (v) Copy of Amendment No. 1, dated May 1, 1997, to Participation Agreement, dated December
18, 1996, between Registrant and Merrill Lynch Life Insurance Company is hereby filed
electronically.
- (w) Copy of Participation Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company was filed as an Exhibit to Post-Effective Amendment No. 8 on
April 23, 1997 and is incorporated herein by reference.
- (x) Copy of Participation Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company (supersedes and replaces Participation Agreement dated March 4, 1996) was
filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997 and is incorporated
herein by reference.
</TABLE>
C-6
<PAGE> 166
<TABLE>
<S> <C>
- (y) Copy of Side Letter Agreement, dated September 27, 1996, between Registrant and IDS Life
Insurance Company of New York is hereby filed electronically.
- (z) Copy of Participation Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 8 on
April 23, 1997 and is incorporated herein by reference.
- (aa) Copy of Participation Agreement, dated October 1, 1996, between Registrant and Allstate
Life Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 8
on April 23, 1997 and is incorporated herein by reference.
- (bb) Copy of Amendment No. 1, dated July 1, 1997, to Participation Agreement, dated
September 21, 1996, between Registrant and Pruco Life Insurance Company is hereby filed
electronically.
- (cc) Copy of Participation Agreement, dated September 21, 1996, between Registrant and Pruco
Life Insurance Company was filed as an Exhibit to Post-Effective Amendment No. 8 on April
23, 1997 and is incorporated herein by reference.
- (dd) Copy of Participation Agreement, dated April 8, 1996, between Registrant and
Connecticut General Life Insurance Company was filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (ee) Copy of Amendment No. 2, dated September 2, 1997, to Participation Agreement, dated
December 19, 1995, between Registrant and Glenbrook Life and Annuity Company is hereby filed
electronically.
- (ff) Copy of Side Letter Agreement, dated December 19, 1995, among Registrant, A I M
Distributors, Inc., Glenbrook Life and Annuity Company and Allstate Life Financial Services,
Inc. was filed as an Exhibit to Post-Effective Amendment No. 8 and is incorporated herein by
reference.
- (gg) Copy of Participation Agreement, dated December 19, 1995, between Registrant and
Glenbrook Life and Annuity Company was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (hh) Copy of Participation Agreement, dated March 4, 1996, between Registrant and IDS Life
Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 7
on April 29, 1996.
- (ii) Copy of Amendment No. 1, dated February 3, 1997, to Participation Agreement , dated
February 10, 1995, between Registrant and Citicorp Life Insurance Company is hereby filed
electronically.
</TABLE>
C-7
<PAGE> 167
<TABLE>
<S> <C> <C>
- (jj) Copy of Participation Agreement, dated February 10, 1995, between Registrant and
Citicorp Life Insurance Company was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 5 on February 28, 1995, and was filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (kk) Copy of Amendment No. 1, dated February 3, 1997, to Participation Agreement, dated
February 10, 1995, between Registrant and First Citicorp Life Insurance Company is hereby
filed electronically.
- (ll) Copy of Participation Agreement, dated February 10, 1995, between Registrant and First
Citicorp Life Insurance Company was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 5 on February 28, 1995 and was filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference.
- (mm) Copy of Participation Agreement, dated February 25, 1993, between Registrant,
Connecticut General Life Insurance Company and A I M Distributors, Inc. was filed as an
Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and was filed
electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is
incorporated herein by reference.
- (nn) Copy of Accounting Services Agreement, dated March 31, 1993, between the Registrant and
State Street Bank and Trust Company was filed as an Exhibit to Registrant's Pre-Effective
Amendment No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996.
(10) - (a) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I.
Capital Appreciation Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Government
Securities Fund, the AIM V.I. Growth Fund, the AIM V.I. International Equity Fund, the AIM
V.I. Money Market Fund and the AIM V.I. Value Fund was filed as an Exhibit to Registrant's
Pre-Effective Amendment No. 1 on April 19, 1993.
- (b) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I.
Growth and Income Fund and the AIM V.I. Utilities Fund (presently the AIM V.I. Global
Utilities Fund) was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on
November 3, 1994.
- (c) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I.
Global Utilities Fund name change was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 6 on April 26, 1995.
- (d) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds is hereby filed
electronically.
</TABLE>
C-8
<PAGE> 168
<TABLE>
<S> <C> <C>
- (e) Consent of Messrs. Tait, Weller & Baker is hereby filed electronically.
(11) - Other Opinions, Appraisals or Rulings and Consents - None.
(12) - Financial Statements omitted from Item 23 - None.
(13) - (a) Form of Agreement Concerning Initial Capitalization of the AIM V.I. Aggressive Growth
Fund, the AIM V.I. Balanced Fund, the AIM V.I. Capital Development Fund and the AIM V.I.
High Yield Fund is hereby filed electronically.
- (b) Copies of Agreements Concerning Initial Capitalization of the AIM V.I. Growth and Income
Fund and the AIM V.I. Utilities Fund were filed as an Exhibit to Registrant's Post-Effective
Amendment No. 4 on November 3, 1994, and were filed electronically as an Exhibit to Post-
Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by reference.
- (c) Copies of Agreements Concerning Initial Capitalization of the AIM V.I. Capital
Appreciation Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Government Securities
Fund, the AIM V.I. Growth Fund, the AIM V.I. International Equity Fund, the AIM V.I. Money
Market Fund, and the AIM V.I. Value Fund were filed as an Exhibit to Registrant's Post-
Effective Amendment No. 1 on November 5, 1993, and were filed electronically as an Exhibit
to Post-Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by
reference.
(14) - Registrant's Retirement Plan Documents - None.
(15) - Registrant's Plan pursuant to Rule 12b-1 under the 1940 Act - None.
(16) - Schedule of Performance Quotations were filed as an Exhibit to Registrant's Post-Effective
Amendment No. 3 on May 2, 1994.
(18) - Multiple Class Plan (Rule 18f-3) - None.
(27) - Financial Data Schedules are hereby filed electronically.
</TABLE>
Item 25. Persons Controlled by or under Common Control With Registrant
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities
owned or other basis of control by the person, if any, immediately controlling
it.
None.
Item 26. Number of Holders of Securities
C-9
<PAGE> 169
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders
of each class of securities of the Registrant.
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of February 2, 1998
-------------- ------------------------
<S> <C>
AIM V.I. Aggressive Growth Fund -0-
AIM V.I. Balanced Fund -0-
AIM V.I. Capital Appreciation Fund 18
AIM V.I. Capital Development Fund -0-
AIM V.I. Diversified Income Fund 6
AIM V.I. Global Utilities Fund 5
AIM V.I. Government Securities Fund 8
AIM V.I. Growth Fund 6
AIM V.I. Growth and Income Fund 15
AIM V.I. High Yield Fund -0-
AIM V.I. International Equity Fund 12
AIM V.I. Money Market Fund 3
AIM V.I. Value Fund 18
</TABLE>
Item 27. Indemnification
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Under the terms of the Maryland General Corporation Law and the
Registrant's Charter and By-Laws, the Registrant may indemnify any
person who was or is a director, officer, employee or agent of the
Registrant to the maximum extent permitted by the Maryland General
Corporation Law. The specific terms of such indemnification are
reflected in the Registrant's Charter and By-Laws, which are
incorporated herein as part of this Registration Statement. No
indemnification will be provided by the Registrant to any director or
officer of the Registrant for any liability to the Registrant or
shareholders to which such director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
In addition, under the terms of the agreements described in response to
Item 24(b) of this Part C, various third parties have agreed to
indemnify the registrant, its directors and officers, and, in some
cases, its investment advisor and/or principal underwriter, against
certain liabilities that may arise in connection with the performance of
the agreements. The specific terms of such indemnification are set out
in the agreements, and are incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as
C-10
<PAGE> 170
expressed in such Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered hereby, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of
such issue. Insurance coverage is provided under a joint Mutual Fund &
Investment Advisory Professional Directors & Officers Liability Policy,
issued by ICI Mutual Insurance Company, with a $25,000,000 limit of
liability.
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been,
at any time during the past two fiscal years, engaged for his own account or in
the capacity of director, officer, employee, partner, or trustee.
The only employment of a substantial nature of the Advisor's directors
and officers is with the Advisor and its affiliated companies.
Reference is also made to the captions "Management--Investment Advisor"
of the Prospectus which comprises Part A of this Registration Statement,
and to the discussion under the caption "Management" of the Statement of
Additional Information which comprises Part B of this Registration
Statement, and to Item 29(b) of this Part C of the Registration
Statement.
Item 29. Principal Underwriters
(a) A I M Distributors, Inc., the Registrant's principal
underwriter, also acts as a principal underwriter to the
following investment companies:
AIM Equity Funds, Inc. (Retail Classes)
AIM Funds Group
AIM International Funds, Inc.
AIM Investment Securities Funds (AIM Limited Maturity Treasury
Fund - Class A Shares)
AIM Summit Fund, Inc.
AIM Tax-Exempt Funds, Inc.
(b) The following table sets forth information with respect to
each director, officer or partner of A I M Distributors, Inc.:
C-11
<PAGE> 171
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ---------------- -------------------------- ---------------
<S> <C> <C>
Charles T. Bauer Chairman of the Board of Directors Chairman & Director
Michael J. Cemo President & Director None
Gary T. Crum Director Senior Vice President
Robert H. Graham Senior Vice President & Director President & Director
William G. Littlepage Senior Vice President & Director None
James L. Salners Senior Vice President None
John Caldwell Senior Vice President None
Gordon J. Sprague Senior Vice President None
Michael C. Vessels Senior Vice President None
Marilyn M. Miller Senior Vice President None
B. J. Thompson First Vice President None
John J. Arthur Vice President & Treasurer Senior Vice President &
Treasurer
Ofelia M. Mayo Vice President, General Counsel Assistant Secretary
& Assistant Secretary
William H. Kleh Vice President None
Carol F. Relihan Vice President Senior Vice President &
Secretary
James R. Anderson Vice President None
Mary K. Coleman Vice President None
Melville B. Cox Vice President; Chief Compliance Officer Vice President
Charles R. Dewey Vice President None
Sidney M. Dilgren Vice President None
</TABLE>
- ---------------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-12
<PAGE> 172
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ---------------- -------------------------- ---------------
<S> <C> <C>
Tony D. Green Vice President None
Terri L. Ransdell Vice President None
Kamala C. Sachidanandan Vice President None
Frank V. Serebrin Vice President None
Christopher T. Simutis Vice President None
Robert D. Van Sant, Jr. Vice President None
Gary K. Wendler Vice President None
Kathleen J. Pflueger Secretary Assistant Secretary
David E. Hessel Assistant Vice President, None
Assistant Treasurer & Controller
Luke P. Beausoleil Assistant Vice President None
Tisha Christopher Assistant Vice President None
Glenda Dayton Assistant Vice President None
Mary E. Gentempo Assistant Vice President None
Kathleen M. Douglas Assistant Vice President None
Terri N. Fiedler Assistant Vice President None
Jeffrey L. Horne Assistant Vice President None
Melissa E. Hudson Assistant Vice President None
Jodie L. Johnson Assistant Vice President None
Kathryn A. Jordan Assistant Vice President None
Kim T. Lankford Assistant Vice President None
Wayne W. LaPlante Assistant Vice President None
</TABLE>
- ---------------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-13
<PAGE> 173
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ---------------- -------------------------- ---------------
<S> <C> <C>
Ivy B. McLemore Assistant Vice President None
David B. O'Neil Assistant Vice President None
Patricia M. Shyman Assistant Vice President None
Nicholas D. White Assistant Vice President None
Norman W. Woodson Assistant Vice President None
Nancy L. Martin Assistant General Counsel & Assistant Secretary
Assistant Secretary
Samuel D. Sirko Assistant General Counsel & Assistant Secretary
Assistant Secretary
Stephen I. Winer Assistant Secretary Assistant Secretary
</TABLE>
(c) Not Applicable
Item 30. Location of Accounts and Records
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to
31a-3) promulgated thereunder, furnish the name and address of each person
maintaining physical possession of each such account, book or other document.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, will maintain physical possession of each such account, book
or other document of the Registrant at its principal executive offices,
except for those maintained by the Registrant's Custodian and Transfer
Agent State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.
- ------------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-14
<PAGE> 174
Item 31. Management Services
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
None.
Item 32. Undertakings
(a) Not Applicable
(b) The Registrant undertakes to file a post-effective amendment,
using financial statements for the AIM V.I. Aggressive Growth
Fund, the AIM V.I. Balanced Fund, the AIM V.I. Capital
Development Fund and the AIM V.I. High Yield Fund, which need
not be certified, within four to six months from the effective
date of this Registration Statement.
(c) The Registrant undertakes to furnish each person to whom a
prospectus is delivered, a copy of the applicable Fund's latest
annual report to shareholders, upon request and without charge.
C-15
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Houston, Texas on the 13th day of
February, 1998.
REGISTRANT: AIM VARIABLE INSURANCE FUNDS, INC.
By: /s/ ROBERT H. GRAHAM
-------------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ CHARLES T. BAUER Chairman & Director February 12, 1998
- ----------------------
(Charles T. Bauer)
/s/ ROBERT H. GRAHAM Director & President February 12, 1998
- ---------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ BRUCE L. CROCKETT Director February 12, 1998
- ----------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Director February 12, 1998
- ----------------------
(Owen Daly II)
/s/ JACK FIELDS Director February 12, 1998
- ----------------------
(Jack Fields)
/s/ CARL FRISCHLING Director February 12, 1998
- ----------------------
(Carl Frischling)
/s/ JOHN F. KROEGER Director February 12, 1998
- ----------------------
(John F. Kroeger)
/s/ LEWIS F. PENNOCK Director February 12, 1998
- ----------------------
(Lewis F. Pennock)
/s/ IAN W. ROBINSON Director February 12, 1998
- ----------------------
(Ian W. Robinson)
/s/ LOUIS S. SKLAR Director February 12, 1998
- ----------------------
(Louis S. Sklar)
Senior Vice President &
Treasurer (Principal Financial February 12, 1998
/s/ JOHN J. ARTHUR and Accounting Officer)
- ----------------------
(John J. Arthur)
</TABLE>
<PAGE> 176
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No.
-------
<S> <C> <C>
1 (a) Articles Supplementary to Articles of Incorporation of Registrant
5 (a) Form of Amendment No. 1 to Master Investment Advisory Agreement, dated February 28, 1997, between
Registrant and A I M Advisors, Inc.
6 (a) Form of Amendment No. 1 to Master Distribution Agreement, dated February 28, 1997, between Registrant
and A I M Distributors, Inc.
7 (c) Form of Deferred Compensation Agreement
9 (c) Form of Master Administrative Services Agreement, as amended, dated May 1, 1998, between Registrant
and A I M Advisors, Inc.
9 (h) Copy of Participation Agreement, dated April 30, 1997, between Registrant and Prudential Insurance
Company of America
9 (i) Copy of Participation Agreement, dated November 4, 1997, between Registrant and Nationwide Life
Insurance Company
9 (j) Copy of Participation Agreement dated December 31, 1997, between Registrant and Cova Financial
Services Life Insurance Company
9 (k) Copy of Participation Agreement, dated December 31, 1997, between Registrant and Cova Financial Life
Insurance Company
9 (l) Copy of Participation Agreement, dated November 20, 1997, between Registrant and AIG Life Insurance
Company
9 (m) Copy of Participation Agreement dated November 20, 1997, between Registrant and American
International Life Assurance Company of New York
9 (n) Copy of Participation Agreement, dated October 30, 1997, between Registrant and American Enterprise
Life Insurance Company
9 (o) Copy of Participation Agreement, dated October 30, 1997, between Registrant and American Centurion
Life Assurance Company
9 (p) Copy of Letter Agreement, dated October 30, 1997, between American Enterprise Life Insurance Company,
American Centurion Life Assurance Company, A I M Advisors, Inc. and A I M Distributors, Inc.
9 (q) Copy of Participation Agreement, dated December 3, 1997, between Registrant and Security Life of
Denver
</TABLE>
<PAGE> 177
<TABLE>
<S> <C> <C>
9 (t) Copy of Amendment No. 1, dated May 1, 1997, to Participation Agreement, dated December 18, 1996,
between Registrant and ML Life Insurance Company of New York
9 (v) Copy of Amendment No. 1, dated May 1, 1997, to Participation Agreement, dated December 18, 1996,
between Registrant and Merrill Lynch Life Insurance Company
9 (y) Copy of Side Letter Agreement, dated September 27, 1996, between Registrant, and IDS Life Insurance
Company of New York
9 (bb) Copy of Amendment No. 1, dated July 1, 1997, to Participation Agreement, dated September 21, 1996,
between Registrant and Pruco Life Insurance Company
9 (ee) Copy of Amendment No. 2, dated September 2, 1997, to Participation Agreement, dated December 19,
1995, between Registrant and Glenbrook Life and Annuity Company
9 (ii) Copy of Amendment No. 1, dated February 3, 1997, to Participation Agreement, dated February 10, 1995,
between Registrant and Citicorp Life Insurance Company
9 (kk) Copy of Amendment No. 1, dated February 3, 1997, to Participation Agreement, dated February 10, 1995,
between Registrant and First Citicorp Life Insurance Company
10 (d) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds
10 (e) Consent of Messrs. Tait, Weller & Baker
13 (a) Form of Agreement Concerning Initial Capitalization of the AIM V.I. Aggressive Growth Fund, the AIM
V.I. Balanced Fund, the AIM V.I. Capital Development Fund and the AIM V.I. High Yield Fund.
27 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 1(a)
AIM VARIABLE INSURANCE FUNDS, INC.
ARTICLES SUPPLEMENTARY
AIM VARIABLE INSURANCE FUNDS, INC., a Maryland corporation, having its
principal office in the State of Maryland in Baltimore City (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The aggregate number of shares of Common Stock of the
Corporation is increased by one billion (1,000,000,000) shares, which are
classified and allocated as follows: two hundred fifty million (250,000,000)
shares to AIM V.I. Aggressive Growth Fund, two hundred fifty million
(250,000,000) shares to AIM V.I. Balanced Fund, two hundred fifty million
(250,000,000) shares to AIM V.I. Capital Development Fund and two hundred fifty
million (250,000,000) shares to AIM V.I. High Yield Fund. The shares of AIM
V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital
Development Fund and AIM V.I. High Yield Fund as so classified by the Board of
Directors shall have the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemption as set forth in ARTICLE FIFTH, paragraph (b) of
the Corporation's Articles of Incorporation and shall be subject to all
provisions of the Articles of Incorporation relating to stock of the
Corporation generally.
SECOND: Immediately before the increase in the aggregate number of
shares as set forth in Article FIRST hereto, the Corporation was authorized to
issue 2,500,000,000 shares of the par value of $.001 each and of the aggregate
par value of $2,500,000, of which 250,000,000 shares were initially classified
as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares were initially
classified as AIM V.I. Diversified Income Fund shares, 250,000,000 shares were
initially classified as AIM V.I. Global Utilities Fund shares, 250,000,000
shares were initially classified as AIM V.I. Government Securities Fund
shares, 250,000,000 shares were initially classified as AIM V.I. Growth Fund
shares, 250,000,000 shares were initially classified as AIM V.I. Growth and
Income Fund shares, 250,000,000 shares were initially classified as AIM V.I.
International Equity Fund shares, 250,000,000 shares were initially classified
as AIM V.I. Money Market Fund shares, 250,000,000 shares were initially
classified as AIM V.I. Value Fund shares and the balance of which were
unclassified.
THIRD: As hereby increased, the total number of shares of stock which
the Corporation has authority to issue is 3,500,000,000 shares of the par value
of $.001 each and of the aggregate par value of $3,500,000, of which
250,000,000 shares are classified as AIM V.I. Aggressive Growth
-1-
<PAGE> 2
Fund shares, 250,000,000 shares are classified as AIM V.I. Balanced Fund
shares, 250,000,000 shares are classified as AIM V.I. Capital Appreciation Fund
shares, 250,000,000 shares are classified as AIM V.I. Capital Development Fund
shares, 250,000,000 shares are classified as AIM V.I. Diversified Income Fund
shares, 250,000,000 shares are classified as AIM V.I. Global Utilities Fund
shares, 250,000,000 are classified as AIM V.I. Government Securities Fund
shares, 250,000,000 are classified as AIM V.I. Growth Fund shares, 250,000,000
are classified as AIM V.I. Growth and Income Fund shares, 250,000,000 shares
are classified as AIM V.I. High Yield Fund shares, 250,000,000 are classified
as AIM V.I. International Equity Fund shares, 250,000,000 are classified as
AIM V.I. Money Market Fund shares, 250,000,000 are classified as AIM V.I. Value
Fund shares and the balance of which are unclassified.
FOURTH: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
FIFTH: The Board of Directors of the Corporation increased the total
number of shares of Common Stock the Corporation has authority to issue
pursuant to Section 2-105(c) of the Maryland General Corporation Law and
classified the shares of AIM V.I. Aggressive Growth Fund, AIM V.I. Balanced
Fund, AIM V.I. Capital Development Fund and AIM V.I. High Yield Fund under
authority contained in the Charter of the Corporation.
The undersigned President acknowledges these Articles Supplementary to
be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles with respect to authorization and approval are true in all material
respects and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, AIM VARIABLE INSURANCE FUNDS, INC. has caused
these Articles Supplementary to be executed in its name and on its behalf by
its President and witnessed by its Assistant Secretary on
February 2, 1998.
AIM VARIABLE INSURANCE FUNDS, INC.
By: /s/ Robert H. Graham
--------------------------
President
Witness:
/s/ Nancy L. Martin
- --------------------------------
Assistant Secretary
-2-
<PAGE> 1
EXHIBIT 5(a)
AMENDMENT NO. 1
TO
MASTER INVESTMENT ADVISORY AGREEMENT
This amendment dated as of ______________, 1997, amends the Master
Investment Advisory Agreement (the "Agreement"), dated February 28, 1997,
between AIM Variable Insurance Funds, Inc., a Maryland corporation, and A I M
Advisors, Inc., a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the parties desire to amend the Agreement to add four new
portfolios, AIM V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I.
Capital Development Fund and AIM V.I. High Yield Fund;
NOW, THEREFORE, the parties agree as follows:
1. Appendix A to the Agreement is hereby deleted in its entirety
and replaced with the following:
APPENDIX A
TO
MASTER INVESTMENT ADVISORY AGREEMENT
OF
AIM VARIABLE INSURANCE FUNDS, INC.
The Company shall pay the Advisor as full compensation for all
services rendered and all facilities furnished hereunder, a management fee for
each Fund by applying the following annual rates to the average daily net
assets of each Fund for the calendar year computed in the manner used for the
determination of the net asset value of shares of each Fund.
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. GROWTH FUND
AIM V.I. GROWTH AND INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.65%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60%
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $150 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.80%
Over $150 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.625%
</TABLE>
<PAGE> 2
AIM V.I. BALANCED FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $150 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
Over $150 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $350 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
Over $350 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.625%
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.55%
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45%
</TABLE>
AIM V.I. HIGH YIELD FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $200 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.625%
Next $300 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.55%
Next $500 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
Amount over $1 billion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45%
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70%
</TABLE>
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ----
<S> <C>
First $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40%
Over $250 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35%
</TABLE>
<PAGE> 3
2. In all other respects, the Agreement is hereby confirmed and remains
in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers on the date first written above.
Date: , 1997
-----------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
-------------------------- ------------------------------
Assistant Secretary President
(SEAL)
A I M ADVISORS, INC.
Attest: By:
-------------------------- ----------------------------
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 6(a)
AMENDMENT NO. 1
TO
MASTER DISTRIBUTION AGREEMENT
The Master Distribution Agreement (the "Agreement"), dated as of
February 28, 1997 by and between AIM Variable Insurance Funds, Inc., a Maryland
corporation and A I M Distributors, Inc., a Delaware corporation, is hereby
amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with
the following:
"SCHEDULE A
TO
MASTER DISTRIBUTION AGREEMENT
OF
AIM VARIABLE INSURANCE FUNDS, INC.
o AIM V.I. Aggressive Growth Fund
o AIM V.I. Balanced Fund
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Capital Development Fund
o AIM V.I. Diversification Income Fund
o AIM V.I. Global Utilities Fund
o AIM V.I. Government Securities Fund
o AIM V.I. Growth Fund
o AIM V.I. Growth and Income Fund
o AIM V.I. High Yield Fund
o AIM V.I. International Equity Fund
o AIM V.I. Money Market Fund
o AIM V.I. Value Fund"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Dated: , 1997
----------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
-------------------------- ------------------------------------
Assistant Secretary President
A I M DISTRIBUTORS, INC.
Attest: By:
-------------------------- ------------------------------------
Assistant Secretary President
<PAGE> 1
EXHIBIT 7(c)
DEFERRED COMPENSATION AGREEMENT
SUMMARY
Your Deferred Compensation Agreement (the "Agreement") allows
you to defer some or all of your annual trustee's fees otherwise payable by the
Funds. Deferred fees are deemed invested in certain mutual funds selected by
you. The deferral is pre-tax, and the deferred amount and the credited gains,
losses and income are not subject to tax until paid out to you.
Your deferrals (and investment experience) are posted to a
bookkeeping account maintained by the Funds in your name. In order for you to
enjoy the tax deferral, the payments due under the Agreement will be paid from
the Funds' general assets, and you are considered a general unsecured creditor
of the Funds; you may not transfer your right to receive payments under the
Agreement to any other person, nor may you pledge that right to secure any debt
or other obligation; finally, an election to defer must be made in writing
before the first day of the calendar year for which the fees are earned (the
"Election Date") and elections can be changed only prospectively, effective for
the next calendar year.
An important change has been made to your Agreement to give
you greater flexibility to select the time and method of payment of amounts
that you defer: for amounts previously deferred and for future elections you
now designate a specific Payment Date and payment method which generally may be
changed with at least one year's advance notice.
PAYMENT DATE ELECTION
Deferred fees (and the income, gains and losses credited
during the deferral period) generally will be paid out as elected by you in
installments or a single sum in cash within 30 days of the Payment Date
elected. (For payments in connection with your termination of service as a
trustee, see below.)
Deferrals must be for a minimum two year period (unless your
retirement date under the Retirement Plan is earlier). Thus, the Payment Date
may be the first day of any calendar quarter that follows the second
anniversary of the applicable Election Date or your retirement date. Thus, fees
previously deferred and fees payable for the calendar year beginning January 1,
1997 may be deferred to the first day of any calendar quarter in any year from
1999.
EXTENDING A PAYMENT DATE
At least one year prior to any Payment Date, you may extend
that Date, provided that the additional period of deferral is at least two
years. You may make this change in Payment Date only once.
-1-
<PAGE> 2
PAYMENT METHOD
The value of your deferrals (based on your election as to how
your deferral account is to be considered invested) will be paid in cash, in
one lump sum or in annual installments (over a period not to exceed 10 years)
as you select at the time you select your Payment Date. You may change this
election, but the change will not be given effect unless it is made at least
one year before your Payment Date or your ceasing to be a trustee (whichever
occurs first). This one year requirement is waived in the case of your death
(see Termination of Service, below).
TERMINATION OF SERVICE
Upon your death, your account under the Agreement will be paid
out as elected by you in installments or in a single sum in cash as soon as
practicable. Payment will be made to your designated Beneficiary or
Beneficiaries or to your estate if there is no surviving Beneficiary.
Upon termination of your service as trustee for any reason
other than death or your retirement (as defined in the Retirement Plan), your
account will be paid to you as a single sum (or in installments if you had
timely elected that method) in cash within three months following the end of
the fiscal year in which you terminate, regardless of the Payment Dates you
elected.
-2-
<PAGE> 3
DEFERRED COMPENSATION AGREEMENT
-------------------------------
AGREEMENT, made on this __ day of _______, 19__, by and
between the registered open-end investment companies listed on Appendix A
hereto (the "Funds"), and
________________________________________________________________ (the
"Director") residing at ___________________________________________________.
WHEREAS, the Funds and the Director have entered into
agreements pursuant to which the Director will serve as a director/trustee of
the Funds; and
WHEREAS, if the Funds and the Director have previously entered
into an additional agreement whereby the Funds will provide to the Director a
vehicle under which the Director can defer receipt of directors' fees payable
by the Funds and now desire to amend and restate such agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Director hereby
agree as follows:
1. DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions. Unless a different meaning is plainly implied by
the context, the following terms as used in this Agreement shall have the
following meanings:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after the death
of the Director.
(b) "Boards of Directors" shall mean the respective
Boards of Directors of the Funds.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of directors'
fees paid by each of the Funds to the Director during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or
amounts of the Director's Compensation deferred under the provisions of Section
3 of this Agreement.
-1-
<PAGE> 4
(f) "Deferral Accounts" shall mean the accounts
maintained to reflect the Director's Compensation Deferrals made pursuant to
Section 3 hereof (or pursuant to any prior agreement) and any other credits or
debits thereto.
(g) "Deferral Year" shall mean each calendar year during
which the Director makes, or is entitled to make, Compensation Deferrals under
Section 3 hereof.
(h) "Retirement" shall have the same meaning as set forth
under the Retirement Plan.
(i) "Retirement Plan" shall mean the "AIM Funds
Retirement Plan for Eligible Directors/Trustees."
(j) "Valuation Date" shall mean the last business day of
each calendar year and any other day upon which the Funds makes valuations of
the Deferral Accounts.
1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.
1.3 Directors and Trustees. Where appearing in this Agreement,
"Director" shall also refer to "Trustee" and "Board of Directors" shall also
refer to "Board of Trustees."
1.4 Headings. The headings and sub-headings in this Agreement are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is drafted,
and shall be construed, as a separate agreement between the Director and each
of the Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
--------------------------------------------------------
2.1 Commencement of Compensation Deferrals. The Director may
elect, on a form provided by, and submitted to, the Presidents of the
respective Funds, to commence Compensation Deferrals under Section 3 hereof for
the period beginning on the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Presidents of the Funds.
2.2 Termination of Deferrals. The Director shall not be eligible
to make Compensation Deferrals after the earliest of the following dates:
(a) The date on which he ceases to serve as a Director of
all of the Funds; or
(b) The effective date of the termination of this
Agreement.
-2-
<PAGE> 5
3. COMPENSATION DEFERRALS
----------------------
3.1 Compensation Deferral Elections.
(a) On or prior to the first day of any Deferral Year,
the Director may elect, on the form described in Section 2.1 hereof, to defer
the receipt of all or a portion of his Compensation for such Deferral Year.
Such writing shall set forth the amount of such Compensation Deferral (in whole
percentage amounts). Such election shall continue in effect for all subsequent
Deferral Years unless it is canceled or modified as provided below.
(b) Compensation Deferrals shall be withheld from each
payment of Compensation by the Funds to the Director based upon the percentage
amount elected by the Director under Section 3.1(a) hereof.
(c) The Director may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Presidents
of the Funds a revised Compensation Deferral election form. Such change will
be effective as of the first day of the Deferral Year following the date such
revision is submitted to the Presidents of the Funds.
3.2 Valuation of Deferral Account.
(a) Each Fund shall establish a bookkeeping Deferral
Account to which will be credited an amount equal to the Director's
Compensation Deferrals under this Agreement made with respect to Compensation
earned from each such Fund. Compensation Deferrals shall be allocated to the
Deferral Accounts on the first business day following the date such
Compensation Deferrals are withheld from the Director's Compensation. As of
the date of this Agreement, the Deferral Accounts also shall be credited with
the amounts credited to the Director under each other outstanding elective
deferred compensation agreement entered into by and between the Funds and the
Director which is superseded by this Agreement pursuant to Section 6.11 hereof.
The Deferral Accounts shall be debited to reflect any distributions from such
Accounts. Such debits shall be allocated to the Deferral Accounts as of the
date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Accounts are invested in the manner
set forth under Section 3.3, below) attributable to the period following the
next preceding Valuation Date shall be credited to and/or deducted from the
Director's Deferral Accounts.
3.3 Investment of Deferral Account Balances.
(a) (1) The Director may select, from various options
made available by the Funds, the investment media in which all or part of his
Deferral Accounts shall be deemed to be invested.
-3-
<PAGE> 6
(2) The Director shall make an investment
designation on a form provided by the Presidents of the Funds which shall
remain effective until another valid direction has been made by the Director as
herein provided. The Director may amend his investment designation by giving
written direction to the Presidents of the Funds in such manner and at such
time as the Funds may permit, but no less frequently than quarterly on thirty
(30) days' notice prior to the end of a calendar quarter. A timely change to a
Director's investment designation shall become effective as soon as practicable
following receipt by the Presidents of the Funds.
(3) The investment media deemed to be made
available to the Director, and any limitation on the maximum or minimum
percentages of the Director's Deferral Accounts that may be invested any
particular medium, shall be the same as from time-to-time communicated to the
Director by the Presidents of the Funds.
(b) Except as provided below, the Director's Deferral
Accounts shall be deemed to be invested in accordance with his investment
designations, provided such designations conform to the provisions of this
Section. If -
(1) the Director does not furnish the Presidents
of the Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Director are unclear,
then the Director's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force or effect until such time as the Director
shall provide the Presidents of the Funds with complete investment
instructions. Notwithstanding the above, the Boards of Directors, in their
sole discretion, may disregard the Director's election and determine that all
Compensation Deferrals shall be deemed to be invested in a fund determined by
the Boards of Directors. In the event that any fund under which any portion of
the Director's Deferral Accounts is deemed to be invested ceases to exist, such
portion of the Deferral Accounts thereafter shall be held in the successor to
such fund, subject to subsequent deemed investment elections.
The Fund shall provide an annual statement to the Director
showing such information as is appropriate, including the aggregate amount in
the Deferral Accounts, as of a reasonably current date.
-4-
<PAGE> 7
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNTS
------------------------------------
4.1 Payment Date and Methods.
(a) Designation of Date. Each deferral direction given
pursuant to Section 3.1 shall include designation of the Payment Date for the
value of the amount deferred. Such Payment Date shall be the first day of any
calendar quarter, subject to the limitation set forth in paragraph 4.1(c).
(b) Extension Date. At least one year before the Payment
Date initially designated pursuant to paragraph 4.1(a) above, the Participant
may irrevocably elect to extend such Payment Date to the first day of any
calendar quarter, subject to the limitation set forth in paragraph 4.1(c).
(c) Limitation. The Director shall select a Payment Date
(or extended Payment Date) that is no sooner than the earlier of (i) the
January 1 that follows the second anniversary of the Participant's deferral
election made pursuant to paragraph 4.1(a) or (b) or (ii) the January 1 of the
year after the Participant's Retirement.
(d) Methods of Payment. Distributions from the
Director's Deferral Accounts shall be paid in cash in a single sum unless the
Participant elects, at the time a Payment Date is selected pursuant to
paragraph 4.1(a) or 4.1(b), to receive the amount payable in generally equal
quarterly installments over a period not to exceed ten (10) years. In
addition, as least one year before the Payment Date, a Director may change the
method of payment previously selected.
(e) Irrevocability. Except as provided in paragraph
4.1(b) and 4.1(d), a designation of a Payment Date and an election of
installment payments shall be irrevocable; provided, however, that payment
shall be made or begin on a different date as follows:
(1) Upon the Director's death, payment shall be
made in accordance with Section 4.2,
(2) Upon the Director's ceasing to serve as a
director of all of the Funds for reasons other than death or Retirement,
payment shall be made or begin within three months after the end of the
calendar year in which such termination occurs in accordance with the method
elected by the Director pursuant to paragraph 4.1(d) provided the designation
of such method had been made at least one year before such termination occurred,
except that the Boards of Directors, in their sole discretion, may accelerate
the distribution of such Deferral Accounts,
(3) Upon termination of this Agreement, payment
shall be made in accordance with Section 5.2, and
-5-
<PAGE> 8
(4) In the event of the liquidation, dissolution
or winding up of a Fund or the distribution of all or substantially all of a
Fund's assets and property relating to one or more series of its shares to
the shareholders of such series (for this purpose a sale, conveyance or
transfer of a Fund's assets to a trust, partnership, association or
corporation in exchange for cash, shares or other securities with the
transfer being made subject to, or with the assumption by the transferee of,
the liabilities of the Fund shall not be deemed a termination of the Fund or
such a distribution), all unpaid balances of the Deferral Accounts related to
such Fund as of the effective date thereof shall be paid in a lump sum on
such effective date.
4.2 Death Prior to Complete Distribution of Deferral Accounts.
Upon the death of the Director prior to the commencement of the distribution of
the amounts credited to his Deferral Accounts, the balance of such Accounts
shall be distributed to his Beneficiary in accordance with the method of
payment selected pursuant to paragraph 4.1(d), commencing as soon as practicable
after the Director's death. In the event of the death of the Director after
the commencement of such distribution, but prior to the complete distribution
of his Deferral Accounts, the balance of the amounts credited to his Deferral
Accounts shall be distributed to his Beneficiary over the remaining period
during which such amounts were distributable to the Director under Section 4.1
hereof. Notwithstanding the above, the Boards of Directors, in their sole
discretion, may accelerate the distribution of the Deferral Accounts.
4.3 Designation of Beneficiary. For purposes of Section 4.2
hereof, the Director's Beneficiary shall be the person or persons so designated
by the Director in a written instrument submitted to the Presidents of the
Funds. In the event the Director fails to properly designate a Beneficiary,
his Beneficiary shall be the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Director: the Director's (1) surviving spouse or (2) estate.
4.4 Payments Due Missing Persons. The Funds shall make a
reasonable effort to locate all persons entitled to benefits under this
Agreement. However, notwithstanding any provisions of this Agreement to the
contrary, if, after a period of five (5) years from the date such benefit shall
be due, any such persons entitled to benefits have not been located, their
rights under this Agreement shall stand suspended. Before this provision
becomes operative, the Funds shall send a certified letter to all such persons
to their last known address advising them that their benefits under this
Agreement shall be suspended. Any such suspended amounts shall be held by the
Funds for a period of three (3) additional years (or a total of eight (8) years
from the time the benefits first become payable) and thereafter, if unclaimed,
such amounts shall be forfeited.
-6-
<PAGE> 9
5. AMENDMENTS AND TERMINATION
--------------------------
5.1 Amendments.
(a) The Funds and the Director may, by a written
instrument signed by, or on behalf of, such parties, amend this Agreement at
any time and in any manner.
(b) The Funds reserve the right to amend, in whole or in
part, and in any manner, any or all of the provisions of this Agreement by
action of their Boards of Directors for the purposes of complying with any
provision of the Code or any other technical or legal requirements, provided
that:
(1) No such amendment shall make it possible for
any part of the Director's Deferral Accounts to be used for, or diverted to,
purposes other than for the exclusive benefit of the Director or his
Beneficiaries, except to the extent otherwise provided in this Agreement;
and
(2) No such amendment may reduce the amount of
the Director's Deferral Accounts as of the effective date of such amendment.
5.2 Termination. The Director and the Funds may, by written
instrument signed by, or on behalf of, such parties, terminate this Agreement
at any time. In the event of the termination of this Agreement, the Boards of
Directors, in their sole discretion, may choose to pay out the Director's
Deferral Accounts prior to the designated Payment Dates. Otherwise, following
a termination of this Agreement, such Accounts shall continue to be maintained
in accordance with the provisions of this Agreement until the time they are
paid out.
6. MISCELLANEOUS.
--------------
6.1 Rights of Creditors.
(a) This Agreement is unfunded. Neither the Director nor
any other persons shall have any interest in any specific asset or assets of
the Funds by reason of any Deferral Accounts hereunder, nor any rights to
receive distribution of his Deferral Accounts except and as to the extent
expressly provided hereunder. The Funds shall not be required to purchase,
hold or dispose of any investments pursuant to this Agreement; however, if in
order to cover their obligations hereunder the Funds elect to purchase any
investments the same shall continue for all purposes to be a part of the
general assets and property of the Funds, subject to the claims of their
general creditors and no person other than the Funds shall by virtue of the
provisions of this Agreement have any interest in such assets other than an
interest as a general creditor.
-7-
<PAGE> 10
(b) The rights of the Director and the Beneficiaries to
the amounts held in the Deferral Accounts are unsecured and shall be subject to
the creditors of the Funds. With respect to the payment of amounts held under
the Deferral Accounts, the Director and his Beneficiaries have the status of
unsecured creditors of the Funds. This Agreement is executed on behalf of the
Funds by an officer, or other representative, of the Funds as such and not
individually. Any obligation of the Funds hereunder shall be an unsecured
obligation of the Funds and not of any other person.
6.2 Agents. The Funds may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as it deems
necessary to perform their duties under this Agreement. The Funds shall bear
the cost of such services and all other expenses they incur in connection with
the administration of this Agreement.
6.3 Liability and Indemnification. Except for their own gross
negligence, willful misconduct or willful breach of the terms of this
Agreement, the Funds shall be indemnified and held harmless by the Director
against liability or losses occurring by reason of any act or omission of the
Funds or any other person.
6.4 Incapacity. If the Funds shall receive evidence satisfactory
to them that the Director or any Beneficiary entitled to receive any benefit
under the Agreement is, at the time when such benefit becomes payable, a minor,
or is physically or mentally incompetent to receive such benefit and to give a
valid release therefor, and that another person or an institution is then
maintaining or has custody of the Director or Beneficiary and that no guardian,
committee or other representative of the estate of the Director or Beneficiary
shall have been duly appointed, the Funds may make payment of such benefit
otherwise payable to the Director or Beneficiary to such other person or
institution, including a custodian under a Uniform Gifts to Minors Act, or
corresponding legislation (who shall be an adult, a guardian of the minor or a
trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
6.5 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.
6.6 Governing Law. This Agreement is made and entered into in the
State of Texas and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Texas.
6.7 Nonguarantee of Directorship. Nothing contained in this
Agreement shall be construed as a contract or guarantee of the right of the
Director to be, or remain as, a director of any of the Funds or to receive any,
or any particular rate of, Compensation from any of the Funds.
-8-
<PAGE> 11
6.8 Counsel. The Funds may consult with legal counsel with
respect to the meaning or construction of this Agreement, their obligations or
duties hereunder or with respect to any action or proceeding or any question of
law, and they shall be fully protected with respect to any action taken or
omitted by them in good faith pursuant to the advice of legal counsel.
6.9 Spendthrift Provision. The Director's and Beneficiaries'
interests in the Deferral Accounts may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred,
alienated, assigned nor become subject to execution, garnishment or
attachment and any attempt to do so by any person shall render the Deferral
Accounts immediately forfeitable.
6.10 Notices. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight delivery service providing for a
signed return receipt, addressed to the Director at the home address set forth
in the Funds' records and to the Funds at the address set forth on the first
page of this Agreement, provided that all notices to the Funds shall be
directed to the attention of the Presidents of the Funds or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
6.11 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Director with respect to the payment of
non-qualified elective deferred compensation by the Fund to the Director.
Effective as of the date hereof, this Agreement replaces, and supersedes, all
other non-qualified elective deferred compensation agreements by and between
the Director and the Funds.
6.12 Interpretation of Agreement. Interpretations of, and
determinations (including factual determinations) related to, this Agreement
made by the Funds in good faith, including any determinations of the amounts of
the Deferral Accounts, shall be conclusive and binding upon all parties; and
the Funds shall not incur any liability to the Director for any such
interpretation or determination so made or for any other action taken by it in
connection with this Agreement in good faith.
6.13 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the Funds and their successors and assigns
and to the Director and his heirs, executors, administrators and personal
representatives.
6.14 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
-9-
<PAGE> 12
6.15 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
-10-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
The Funds
________________________ By:_________________________
Witness Name:
Title:
________________________ ____________________________
Witness Director
-11-
<PAGE> 14
APPENDIX A
----------
AIM ADVISOR FUNDS, INC.
AIM EQUITY FUNDS, INC.
AIM FUNDS GROUP
AIM INTERNATIONAL FUNDS, INC.
AIM INVESTMENT SECURITIES FUNDS
AIM SUMMIT FUND, INC.
AIM TAX-EXEMPT FUNDS, INC.
AIM VARIABLE INSURANCE FUNDS, INC.
SHORT-TERM INVESTMENTS CO.
SHORT-TERM INVESTMENTS TRUST
TAX-FREE INVESTMENTS CO.
<PAGE> 15
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, I hereby make the following elections:
Deferral of Compensation
------------------------
Starting with Compensation to be paid to me with respect to
services provided by me to the AIM Funds after the date this election Form is
received by the AIM Funds, I hereby elect that 50 percent (50%) of my
Compensation (as defined under the Agreement) be reduced and that the Fund
establish a bookkeeping account credited with amounts equal to the amount so
reduced (the "Deferral Account"). The Deferral Account shall be further
credited with income equivalents as provided under the Agreement. I understand
that this election will remain in effect with respect to Compensation I earn in
subsequent years unless I modify or revoke it. I further understand that such
modification or revocation will be effective only prospectively and will apply
commencing with the Compensation I earn in the calendar year that begins after
the change is received by you.
Payment Date
------------
I hereby designate ________ 1 (select the first month in any
calendar quarter) in the year ______ (select a year that is at least two years
after the year this election is made) as the Payment Date for the amounts
credited to my Deferral Account pursuant to the election made above. If my
Retirement (as defined in the Agreement) occurs sooner, I o do o do not (check
the appropriate box) want payment of such amounts to commence effective the
January 1 following my Retirement. I understand that amounts credited to my
Deferral Account may be paid to me prior to the Payment Date as provided in the
Agreement.
-5-
<PAGE> 16
Payment Method
--------------
I hereby elect to receive the amounts credited to my Deferral
Account in (check one)
o a single payment in cash
o quarterly installments for a period of ____ years (select no more
than 10 years)
o annual installments for a period of ____ (select no more than 10
years)
beginning within 30 days following the payment date selected above.
I understand that the amounts credited to my Deferral Account
shall remain the general assets of the AIM Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of the AIM Funds. I
may not sell, encumber, pledge, assign or otherwise alienate the amounts
credited to my Deferral Account.
I hereby agree that the terms of the Agreement are
incorporated herein and are made a part hereof. Dated as of the day and year
first above written.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
-6-
<PAGE> 17
DEFERRED COMPENSATION AGREEMENT
BENEFICIARY DESIGNATION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of _____________ by and between the undersigned and the
AIM Funds, I hereby make the following beneficiary designations:
I. Primary Beneficiary
-------------------
I hereby appoint the following as my Primary Beneficiary(ies)
to receive at my death the amounts credited to my Deferral Account under the
Agreement. In the event I am survived by more than one Primary Beneficiary,
such Primary Beneficiaries shall share equally in such amounts unless I
indicate otherwise on an attachment to this form:
_________________________________________________________________
Name Relationship
_________________________________________________________________
Address
_________________________________________________________________
City State Zip
-1-
<PAGE> 18
II. Secondary Beneficiary
---------------------
In the event I am not survived by any Primary Beneficiary, I
hereby appoint the following as Secondary Beneficiary(ies) to receive death
benefits under the Agreement. In the event I am survived by more than one
Secondary Beneficiary, such Secondary Beneficiaries shall share equally unless
I indicate otherwise on an attachment to this form:
_________________________________________________________________
Name Relationship
_________________________________________________________________
Address
_________________________________________________________________
City State Zip
I understand that I may revoke or amend the above designations
at any time. I further understand that if I am not survived by a Primary or
Secondary Beneficiary, my Beneficiary shall be as set forth under the
Agreement.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
-2-
<PAGE> 1
EXHIBIT 9(c)
MASTER ADMINISTRATIVE SERVICES AGREEMENT, AS AMENDED
This MASTER ADMINISTRATIVE SERVICES AGREEMENT, as amended (the
"Agreement") is made this 1st day of May, 1998 by and between A I M ADVISORS,
INC., a Delaware corporation (the "Administrator"), and AIM VARIABLE INSURANCE
FUNDS, INC., a Maryland corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Board of Directors of the Company has authorized the
issuance of separate series of shares representing interests in thirteen
investment portfolios: the AIM V.I. Aggressive Growth Fund, AIM V.I. Balanced
Fund, AIM V.I. Capital Appreciation Fund, AIM V.I. Capital Development Fund,
AIM V.I. Diversified Income Fund, AIM V.I. Government Securities Fund, AIM
V.I. Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I. High Yield Fund,
AIM V. I. International Equity Fund, AIM V.I. Money Market Fund, AIM V.I.
Global Utilities Fund and AIM V.I. Value Fund (the "Funds"); and
WHEREAS, the Company, on behalf of the Funds, has retained the
Administrator to provide investment advisory services pursuant to a Master
Investment Advisory Agreement which provides that the Administrator may perform
(or arrange for the performance of) accounting, shareholder servicing and other
administrative services as well as investment advisory services to the Funds,
and that the Administrator may receive reasonable compensation or may be
reimbursed for its costs in providing such additional services, upon the
request of the Board of Directors and upon a finding by the Board of Directors
that the provision of such services is in the best interest of the Company and
its shareholders; and
WHEREAS, the Board of Directors has found that the provision of such
administrative services is in the best interest of the Funds and their
shareholders, and has requested that the Administrator perform such services;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Administrator hereby agrees to provide, or arrange for the
provision of, any or all of the following services by the Administrator or its
affiliates:
(a) the services of a principal financial officer of the Company
(including related office space, facilities and equipment) whose
normal duties consist of maintaining the financial accounts and books
and records of the Company and the Funds, including the review of
daily net asset value calculations and the preparation of tax returns;
and the services (including related office space, facilities and
equipment) of any of the personnel operating under the direction of
such principal financial officer; and
<PAGE> 2
(b) such other administrative services as may be furnished from time
to time by the Administrator to the Company or the Funds at the
request of the Company's Board of Directors.
2. The Administrator will provide, or at its expense will assure
that the Insurance Company or Qualified Plan (that has entered into a
Participation Agreement with the Company) will provide the following
administrative services:
(a) Establish procedures to ensure compliance with the conditions of
the Company's Mixed and Shared Funding Order.
(b) Provide assistance (clerical, administrative and other) in the
negotiation of participation agreements between the Company, on behalf
of the various Funds and Insurance Companies or Qualified Plans.
(c) Prepare the various forms of prospectus, financial reports and
proxy statements as the Company has agreed to provide in the
participation agreements to which it is a party.
(d) Maintain master accounts with the Fund and such accounts will be
in the name of the Insurance Company or the Qualified Plan (or their
nominees) as the record owners of shares on behalf of the Accounts.
(e) Determine the net amount to be transmitted to the Account
maintained by the Insurance Company or Qualified Plan as a result of
redemptions of Fund shares based on Contractowners' redemption
requests. Disburse or credit to the Accounts all proceeds of
redemptions of shares of the Fund. Notify the Fund of the cash
required to meet payments.
(f) Determine the net amount to be transmitted to the Fund as a
result of purchases of Fund shares based on Contractowners' purchase
payments and transfers allocated to the Accounts investing in the
Fund. Transmit net purchase payment receipts to the Fund's custodian.
(g) Distribute (or arrange for the distribution) to Contractowners
copies of the Fund's prospectus, proxy materials, periodic fund
reports to Contractowners and other materials that the Fund is
required by law or otherwise to provide to its shareholders.
(h) Maintain and preserve all records as required by law to be
maintained and preserved in connection with providing administrative
services including, but not limited to recording the issuance of Fund
shares, recording transfers and redemptions, and reconciling and
balancing the Accounts.
(i) Provide Contractowner services including, but not limited to,
advice with respect to inquiries related to the Fund (not including
information about performance or related to sales) and communicating
with Contractowners about Fund (and Separate Account) performance.
3. The services provided hereunder shall at all times be subject
to the direction and supervision of the Company's Board of Directors.
2
<PAGE> 3
4. As full compensation for the services performed and the
facilities furnished by or at the direction of the Administrator as described
under Item 1, above, the Funds shall reimburse the Administrator for expenses
incurred by them or their affiliates in accordance with the methodologies
established from time to time by the Company's Board of Directors. Such
amounts shall be paid to the Administrator on a quarterly basis.
5. As full compensation for the services performed under Item 2,
above, the Funds shall pay AIM an amount up to 0.25% of the average net asset
value of each Fund in excess of the net asset value of each such Fund on April
30, 1998, provided that the fee will not exceed an amount in excess of AIM's
costs (including amounts charged by various Insurance Companies and Qualified
Plans pursuant to agreements with AIM in amounts up to 0.25% of net assets
attributable to separate accounts of such Insurance Companies or Qualified
Plans) in providing or causing others to provide such services. Such amounts
shall be paid to the Administrator on a quarterly basis. To the extent that
the Administrator's costs exceed 0.25%, such excess amount shall be borne by
the Administrator and the Administrator will not seek reimbursement at a later
time for such excess amounts on services previously rendered if the
Administrator's costs are later reduced to an amount below 0.25%.
6. The Administrator shall not be liable for any error of
judgment or for any loss suffered by the Company or the Funds in connection
with any matter to which this Agreement relates, except a loss resulting from
the Administrator's willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under this Agreement.
7. The Company and the Administrator each hereby represent and
warrant, but only as to themselves, that each has all requisite authority to
enter into, execute, deliver and perform its obligations under this Agreement
and that this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
8. Nothing in this Agreement shall limit or restrict the rights
of any director, officer or employee of the Administrator who may also be a
director, officer or employee of the Company to engage in any other business or
to devote his time and attention in part to the management or other aspects of
any business, whether of a similar or a dissimilar nature, nor limit or
restrict the right of the Administrator to engage in any other business or to
render services of any kind to any other corporation, firm, individual or
association.
9. This Agreement shall continue in effect until May 1, 2000 and
shall continue in effect from year to year thereafter; provided that such
continuance is specifically approved at least annually:
(a) (i) by the Company's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of each of the
Funds (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Company's
directors who are not parties to this Agreement or interested persons
of a party to this Agreement, by votes cast in person at a meeting
specifically called for such purpose.
3
<PAGE> 4
This Agreement shall terminate automatically in the event of its
assignment (as defined in Section 2(a) (4) of the 1940 Act) or in the event of
termination of the Master Investment Advisory Agreement relating to the Funds
between the Company and the Administrator.
10. This Agreement may be amended or modified, but only by a
written instrument signed by both the Company and the Administrator.
11. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (a) to the Administrator at Eleven Greenway
Plaza, Suite 1919, Houston, Texas 77046, Attention: President, with a copy to
the General Counsel, or (b) to the Company at Eleven Greenway Plaza, Suite
1919, Houston, Texas 77046, Attention: President, with a copy to the General
Counsel.
12. This Agreement contains the entire agreement between the
parties hereto and supersedes all prior agreements, understandings and
arrangements with respect to the subject matter hereof.
13. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
A I M ADVISORS, INC.
Attest: By:
----------------------------- -------------------------------
Assistant Secretary President
(SEAL)
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
----------------------------- -------------------------------
Assistant Secretary President
(SEAL)
4
<PAGE> 1
EXHIBIT 9(h)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
PRUDENTIAL INSURANCE COMPANY OF AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
AND
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES, L.L.C.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Prudential and the Underwriter To Provide Documents; Information About AVIF . . . . . . . . . . . . 10
4.6 AVIF or AIM To Provide Documents; Information About Prudential and the Underwriter . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Notice to Prudential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Of AVIF and AIM by Prudential and the Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Of Prudential and the Underwriter by AVIF and AIM . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of April,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation
("AIM"); Prudential Insurance Company of America ("Prudential"), a New Jersey
life insurance company, on behalf of itself and each of its segregated asset
accounts listed in Schedule A hereto, as the parties hereto may amend from time
to time (each, an "Account," and collectively, the "Accounts"); and Prudential
Investment Management Services, L.L.C. ("PIMS"), a New Jersey corporation and
the principal underwriter of the Contracts and Policies referred to below
("Underwriter") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 (the "1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ( the "NASD"); and
WHEREAS, AIM currently serves as the distributor for the Shares; and
WHEREAS, Prudential will be the issuer of certain variable annuity
contracts ("Contracts") and/or variable life insurance policies ("Policies") as
set forth on Schedule A hereto, as the Parties hereto may amend from time to
time, which Contracts and Policies (hereinafter collectively, the "Policies"),
if required by applicable law, will be registered under the 1933 Act; and
WHEREAS, Prudential will fund the Policies through the Accounts, each
of which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
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<PAGE> 5
WHEREAS, Prudential will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Policies will be registered as securities under the
1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Prudential intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Policies; and
WHEREAS, the Underwriter is a broker-dealer registered with the SEC
under the 1934 Act and a member in good standing of the NASD;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Prudential for
purchase and redemption at net asset value and with no sales charges, subject
to the terms and conditions of this Agreement. The Board of Directors of AVIF
may refuse to sell Shares of any Fund to any person, or suspend or terminate
the offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other
Funds to provide additional funding media for the Policies, or to delete,
combine, or modify existing Funds, by amending Schedule A hereto. Upon such
amendment to Schedule A, any applicable reference to a Fund, AVIF, or its
Shares herein shall include a reference to any such additional Fund. Schedule
A, as amended from time to time, is incorporated herein by reference and is a
part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that Shares of each Fund have
been and will be sold only to those entities listed under Section 817(h)(4) of
the Code and the regulations thereunder, as such Code Section and the
regulations may be amended from time to time.
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<PAGE> 6
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best
efforts to provide Prudential with the net asset value per Share for each Fund
by 5:30 p.m. Central Time on each Business Day. As used herein, "Business Day"
shall mean any day on which (i) the New York Stock Exchange is open for regular
trading, and (ii) AVIF calculates the Fund's net asset value.
(b) Prudential will use the data provided by AVIF each
Business Day pursuant to paragraph (a) immediately above to calculate Account
unit values and to process transactions that receive that same Business Day's
Account unit values. Prudential will perform such Account processing the same
Business Day, and will place corresponding orders to purchase or redeem Shares
with AVIF by 9:00 a.m. Central Time the following Business Day; provided,
however, that AVIF shall provide additional time to Prudential in the event
that AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a)
immediately above. Such additional time shall be equal to the additional time
that AVIF takes to make the net asset values available to Prudential.
(c) Each order to purchase or redeem Shares will
separately describe the amount of Shares of each Fund to be purchased, redeemed
or exchanged and will not be netted; provided, however, with respect to payment
of the purchase price by Prudential and of redemption proceeds by AVIF,
Prudential and AVIF shall net purchase and redemption orders with respect to
each Fund and shall transmit one (1) net payment per Fund in accordance with
Section 2.2, below. Each order to purchase or redeem Shares shall also specify
whether the order results from purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or requests for other transactions
under Policies (collectively, "Policy transactions").
(d) If AVIF provides materially incorrect Share net asset
value information, Prudential shall be entitled to an adjustment to the number
of Shares purchased or redeemed to reflect the correct net asset value per
Share. Any material error in the calculation or reporting of net asset value
per Share, dividend or capital gain information shall be reported promptly upon
discovery to Prudential.
2.2 TIMELY PAYMENTS.
Prudential will wire payment for net purchases to a custodial
account designated by AVIF by 1:00 p.m. Central Time on the same day as the
order for Shares is placed, to the extent practicable. AVIF will wire payment
for net redemptions to an account designated by Prudential by 1:00 p.m. Central
Time on the same day as the Order is placed, to the extent practicable, but in
any event within five (5) calendar days after the date the order is placed in
order to enable Prudential to pay redemption proceeds within the time specified
in Section 22(e) of the 1940 Act or such shorter period of time as may be
required by law.
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<PAGE> 7
2.3 APPLICABLE PRICE.
(a) Share purchase and redemption orders that result from
Policy transactions and that Prudential receives prior to the close of regular
trading on the New York Stock Exchange on a Business Day will be executed at
the net asset values of the appropriate Funds next computed after receipt by
AVIF or its designated agent of the orders. For purposes of this Section
2.3(a), the Underwriter shall be the designated agent of AVIF for receipt of
orders relating to Policy transactions on each Business Day and receipt by
such designated agent shall constitute receipt by AVIF; provided, that AVIF
receives notice of such orders by 9:00 a.m. Central Time on the next following
Business Day or such later time as computed in accordance with Section 2.1(b)
hereof.
(b) All other Share purchases and redemptions by
Prudential will be effected at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the order
therefor, and such orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice promptly to Prudential of any income
dividends or capital gain distributions payable on the Shares of any Fund.
Prudential hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-dividend
date net asset values until Prudential otherwise notifies AVIF in writing, it
being agreed by the Parties that the ex-dividend date and the payment date with
respect to any dividend or distribution will be the same Business Day.
Prudential reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry
only. Stock certificates will not be issued to Prudential. Shares ordered
from AVIF will be recorded in an appropriate title for Prudential, on behalf of
its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party
will bear all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a
management investment company under the 1940 Act and registering its Shares
under the 1933 Act, and keeping such registrations current and effective;
including, without limitation, the preparation of and filing with the SEC of
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<PAGE> 8
Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and
payment of all applicable registration or filing fees with respect to any of
the foregoing.
(b) Prudential will bear the cost of registering, to the
extent required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Policies under the 1933 Act and keeping
such registrations current and effective; including, without limitation, the
preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the
costs of preparing, filing with the SEC and setting for printing AVIF's
prospectus, statement of additional information and any amendments or
supplements thereto (collectively, the "AVIF Prospectus"), periodic reports to
shareholders, AVIF proxy material and other shareholder communications.
(b) Prudential will bear the costs of preparing, filing
with the SEC and setting for printing each Account's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "Account Prospectus"), any periodic reports to Policy owners, annuitants or
participants under the Policies (collectively, "Participants"), voting
instruction solicitation material, and other Participant communications.
(c) Prudential or the Underwriter will print in quantity
and deliver to existing Participants the documents described in Section 3.3(b)
above and the documents provided by AVIF in camera ready or computer diskette
form pursuant to Section 4.6(b) hereof. The costs of printing in quantity and
delivering to existing Participants such documents will be borne by Prudential.
3.4 OTHER (SALES-RELATED).
The Underwriter will bear the expenses of distributing Fund
Shares and the Policies. These expenses would include by way of illustration,
but are not limited to, the costs of printing and distributing to offerees the
AVIF Prospectus and periodic reports of AVIF. These costs would also include
the costs of preparing, printing, and distributing sales literature and
advertising relating to the Funds, as well as filing such materials with, and
obtaining approval from, the SEC, the NASD, any state insurance regulatory
authority, and any other appropriate regulatory authority, to the extent
required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable,
in arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
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<PAGE> 9
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is
currently qualified as a regulated investment company ("RIC") under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents
that it will qualify and maintain qualification of each Fund as a RIC. AVIF
will notify Prudential immediately upon having a reasonable basis for believing
that a Fund has ceased to so qualify or that it might not so qualify in the
future.
(b) AVIF represents that it will comply and maintain each
Fund's compliance with the diversification requirements set forth in Section
817(h) of the Code and Section 1.817-5(b) of the regulations under the Code.
AVIF will notify Prudential immediately upon having a reasonable basis for
believing that a Fund has ceased to so comply or that a Fund might not so
comply in the future.
(c) Prudential agrees that if the Internal Revenue
Service ("IRS") asserts in writing in connection with any governmental audit or
review of Prudential or, to Prudential's knowledge, of any Participant, that
any Fund has failed to comply with the diversification requirements of Section
817(h) of the Code or Prudential otherwise becomes aware of any facts that
could give rise to any claim against AVIF or its affiliates as a result of such
a failure or alleged failure:
(i) Prudential shall promptly notify AVIF of such
assertion or potential claim;
(ii) Prudential shall consult with AVIF as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(iii) Prudential shall use its best efforts to
minimize any liability of AVIF or its affiliates resulting
from such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations Section
1.817-5(a)(2), to the Commissioner of the IRS that such
failure was inadvertent;
(iv) Prudential shall permit AVIF, its affiliates
and their legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative or
judicial proceeding or contests (including judicial appeals
thereof) with the IRS, any Participant or any other claimant
regarding any claims that could give rise to liability to AVIF
or its affiliates as a result of such a failure or alleged
failure;
(v) any written materials to be submitted by
Prudential to the IRS, any Participant or any other claimant
in connection with any of the foregoing proceedings or
contests (including, without limitation, any such materials to
be submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by Prudential to
AVIF (together with any supporting information or analysis) at
least
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<PAGE> 10
ten (10) business days' prior to the day on which such
proposed materials are to be submitted, and (b) shall not be
submitted by Prudential to any such person without the express
written consent of AVIF which shall not be unreasonably
withheld;
(vi) Prudential shall provide AVIF or its
affiliates and their accounting and legal advisors with such
cooperation as AVIF shall reasonably request (including,
without limitation, by permitting AVIF and its accounting and
legal advisors to review the relevant books and records of
Prudential) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it pursuant to
the preceding clause or its assessment of the validity or
amount of any claim against its arising from such a failure or
alleged failure;
(vii) Prudential shall not with respect to any
claim of the IRS or any Participant that would give rise to a
claim against AVIF or its affiliates (a) compromise or settle
any claim, (b) accept any adjustment on audit, or (c) forego
any allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which shall
not be unreasonably withheld, provided that Prudential shall
not be required, after exhausting all administrative
penalties, to appeal any adverse judicial decision unless AVIF
or its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable basis
exists for taking such appeal; and provided further that the
costs of any such appeal shall be borne equally by the Parties
hereto; and
(viii) AVIF and its affiliates shall have no
liability as a result of such failure or alleged failure if
Prudential fails to comply with any of the foregoing clauses
(i) through (vii), and such failure could be shown to have
materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give
its written consent to any compromise or settlement of any claim or liability
hereunder, Prudential may, in its discretion, authorize AVIF or its affiliates
to act in the name of Prudential in, and to control the conduct of, such
conferences, discussions, proceedings, contests or appeals and all
administrative or judicial appeals thereof, and in that event AVIF or its
affiliates shall bear the fees and expenses associated with the conduct of the
proceedings that it is so authorized to control; provided that in no event
shall Prudential have any liability resulting from AVIF's refusal to accept the
proposed settlement or compromise with respect to any failure caused by AVIF.
As used in this Agreement, the term "affiliates" shall have the same meaning as
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
(d) Prudential represents and warrants that the Policies
currently are and will be treated as annuity, endowment, or life insurance
contracts under applicable provisions of the Code and that it will maintain
such treatment; Prudential will notify AVIF immediately upon having a
reasonable basis for believing that any of the Policies have ceased to be so
treated or that they might not be so treated in the future.
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<PAGE> 11
(e) Prudential represents and warrants that each Account
is a "segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Prudential will continue to meet such definitional
requirements, and it will notify AVIF immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or that they
might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF and AIM will use their best efforts to comply
with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by Prudential.
(b) Prudential represents and warrants that (i) it is an
insurance company duly organized, validly existing and in good standing under
the laws of the State of New Jersey and has full corporate power, authority and
legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under the New Jersey
Insurance Code and the regulations thereunder, and (iii) the Policies comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Maryland and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(d) AIM represents and warrants that it is a Delaware
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full power, authority and right to
execute, deliver and perform its duties and comply with the its obligations
under this Agreement.
(e) The Underwriter represents and warrants that it is a
New Jersey corporation duly organized, validly existing, and in good standing
under the laws of the State of New Jersey and has full power, authority, and
legal right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) Prudential and the Underwriter represent and warrant
that (i) interests in each Account pursuant to the Policies will be registered
under the 1933 Act to the extent required by the 1933 Act, (ii) the Policies
will be duly authorized for issuance and sold in compliance with all applicable
federal and state laws, including, without limitation, the 1933 Act, the 1934
Act, the 1940 Act and New Jersey law, (iii) each Account is and will remain
registered under the 1940 Act, to the extent required by the 1940 Act, (iv)
each Account does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, to the extent required,
(v) each Account's
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<PAGE> 12
1933 Act registration statement relating to the Policies, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) Prudential will
amend the registration statement for its Policies under the 1933 Act and for
its Accounts under the 1940 Act from time to time as required in order to
effect the continuous offering of its Policies or as may otherwise be required
by applicable law, and (vii) each Account Prospectus will at all times comply
in all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF and AIM represent and warrant that (i) Shares
sold pursuant to this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) AVIF is and will remain registered under the
1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the
registration statement for its Shares under the 1933 Act and itself under the
1940 Act from time to time as required in order to effect the continuous
offering of its Shares, (iv) AVIF does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933
Act registration statement, together with any amendments thereto, will at all
times comply in all material respects with the requirements of the 1933 Act and
rules thereunder, and (vi) AVIF Prospectus will at all times comply in all
material respects with the requirements of the 1933 Act and the rules
thereunder.
(c) AVIF will register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF and/or AIM will immediately notify Prudential of
(i) the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to AVIF's registration
statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC
for any amendment to such registration statement or AVIF Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose
relating to the registration or offering of AVIF's Shares, or (iv) any other
action or circumstances that may prevent the lawful offer or sale of Shares of
any Fund in any state or jurisdiction, including, without limitation, any
circumstances in which (a) such Shares are not registered and, in all material
respects, issued and sold in accordance with applicable state and federal law,
or (b) such law precludes the use of such Shares as an underlying investment
medium of the Policies issued or to be issued by Prudential. AVIF will make
every reasonable effort to prevent the issuance, with respect to any Fund, of
any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
(b) Prudential and the Underwriter will immediately
notify AVIF of (i) the issuance by any court or regulatory body of any stop
order, cease and desist order, or other similar order with respect to each
Account's registration statement under the 1933 Act relating to the Policies or
each Account Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or Account Prospectus, (iii) the initiation of any
proceedings for that purpose or for any
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<PAGE> 13
other purpose relating to the registration or offering of each Account's
interests pursuant to the Policies, or (iv) any other action or circumstances
that may prevent the lawful offer or sale of said interests in any state or
jurisdiction, including, without limitation, any circumstances in which said
interests are not registered and, in all material respects, issued and sold in
accordance with applicable state and federal law. Prudential will make every
reasonable effort to prevent the issuance of any such stop order, cease and
desist order or similar order and, if any such order is issued, to obtain the
lifting thereof at the earliest possible time.
4.5 PRUDENTIAL AND THE UNDERWRITER TO PROVIDE DOCUMENTS;
INFORMATION ABOUT AVIF.
(a) Prudential or the Underwriter will provide to AVIF or
its designated agent at least one (1) complete copy of all SEC registration
statements, Account Prospectuses, reports, any preliminary and final voting
instruction solicitation material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to each
Account or the Policies, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) The Underwriter will provide to AVIF or its
designated agent at least one (1) complete copy of each piece of sales
literature or other promotional material in which AVIF or any of its affiliates
is named, at least five (5) business days' prior to its use or such shorter
period as the Parties hereto may, from time to time, agree upon. No such
material shall be used if AVIF or its designated agent objects to such use
within five (5) business days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. AVIF hereby
designates its investment adviser as the entity to receive such sales
literature or other promotional material, until such time as AVIF appoints
another designated agent by giving notice to Prudential in the manner required
by Section 9 hereof.
(c) Neither Prudential, the Underwriter, nor any of their
respective affiliates will give any information or make any representations or
statements on behalf of or concerning AVIF or its affiliates in connection with
the sale of the Policies other than (i) the information or representations
contained in the registration statement, including the AVIF Prospectus
contained therein, relating to Shares, as such registration statement and AVIF
Prospectus may be amended from time to time; or (ii) in reports or proxy
materials for AVIF; or (iii) in sales literature or other promotional material
approved by AVIF, except with the express written permission of AVIF.
(d) Prudential and the Underwriter shall adopt and
implement procedures reasonably designed to ensure that information concerning
AVIF and its affiliates that is intended for use only by brokers or agents
selling the Policies (i.e., information that is not intended for distribution
to Participants or offerees) ("broker only materials") is so used, and neither
AVIF nor any of its affiliates shall be liable for any losses, damages or
expense relating to the improper use of such broker only materials.
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<PAGE> 14
4.6 AVIF OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT PRUDENTIAL
AND THE UNDERWRITER.
(a) AVIF will provide to Prudential at least one (1)
complete copy of all SEC registration statements, AVIF Prospectuses, reports,
any preliminary and final proxy material, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate to
AVIF or the Shares of a Fund, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
(b) AVIF will provide to Prudential or the Underwriter
camera ready or computer diskette copies of all AVIF Prospectuses, proxy
materials, periodic reports to shareholders and other materials required by law
to be sent to Participants who have allocated any Policy value to a Fund. AVIF
will provide such copies to Prudential or the Underwriter in a timely manner so
as to enable Prudential or the Underwriter, as the case may be, to print and
distribute such materials within the time required by law to be furnished to
Participants.
(c) AIM will provide to Prudential or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material in which Prudential, the Underwriter or any of their
respective affiliates is named, or that refers to the Policies, at least five
(5) business days' prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
Prudential or its designated agent objects to such use within five (5) business
days after receipt of such material or such shorter period as the Parties
hereto may, from time to time, agree upon. Prudential shall receive all such
sales literature or other promotional material, until such time as it appoints
a designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning Prudential, the Underwriter, each Account, or the Policies other
than (i) the information or representations contained in the registration
statement, including each Account Prospectus contained therein, relating to the
Policies, as such registration statement and Account Prospectus may be amended
from time to time; or (ii) in reports or voting instruction materials for each
Account; or (iii) in sales literature or other promotional material approved by
Prudential or its affiliates, except with the express written permission of
Prudential.
(e) AIM shall adopt and implement procedures reasonably
designed to ensure that information concerning Prudential, the Underwriter, and
their respective affiliates that is intended for use only by brokers or agents
selling the Policies (i.e., information that is not intended for distribution
to Participants or offerees) ("broker only materials") is so used, and neither
Prudential, the Underwriter, nor any of their respective affiliates shall be
liable for any losses, damages or expense relating to the improper use of such
broker only materials.
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4.7 DEFINITION OF SALES LITERATURE OR OTHER PROMOTIONAL MATERIAL.
For purposes of this Section 4.7, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, video tape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circular, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published articles), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, prospectuses, statements of
additional information, shareholder reports, and proxy materials and any other
material constituting sales literature of advertising under NASD Rules, the
1940 Act or the 1933 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
AVIF has received an order from the SEC exempting it from
certain provisions of the 1940 Act and rules thereunder so that AVIF may be
available for investment by certain other entities, including, without
limitation, separate accounts funding variable life insurance contracts,
separate accounts of insurance companies unaffiliated with Prudential, and
trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply, if
and only if AVIF continues to implement Mixed and Shared Funding, pursuant to
such an exemptive order or otherwise. AVIF hereby notifies Prudential that it
may be appropriate to include in the prospectus pursuant to which a Policy is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times
consist of directors a majority of whom (the "Disinterested Directors") are not
interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940
Act and the Rules thereunder and as modified by any applicable orders of the
SEC, except that if this condition is not met by reason of the death,
disqualification, or bona fide resignation of any director, then the operation
of this condition shall be suspended (a) for a period of forty-five (45) days
if the vacancy or vacancies may be filled by the Board, (b) for a period of
sixty (60) days if a vote of shareholders is required to fill the vacancy or
vacancies, or (c) for such longer period as the SEC may prescribe by order upon
application.
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5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the
existence of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). Prudential agrees to inform the Board of Directors of
AVIF of the existence of or any potential for any such material irreconcilable
conflict of which it is aware. The concept of a "material irreconcilable
conflict" is not defined by the 1940 Act or the rules thereunder, but the
Parties recognize that such a conflict may arise for a variety of reasons,
including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance,
tax or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax or securities regulatory authorities;
(c) an administrative or judicial decision in any
relevant proceeding;
(d) the manner in which the investments of any Fund are
being managed;
(e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract Participants or by
Participants of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to
disregard the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the
voting instructions of Plan participants.
Consistent with the SEC's requirements in connection with
exemptive orders of the type referred to in Section 5.1 hereof, Prudential will
assist the Board of Directors in carrying out its responsibilities by providing
the Board of Directors with all information reasonably necessary for the Board
of Directors to consider any issue raised, including information as to a
decision by Prudential to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority
of the members of the Board of Directors or a majority of the Disinterested
Directors that a material irreconcilable conflict exists, Prudential will, if
it is a Participating Insurance Company for which a material irreconcilable
conflict is relevant, at its own expense and to the extent reasonably
practicable (as determined by a majority
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<PAGE> 17
of the Disinterested Directors), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, which steps may include, but
are not limited to:
(i) withdrawing the assets allocable to some or
all of the Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including another
Fund of AVIF, or submitting the question whether such
segregation should be implemented to a vote of all affected
Participants and, as appropriate, segregating the assets of
any particular group (e.g., annuity Participants, life
insurance Participants or all Participants) that votes in
favor of such segregation, or offering to the affected
Participants the option of making such a change; and
(ii) establishing a new registered investment
company of the type defined as a "management company" in
Section 4(3) of the 1940 Act or a new separate account that is
operated as a management company.
(b) If the material irreconcilable conflict arises
because of Prudential's decision to disregard Participant voting instructions
and that decision represents a minority position or would preclude a majority
vote, Prudential may be required, at AVIF's election, to withdraw each
Account's investment in AVIF or any Fund. No charge or penalty will be imposed
as a result of such withdrawal. Any such withdrawal must take place within six
(6) months after AVIF gives notice to Prudential that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by Prudential for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because
a particular state insurance regulator's decision applicable to Prudential
conflicts with the majority of other state regulators, then Prudential will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs Prudential that it has determined that such decision
has created a material irreconcilable conflict, and until such withdrawal AVIF
shall continue to accept and implement orders by Prudential for the purchase
and redemption of Shares of AVIF.
(d) Prudential agrees that any remedial action taken by
it in resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested
Directors will determine whether or not any proposed action adequately remedies
any material irreconcilable conflict. In no event, however, will AVIF or any
of its affiliates be required to establish a new funding medium for any
Policies. Prudential will not be required by the terms hereof to establish a
new funding medium for any Policies if an offer to do so has been declined by
vote of a majority of Participants materially adversely affected by the
material irreconcilable conflict.
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<PAGE> 18
5.5 NOTICE TO PRUDENTIAL.
AVIF will promptly make known in writing to Prudential the
Board of Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Prudential and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive application filed with the SEC to permit Mixed and
Shared Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans
of a conflict, and determining whether any proposed action adequately remedies
a conflict, will be properly recorded in the minutes of the Board of Directors
or other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment
medium for variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company
and Participating Plan enter into an agreement with AVIF that contains in
substance the same provisions as are set forth in Sections 4.1(b), 4.1(d),
4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as
to a Fund:
(a) at the option of AVIF or Prudential upon the approval
by (i) a majority of the Disinterested Directors, or (ii) a majority vote of
the Shares of the affected Fund that are held in the
15
<PAGE> 19
corresponding Subaccount of an Account (pursuant to the procedures set forth in
Section 10 of this Agreement for voting Shares in accordance with Participant
instructions); provided, however, that the approvals described in clauses (i)
and (ii) above shall not be required if (1) the aggregate account value under
the Policies is less than one million dollars ($1,000,000,000) at the date the
notice of termination is delivered, and (2) thirty-six (36) full calendar
months have expired following the date the first Policy invested in any Fund;
or
(b) at the option of AVIF or AIM upon institution of
formal proceedings against Prudential or its affiliates by the NASD, the SEC,
any state insurance regulator or any other regulatory body regarding
Prudential's obligations under this Agreement or related to the sale of the
Policies, the operation of each Account, or the purchase of Shares, if, in each
case, AVIF or AIM reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on the Fund with respect to which the Agreement
is to be terminated; or
(c) at the option of Prudential upon institution of
formal proceedings against AVIF, its principal underwriter, or its investment
adviser by the NASD, the SEC, or any state insurance regulator or any other
regulatory body regarding AVIF's obligations under this Agreement or related to
the operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, Prudential reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on Prudential, or the Subaccount corresponding to
the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the
Fund's Shares are not registered and, in all material respects, issued and sold
in accordance with any applicable federal or state law, or (ii) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by Prudential; or
(e) upon termination of the corresponding Subaccount's
investment in the Fund pursuant to Section 5 hereof; or
(f) at the option of Prudential if the Fund ceases to
qualify as a RIC under Subchapter M of the Code or under successor or similar
provisions, or if Prudential reasonably believes that the Fund may fail to so
qualify; or
(g) at the option of Prudential if the Fund fails to
comply with Section 817(h) of the Code or with successor or similar provisions,
or if Prudential reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF or AIM if the Policies issued
by Prudential cease to qualify as annuity contracts or life insurance contracts
under the Code (other than by reason of the Fund's noncompliance with Section
817(h) or Subchapter M of the Code) or if interests in an Account
16
<PAGE> 20
under the Policies are not registered, where required, and, in all material
respects, are not issued or sold in accordance with any applicable federal or
state law; or
(i) upon another Party's material breach of any provision
of this Agreement; or
(j) at the option of either party upon six (6) months'
advance written notice.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and
until the Party terminating this Agreement gives prior written notice to the
other Party to this Agreement of its intent to terminate, and such notice shall
set forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the
provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice
shall be given at least six (6) months in advance of the effective date of
termination unless a shorter time is required by law or is agreed to by the
Parties hereto;
(b) in the event that any termination is based upon the
provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice
shall be given at least ninety (90) days in advance of the effective date of
termination unless a shorter time is required by law or is agreed to by the
Parties hereto; and
(c) in the event that any termination is based upon the
provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such
prior written notice shall be given as soon as possible after the terminating
Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Except (a) as necessary to implement Participant-initiated
transactions, (b) as required by state insurance laws or regulations, (c) as
required pursuant to Section 5 of this Agreement, or (d) with respect to any
Fund as to which this Agreement has terminated pursuant to Section 6.1 hereof,
Prudential shall not (i) redeem AVIF Shares attributable to the Policies (as
opposed to AVIF Shares attributable to Prudential's assets held in each
Account), or (ii) prevent Participants from allocating payments to or
transferring amounts from a Fund that was otherwise available under the
Policies, until six (6) months after Prudential shall have notified AVIF of its
intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the
termination of this Agreement.
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<PAGE> 21
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any
Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any
Shares of that Fund that are outstanding as of the date of such termination
(the "Initial Termination Date"). This continuation shall extend to the date
as of which an Account owns no Shares of the affected Fund.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Policies in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
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<PAGE> 22
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, 21st Floor
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES, L.L.C.
751 Broad Street, 21st Floor
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Prudential will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Prudential will vote
Shares in accordance with timely instructions received from Participants.
Prudential will vote Shares that are (a) not attributable to Participants to
whom pass- through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither Prudential nor any of its affiliates will in any way recommend action
in connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Participants. Prudential reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
Prudential shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by any Mixed and
Shared Funding exemptive order that AVIF may obtain in the future. AVIF will
notify Prudential of any changes of interpretations or amendments to any Mixed
and Shared Funding exemptive order it obtains in the future.
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SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Prudential concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY PRUDENTIAL AND THE UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and
12.1(c), below, Prudential and the Underwriter each agree to indemnify and hold
harmless AVIF, its affiliates (including AIM), and each of their respective
directors and officers, and each person, if any, who controls AVIF or its
affiliates (including AIM) within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12.1)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Prudential) or actions in
respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or actions are related to the sale or acquisition
of AVIF's Shares and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration statement,
any Account Prospectus, the Policies, or sales literature or
advertising for the Policies (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Prudential or the
Underwriter by or on behalf of AVIF for use in any Account's
1933 Act registration statement, any Account Prospectus, the
Policies, or sales literature or advertising or otherwise for
use in connection with the sale of Policies or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other
statements or representations (other than statements or
representations contained in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing,
not supplied for use therein by or on behalf of Prudential or
the Underwriter and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of
Prudential, the Underwriter or their respective affiliates or
persons under their control (including, without
20
<PAGE> 24
limitation, their employees and "Associated Persons," as that
term is defined in paragraph (m) of Article I of the NASD's
By-Laws), in connection with the sale or distribution of the
Policies or Shares; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to AVIF or AIM by or on behalf of
Prudential, the Underwriter or their respective affiliates for
use in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by
Prudential or the Underwriter to perform the obligations,
provide the services and furnish the materials required of
them under the terms of this Agreement, or any material breach
of any representation and/or warranty made by Prudential or
the Underwriter in this Agreement or arise out of or result
from any other material breach of this Agreement by Prudential
or the Underwriter; or
(v) arise as a result of failure by the Policies
issued by Prudential to qualify as life insurance, endowment,
or annuity contracts under the Code, otherwise than by reason
of any Fund's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) Neither Prudential nor the Underwriter shall be
liable under this Section 12.1 with respect to any losses, claims, damages,
liabilities or actions to which an Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance by that Indemnified Party of its duties or by reason of that
Indemnified Party's reckless disregard of obligations or duties (i) under this
Agreement, or (ii) to AVIF or AIM.
(c) Neither Prudential nor the Underwriter shall be
liable under this Section 12.1 with respect to any action against an
Indemnified Party unless AVIF or AIM shall have notified Prudential or the
Underwriter in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the action shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify Prudential or the Underwriter of any such action shall not relieve
Prudential or the Underwriter from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.1. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, Prudential or the Underwriter
shall be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified
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<PAGE> 25
Party named in the action, which approval shall not be unreasonably withheld.
After notice from Prudential or the Underwriter to such Indemnified Party of
its election to assume the defense thereof, the Indemnified Party will
cooperate fully with Prudential and shall bear the fees and expenses of any
additional counsel retained by it, and Prudential will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
12.2 OF PRUDENTIAL AND THE UNDERWRITER BY AVIF AND AIM.
(a) Except to the extent provided in Sections
4.1(c)(vii), 12.2(d), 12.2(e) and 12.2(f), below, AVIF and AIM each agree to
indemnify and hold harmless Prudential, the Underwriter, their respective
affiliates, and each of their respective directors and officers, and each
person, if any, who controls Prudential, the Underwriter, or their respective
affiliates within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 12.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of AVIF and AIM) or actions in respect thereof (including,
to the extent reasonable, legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law, or
otherwise, insofar as such losses, claims, damages, liabilities or actions are
related to the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of Prudential or its affiliates for
use in AVIF's 1933 Act registration statement, AVIF
Prospectus, or in sales literature or advertising (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other
statements or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Policies, or any amendment
or supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF or its affiliates and on which
such persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of AVIF, its affiliates or persons under
their control (including, without limitation, their employees
and "Associated Persons"), in connection with the sale or
distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
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<PAGE> 26
statement, any Account Prospectus, sales literature or
advertising covering the Policies, or any amendment or
supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to
Prudential, the Underwriter, or their respective affiliates by
or on behalf of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising covering the Policies, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF or
AIM to perform the obligations, provide the services and
furnish the materials required of it under the terms of this
Agreement, or any material breach of any representation and/or
warranty made by AVIF or AIM in this Agreement or arise out of
or result from any other material breach of this Agreement by
AVIF or AIM.
(b) Except to the extent provided in Sections
4.1(c)(vii), 12.2(d), 12.2(e) and 12.2(f) hereof, AVIF and AIM each agree to
indemnify and hold harmless the Indemnified Parties from and against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
thereof with, except as set forth in Section 12.2(c) below, the written consent
of AVIF and AIM) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to
Participants asserting liability against Prudential or the Underwriter pursuant
to the Policies, the costs of any ruling and closing agreement or other
settlement with the IRS, and the cost of any substitution by Prudential of
Shares of another investment company or portfolio for those of any adversely
affected Fund as a funding medium for each Account that Prudential reasonably
deems necessary or appropriate as a result of the noncompliance.
(c) The written consent of AVIF and AIM referred to in
Section 12.2(b) above shall not be required with respect to amounts paid in
connection with any ruling and closing agreement or other settlement with the
IRS.
(d) Neither AVIF nor AIM shall be liable under this
Section 12.2 with respect to any losses, claims, damages, liabilities or
actions to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of such Indemnified Party's
reckless disregard of its obligations and duties (i) under this Agreement, or
(ii) to Prudential, each Account, the Underwriter or Participants.
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<PAGE> 27
(e) Neither AVIF nor AIM shall be liable under this
Section 12.2 with respect to any action against an Indemnified Party unless the
Indemnified Party shall have notified AVIF or AIM in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify AVIF or AIM of
any such action shall not relieve AVIF or AIM from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this Section 12.2. Except as otherwise provided herein, in
case any such action is brought against an Indemnified Party, AVIF or AIM will
be entitled to participate, at its own expense, in the defense of such action
and also shall be entitled to assume the defense thereof (which shall include,
without limitation, the conduct of any ruling request and closing agreement or
other settlement proceeding with the IRS), with counsel approved by the
Indemnified Party named in the action, which approval shall not be unreasonably
withheld. After notice from AVIF or AIM to such Indemnified Party of its
election to assume the defense thereof, the Indemnified Party will cooperate
fully with AVIF and shall bear the fees and expenses of any additional counsel
retained by it, and AVIF will not be liable to such Indemnified Party under
this Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
(f) In no event shall either AVIF or AIM be liable under
the indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Prudential, the Underwriter, or any
other Participating Insurance Company or any Participant, with respect to any
losses, claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant made by
Prudential or the Underwriter hereunder or by any Participating Insurance
Company under an agreement containing substantially similar representations,
warranties and covenants, (ii) the failure by Prudential or any Participating
Insurance Company to maintain its segregated asset account (which invests in
any Fund) as a legally and validly established segregated asset account under
applicable state law and as a duly registered unit investment trust under the
provisions of the 1940 Act (unless exempt therefrom), or (iii) the failure by
Prudential or any Participating Insurance Company to maintain its variable
annuity and/or variable life insurance contracts (with respect to which any
Fund serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified
Party referred to in Sections 12.1(c) or 12.2(e) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
24
<PAGE> 28
12.4 SUCCESSORS.
This Agreement shall be binding on successors of any Party who
shall be entitled, among other things, to the benefits of the indemnification
contained in this Section 12.
12.5 ASSIGNMENTS.
This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties, which consent shall not
be unreasonably withheld.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
---------------------------
25
<PAGE> 29
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- ---------------------------------
Nancy L. Martin
Assistant Secretary Name: /s/ ROBERT H. GRAHAM
-------------------------------
Title: PRESIDENT
------------------------------
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ W. GARY LITTLEPAGE
------------------------- ---------------------------------
Nancy L. Martin
Assistant Secretary Name: /s/ W. GARY LITTLEPAGE
-------------------------------
Title: /s/ SENIOR VICE PRESIDENT
------------------------------
PRUDENTIAL INSURANCE COMPANY OF
AMERICA, on behalf of itself and its
separate accounts
Attest: /s/ JOHN SIEB By: DEBRA GOLDBERG
------------------------- ---------------------------------
Name: JOHN SIEB Name: /s/ DEBRA GOLDBERG
--------------------------- -------------------------------
Title: DIRECTOR, MARKETING Title: VICE PRESIDENT, MARKETING
-------------------------- ------------------------------
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES, L.L.C.
Attest: /s/ PILAR BERON By: /S/ E. MICHAEL CAUFIELD
------------------------- ---------------------------------
Name: PILAR BERON Name: E. MICHAEL CAUFIELD
--------------------------- -------------------------------
Title: SR. STAFF ASST. Title: PRESIDENT
-------------------------- ------------------------------
26
<PAGE> 30
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
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
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Prudential Variable Contract Account GI-2
established June 24, 1988
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
Group Variable Universal Life Insurance Contracts
27
<PAGE> 1
EXHIBIT 9(i)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M ADVISORS, INC.,
A I M DISTRIBUTORS, INC.,
NATIONWIDE LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NATIONWIDE ADVISORY SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Nationwide To Provide Documents; Information About AVIF . . . . . . . . . . . . . . . . . . . . . . 10
4.6 AVIF To Provide Documents; Information About Nationwide . . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Notice to Nationwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Of AVIF by Nationwide and NAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Of Nationwide and NAS by AVIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 4th day of November,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Advisors, Inc. ("AIM"), investment advisor to AVIF;
A I M Distributors, Inc. ("AIM Distributors"), principal underwriter to AVIF;
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company (collectively, "Nationwide"), each, an Ohio life insurance company, on
behalf of themselves and each of their respective segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Nationwide Advisory
Services, Inc. ("NAS"), an affiliate of Nationwide and the principal
underwriter of the Contracts (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, Nationwide will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by
applicable law, will be registered under the 1933 Act; and
WHEREAS, Nationwide will fund the Contracts through the Accounts, each
of which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, Nationwide will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE> 5
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution or under authority of the
Board of Directors of Nationwide, on the date shown for such Account on Schedule
A hereto, to set aside and invest assets attributable to the Contracts; and
WHEREAS, AIM is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, AIM Distributors is registered as a broker-dealer under the
Securities and Exchange Act of 1934, as amended (the "1934 Act"), is a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD") and serves as principal underwriter of the shares of AVIF; and
WHEREAS, NAS is registered as a broker-dealer under the 1934 Act, is a
member in good standing of the NASD and serves as principal underwriter of the
Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Nationwide intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Nationwide for
purchase and redemption at net asset value and with no sales charges, subject
to the terms and conditions of this Agreement. The Board of Directors of AVIF
may refuse to sell Shares of any Fund to any person, or suspend or terminate
the offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
2
<PAGE> 6
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide Nationwide with the net asset value per Share for each Fund by 5:30
p.m. Central Time on each Business Day. As used herein, "Business Day" shall
mean any day on which (i) the New York Stock Exchange is open for regular
trading, (ii) AVIF calculates the Fund's net asset value, and (iii) Nationwide
is open for business.
(b) Nationwide will use the data provided by AVIF each Business
Day pursuant to paragraph (a) immediately above to calculate Account unit
values and to process transactions that receive that same Business Day's
Account unit values. Nationwide will perform such Account processing the same
Business Day, and will place corresponding orders to purchase or redeem Shares
with AVIF by 9:00 a.m. Central Time the following Business Day; provided,
however, that AVIF shall provide additional time to Nationwide in the event
that AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a)
immediately above. Such additional time shall be equal to the additional time
that AVIF takes to make the net asset values available to Nationwide.
(c) With respect to payment of the purchase price by Nationwide
and of redemption proceeds by AVIF, Nationwide and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), Nationwide shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to Nationwide.
2.2 TIMELY PAYMENTS.
Nationwide will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by Nationwide by 1:00 p.m. Central Time on
the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable Nationwide to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
3
<PAGE> 7
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that Nationwide receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), Nationwide shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on
the next following Business Day or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Nationwide will
be effected at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the order therefor, and such
orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Nationwide of any income
dividends or capital gain distributions payable on the Shares of any Fund.
Nationwide hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-dividend
date net asset values until Nationwide otherwise notifies AVIF in writing, it
being agreed by the Parties that the ex-dividend date and the payment date with
respect to any dividend or distribution will be the same Business Day.
Nationwide reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to Nationwide. Shares ordered from AVIF
will be recorded in an appropriate title for Nationwide, on behalf of its
Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current
4
<PAGE> 8
and effective; including, without limitation, the preparation of and filing
with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and
its Shares and payment of all applicable registration or filing fees with
respect to any of the foregoing.
(b) Nationwide will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to each Account and its units of interest and
payment of all applicable registration or filing fees with respect to any of
the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) Nationwide will bear the costs of preparing, filing with the
SEC and setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other
Participant communications.
(c) Nationwide will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready or computer diskette form. AVIF
will print the AVIF statement of additional information, proxy materials
relating to AVIF and periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
Nationwide will bear the expenses of distribution. These expenses
would include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising for the
Accounts relating to the Funds, as well as filing such materials with, and
obtaining approval from, the SEC, the NASD, any state insurance regulatory
authority, and any other appropriate regulatory authority, to the extent
required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
5
<PAGE> 9
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each Fund
as a RIC. AVIF will notify Nationwide immediately upon having a reasonable
basis for believing that a Fund has ceased to so qualify or that it might not
so qualify in the future.
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify Nationwide immediately upon
having a reasonable basis for believing that a Fund has ceased to so comply or
that a Fund might not so comply in the future. In the event of a breach of
this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
To assist Nationwide in monitoring compliance with Section
817(h) of the Code, AVIF agrees to use its best efforts to have the transfer
agent of AVIF send Nationwide a monthly statement of account confirming all
transactions made during the month in each Account within five (5) business
days after the end of such month. In addition, AIM agrees to provide
Nationwide a certificate or statement indicating compliance with Code Section
817(h), such certificate or statement to be sent no later than thirty (30)
days following the end of the calendar quarter.
(c) Nationwide agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of
Nationwide or, to Nationwide's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or Nationwide otherwise becomes aware of any facts that could give rise to
any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) Nationwide shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) Nationwide shall consult with AVIF as to how to
minimize any liability that may arise as a
result of such failure or alleged failure;
(iii) Nationwide shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from
such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS
that such failure was inadvertent;
(iv) Nationwide shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS, any
Participant or any other claimant regarding any
6
<PAGE> 10
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; provided, however, that Nationwide
will retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by Nationwide
to the IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by Nationwide to AVIF (together
with any supporting information or analysis); subject
to the confidentiality provisions of Section 18, at
least ten (10) business days or such shorter period
to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by Nationwide to any
such person without the express written consent of
AVIF which shall not be unreasonably withheld;
(vi) Nationwide shall provide AVIF or its affiliates and
their accounting and legal advisors with such
cooperation as AVIF shall reasonably request
(including, without limitation, by permitting AVIF
and its accounting and legal advisors to review the
relevant books and records of Nationwide) in order to
facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the
preceding clause or its assessment of the validity or
amount of any claim against its arising from such a
failure or alleged failure;
(vii) Nationwide shall not with respect to any claim of the
IRS or any Participant that would give rise to a
claim against AVIF or its affiliates (a) compromise
or settle any claim, (b) accept any adjustment on
audit, or (c) forego any allowable administrative or
judicial appeals, without the express written consent
of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that Nationwide shall
not be required, after exhausting all administrative
penalties, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal
shall be borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if
Nationwide fails to comply with any of the foregoing
clauses (i) through (vii), and such failure could be
shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
Nationwide may, in its discretion, authorize AVIF or its affiliates to act in
the name of Nationwide in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or
judicial appeals thereof, and
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<PAGE> 11
in that event AVIF or its affiliates shall bear the fees and expenses associated
with the conduct of the proceedings that it is so authorized to control;
provided, that in no event shall Nationwide have any liability resulting from
AVIF's refusal to accept the proposed settlement or compromise with respect to
any failure caused by AVIF. As used in this Agreement, the term "affiliates"
shall have the same meaning as "affiliated person" as defined in Section 2(a)(3)
of the 1940 Act.
(d) Nationwide represents and warrants that the Contracts
currently are and will be treated as annuity contracts or life insurance
contracts under applicable provisions of the Code and that it will use its best
efforts to maintain such treatment; Nationwide will notify AVIF immediately
upon having a reasonable basis for believing that any of the Contracts have
ceased to be so treated or that they might not be so treated in the future.
(e) Nationwide represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Nationwide will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to
be met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by Nationwide, including, the furnishing of information not otherwise
available to Nationwide which is required by state insurance law to enable
Nationwide to obtain the authority needed to issue the Contracts in any
applicable state.
(b) Nationwide represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Ohio and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 3907.15 of the Ohio
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) Nationwide represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Ohio law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940
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<PAGE> 12
Act, (iv) each Account does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, to the extent required,
(v) each Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, (vi)
Nationwide will amend the registration statement for its Contracts under the
1933 Act and for its Accounts under the 1940 Act from time to time as required
in order to effect the continuous offering of its Contracts or as may otherwise
be required by applicable law, and (vii) each Account Prospectus will at all
times comply in all material respects with the requirements of the 1933 Act and
the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify Nationwide of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or
other similar order with respect to AVIF's registration statement under the
1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or AVIF Prospectus that may affect the offering of
Shares of AVIF, (iii) the initiation of any proceedings for that purpose or
for any other purpose relating to the registration or offering of AVIF's
Shares, or (iv) any other action or circumstances that
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<PAGE> 13
may prevent the lawful offer or sale of Shares of any Fund in any state or
jurisdiction, including, without limitation, any circumstances in which (a)
such Shares are not registered and, in all material respects, issued and sold
in accordance with applicable state and federal law, or (b) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by Nationwide. AVIF will make every reasonable effort
to prevent the issuance, with respect to any Fund, of any such stop order,
cease and desist order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
(b) Nationwide will immediately notify AVIF of (i) the issuance
by any court or regulatory body of any stop order, cease and desist order, or
other similar order with respect to each Account's registration statement under
the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any
request by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law. Nationwide will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and,
if any such order is issued, to obtain the lifting thereof at the earliest
possible time.
4.5 NATIONWIDE TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) Nationwide will provide to AVIF or its designated agent at
least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction
solicitation material, and all amendments to any of the above, that relate to
each Account or the Contracts, contemporaneously with the filing of such
document with the SEC or other regulatory authorities. In addition, Nationwide
will provide AVIF with notice of any application for exemption or request for
no-action letters, and notice of all amendments to any of the above, that
relate to an Account or the Contracts, contemporaneously with the filing of
such document with the SEC or other regulatory authorities, and will provide
AVIF one (1) complete copy of the same upon request.
(b) Nationwide will provide to AVIF or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
five (5) Business Days prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) Business Days
after receipt of such material or such shorter period as the Parties hereto
may, from time to time, agree upon. AVIF hereby designates A I M as the entity
to receive such sales literature, until such time as AVIF appoints another
designated agent by giving notice to Nationwide in the manner required by
Section 9 hereof.
(c) Neither Nationwide nor any of its affiliates, will give any
information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in connection with the sale of the Contracts
other than (i) the information or representations contained in the registration
statement, including the AVIF Prospectus contained therein, relating to Shares,
as such registration
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<PAGE> 14
statement and AVIF Prospectus may be amended from time to time; or (ii) in
reports or proxy materials for AVIF; or (iii) in published reports for AVIF
that are in the public domain and approved by AVIF for distribution; or (iv) in
sales literature or other promotional material approved by AVIF, except with
the express written permission of AVIF.
(d) Nationwide shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker
only materials") is so used, and neither AVIF nor any of its affiliates shall
be liable for any losses, damages or expenses relating to the improper use of
such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials and any other material constituting sales
literature or advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT NATIONWIDE.
(a) AVIF will provide to Nationwide at least one (1) complete copy
of all SEC registration statements, AVIF Prospectuses, reports, any preliminary
and final proxy material, and all amendments to any of the above, that relate
to AVIF or the Shares of a Fund, contemporaneously with the filing of such
document with the SEC or other regulatory authorities. In addition, AVIF will
provide Nationwide with notice of any application for exemption or request for
no- action letters, and notice of all amendments to any of the above, that
relate to AVIF or the Shares of a Fund, contemporaneously with the filing of
such document with the SEC or other regulatory authorities, and will provide
Nationwide one (1) complete copy of the same upon request.
(b) AVIF will provide to Nationwide camera ready or computer
diskette copies of all AVIF prospectuses and printed copies, in an amount
specified by Nationwide, of AVIF statements of additional information, proxy
materials, periodic reports to shareholders and other materials required by law
to be sent to Participants who have allocated any Contract value to a Fund.
AVIF will provide such copies to Nationwide in a timely manner so as to enable
Nationwide, as the case may be, to print and distribute such materials within
the time required by law to be furnished to Participants.
(c) AVIF will provide to Nationwide or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which Nationwide, or any of its respective affiliates
is named, or that refers to the Contracts, at least five (5) Business Days
prior
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<PAGE> 15
to its use or such shorter period as the Parties hereto may, from time to time,
agree upon. No such material shall be used if Nationwide or its designated
agent objects to such use within five (5) Business Days after receipt of such
material or such shorter period as the Parties hereto may, from time to time,
agree upon. Nationwide shall receive all such sales literature until such time
as it appoints a designated agent by giving notice to AVIF in the manner
required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning Nationwide, each Account, or the Contracts other than (i) the
information or representations contained in the registration statement,
including each Account Prospectus contained therein, relating to the Contracts,
as such registration statement and Account Prospectus may be amended from time
to time; or (ii) in published reports for the Account or the Contracts that are
in the public domain and approved by Nationwide for distribution; or (iii) in
sales literature or other promotional material approved by Nationwide or its
affiliates, except with the express written permission of Nationwide.
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
Nationwide, and its respective affiliates that is intended for use only by
brokers or agents selling the Contracts (i.e., information that is not intended
for distribution to Participants) ("broker only materials") is so used, and
neither Nationwide, nor any of its respective affiliates shall be liable for
any losses, damages or expenses relating to the improper use of such broker
only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with
Nationwide, and trustees of qualified pension and retirement plans
(collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC
has imposed terms and conditions for such orders that are
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substantially identical to many of the provisions of this Section 5. Sections
5.2 through 5.8 below shall apply pursuant to such an exemptive order granted
to AVIF. AVIF hereby notifies Nationwide that, in the event that AVIF
implements Mixed and Shared Funding, it may be appropriate to include in the
prospectus pursuant to which a Contract is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). Nationwide agrees to inform the Board of Directors of
AVIF of the existence of or any potential for any such material irreconcilable
conflict of which it is aware. The concept of a "material irreconcilable
conflict" is not defined by the 1940 Act or the rules thereunder, but the
Parties recognize that such a conflict may arise for a variety of reasons,
including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
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<PAGE> 17
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, Nationwide will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by Nationwide to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, Nationwide will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
Nationwide's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
Nationwide may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a
result of such withdrawal. Any such withdrawal must take place within six (6)
months after AVIF gives notice to Nationwide that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by Nationwide for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to Nationwide
conflicts with the majority of other state regulators, then Nationwide will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs Nationwide that it has determined that such decision
has created a material irreconcilable conflict, and until such withdrawal AVIF
shall continue to accept and implement orders by Nationwide for the purchase
and redemption of Shares of AVIF. No charge or penalty will be imposed as a
result of such withdrawal.
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<PAGE> 18
(d) Nationwide agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
Nationwide will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO NATIONWIDE .
AVIF will promptly make known in writing to Nationwide the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Nationwide and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or
any exemptive order granted by the SEC to permit Mixed and Shared Funding, and
said reports, materials and data will be submitted at any reasonable time
deemed appropriate by the Board of Directors. All reports received by the
Board of Directors of potential or existing conflicts, and all Board of
Directors actions with regard to determining the existence of a conflict,
notifying Participating Insurance Companies and Participating Plans of a
conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
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SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against Nationwide or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding Nationwide's obligations under
this Agreement or related to the sale of the Contracts, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of Nationwide upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, Nationwide reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on Nationwide, or the Subaccount corresponding to
the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by Nationwide; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of Nationwide if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if Nationwide reasonably believes that the Fund may fail to so qualify; or
(g) at the option of Nationwide if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if
Nationwide reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by Nationwide
cease to qualify as annuity contracts or life insurance contracts under the
Code (other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under
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<PAGE> 20
the Contracts are not registered, where required, and, in all material
respects, are not issued or sold in accordance with any applicable federal or
state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of Nationwide, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts."). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an
17
<PAGE> 21
Account owns no Shares of the affected Fund or a date (the "Final Termination
Date") six (6) months following the Initial Termination Date, except that
Nationwide may, by written notice shorten said six (6) month period in the case
of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Mr. Robert H. Graham, President
cc: Nancy L. Martin, Esq.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Mr. W. Gary Littlepage, Sr. Vice President
cc: Nancy L. Martin, Esq.
18
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
One Nationwide Plaza
Columbus, Ohio 43215
Facsimile: (614) 249-0899
Attn: Mr. Robert O. Cline, Vice President - Financial Operations
NATIONWIDE ADVISORY SERVICES, INC.
Three Nationwide Plaza
Columbus, Ohio 43215
Facsimile: (614) 249-7424
Attn: Mr. James S. Laird, Vice President and General Manager
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Nationwide will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Nationwide will vote
Shares in accordance with timely instructions received from Participants.
Nationwide will vote Shares that are (a) not attributable to Participants to
whom pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither Nationwide nor any of its affiliates will in any way recommend action
in connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Participants. Nationwide reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
Nationwide shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify Nationwide
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Nationwide concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
19
<PAGE> 23
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY NATIONWIDE AND NAS.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, Nationwide and NAS agree to indemnify and hold harmless AVIF, its
affiliates, and each person, if any, who controls AVIF or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes
of this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Nationwide
and NAS) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise; provided, the
Account owns shares of the Fund and insofar as such losses, claims, damages,
liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to Nationwide or NAS by or on
behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of Nationwide,
NAS or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of Nationwide, NAS or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts
or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state
20
<PAGE> 24
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon and
in conformity with information furnished to AVIF or its
affiliates by or on behalf of Nationwide, NAS or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by Nationwide or NAS to
perform the obligations, provide the services and furnish
the materials required of them under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by Nationwide or NAS in this
Agreement or arise out of or result from any other
material breach of this Agreement by Nationwide or NAS;
or
(v) arise as a result of failure by the Contracts issued by
Nationwide to qualify as annuity contracts or life
insurance contracts under the Code, otherwise than by
reason of any Fund's failure to comply with Subchapter M
or Section 817(h) of the Code.
(b) Neither Nationwide nor NAS shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii)
to AVIF.
(c) Neither Nationwide nor NAS shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF shall
have notified Nationwide and NAS in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Nationwide and NAS of any such action shall not
relieve Nationwide and NAS from any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.1. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, Nationwide and NAS shall be
entitled to participate, at their own expense, in the defense of such action
and also shall be entitled to assume the defense thereof, with counsel approved
by the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from Nationwide or NAS to such Indemnified
Party of Nationwide's or NAS's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Nationwide and NAS and shall bear
the fees and expenses of any additional counsel retained by it, and neither
Nationwide nor NAS will be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
21
<PAGE> 25
12.2 OF NATIONWIDE AND NAS BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless Nationwide, NAS,
their respective affiliates, and each person, if any, who controls Nationwide,
NAS or their respective affiliates within the meaning of Section 15 of the 1933
Act and each of their respective directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of AVIF ) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law, or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or
its affiliates by or on behalf of Nationwide, NAS or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF or its affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of AVIF or its
affiliates or persons under its control (including,
without limitation, their employees and "Associated
Persons" as that Term is defined in Section (n) of
Article 1 of the NASD By-Laws), in connection with the
sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to Nationwide, NAS or their respective
affiliates by or on behalf of
22
<PAGE> 26
AVIF for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform
the obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any
representation and/or warranty made by AVIF in this
Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of
AVIF) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against Nationwide pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by Nationwide of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that Nationwide reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance by that Indemnified Party of its duties
or by reason of such Indemnified Party's reckless disregard of its obligations
and duties (i) under this Agreement, or (ii) to Nationwide, NAS, each Account
or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect
to any action against an Indemnified Party unless the Indemnified Party shall
have notified AVIF in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the action shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify AVIF of any such action shall not relieve AVIF from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12.2. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, AVIF will be entitled to participate, at its own expense, in the defense
of such action and also shall be entitled to assume the defense thereof (which
shall include, without limitation, the conduct of any ruling request and
closing agreement or other settlement proceeding with the IRS), with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any
23
<PAGE> 27
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Nationwide, NAS or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Nationwide or
NAS hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants;
(ii) the failure by Nationwide or any Participating Insurance Company to
maintain its segregated asset account (which invests in any Fund) as a legally
and validly established segregated asset account under applicable state law and
as a duly registered unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by Nationwide or any
Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
24
<PAGE> 28
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of Nationwide
or any of its affiliates (collectively, the "Nationwide Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
Nationwide Protected Parties or any of their employees or agents in connection
with Nationwide's performance of its duties under this Agreement are the
valuable property of the Nationwide Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the Nationwide Protected Parties' customers, or any other
information or property of the Nationwide Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the Nationwide Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a) with Nationwide's prior
written consent; or (b) as required by law or judicial process. Nationwide
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. Nationwide agrees that if it comes into possession of
any list or compilation of the identities of or other information about the
AVIF Protected Parties' customers or any other information or property of the
AVIF Protected Parties, other than such information as may be independently
developed or compiled by Nationwide from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with
Nationwide, Nationwide will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party
25
<PAGE> 29
acknowledges that any breach of the agreements in this Section 18 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an
affiliate of AVIF, owns all right, title and interest in and to the name,
trademark and service mark "AIM" and such other tradenames, trademarks and
service marks as may be set forth on Schedule B, as amended from time to time
by written notice from AIM to Nationwide (the "AIM licensed marks" or the
"licensor's licensed marks") and is authorized to use and to license other
persons to use such marks. Nationwide and its affiliates are hereby granted a
non-exclusive license to use the AIM licensed marks in connection with
Nationwide's performance of the services contemplated under this Agreement,
subject to the terms and conditions set forth in this Section 19.
(b) The grant of license to Nationwide and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that Nationwide shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, Nationwide and its affiliates shall
immediately cease to issue any new annuity or life insurance contracts bearing
any of the AIM licensed marks and shall likewise cease any activity which
suggests that it has any right under any of the AIM licensed marks or that it
has any association with AIM, except that Nationwide shall have the right to
continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor but,
due to changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall
obtain the prior written approval of the licensor for the use of any new
materials developed to replace the disapproved materials, in the manner set
forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights
26
<PAGE> 30
therein other than as a licensee under this Agreement; (ii) agrees never to
contend otherwise in legal proceedings or in other circumstances; and (iii)
acknowledges and agrees that the use of the licensor's licensed marks pursuant
to this grant of license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
--------------------------------------
27
<PAGE> 31
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- -------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M ADVISORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- -------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------- -------------------------------
Nancy L. Martin Name: Michael J. Cemo
Assistant Secretary Title: President
NATIONWIDE LIFE INSURANCE COMPANY,
on behalf of itself and its separate
accounts
Attest: /s/ DINA TANTRA By: /s/ MARK R. THRESHER
------------------------- -------------------------------
Name: DINA TANTRA Name: MARK R. THRESHER
--------------------------- -----------------------------
Title: COUNSEL Title: V.P. CONTROLLER
-------------------------- ----------------------------
NATIONWIDE LIFE INSURANCE COMPANY,
on behalf of itself and its separate
accounts
Attest: /s/ DINA TANTRA By: /s/ MARK R. THRESHER
------------------------- -------------------------------
Name: DINA TANTRA Name: MARK R. THRESHER
--------------------------- -----------------------------
Title: COUNSEL Title: V.P. CONTROLLER
-------------------------- ----------------------------
28
<PAGE> 32
NATIONWIDE ADVISORY SERVICES, INC.
Attest: /s/ DINA TANTRA By: /s/ JAMES F. LAIRD JR.
------------------------- -------------------------------
Name: DINA TANTRA Name: JAMES F. LAIRD JR.
--------------------------- -----------------------------
Title: COUNSEL Title: V.P. GM NAS
-------------------------- ----------------------------
29
<PAGE> 33
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Multi Flex Separate Account, dated October 7, 1981
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o NEA Value Builder
30
<PAGE> 34
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
o AIM and Design
[AIM LOGO APPEARS HERE]
31
<PAGE> 1
EXHIBIT 9(j)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
COVA LIFE SALES COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds...................................................................................... 2
1.1 Availability................................................................................... 2
1.2 Addition, Deletion or Modification of Funds.................................................... 2
1.3 No Sales to the General Public................................................................. 2
Section 2. Processing Transactions.............................................................................. 3
2.1 Timely Pricing and Orders...................................................................... 3
2.2 Timely Payments................................................................................ 3
2.3 Applicable Price............................................................................... 3
2.4 Dividends and Distributions.................................................................... 4
2.5 Book Entry..................................................................................... 4
Section 3. Costs and Expenses................................................................................... 4
3.1 General........................................................................................ 4
3.2 Registration................................................................................... 4
3.3 Other (Non-Sales-Related)...................................................................... 5
3.4 Other (Sales-Related).......................................................................... 5
3.5 Parties To Cooperate........................................................................... 5
Section 4. Legal Compliance..................................................................................... 6
4.1 Tax Laws....................................................................................... 6
4.2 Insurance and Certain Other Laws............................................................... 8
4.3 Securities Laws................................................................................ 8
4.4 Notice of Certain Proceedings and Other Circumstances......................................... 10
4.5 Cova To Provide Documents; Information About AVIF............................................. 10
4.6 AVIF To Provide Documents; Information About Cova............................................. 11
Section 5. Mixed and Shared Funding............................................................................ 12
5.1 General....................................................................................... 12
5.2 Disinterested Directors....................................................................... 13
5.3 Monitoring for Material Irreconcilable Conflicts.............................................. 13
5.4 Conflict Remedies............................................................................. 14
5.5 Notice to Cova ............................................................................... 15
5.6 Information Requested by Board of Directors................................................... 15
5.7 Compliance with SEC Rules..................................................................... 15
5.8 Other Requirements............................................................................ 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 6. Termination......................................................................................... 16
6.1 Events of Termination......................................................................... 16
6.2 Notice Requirement for Termination............................................................ 16
6.3 Funds To Remain Available..................................................................... 17
6.4 Survival of Warranties and Indemnifications................................................... 18
6.5 Continuance of Agreement for Certain Purposes................................................. 18
Section 7. Parties To Cooperate Respecting Termination......................................................... 18
Section 8. Assignment.......................................................................................... 18
Section 9. Notices............................................................................................. 18
Section 10. Voting Procedures................................................................................... 19
Section 11. Foreign Tax Credits................................................................................. 20
Section 12. Indemnification..................................................................................... 20
12.1 Of AVIF and AIM by Cova and Cova Sales........................................................ 20
12.2 Of Cova and Cova Sales by AVIF and AIM........................................................ 22
12.3 Effect of Notice.............................................................................. 24
12.4 Successors.................................................................................... 25
Section 13. Applicable Law..................................................................................... 25
Section 14. Execution in Counterparts.......................................................................... 25
Section 15. Severability....................................................................................... 25
Section 16. Rights Cumulative.................................................................................. 25
Section 17. Headings........................................................................................... 25
Section 18. Confidentiality.................................................................................... 25
Section 19. Parties to Cooperate............................................................................... 26
Section 20. Amendments......................................................................................... 26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of December,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"),
Cova Financial Services Life Insurance Company, a Missouri life insurance
company ("Cova"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Cova Life Sales
Company, an affiliate of Cova and the principal underwriter of the Contracts
("Cova Sales") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, Cova will be the issuer of certain variable annuity contracts
and variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law,
will be registered under the 1933 Act; and
WHEREAS, Cova will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, Cova will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Cova intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts; and
WHEREAS, Cova Sales is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Cova for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF agrees that all shares of the Funds will be sold only to
Particpating Insurance Companies and other entities, all in accordance with
Section 817 (h)(4) of the Internal Revenue Code of 1986, as amended (the
"Code") and Treasury Regulation Section 1.817-5. Shares of the Funds will not
be sold to the general public.
2
<PAGE> 6
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide Cova with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean
any day on which (I) the New York Stock Exchange is open for regular trading,
(ii) AVIF calculates the Fund's net asset value, and (iii) Cova is open for
business.
(b) Cova will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values
and to process transactions that receive that same Business Day's Account unit
values. Cova will perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares with AVIF by 9:00
a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to Cova in the event that AVIF is unable to meet
the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional
time shall be equal to the additional time that AVIF takes to make the net
asset values available to Cova.
(c) With respect to payment of the purchase price by Cova and of
redemption proceeds by AVIF, Cova and AVIF shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment per Fund in
accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), Cova shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting
of net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to Cova.
2.2 TIMELY PAYMENTS.
Cova will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by Cova by 1:00 p.m. Central Time on the
same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable Cova to pay redemption proceeds within the time specified in Section
22(e) of the 1940 Act or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result
from purchase payments, premium payments, surrenders and other transactions
under Contracts (collectively, "Contract transactions") and that Cova receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate
3
<PAGE> 7
Funds next computed after receipt by AVIF or its designated agent of the
orders. For purposes of this Section 2.3(a), Cova shall be the designated agent
of AVIF for receipt of orders relating to Contract transactions on each
Business Day and receipt by such designated agent shall constitute receipt by
AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central
Time on the next following Business Day or such later time as computed in
accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Cova will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Cova of any income dividends
or capital gain distributions payable on the Shares of any Fund. Cova hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
Cova otherwise notifies AVIF in writing, it being agreed by the Parties that
the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. Cova reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to Cova. Shares ordered from AVIF will be
recorded in an appropriate title for Cova, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including, without
limitation, the preparation of and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to AVIF and its Shares and payment of all applicable
registration or filing fees with respect to any of the foregoing.
4
<PAGE> 8
(b) Cova will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to each Account and its units of interest and
payment of all applicable registration or filing fees with respect to any of
the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) Cova will bear the costs of preparing, filing with the SEC
and setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other
Participant communications.
(c) Cova will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the prospectus
provided by AVIF in camera ready form. AVIF will print the AVIF statement of
additional information, proxy materials relating to AVIF and periodic reports
of AVIF.
3.4 OTHER (SALES-RELATED).
Cova will bear the expenses of distribution. These expenses would
include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising relating
to the Funds, as well as filing such materials with, and obtaining approval
from, the SEC, the NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
5
<PAGE> 9
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Code, and represents that it will qualify and to maintain qualification of each
Fund as a RIC. AVIF will notify Cova immediately upon having a reasonable basis
for believing that a Fund has ceased to so qualify or that it might not so
qualify in the future.
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817- 5(b) of the
regulations under the Code. AVIF will notify Cova immediately upon having a
reasonable basis for believing that a Fund has ceased to so comply or that a
Fund might not so comply in the future. In the event of a breach of this
Section 4.1(b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
(c) Notwithstanding Section 12.2 hereunder, Cova agrees that if
the Internal Revenue Service ("IRS") asserts in writing in connection with any
governmental audit or review of Cova or, to Cova's knowledge, of any
Participant, that any Fund has failed to comply with the diversification
requirements of Section 817(h) of the Code or Cova otherwise becomes aware of
any facts that could give rise to any claim against AVIF or its affiliates as a
result of such a failure or alleged failure:
(I) Cova shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality
provisions of Section 18 as to any Participant);
(ii) Cova shall consult with AVIF as to how to minimize
any liability that may arise as a result of such
failure or alleged failure;
(iii) Cova shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from
such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the
IRS that such failure was inadvertent;
(iv) Cova shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS,
any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; provided, however, that Cova will
retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
6
<PAGE> 10
(v) any written materials to be submitted by Cova to the
IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by Cova to AVIF (together with any
supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by Cova to any such
person without the express written consent of AVIF
which shall not be unreasonably withheld;
(vi) Cova shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation
as AVIF shall reasonably request (including, without
limitation, by permitting AVIF and its accounting
and legal advisors to review the relevant books and
records of Cova) in order to facilitate review by
AVIF or its advisors of any written submissions
provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any
claim against its arising from such a failure or
alleged failure;
(vii) Cova shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim
against AVIF or its affiliates (a) compromise or
settle any claim, (b) accept any adjustment on
audit, or (c) forego any allowable administrative or
judicial appeals, without the express written
consent of AVIF or its affiliates, which shall not
be unreasonably withheld, provided that Cova shall
not be required, after exhausting all administrative
remedies, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal
shall be borne equally by the Parties hereto except
that Cova shall not be liable for such costs if the
failure to comply with Section 817 (h) arises from a
failure to meet the requirements of Treasury
Regulation Section 1.817-5(b)(1) or (2) or Treasury
Regulation Section 1.817-5(f) through no fault of
Cova; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if Cova
fails to comply with any of the foregoing clauses
(i) through (vii), and such failure could be shown
to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
Cova may, in its discretion, authorize AVIF or its affiliates to act in the
name of Cova in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and
7
<PAGE> 11
in that event AVIF or its affiliates shall bear the fees and expenses
associated with the conduct of the proceedings that it is so authorized to
control; provided, that in no event shall Cova have any liability resulting
from AVIF's refusal to accept the proposed settlement or compromise with
respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) Cova represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will maintain such treatment;
Cova will notify AVIF immediately upon having a reasonable basis for believing
that any of the Contracts have ceased to be so treated or that they might not
be so treated in the future.
(e) Cova represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Cova will continue to meet such definitional
requirements, and it will notify AVIF immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or that they
might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will comply with any applicable state insurance laws or
regulations, to the extent specifically requested in writing by Cova,
including, the furnishing of information not otherwise available to Cova which
is required by state insurance law to enable Cova to obtain the authority
needed to issue the Contracts in any applicable state.
(b) Cova represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Missouri and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations
under this Agreement, (ii) it has legally and validly established and maintains
each Account as a segregated asset account under Missouri Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) Cova represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New
8
<PAGE> 12
York law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940 Act, (iv) each Account does and will comply
in all material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Account's 1933 Act registration
statement relating to the Contracts, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder, (vi) Cova will amend the registration statement
for its Contracts under the 1933 Act and for its Accounts under the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law, and (vii) each
Account Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-
1, AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
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<PAGE> 13
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify Cova of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of
Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for
any other purpose relating to the registration or offering of AVIF's Shares, or
(iv) any other action or circumstances that may prevent the lawful offer or
sale of Shares of any Fund in any state or jurisdiction, including, without
limitation, any circumstances in which (a) such Shares are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law, or (b) such law precludes the use of such Shares as an
underlying investment medium of the Contracts issued or to be issued by Cova.
AVIF will make every reasonable effort to prevent the issuance, with respect to
any Fund, of any such stop order, cease and desist order or similar order and,
if any such order is issued, to obtain the lifting thereof at the earliest
possible time.
(b) Cova will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law. Cova will make every reasonable effort to prevent the issuance
of any such stop order, cease and desist order or similar order and, if any
such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 COVA TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) Cova will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) Cova will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if AVIF or
its designated agent objects to such use within five (5) Business Days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. AVIF hereby
10
<PAGE> 14
designates A I M as the entity to receive such sales literature, until such
time as AVIF appoints another designated agent by giving notice to Cova in the
manner required by Section 9 hereof.
(c) Neither Cova nor any of its affiliates, will give any
information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in connection with the sale of the Contracts
other than (i) the information or representations contained in the registration
statement, including the AVIF Prospectus contained therein, relating to Shares,
as such registration statement and AVIF Prospectus may be amended from time to
time; or (ii) in reports or proxy materials for AVIF; or (iii) in published
reports for AVIF that are in the public domain and approved by AVIF for
distribution; or (iv) in sales literature or other promotional material
approved by AVIF, except with the express written permission of AVIF.
(d) Cova shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials and any other material constituting sales
literature or advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT COVA.
(a) AVIF will provide to Cova at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary
and final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to Cova camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
Cova, of AVIF statements of additional information, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Contract value to a Fund. AVIF will provide
such copies to Cova in a timely manner so as to enable Cova, as the case may
be, to print and distribute such materials within the time required by law to
be furnished to Participants.
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(c) AVIF will provide to Cova or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which Cova, or any of its respective affiliates is named, or that
refers to the Contracts, at least five (5) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if Cova or its designated agent objects to such
use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. Cova
shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning Cova, each Account, or the Contracts other than (I) the information
or representations contained in the registration statement, including each
Account Prospectus contained therein, relating to the Contracts, as such
registration statement and Account Prospectus may be amended from time to time;
or (ii) in published reports for the Account or the Contracts that are in the
public domain and approved by Cova for distribution; or (iii) in sales
literature or other promotional material approved by Cova or its affiliates,
except with the express written permission of Cova.
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
Cova, and its respective affiliates that is intended for use only by brokers or
agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
Cova, nor any of its respective affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities,
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including, without limitation, separate accounts funding variable annuity
contracts or variable life insurance contracts, separate accounts of insurance
companies unaffiliated with Cova, and trustees of qualified pension and
retirement plans (collectively, "Mixed and Shared Funding"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that
are substantially identical to many of the provisions of this Section 5.
Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order
granted to AVIF. AVIF hereby notifies Cova that, in the event that AVIF
implements Mixed and Shared Funding, it may be appropriate to include in the
prospectus pursuant to which a Contract is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). Cova agrees to inform the Board of Directors of AVIF
of the existence of or any potential for any such material irreconcilable
conflict of which it is aware. The concept of a "material irreconcilable
conflict" is not defined by the 1940 Act or the rules thereunder, but the
Parties recognize that such a conflict may arise for a variety of reasons,
including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
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(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, Cova will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by Cova to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, Cova will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to:
(I) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question
whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g.,
annuity Participants, life insurance Participants or
all Participants) that votes in favor of such
segregation, or offering to the affected Participants
the option of making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3)
of the 1940 Act or a new separate account that is
operated as a management company.
(b) If the material irreconcilable conflict arises because of
Cova's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Cova may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal must take place within six (6) months after AVIF gives
notice to Cova that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by Cova for the
purchase and redemption of Shares of AVIF.
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(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to Cova conflicts
with the majority of other state regulators, then Cova will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs Cova that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal AVIF shall continue
to accept and implement orders by Cova for the purchase and redemption of
Shares of AVIF. No charge or penalty will be imposed as a result of such
withdrawal.
(d) Cova agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and
with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
Cova will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO COVA.
AVIF will promptly make known in writing to Cova the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Cova and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors
actions with regard to determining the existence of a conflict, notifying
Participating Insurance Companies and Participating Plans of a conflict, and
determining whether any proposed action adequately remedies a conflict, will be
properly recorded in the minutes of the Board of Directors or other appropriate
records, and such minutes or other records will be made available to the SEC
upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be
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deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against Cova or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding Cova's obligations under this
Agreement or related to the sale of the Contracts, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of Cova upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body
regarding AVIF's obligations under this Agreement or related to the operation
or management of AVIF or the purchase of AVIF Shares, if, in each case, Cova
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Cova, or the Subaccount corresponding to the Fund with
respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by Cova; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
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(f) at the option of Cova if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
Cova reasonably believes that the Fund may fail to so qualify; or
(g) at the option of Cova if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if Cova
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by Cova cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least sixty (60) days in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of Cova, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts."). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not
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apply to any terminations under Section 5 and the effect of such terminations
will be governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") nine (9) months following the Initial
Termination Date, except that Cova may, by written notice shorten said nine (9)
month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f),
6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given
to the following persons at the following addresses and facsimile numbers, or
such other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
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<PAGE> 22
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Facsimile:
Attn: General Counsel
COVA LIFE SALES COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Facsimile:
Attn: General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Cova will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Cova will vote Shares
in accordance with timely instructions received from Participants. Cova will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for Participants. Neither Cova nor any
of its affiliates will in any way recommend action in connection with or oppose
or interfere with the solicitation of proxies for the Shares held for such
Participants. Cova reserves the right to vote shares held in any Account in its
own right, to the extent permitted by law. Cova shall be responsible for
assuring that each of its Accounts holding Shares calculates voting privileges
in a manner consistent with that of other Participating Insurance Companies or
in the manner required by the Mixed and Shared Funding exemptive order obtained
by AVIF. AVIF will notify Cova of any changes of interpretations or amendments
to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply
with all provisions of the 1940 Act requiring voting by shareholders, and in
particular, AVIF either will provide for annual meetings (except insofar as the
SEC may interpret Section 16 of the
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1940 Act not to require such meetings) or will comply with Section 16(c) of the
1940 Act (although AVIF is not one of the trusts described in Section 16(c) of
that Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, AVIF will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Cova concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY COVA AND COVA SALES.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, Cova and Cova Sales agree to indemnify and hold harmless AVIF, its
affiliates (including AIM), and each person, if any, who controls AVIF or its
affiliates within the meaning of Section 15 of the 1933 Act and each of their
respective directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
Cova and Cova Sales) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature
or advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to Cova or Cova Sales by or
on behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
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(ii) arise out of or as a result of any other statements or
representations (other than statements or
representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, not supplied for
use therein by or on behalf of Cova, Cova Sales or
their respective affiliates and on which such persons
have reasonably relied) or the negligent, illegal or
fraudulent conduct of Cova, Cova Sales or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the
Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not misleading
if such a statement or omission was made in reliance
upon and in conformity with information furnished to
AVIF or its affiliates by or on behalf of Cova, Cova
Sales or their respective affiliates for use in AVIF's
1933 Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by Cova or Cova Sales
to perform the obligations, provide the services and
furnish the materials required of them under the terms
of this Agreement, or any material breach of any
representation and/or warranty made by Cova or Cova
Sales in this Agreement or arise out of or result from
any other material breach of this Agreement by Cova or
Cova Sales; or
(v) arise as a result of failure by the Contracts issued by
Cova to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of
any Fund's failure to comply with Subchapter M or
Section 817(h) of the Code.
(b) Neither Cova nor Cova Sales shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii)
to AVIF.
(c) Neither Cova nor Cova Sales shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF shall
have notified Cova and Cova Sales in writing within a reasonable time after the
summons or other first legal process giving
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information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify Cova and Cova
Sales of any such action shall not relieve Cova and Cova Sales from any
liability which they may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12.1. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, Cova and Cova Sales shall be entitled to participate, at their own
expense, in the defense of such action and also shall be entitled to assume the
defense thereof, with counsel approved by the Indemnified Party named in the
action, which approval shall not be unreasonably withheld. After notice from
Cova or Cova Sales to such Indemnified Party of Cova's or Cova Sales's election
to assume the defense thereof, the Indemnified Party will cooperate fully with
Cova and Cova Sales and shall bear the fees and expenses of any additional
counsel retained by it, and neither Cova nor Cova Sales will be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
12.2 OF COVA AND COVA SALES BY AVIF AND AIM.
(a) Except to the extent provided in Sections 4.1(c),12.2(c),
12.2(d) and 12.2(e), below, AVIF and AIM agree to indemnify and hold harmless
Cova, Cova Sales, their respective affiliates, and each person, if any, who
controls Cova, Cova Sales or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of AVIF and/or AIM) or actions in
respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law, or otherwise; provided, insofar as such
losses, claims, damages, liabilities or actions are related to the sale or
acquisition of AVIF's shares and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF
(or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to AVIF or its affiliates by
or on behalf of Cova, Cova Sales or their respective
affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or
advertising or otherwise for use in connection with the
sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
22
<PAGE> 26
(ii) arise out of or as a result of any other statements or
representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of AVIF or AIM
or their respective affiliates and on which such
persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of AVIF or AIM or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons" as that Term is defined in Section
(q) of Article 1 of the NASD By-Laws), in connection
with the sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement
to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading, if such statement or omission
was made in reliance upon and in conformity with
information furnished to Cova, Cova Sales or their
respective affiliates by or on behalf of AVIF or AIM
for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this
Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to
Participants asserting liability against Cova pursuant to the Contracts, the
costs of any ruling and closing agreement or other settlement with the IRS, and
the cost of any substitution by Cova of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that Cova reasonably deems necessary or appropriate as a result of the
noncompliance.
23
<PAGE> 27
(c) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to Cova, Cova Sales,
each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and/or AIM in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the
conduct of any ruling request and closing agreement or other settlement
proceeding with the IRS), with counsel approved by the Indemnified Party named
in the action, which approval shall not be unreasonably withheld. After notice
from AVIF and/or AIM to such Indemnified Party of AVIF's and/or AIM's election
to assume the defense thereof, the Indemnified Party will cooperate fully with
AVIF and AIM and shall bear the fees and expenses of any additional counsel
retained by it, and neither AVIF nor AIM will be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently
incurred by such Indemnified Party independently in connection with the defense
thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Cova, Cova Sales or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Cova or Cova
Sales hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants;
(ii) the failure by Cova or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by Cova or any Participating Insurance
Company to maintain its variable annuity or life insurance contracts (with
respect to which any Fund serves as an underlying funding vehicle) as annuity
contracts or life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will
24
<PAGE> 28
in no event be deemed to be an admission by the indemnifying Party of
liability, culpability or responsibility, and the indemnifying Party will
remain free to contest liability with respect to the claim among the Parties or
otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of Cova or any
of its affiliates (collectively, the "Cova Protected Parties" for purposes of
this Section 18), information
25
<PAGE> 29
maintained regarding those customers, and all computer programs and procedures
or other information developed by the Cova Protected Parties or any of their
employees or agents in connection with Cova's performance of its duties under
this Agreement are the valuable property of the Cova Protected Parties. AVIF
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the Cova Protected Parties' customers,
or any other information or property of the Cova Protected Parties, other than
such information as may be independently developed or compiled by AVIF from
information supplied to it by the Cova Protected Parties' customers who also
maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a) with Cova's prior written
consent; or (b) as required by law or judicial process. Cova acknowledges that
the identities of the customers of AVIF or any of its affiliates (collectively
the "AVIF Protected Parties" for purposes of this Section 18), information
maintained regarding those customers, and all computer programs and procedures
or other information developed by the AVIF Protected Parties or any of their
employees or agents in connection with AVIF's performance of its duties under
this Agreement are the valuable property of the AVIF Protected Parties. Cova
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the AVIF Protected Parties' customers
or any other information or property of the AVIF Protected Parties, other than
such information as may be independently developed or compiled by Cova from
information supplied to it by the AVIF Protected Parties' customers who also
maintain accounts directly with Cova, Cova will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a) with AVIF's prior written
consent; or (b) as required by law or judicial process. Each party acknowledges
that any breach of the agreements in this Section 18 would result in immediate
and irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
SECTION 19. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 20. AMENDMENTS
No provision of this Agreement may be amended or modified in any
manner except by a written agreement executed by all parties hereto.
26
<PAGE> 30
SECTION 21. ASSIGNMENT
This Agreement may not be assigned without the prior written consent
of all parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
---------------------------- ----------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
---------------------------- ----------------------------------
Name: NANCY L. MARTIN Name: MICHAEL J. CEMO
------------------------------ --------------------------------
Title: ASSISTANT SECRETARY Title: PRESIDENT
----------------------------- -------------------------------
COVA FINANCIAL SERVICES LIFE
INSURANCE COMPANY, on behalf of
itself and its separate accounts
Attest: /s/ ROBIN M. POKORNY By: /s/ MARK E. REYNOLDS
---------------------------- ----------------------------------
Name: ROBIN M. POKORNY Name: MARK E. REYNOLDS
------------------------------ --------------------------------
Title: EXECUTIVE ASST. Title: EXECUTIVE VICE PRESIDENT
----------------------------- -------------------------------
COVA LIFE SALES COMPANY
Attest: /s/ ROBIN M. POKORNY By: /s/ PATRICIA E. GUBBE
---------------------------- ----------------------------------
Name: ROBIN M. POKORNY Name: PATRICIA E. GUBBE
------------------------------ --------------------------------
Title: EXECUTIVE ASST. Title: FIRST VICE PRESIDENT
----------------------------- -------------------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Cova Variable Annuity Account One
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Contract Form # XL-407
o Contract Form # CL-407
o Contract Form # XL-617
o Contract Form # CL-617
28
<PAGE> 1
EXHIBIT 9(k)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
COVA FINANCIAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
COVA LIFE SALES COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Cova To Provide Documents; Information About AVIF . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 AVIF To Provide Documents; Information About Cova . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Notice to Cova . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . 18
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Of AVIF and AIM by Cova and Cova Sales . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Of Cova and Cova Sales by AVIF and AIM . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of December,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"),
Cova Financial Life Insurance Company, a California life insurance company
("Cova"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); and Cova Life Sales Company,
an affiliate of Cova and the principal underwriter of the Contracts ("Cova
Sales") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, Cova will be the issuer of certain variable annuity contracts
and variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law,
will be registered under the 1933 Act; and
WHEREAS, Cova will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, Cova will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Cova intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts; and
WHEREAS, Cova Sales is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Cova for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF agrees that all shares of the Funds will be sold to Participating
Insurance Companies and other entities, all in accordance with Section 817
(h)(4) of the Internal Revenue Code of 1986, as amended (the "Code") and
Treasury Regulations Section 1.817-5. Shares of the Funds will not be sold to
the general public.
2
<PAGE> 6
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide Cova with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean
any day on which (I) the New York Stock Exchange is open for regular trading,
(ii) AVIF calculates the Fund's net asset value, and (iii) Cova is open for
business.
(b) Cova will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values
and to process transactions that receive that same Business Day's Account unit
values. Cova will perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares with AVIF by 9:00
a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to Cova in the event that AVIF is unable to meet
the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional
time shall be equal to the additional time that AVIF takes to make the net
asset values available to Cova.
(c) With respect to payment of the purchase price by Cova and of
redemption proceeds by AVIF, Cova and AVIF shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment per Fund in
accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), Cova shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting
of net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to Cova.
2.2 TIMELY PAYMENTS.
Cova will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by Cova by 1:00 p.m. Central Time on the
same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable Cova to pay redemption proceeds within the time specified in Section
22(e) of the 1940 Act or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that Cova receives prior
to the close of regular trading on the New York Stock Exchange on a Business
Day will be executed at the net asset values of the appropriate
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Funds next computed after receipt by AVIF or its designated agent of the
orders. For purposes of this Section 2.3(a), Cova shall be the designated
agent of AVIF for receipt of orders relating to Contract transactions on each
Business Day and receipt by such designated agent shall constitute receipt by
AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central
Time on the next following Business Day or such later time as computed in
accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Cova will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Cova of any income dividends
or capital gain distributions payable on the Shares of any Fund. Cova hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
Cova otherwise notifies AVIF in writing, it being agreed by the Parties that
the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. Cova reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to Cova. Shares ordered from AVIF will
be recorded in an appropriate title for Cova, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
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(b) Cova will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N- SAR and Rule
24f-2 Notices with respect to each Account and its units of interest and
payment of all applicable registration or filing fees with respect to any of
the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) Cova will bear the costs of preparing, filing with the SEC and
setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other
Participant communications.
(c) Cova will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready form. AVIF will print the AVIF
statement of additional information, proxy materials relating to AVIF and
periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
Cova will bear the expenses of distribution. These expenses would
include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising relating
to the Funds, as well as filing such materials with, and obtaining approval
from, the SEC, the NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
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SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Code, and represents that it will qualify and to maintain qualification of each
Fund as a RIC. AVIF will notify Cova immediately upon having a reasonable
basis for believing that a Fund has ceased to so qualify or that it might not
so qualify in the future.
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify Cova immediately upon having a
reasonable basis for believing that a Fund has ceased to so comply or that a
Fund might not so comply in the future. In the event of a breach of this
Section 4.1(b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
(c) Notwithstanding Section 12.2 hereunder, Cova agrees that if
the Internal Revenue Service ("IRS") asserts in writing in connection with any
governmental audit or review of Cova or, to Cova's knowledge, of any
Participant, that any Fund has failed to comply with the diversification
requirements of Section 817(h) of the Code or Cova otherwise becomes aware of
any facts that could give rise to any claim against AVIF or its affiliates as a
result of such a failure or alleged failure:
(I) Cova shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality
provisions of Section 18 as to any Participant);
(ii) Cova shall consult with AVIF as to how to minimize
any liability that may arise as a result of such
failure or alleged failure;
(iii) Cova shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from
such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS
that such failure was inadvertent;
(iv) Cova shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS,
any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; provided, however, that Cova will
retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
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<PAGE> 10
(v) any written materials to be submitted by Cova to the
IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by Cova to AVIF (together with any
supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by Cova to any such
person without the express written consent of AVIF
which shall not be unreasonably withheld;
(vi) Cova shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation
as AVIF shall reasonably request (including, without
limitation, by permitting AVIF and its accounting and
legal advisors to review the relevant books and
records of Cova) in order to facilitate review by
AVIF or its advisors of any written submissions
provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any claim
against its arising from such a failure or alleged
failure;
(vii) Cova shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim
against AVIF or its affiliates (a) compromise or
settle any claim, (b) accept any adjustment on audit,
or (c) forego any allowable administrative or
judicial appeals, without the express written consent
of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that Cova shall not
be required, after exhausting all administrative
remedies, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal
shall be borne equally by the Parties hereto except
that Cova shall not be liable for such costs if the
failure to comply with Section 817 (h) arises from a
failure to meet the requirements of Treasury
Regulation Section 1.817-5(b)(1) or (2) or Treasury
Regulation Section 1.817-5(f) through no fault of
Cova; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if Cova
fails to comply with any of the foregoing clauses (i)
through (vii), and such failure could be shown to
have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
Cova may, in its discretion, authorize AVIF or its affiliates to act in the
name of Cova in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and
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<PAGE> 11
in that event AVIF or its affiliates shall bear the fees and expenses associated
with the conduct of the proceedings that it is so authorized to control;
provided, that in no event shall Cova have any liability resulting from AVIF's
refusal to accept the proposed settlement or compromise with respect to any
failure caused by AVIF. As used in this Agreement, the term "affiliates" shall
have the same meaning as "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(d) Cova represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will maintain such treatment;
Cova will notify AVIF immediately upon having a reasonable basis for believing
that any of the Contracts have ceased to be so treated or that they might not
be so treated in the future.
(e) Cova represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Cova will continue to meet such definitional
requirements, and it will notify AVIF immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or that they
might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will comply with any applicable state insurance laws or
regulations, to the extent specifically requested in writing by Cova,
including, the furnishing of information not otherwise available to Cova which
is required by state insurance law to enable Cova to obtain the authority
needed to issue the Contracts in any applicable state.
(b) Cova represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of California and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations
under this Agreement, (ii) it has legally and validly established and maintains
each Account as a segregated asset account under California Insurance Law and
the regulations thereunder, and (iii) the Contracts comply in all material
respects with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) Cova represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New
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York law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940 Act, (iv) each Account does and will comply
in all material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Account's 1933 Act registration
statement relating to the Contracts, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder, (vi) Cova will amend the registration statement
for its Contracts under the 1933 Act and for its Accounts under the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law, and (vii) each
Account Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
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4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify Cova of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of
Shares of AVIF, (iii) the initiation of any proceedings for that purpose or
for any other purpose relating to the registration or offering of AVIF's
Shares, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Shares of any Fund in any state or jurisdiction, including,
without limitation, any circumstances in which (a) such Shares are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by Cova. AVIF will make every reasonable effort to prevent the
issuance, with respect to any Fund, of any such stop order, cease and desist
order or similar order and, if any such order is issued, to obtain the lifting
thereof at the earliest possible time.
(b) Cova will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law. Cova will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and,
if any such order is issued, to obtain the lifting thereof at the earliest
possible time.
4.5 COVA TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) Cova will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) Cova will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if AVIF or
its designated agent objects to such use within five (5) Business Days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. AVIF hereby
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designates A I M as the entity to receive such sales literature, until such
time as AVIF appoints another designated agent by giving notice to Cova in the
manner required by Section 9 hereof.
(c) Neither Cova nor any of its affiliates, will give any
information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in connection with the sale of the Contracts
other than (i) the information or representations contained in the registration
statement, including the AVIF Prospectus contained therein, relating to Shares,
as such registration statement and AVIF Prospectus may be amended from time to
time; or (ii) in reports or proxy materials for AVIF; or (iii) in published
reports for AVIF that are in the public domain and approved by AVIF for
distribution; or (iv) in sales literature or other promotional material
approved by AVIF, except with the express written permission of AVIF.
(d) Cova shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials and any other material constituting sales
literature or advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT COVA.
(a) AVIF will provide to Cova at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary
and final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to Cova camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
Cova, of AVIF statements of additional information, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to Cova in a timely manner so as to enable Cova, as the
case may be, to print and distribute such materials within the time required by
law to be furnished to Participants.
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(c) AVIF will provide to Cova or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which Cova, or any of its respective affiliates is named, or that
refers to the Contracts, at least five (5) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if Cova or its designated agent objects to such
use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. Cova
shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning Cova, each Account, or the Contracts other than (I) the information
or representations contained in the registration statement, including each
Account Prospectus contained therein, relating to the Contracts, as such
registration statement and Account Prospectus may be amended from time to time;
or (ii) in published reports for the Account or the Contracts that are in the
public domain and approved by Cova for distribution; or (iii) in sales
literature or other promotional material approved by Cova or its affiliates,
except with the express written permission of Cova.
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
Cova, and its respective affiliates that is intended for use only by brokers or
agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
Cova, nor any of its respective affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities,
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including, without limitation, separate accounts funding variable annuity
contracts or variable life insurance contracts, separate accounts of insurance
companies unaffiliated with Cova, and trustees of qualified pension and
retirement plans (collectively, "Mixed and Shared Funding"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that
are substantially identical to many of the provisions of this Section 5.
Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order
granted to AVIF. AVIF hereby notifies Cova that, in the event that AVIF
implements Mixed and Shared Funding, it may be appropriate to include in the
prospectus pursuant to which a Contract is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). Cova agrees to inform the Board of Directors of AVIF
of the existence of or any potential for any such material irreconcilable
conflict of which it is aware. The concept of a "material irreconcilable
conflict" is not defined by the 1940 Act or the rules thereunder, but the
Parties recognize that such a conflict may arise for a variety of reasons,
including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
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(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, Cova will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by Cova to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, Cova will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to:
(I) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
Cova's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Cova may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal must take place within six (6) months after AVIF gives
notice to Cova that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by Cova for the
purchase and redemption of Shares of AVIF.
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(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to Cova conflicts
with the majority of other state regulators, then Cova will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs Cova that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal AVIF shall continue
to accept and implement orders by Cova for the purchase and redemption of Shares
of AVIF. No charge or penalty will be imposed as a result of such withdrawal.
(d) Cova agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and
with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
Cova will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO COVA.
AVIF will promptly make known in writing to Cova the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Cova and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or
any exemptive order granted by the SEC to permit Mixed and Shared Funding, and
said reports, materials and data will be submitted at any reasonable time
deemed appropriate by the Board of Directors. All reports received by the
Board of Directors of potential or existing conflicts, and all Board of
Directors actions with regard to determining the existence of a conflict,
notifying Participating Insurance Companies and Participating Plans of a
conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be
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deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against Cova or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding Cova's obligations under this
Agreement or related to the sale of the Contracts, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of Cova upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body
regarding AVIF's obligations under this Agreement or related to the operation
or management of AVIF or the purchase of AVIF Shares, if, in each case, Cova
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Cova, or the Subaccount corresponding to the Fund with
respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by Cova; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
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(f) at the option of Cova if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
Cova reasonably believes that the Fund may fail to so qualify; or
(g) at the option of Cova if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if Cova
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by Cova cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least sixty (60) days in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of Cova, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts."). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not
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apply to any terminations under Section 5 and the effect of such terminations
will be governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") nine (9) months following the Initial
Termination Date, except that Cova may, by written notice shorten said nine (9)
month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f),
6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
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<PAGE> 22
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
COVA FINANCIAL LIFE INSURANCE COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Facsimile:
Attn: General Counsel
COVA LIFE SALES COMPANY
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181
Facsimile:
Attn: General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Cova will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Cova will vote Shares
in accordance with timely instructions received from Participants. Cova will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for Participants. Neither Cova nor any
of its affiliates will in any way recommend action in connection with or
oppose or interfere with the solicitation of proxies for the Shares held for
such Participants. Cova reserves the right to vote shares held in any Account
in its own right, to the extent permitted by law. Cova shall be responsible
for assuring that each of its Accounts holding Shares calculates voting
privileges in a manner consistent with that of other Participating Insurance
Companies or in the manner required by the Mixed and Shared Funding exemptive
order obtained by AVIF. AVIF will notify Cova of any changes of
interpretations or amendments to Mixed and Shared Funding exemptive order it
has obtained. AVIF will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, AVIF either will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the
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<PAGE> 23
1940 Act not to require such meetings) or will comply with Section 16(c) of the
1940 Act (although AVIF is not one of the trusts described in Section 16(c) of
that Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, AVIF will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Cova concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY COVA AND COVA SALES.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, Cova and Cova Sales agree to indemnify and hold harmless AVIF, its
affiliates (including AIM), and each person, if any, who controls AVIF or its
affiliates within the meaning of Section 15 of the 1933 Act and each of their
respective directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
Cova and Cova Sales) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to Cova or Cova Sales by or on
behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
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<PAGE> 24
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of Cova, Cova
Sales or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of Cova, Cova Sales or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts
or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of Cova, Cova Sales or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by Cova or Cova Sales to
perform the obligations, provide the services and furnish
the materials required of them under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by Cova or Cova Sales in this
Agreement or arise out of or result from any other
material breach of this Agreement by Cova or Cova Sales;
or
(v) arise as a result of failure by the Contracts issued by
Cova to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) Neither Cova nor Cova Sales shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii)
to AVIF.
(c) Neither Cova nor Cova Sales shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF shall
have notified Cova and Cova Sales in writing within a reasonable time after the
summons or other first legal process giving
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information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Cova and Cova Sales
of any such action shall not relieve Cova and Cova Sales from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, Cova
and Cova Sales shall be entitled to participate, at their own expense, in the
defense of such action and also shall be entitled to assume the defense thereof,
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Cova or Cova
Sales to such Indemnified Party of Cova's or Cova Sales's election to assume the
defense thereof, the Indemnified Party will cooperate fully with Cova and Cova
Sales and shall bear the fees and expenses of any additional counsel retained by
it, and neither Cova nor Cova Sales will be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
12.2 OF COVA AND COVA SALES BY AVIF AND AIM.
(a) Except to the extent provided in Sections 4.1(c),12.2(c),
12.2(d) and 12.2(e), below, AVIF and AIM agree to indemnify and hold harmless
Cova, Cova Sales, their respective affiliates, and each person, if any, who
controls Cova, Cova Sales or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of AVIF and/or AIM) or actions in
respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law, or otherwise; provided, insofar as such
losses, claims, damages, liabilities or actions are related to the sale or
acquisition of AVIF's shares and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or
its affiliates by or on behalf of Cova, Cova Sales or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
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<PAGE> 26
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF or AIM or their
respective affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of AVIF or AIM or their respective
affiliates or persons under their control (including,
without limitation, their employees and "Associated
Persons" as that Term is defined in Section (q) of
Article 1 of the NASD By-Laws), in connection with the
sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to Cova, Cova Sales or their respective
affiliates by or on behalf of AVIF or AIM for use in any
Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this
Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to
Participants asserting liability against Cova pursuant to the Contracts, the
costs of any ruling and closing agreement or other settlement with the IRS, and
the cost of any substitution by Cova of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that Cova reasonably deems necessary or appropriate as a result of the
noncompliance.
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(c) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to Cova, Cova Sales,
each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and/or AIM in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the
conduct of any ruling request and closing agreement or other settlement
proceeding with the IRS), with counsel approved by the Indemnified Party named
in the action, which approval shall not be unreasonably withheld. After notice
from AVIF and/or AIM to such Indemnified Party of AVIF's and/or AIM's election
to assume the defense thereof, the Indemnified Party will cooperate fully with
AVIF and AIM and shall bear the fees and expenses of any additional counsel
retained by it, and neither AVIF nor AIM will be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently
incurred by such Indemnified Party independently in connection with the defense
thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Cova, Cova Sales or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Cova or Cova
Sales hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants;
(ii) the failure by Cova or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by Cova or any Participating Insurance
Company to maintain its variable annuity or life insurance contracts (with
respect to which any Fund serves as an underlying funding vehicle) as annuity
contracts or life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will
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in no event be deemed to be an admission by the indemnifying Party of
liability, culpability or responsibility, and the indemnifying Party will
remain free to contest liability with respect to the claim among the Parties or
otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of Cova or any
of its affiliates (collectively, the "Cova Protected Parties" for purposes of
this Section 18), information
25
<PAGE> 29
maintained regarding those customers, and all computer programs and procedures
or other information developed by the Cova Protected Parties or any of their
employees or agents in connection with Cova's performance of its duties under
this Agreement are the valuable property of the Cova Protected Parties. AVIF
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the Cova Protected Parties' customers,
or any other information or property of the Cova Protected Parties, other than
such information as may be independently developed or compiled by AVIF from
information supplied to it by the Cova Protected Parties' customers who also
maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a) with Cova's prior written
consent; or (b) as required by law or judicial process. Cova acknowledges that
the identities of the customers of AVIF or any of its affiliates (collectively
the "AVIF Protected Parties" for purposes of this Section 18), information
maintained regarding those customers, and all computer programs and procedures
or other information developed by the AVIF Protected Parties or any of their
employees or agents in connection with AVIF's performance of its duties under
this Agreement are the valuable property of the AVIF Protected Parties. Cova
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the AVIF Protected Parties' customers
or any other information or property of the AVIF Protected Parties, other than
such information as may be independently developed or compiled by Cova from
information supplied to it by the AVIF Protected Parties' customers who also
maintain accounts directly with Cova, Cova will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a) with AVIF's prior written
consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 18 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
SECTION 19. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 20. AMENDMENTS
No provision of this Agreement may be amended or modified in any
manner except by a written agreement executed by all parties hereto.
26
<PAGE> 30
SECTION 21. ASSIGNMENT
This Agreement may not be assigned without the prior written consent
of all parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
<TABLE>
<S> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
--------------------------- -------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
--------------------------- -------------------------------
Name: NANCY L. MARTIN Name: MICHAEL J. CEMO
--------------------------- -------------------------------
Title: ASSISTANT SECRETARY Title: PRESIDENT
--------------------------- -------------------------------
COVA FINANCIAL LIFE INSURANCE
COMPANY, on behalf of itself and its separate
accounts
Attest: /s/ ROBIN M. POKORNY By: /s/ MARK E. REYNOLDS
--------------------------- -------------------------------
Name: ROBIN M. POKORNY Name: MARK E. REYNOLDS
--------------------------- -------------------------------
Title: EXECUTIVE ASST. Title: EXECUTIVE VICE PRESIDENT
--------------------------- -------------------------------
COVA LIFE SALES COMPANY
Attest: /s/ ROBIN M. POKORNY By: /s/ PATRICIA E. GUBBE
--------------------------- -------------------------------
Name: ROBIN M. POKORNY Name: PATRICIA E. GUBBE
--------------------------- -------------------------------
Title: EXECUTIVE ASST. Title: FIRST VICE PRESIDENT
--------------------------- -------------------------------
</TABLE>
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Cova Variable Annuity Account Five
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Contract Form # XLCC-648
o Contract Form # XLCC-833
28
<PAGE> 1
EXHIBIT 9(l)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
AIG LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AIG EQUITY SALES CORP.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 AIG To Provide Documents; Information About AVIF . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 AVIF To Provide Documents; Information About AIG . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Notice to AIG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C>
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.1 Of AVIF by AIG and AIG Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.2 Of AIG and AIG Equity by AVIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 20th day of November,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); AIG Life Insurance Company, a Delaware life insurance
company ("AIG"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and AIG Equity Sales
Corp., an affiliate of AIG and the principal underwriter of the Contracts
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, AIG will be the issuer of certain variable annuity contracts
and variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law,
will be registered under the 1933 Act; and
WHEREAS, AIG will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, AIG will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, AIG intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts; and
WHEREAS, AIG Equity is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to AIG for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide AIG with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein,
2
<PAGE> 6
"Business Day" shall mean any day on which (i) the New York Stock Exchange is
open for regular trading, (ii) AVIF calculates the Fund's net asset value, and
(iii) AIG is open for business.
(b) AIG will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values
and to process transactions that receive that same Business Day's Account unit
values. AIG will perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares with AVIF by 9:00
a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to AIG in the event that AVIF is unable to meet
the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional
time shall be equal to the additional time that AVIF takes to make the net
asset values available to AIG.
(c) With respect to payment of the purchase price by AIG and of
redemption proceeds by AVIF, AIG and AVIF shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment per Fund in
accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), AIG shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting
of net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to AIG.
2.2 TIMELY PAYMENTS.
AIG will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by AIG by 1:00 p.m. Central Time on the
same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable AIG to pay redemption proceeds within the time specified in Section
22(e) of the 1940 Act or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that AIG receives prior
to the close of regular trading on the New York Stock Exchange on a Business
Day will be executed at the net asset values of the appropriate Funds next
computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), AIG shall be the designated agent of AVIF for
receipt of orders relating to Contract transactions on each Business Day and
receipt by such designated agent shall constitute receipt by AVIF; provided
that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next
following Business Day or such later time as computed in accordance with
Section 2.1(b) hereof.
3
<PAGE> 7
(b) All other Share purchases and redemptions by AIG will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to AIG of any income dividends or
capital gain distributions payable on the Shares of any Fund. AIG hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values
until AIG otherwise notifies AVIF in writing, it being agreed by the Parties
that the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. AIG reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to AIG. Shares ordered from AVIF will be
recorded in an appropriate title for AIG, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
(b) AIG will bear the cost of registering, to the extent required,
each Account as a unit investment trust under the 1940 Act and registering
units of interest under the Contracts under the 1933 Act and keeping such
registrations current and effective; including, without limitation, the
preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
4
<PAGE> 8
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) AIG will bear the costs of preparing, filing with the SEC and
setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other
Participant communications.
(c) AIG will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready or computer diskette form. AVIF
will print the AVIF statement of additional information, proxy materials
relating to AVIF and periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
AIG will bear the expenses of distribution. These expenses would
include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising relating
to the Funds, as well as filing such materials with, and obtaining approval
from, the SEC, the NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each Fund
as a RIC. AVIF will notify AIG immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
5
<PAGE> 9
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify AIG immediately upon having a
reasonable basis for believing that a Fund has ceased to so comply or that a
Fund might not so comply in the future. In the event of a breach of this
Section 4.1(b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
(c) AIG agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of AIG
or, to AIG's knowledge, of any Participant, that any Fund has failed to comply
with the diversification requirements of Section 817(h) of the Code or AIG
otherwise becomes aware of any facts that could give rise to any claim against
AVIF or its affiliates as a result of such a failure or alleged failure:
(i) AIG shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality
provisions of Section 18 as to any Participant);
(ii) AIG shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure
or alleged failure;
(iii) AIG shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from
such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS
that such failure was inadvertent;
(iv) AIG shall permit AVIF, its affiliates and their legal
and accounting advisors to participate in any
conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS,
any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; provided, however, that AIG will
retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by AIG to the
IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by AIG to AVIF (together with any
supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by AIG to any such
person without the express written consent of AVIF
which shall not be unreasonably withheld;
6
<PAGE> 10
(vi) AIG shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation
as AVIF shall reasonably request (including, without
limitation, by permitting AVIF and its accounting and
legal advisors to review the relevant books and
records of AIG) in order to facilitate review by
AVIF or its advisors of any written submissions
provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any claim
against its arising from such a failure or alleged
failure;
(vii) AIG shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim
against AVIF or its affiliates (a) compromise or
settle any claim, (b) accept any adjustment on audit,
or (c) forego any allowable administrative or
judicial appeals, without the express written consent
of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that AIG shall not be
required, after exhausting all administrative
penalties, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal
shall be borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if AIG
fails to comply with any of the foregoing clauses (i)
through (vii), and such failure could be shown to
have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
AIG may, in its discretion, authorize AVIF or its affiliates to act in the name
of AIG in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall AIG have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the
term "affiliates" shall have the same meaning as "affiliated person" as defined
in Section 2(a)(3) of the 1940 Act.
(d) AIG represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; AIG will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) AIG represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. AIG will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
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4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested by
AIG, including, the furnishing of information not otherwise available to AIG
which is required by state insurance law to enable AIG to obtain the authority
needed to issue the Contracts in any applicable state.
(b) AIG represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of New York and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations
under this Agreement, (ii) it has legally and validly established and maintains
each Account as a segregated asset account under Section 2932 of the Delaware
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) AIG represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Delaware law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) AIG will amend the
registration statement for its Contracts under the 1933 Act and for its
Accounts under the 1940 Act from time to time as required in order to effect
the continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects
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with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's
Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify AIG of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of
Shares of AVIF, (iii) the initiation of any proceedings for that purpose or
for any other purpose relating to the registration or offering of AVIF's
Shares, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Shares of any Fund in any state or jurisdiction, including,
without limitation, any circumstances in which (a) such Shares are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by AIG. AVIF will make every reasonable effort to prevent the issuance,
with respect to any Fund, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof
at the earliest possible time.
(b) AIG will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law. AIG will make every reasonable effort to prevent the issuance
of
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any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
4.5 AIG TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) AIG will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) AIG will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if AVIF or
its designated agent objects to such use within five (5) Business Days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. AVIF hereby designates A I M as the entity to
receive such sales literature, until such time as AVIF appoints another
designated agent by giving notice to AIG in the manner required by Section 9
hereof.
(c) Neither AIG nor any of its affiliates, will give any
information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in connection with the sale of the Contracts
other than (i) the information or representations contained in the registration
statement, including the AVIF Prospectus contained therein, relating to Shares,
as such registration statement and AVIF Prospectus may be amended from time to
time; or (ii) in reports or proxy materials for AVIF; or (iii) in published
reports for AVIF that are in the public domain and approved by AVIF for
distribution; or (iv) in sales literature or other promotional material
approved by AVIF, except with the express written permission of AVIF.
(d) AIG shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports, and
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proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT AIG.
(a) AVIF will provide to AIG at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to AIG camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
AIG, of AVIF statements of additional information, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to AIG in a timely manner so as to enable AIG, as the case
may be, to print and distribute such materials within the time required by law
to be furnished to Participants.
(c) AVIF will provide to AIG or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AIG, or any of its respective affiliates is named, or that
refers to the Contracts, at least five (5) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if AIG or its designated agent objects to such
use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. AIG
shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning AIG, each Account, or the Contracts other than (i) the information
or representations contained in the registration statement, including each
Account Prospectus contained therein, relating to the Contracts, as such
registration statement and Account Prospectus may be amended from time to time;
or (ii) in published reports for the Account or the Contracts that are in the
public domain and approved by AIG for distribution; or (iii) in sales
literature or other promotional material approved by AIG or its affiliates,
except with the express written permission of AIG.
(e) AVIF shall cause its principal AIG Equity to adopt and
implement procedures reasonably designed to ensure that information concerning
AIG, and its respective affiliates that is intended for use only by brokers or
agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
AIG, nor any of its respective affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording,
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<PAGE> 15
videotape display, signs or billboards, motion pictures, or other public media,
(e.g., on-line networks such as the Internet or other electronic messages),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with AIG, and
trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies AIG
that, in the event that AVIF implements Mixed and Shared Funding, it may be
appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). AIG agrees to inform the Board of Directors of AVIF
of the existence of or any potential for any such material irreconcilable
conflict of which it is aware. The concept of a "material
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<PAGE> 16
irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, AIG will assist the Board
of Directors in carrying out its responsibilities by providing the Board of
Directors with all information reasonably necessary for the Board of Directors
to consider any issue raised, including information as to a decision by AIG to
disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, AIG will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
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(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
AIG's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AIG may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal must take place within six (6) months after AVIF gives
notice to AIG that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by AIG for the
purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to AIG conflicts
with the majority of other state regulators, then AIG will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs AIG that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal AVIF shall continue
to accept and implement orders by AIG for the purchase and redemption of Shares
of AVIF. No charge or penalty will be imposed as a result of such withdrawal.
(d) AIG agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and
with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
AIG will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO AIG .
AVIF will promptly make known in writing to AIG the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
AIG and AVIF (or its investment adviser) will at least annually submit
to the Board of Directors of AVIF such reports, materials or data as the Board
of Directors may reasonably request so that the Board of Directors may fully
carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors
actions with regard to determining the existence of a conflict, notifying
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Participating Insurance Companies and Participating Plans of a conflict, and
determining whether any proposed action adequately remedies a conflict, will be
properly recorded in the minutes of the Board of Directors or other appropriate
records, and such minutes or other records will be made available to the SEC
upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against AIG or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding AIG's obligations under this
Agreement or related to the sale of the Contracts, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of AIG upon institution of formal proceedings
against AVIF, its principal AIG Equity, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body
regarding AVIF's obligations under this Agreement or related to the operation
or management of AVIF or the purchase of AVIF Shares, if, in each case, AIG
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on AIG, or the Subaccount corresponding to the Fund with
respect to which the Agreement is to be terminated; or
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<PAGE> 19
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by AIG; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of AIG if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
AIG reasonably believes that the Fund may fail to so qualify; or
(g) at the option of AIG if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if AIG
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by AIG cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
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6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of AIG, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts."). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial Termination
Date, except that AIG may, by written notice shorten said six (6) month period
in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g),
6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and
17
<PAGE> 21
facsimile numbers, or such other persons, addresses or facsimile numbers as the
Party receiving such notices or communications may subsequently direct in
writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
AIG LIFE INSURANCE COMPANY
One Alico Plaza
Wilmington, DE 19801
Facsimile: (302) 651-0293
Attn: Kenneth D. Walma, Esq.
AIG EQUITY SALES CORP.
80 Pine Street
New York, NY 10005
Facsimile: (212) 770-2880
Attn: Philomena Scamardella
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, AIG will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. AIG will vote Shares in
accordance with timely instructions received from Participants. AIG will vote
Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for Participants. Neither AIG nor any
of its affiliates will in any way recommend action in connection with or
oppose or interfere with the solicitation of proxies for the Shares held for
such Participants. AIG reserves the right to vote shares held in any Account
in its own right, to the extent permitted by law. AIG shall be responsible for
assuring that each of its Accounts holding Shares calculates voting privileges
in a manner consistent with that of other Participating Insurance Companies or
in the manner required by the Mixed and Shared Funding exemptive order obtained
by AVIF. AVIF will notify AIG of any changes of interpretations or amendments
to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply
with all provisions of the 1940
18
<PAGE> 22
Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with AIG concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY AIG AND AIG EQUITY.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, AIG and AIG Equity agree to indemnify and hold harmless AVIF, its
affiliates, and each person, if any, who controls AVIF or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes
of this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AIG and AIG
Equity) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise; provided, the
Account owns shares of the Fund and insofar as such losses, claims, damages,
liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to AIG or AIG Equity by or on
behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
19
<PAGE> 23
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of AIG, AIG
Equity or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of AIG, AIG Equity or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts
or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of AIG, AIG Equity or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by AIG or AIG Equity to
perform the obligations, provide the services and furnish
the materials required of them under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AIG or AIG Equity in this
Agreement or arise out of or result from any other
material breach of this Agreement by AIG or AIG Equity;
or
(v) arise as a result of failure by the Contracts issued by
AIG to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) Neither AIG nor AIG Equity shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii)
to AVIF.
(c) Neither AIG nor AIG Equity shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF shall
have notified AIG and AIG Equity in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AIG and AIG Equity of any such action shall not
relieve AIG and AIG Equity from any
20
<PAGE> 24
liability which they may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12.1. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, AIG and AIG Equity shall be entitled to participate, at their own
expense, in the defense of such action and also shall be entitled to assume the
defense thereof, with counsel approved by the Indemnified Party named in the
action, which approval shall not be unreasonably withheld. After notice from
AIG or AIG Equity to such Indemnified Party of AIG's or AIG Equity's election
to assume the defense thereof, the Indemnified Party will cooperate fully with
AIG and AIG Equity and shall bear the fees and expenses of any additional
counsel retained by it, and neither AIG nor AIG Equity will be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
12.2 OF AIG AND AIG EQUITY BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless AIG, AIG Equity,
their respective affiliates, and each person, if any, who controls AIG, AIG
Equity or their respective affiliates within the meaning of Section 15 of the
1933 Act and each of their respective directors and officers, (collectively,
the "Indemnified Parties" for purposes of this Section 12.2) against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of AVIF ) or actions in respect thereof (including, to
the extent reasonable, legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law, or
otherwise; provided, the Account owns shares of the Fund and insofar as such
losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or
its affiliates by or on behalf of AIG, AIG Equity or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF or its affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent
21
<PAGE> 25
conduct of AVIF or its affiliates or persons under its
control (including, without limitation, their employees
and "Associated Persons" as that Term is defined in
Section (n) of Article 1 of the NASD By-Laws), in
connection with the sale or distribution of AVIF Shares;
or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to AIG, AIG Equity or their respective
affiliates by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this
Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of
AVIF) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against AIG pursuant to the Contracts, the costs of any
ruling and closing agreement or other settlement with the IRS, and the cost of
any substitution by AIG of Shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for each Account
that AIG reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance by that Indemnified Party of its duties
or by reason of such Indemnified Party's reckless disregard of its obligations
and duties (i) under this Agreement, or (ii) to AIG, AIG Equity, each Account
or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect
to any action against an Indemnified Party unless the Indemnified Party shall
have notified AVIF in writing within a
22
<PAGE> 26
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify AVIF of any
such action shall not relieve AVIF from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.2. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, AVIF will be entitled to
participate, at its own expense, in the defense of such action and also shall
be entitled to assume the defense thereof (which shall include, without
limitation, the conduct of any ruling request and closing agreement or other
settlement proceeding with the IRS), with counsel approved by the Indemnified
Party named in the action, which approval shall not be unreasonably withheld.
After notice from AVIF to such Indemnified Party of AVIF's election to assume
the defense thereof, the Indemnified Party will cooperate fully with AVIF and
shall bear the fees and expenses of any additional counsel retained by it, and
AVIF will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, AIG, AIG Equity or any other Participating Insurance Company
or any Participant, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by AIG or AIG Equity hereunder or by any
Participating Insurance Company under an agreement containing substantially
similar representations, warranties and covenants; (ii) the failure by AIG or
any Participating Insurance Company to maintain its segregated asset account
(which invests in any Fund) as a legally and validly established segregated
asset account under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless exempt therefrom);
or (iii) the failure by AIG or any Participating Insurance Company to maintain
its variable annuity or life insurance contracts (with respect to which any Fund
serves as an underlying funding vehicle) as annuity contracts or life insurance
contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
23
<PAGE> 27
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of AIG or any
of its affiliates (collectively, the "AIG Protected Parties" for purposes of
this Section 18), information maintained regarding those customers, and all
computer programs and procedures or other information developed by the AIG
Protected Parties or any of their employees or agents in connection with AIG's
performance of its duties under this Agreement are the valuable property of the
AIG Protected Parties. AVIF agrees that if it comes into possession of any
list or compilation of the identities of or other information about the AIG
Protected Parties' customers, or any other information or property of the AIG
Protected Parties, other than such information as may be independently
developed or compiled by AVIF from information supplied to it by the AIG
Protected Parties' customers who also maintain accounts directly with AVIF,
AVIF will hold such information or property in confidence and refrain from
using, disclosing or distributing any of such information or other property
except: (a) with AIG's prior written consent; or (b) as required by law or
judicial process. AIG acknowledges that the identities of the customers of
AVIF or any of its affiliates
24
<PAGE> 28
(collectively the "AVIF Protected Parties" for purposes of this Section 18),
information maintained regarding those customers, and all computer programs and
procedures or other information developed by the AVIF Protected Parties or any
of their employees or agents in connection with AVIF's performance of its
duties under this Agreement are the valuable property of the AVIF Protected
Parties. AIG agrees that if it comes into possession of any list or
compilation of the identities of or other information about the AVIF Protected
Parties' customers or any other information or property of the AVIF Protected
Parties, other than such information as may be independently developed or
compiled by AIG from information supplied to it by the AVIF Protected Parties'
customers who also maintain accounts directly with AIG, AIG will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with AVIF's
prior written consent; or (b) as required by law or judicial process. Each
party acknowledges that any breach of the agreements in this Section 18 would
result in immediate and irreparable harm to the other parties for which there
would be no adequate remedy at law and agree that in the event of such a
breach, the other parties will be entitled to equitable relief by way of
temporary and permanent injunctions, as well as such other relief as any court
of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an
affiliate of AVIF, owns all right, title and interest in and to the name,
trademark and service mark "AIM" and such other tradenames, trademarks and
service marks as may be set forth on Schedule B, as amended from time to time
by written notice from AIM to AIG (the "AIM licensed marks" or the "licensor's
licensed marks") and is authorized to use and to license other persons to use
such marks. AIG and its affiliates are hereby granted a non-exclusive license
to use the AIM licensed marks in connection with AIG's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to AIG and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that AIG shall have the right to continue to service any
outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's
elective termination of this license, AIG and its affiliates shall immediately
cease to issue any new annuity or life insurance contracts bearing any of the
AIM licensed marks and shall likewise cease any activity which suggests that it
has any right under any of the AIM licensed marks or that it has any
association with AIM, except that AIG shall have the right to continue to
service outstanding Contracts bearing any of the AIM licensed marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor but,
due to changed circumstances, the licensor may wish to reconsider.
25
<PAGE> 29
If, on reconsideration, or on initial review, respectively, any such samples
fail to meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall
obtain the prior written approval of the licensor for the use of any new
materials developed to replace the disapproved materials, in the manner set
forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
------------------------------------------------------------
26
<PAGE> 30
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS, INC.
<S> <C>
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
--------------------------- -------------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
AIG LIFE INSURANCE COMPANY, on behalf of itself
and its separate accounts
Attest: /s/ KENNETH D. WALMA By: /s/ KENNETH F. JUDKOWITZ
--------------------------- -------------------------------------
Name: KENNETH D. WALMA Name: KENNETH F. JUDKOWITZ
--------------------------- -------------------------------------
Title: ASST. SECRETARY Title: VICE PRESIDENT
--------------------------- -------------------------------------
AIG EQUITY SALES CORP.
Attest: /s/ KENNETH D. WALMA By: /s/ KENNETH F. JUDKOWITZ
--------------------------- -------------------------------------
Name: KENNETH D. WALMA Name: KENNETH F. JUDKOWITZ
--------------------------- -------------------------------------
Title: Title: VICE PRESIDENT
--------------------------- -------------------------------------
</TABLE>
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Variable Account I
o Variable Account II
o Variable Account IV
o Variable Account V
o Variable Account VII
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Individual and Group Variable Annuities
o Individual and Group Variable Life Insurance
28
<PAGE> 32
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM Fund
----------------------------------
o AIM and Design
[AIM LOGO APPEARS HERE]
29
<PAGE> 1
EXHIBIT 9(m)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AIG EQUITY SALES CORP.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 AIG To Provide Documents; Information About AVIF . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 AVIF To Provide Documents; Information About AIG . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Notice to AIG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.1 Of AVIF by AIG and AIG Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.2 Of AIG and AIG Equity by AVIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 20th day of November,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); American International Life Assurance Company of New
York, a New York life insurance company ("AIG"), on behalf of itself and each
of its segregated asset accounts listed in Schedule A hereto, as the parties
hereto may amend from time to time (each, an "Account," and collectively, the
"Accounts"); and AIG Equity Sales Corp., an affiliate of AIG and the principal
underwriter of the Contracts (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, AIG will be the issuer of certain variable annuity contracts
and variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law,
will be registered under the 1933 Act; and
WHEREAS, AIG will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, AIG will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
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<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, AIG intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts; and
WHEREAS, AIG Equity is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to AIG for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide AIG with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein,
2
<PAGE> 6
"Business Day" shall mean any day on which (i) the New York Stock Exchange is
open for regular trading, (ii) AVIF calculates the Fund's net asset value, and
(iii) AIG is open for business.
(b) AIG will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values
and to process transactions that receive that same Business Day's Account unit
values. AIG will perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares with AVIF by 9:00
a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to AIG in the event that AVIF is unable to meet
the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional
time shall be equal to the additional time that AVIF takes to make the net
asset values available to AIG.
(c) With respect to payment of the purchase price by AIG and of
redemption proceeds by AVIF, AIG and AVIF shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment per Fund in
accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), AIG shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting
of net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to AIG.
2.2 TIMELY PAYMENTS.
AIG will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by AIG by 1:00 p.m. Central Time on the
same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable AIG to pay redemption proceeds within the time specified in Section
22(e) of the 1940 Act or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that AIG receives prior
to the close of regular trading on the New York Stock Exchange on a Business
Day will be executed at the net asset values of the appropriate Funds next
computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), AIG shall be the designated agent of AVIF for
receipt of orders relating to Contract transactions on each Business Day and
receipt by such designated agent shall constitute receipt by AVIF; provided
that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next
following Business Day or such later time as computed in accordance with
Section 2.1(b) hereof.
3
<PAGE> 7
(b) All other Share purchases and redemptions by AIG will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to AIG of any income dividends or
capital gain distributions payable on the Shares of any Fund. AIG hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values
until AIG otherwise notifies AVIF in writing, it being agreed by the Parties
that the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. AIG reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to AIG. Shares ordered from AVIF will be
recorded in an appropriate title for AIG, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
(b) AIG will bear the cost of registering, to the extent required,
each Account as a unit investment trust under the 1940 Act and registering
units of interest under the Contracts under the 1933 Act and keeping such
registrations current and effective; including, without limitation, the
preparation and filing with the SEC of Forms N- SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
4
<PAGE> 8
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) AIG will bear the costs of preparing, filing with the SEC and
setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other
Participant communications.
(c) AIG will print in quantity and deliver to existing Participants
the documents described in Section 3.3(b) above and the prospectus provided by
AVIF in camera ready or computer diskette form. AVIF will print the AVIF
statement of additional information, proxy materials relating to AVIF and
periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
AIG will bear the expenses of distribution. These expenses would
include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising relating
to the Funds, as well as filing such materials with, and obtaining approval
from, the SEC, the NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each Fund
as a RIC. AVIF will notify AIG immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
5
<PAGE> 9
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify AIG immediately upon having a
reasonable basis for believing that a Fund has ceased to so comply or that a
Fund might not so comply in the future. In the event of a breach of this
Section 4.1(b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
(c) AIG agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of AIG
or, to AIG's knowledge, of any Participant, that any Fund has failed to comply
with the diversification requirements of Section 817(h) of the Code or AIG
otherwise becomes aware of any facts that could give rise to any claim against
AVIF or its affiliates as a result of such a failure or alleged failure:
(i) AIG shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality
provisions of Section 18 as to any Participant);
(ii) AIG shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure
or alleged failure;
(iii) AIG shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from
such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS
that such failure was inadvertent;
(iv) AIG shall permit AVIF, its affiliates and their legal
and accounting advisors to participate in any
conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS,
any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; provided, however, that AIG will
retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by AIG to the
IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by AIG to AVIF (together with any
supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by AIG to any such
person without the express written consent of AVIF
which shall not be unreasonably withheld;
6
<PAGE> 10
(vi) AIG shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation
as AVIF shall reasonably request (including, without
limitation, by permitting AVIF and its accounting and
legal advisors to review the relevant books and
records of AIG) in order to facilitate review by
AVIF or its advisors of any written submissions
provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any claim
against its arising from such a failure or alleged
failure;
(vii) AIG shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim
against AVIF or its affiliates (a) compromise or
settle any claim, (b) accept any adjustment on audit,
or (c) forego any allowable administrative or
judicial appeals, without the express written consent
of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that AIG shall not be
required, after exhausting all administrative
penalties, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal
shall be borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if AIG
fails to comply with any of the foregoing clauses (i)
through (vii), and such failure could be shown to
have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
AIG may, in its discretion, authorize AVIF or its affiliates to act in the name
of AIG in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall AIG have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the
term "affiliates" shall have the same meaning as "affiliated person" as defined
in Section 2(a)(3) of the 1940 Act.
(d) AIG represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; AIG will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) AIG represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. AIG will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
7
<PAGE> 11
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested by
AIG, including, the furnishing of information not otherwise available to AIG
which is required by state insurance law to enable AIG to obtain the authority
needed to issue the Contracts in any applicable state.
(b) AIG represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of New York and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations
under this Agreement, (ii) it has legally and validly established and maintains
each Account as a segregated asset account under Section 4240 of the New York
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) AIG represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New
York law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940 Act, (iv) each Account does and will comply
in all material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Account's 1933 Act registration
statement relating to the Contracts, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder, (vi) AIG will amend the registration statement
for its Contracts under the 1933 Act and for its Accounts under the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law, and (vii) each
Account Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects
8
<PAGE> 12
with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's
Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify AIG of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of
Shares of AVIF, (iii) the initiation of any proceedings for that purpose or
for any other purpose relating to the registration or offering of AVIF's
Shares, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Shares of any Fund in any state or jurisdiction, including,
without limitation, any circumstances in which (a) such Shares are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by AIG. AVIF will make every reasonable effort to prevent the issuance,
with respect to any Fund, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof
at the earliest possible time.
(b) AIG will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law. AIG will make every reasonable effort to prevent the issuance
of
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any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
4.5 AIG TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) AIG will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) AIG will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if AVIF or
its designated agent objects to such use within five (5) Business Days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. AVIF hereby designates A I M as the entity to
receive such sales literature, until such time as AVIF appoints another
designated agent by giving notice to AIG in the manner required by Section 9
hereof.
(c) Neither AIG nor any of its affiliates, will give any
information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in connection with the sale of the Contracts
other than (i) the information or representations contained in the registration
statement, including the AVIF Prospectus contained therein, relating to Shares,
as such registration statement and AVIF Prospectus may be amended from time to
time; or (ii) in reports or proxy materials for AVIF; or (iii) in published
reports for AVIF that are in the public domain and approved by AVIF for
distribution; or (iv) in sales literature or other promotional material
approved by AVIF, except with the express written permission of AVIF.
(d) AIG shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports, and
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proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT AIG.
(a) AVIF will provide to AIG at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to AIG camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
AIG, of AVIF statements of additional information, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to AIG in a timely manner so as to enable AIG, as the case
may be, to print and distribute such materials within the time required by law
to be furnished to Participants.
(c) AVIF will provide to AIG or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AIG, or any of its respective affiliates is named, or that
refers to the Contracts, at least five (5) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if AIG or its designated agent objects to such
use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. AIG
shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning AIG, each Account, or the Contracts other than (i) the information
or representations contained in the registration statement, including each
Account Prospectus contained therein, relating to the Contracts, as such
registration statement and Account Prospectus may be amended from time to time;
or (ii) in published reports for the Account or the Contracts that are in the
public domain and approved by AIG for distribution; or (iii) in sales
literature or other promotional material approved by AIG or its affiliates,
except with the express written permission of AIG.
(e) AVIF shall cause its principal AIG Equity to adopt and
implement procedures reasonably designed to ensure that information concerning
AIG, and its respective affiliates that is intended for use only by brokers or
agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
AIG, nor any of its respective affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording,
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<PAGE> 15
videotape display, signs or billboards, motion pictures, or other public media,
(e.g., on-line networks such as the Internet or other electronic messages),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with AIG, and
trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies AIG
that, in the event that AVIF implements Mixed and Shared Funding, it may be
appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). AIG agrees to inform the Board of Directors of AVIF
of the existence of or any potential for any such material irreconcilable
conflict of which it is aware. The concept of a "material
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<PAGE> 16
irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, AIG will assist the Board
of Directors in carrying out its responsibilities by providing the Board of
Directors with all information reasonably necessary for the Board of Directors
to consider any issue raised, including information as to a decision by AIG to
disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, AIG will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
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<PAGE> 17
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
AIG's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AIG may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal must take place within six (6) months after AVIF gives
notice to AIG that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by AIG for the
purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to AIG conflicts
with the majority of other state regulators, then AIG will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs AIG that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal AVIF shall continue
to accept and implement orders by AIG for the purchase and redemption of Shares
of AVIF. No charge or penalty will be imposed as a result of such withdrawal.
(d) AIG agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and
with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
AIG will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO AIG .
AVIF will promptly make known in writing to AIG the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
AIG and AVIF (or its investment adviser) will at least annually submit
to the Board of Directors of AVIF such reports, materials or data as the Board
of Directors may reasonably request so that the Board of Directors may fully
carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors
actions with regard to determining the existence of a conflict, notifying
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<PAGE> 18
Participating Insurance Companies and Participating Plans of a conflict, and
determining whether any proposed action adequately remedies a conflict, will be
properly recorded in the minutes of the Board of Directors or other appropriate
records, and such minutes or other records will be made available to the SEC
upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against AIG or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding AIG's obligations under this
Agreement or related to the sale of the Contracts, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of AIG upon institution of formal proceedings
against AVIF, its principal AIG Equity, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body
regarding AVIF's obligations under this Agreement or related to the operation
or management of AVIF or the purchase of AVIF Shares, if, in each case, AIG
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on AIG, or the Subaccount corresponding to the Fund with
respect to which the Agreement is to be terminated; or
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(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by AIG; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of AIG if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
AIG reasonably believes that the Fund may fail to so qualify; or
(g) at the option of AIG if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if AIG
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by AIG cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
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6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of AIG, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts."). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial Termination
Date, except that AIG may, by written notice shorten said six (6) month period
in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g),
6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
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SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
One Alico Plaza
Wilmington, DE 19801
Facsimile: (302) 651-0293
Attn: Kenneth D. Walma, Esq.
AIG EQUITY SALES CORP.
80 Pine Street
New York, NY 10005
Facsimile: (212) 770-2880
Attn: Philomena Scamardella
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, AIG will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. AIG will vote Shares in
accordance with timely instructions received from Participants. AIG will vote
Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for Participants. Neither AIG nor any
of its affiliates will in any way recommend action in connection with or
oppose or interfere with the solicitation of proxies for the Shares held for
such Participants. AIG reserves the right to vote shares held in any Account
in its own right, to the extent
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permitted by law. AIG shall be responsible for assuring that each of its
Accounts holding Shares calculates voting privileges in a manner consistent
with that of other Participating Insurance Companies or in the manner required
by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will
notify AIG of any changes of interpretations or amendments to Mixed and Shared
Funding exemptive order it has obtained. AVIF will comply with all provisions
of the 1940 Act requiring voting by shareholders, and in particular, AVIF
either will provide for annual meetings (except insofar as the SEC may
interpret Section 16 of the 1940 Act not to require such meetings) or will
comply with Section 16(c) of the 1940 Act (although AVIF is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, AVIF will act in accordance with
the SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with AIG concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY AIG AND AIG EQUITY.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, AIG and AIG Equity agree to indemnify and hold harmless AVIF, its
affiliates, and each person, if any, who controls AVIF or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes
of this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AIG and AIG
Equity) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise; provided, the
Account owns shares of the Fund and insofar as such losses, claims, damages,
liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to AIG or AIG Equity by or on
behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
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Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of AIG, AIG
Equity or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of AIG, AIG Equity or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts
or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of AIG, AIG Equity or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by AIG or AIG Equity to
perform the obligations, provide the services and furnish
the materials required of them under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AIG or AIG Equity in this
Agreement or arise out of or result from any other
material breach of this Agreement by AIG or AIG Equity;
or
(v) arise as a result of failure by the Contracts issued by
AIG to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) Neither AIG nor AIG Equity shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii)
to AVIF.
(c) Neither AIG nor AIG Equity shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF shall
have notified AIG and AIG Equity in
20
<PAGE> 24
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify AIG and AIG
Equity of any such action shall not relieve AIG and AIG Equity from any
liability which they may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12.1. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, AIG and AIG Equity shall be entitled to participate, at their own
expense, in the defense of such action and also shall be entitled to assume the
defense thereof, with counsel approved by the Indemnified Party named in the
action, which approval shall not be unreasonably withheld. After notice from
AIG or AIG Equity to such Indemnified Party of AIG's or AIG Equity's election
to assume the defense thereof, the Indemnified Party will cooperate fully with
AIG and AIG Equity and shall bear the fees and expenses of any additional
counsel retained by it, and neither AIG nor AIG Equity will be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
12.2 OF AIG AND AIG EQUITY BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless AIG, AIG Equity,
their respective affiliates, and each person, if any, who controls AIG, AIG
Equity or their respective affiliates within the meaning of Section 15 of the
1933 Act and each of their respective directors and officers, (collectively,
the "Indemnified Parties" for purposes of this Section 12.2) against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of AVIF ) or actions in respect thereof (including, to
the extent reasonable, legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law, or
otherwise; provided, the Account owns shares of the Fund and insofar as such
losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or
its affiliates by or on behalf of AIG, AIG Equity or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or
representations contained in any Account's 1933 Act
registration
21
<PAGE> 25
statement, any Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF or its affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of AVIF or its
affiliates or persons under its control (including,
without limitation, their employees and "Associated
Persons" as that Term is defined in Section (n) of
Article 1 of the NASD By-Laws), in connection with the
sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to AIG, AIG Equity or their respective
affiliates by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this
Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of
AVIF) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against AIG pursuant to the Contracts, the costs of any
ruling and closing agreement or other settlement with the IRS, and the cost of
any substitution by AIG of Shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for each Account
that AIG reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance by that Indemnified Party
22
<PAGE> 26
of its duties or by reason of such Indemnified Party's reckless disregard of
its obligations and duties (i) under this Agreement, or (ii) to AIG, AIG
Equity, each Account or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect
to any action against an Indemnified Party unless the Indemnified Party shall
have notified AVIF in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the action shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify AVIF of any such action shall not relieve AVIF from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12.2. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, AVIF will be entitled to participate, at its own expense, in the defense
of such action and also shall be entitled to assume the defense thereof (which
shall include, without limitation, the conduct of any ruling request and
closing agreement or other settlement proceeding with the IRS), with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, AIG, AIG Equity or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by AIG or AIG
Equity hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants;
(ii) the failure by AIG or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by AIG or any Participating Insurance
Company to maintain its variable annuity or life insurance contracts (with
respect to which any Fund serves as an underlying funding vehicle) as annuity
contracts or life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
23
<PAGE> 27
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of AIG or any
of its affiliates (collectively, the "AIG Protected Parties" for purposes of
this Section 18), information maintained regarding those customers, and all
computer programs and procedures or other information developed by the AIG
Protected Parties or any of their employees or agents in connection with AIG's
performance of its duties under this Agreement are the valuable property of the
AIG Protected Parties. AVIF agrees that if it comes into possession of any
list or compilation of the identities of or other information about the AIG
Protected Parties' customers, or any other information or
24
<PAGE> 28
property of the AIG Protected Parties, other than such information as may be
independently developed or compiled by AVIF from information supplied to it by
the AIG Protected Parties' customers who also maintain accounts directly with
AVIF, AVIF will hold such information or property in confidence and refrain
from using, disclosing or distributing any of such information or other
property except: (a) with AIG's prior written consent; or (b) as required by
law or judicial process. AIG acknowledges that the identities of the customers
of AVIF or any of its affiliates (collectively the "AVIF Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
AVIF Protected Parties or any of their employees or agents in connection with
AVIF's performance of its duties under this Agreement are the valuable property
of the AVIF Protected Parties. AIG agrees that if it comes into possession of
any list or compilation of the identities of or other information about the
AVIF Protected Parties' customers or any other information or property of the
AVIF Protected Parties, other than such information as may be independently
developed or compiled by AIG from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with AIG, AIG
will hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property except:
(a) with AVIF's prior written consent; or (b) as required by law or judicial
process. Each party acknowledges that any breach of the agreements in this
Section 18 would result in immediate and irreparable harm to the other parties
for which there would be no adequate remedy at law and agree that in the event
of such a breach, the other parties will be entitled to equitable relief by way
of temporary and permanent injunctions, as well as such other relief as any
court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an
affiliate of AVIF, owns all right, title and interest in and to the name,
trademark and service mark "AIM" and such other tradenames, trademarks and
service marks as may be set forth on Schedule B, as amended from time to time
by written notice from AIM to AIG (the "AIM licensed marks" or the "licensor's
licensed marks") and is authorized to use and to license other persons to use
such marks. AIG and its affiliates are hereby granted a non-exclusive license
to use the AIM licensed marks in connection with AIG's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to AIG and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that AIG shall have the right to continue to service any
outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's
elective termination of this license, AIG and its affiliates shall immediately
cease to issue any new annuity or life insurance contracts bearing any of the
AIM licensed marks and shall likewise cease any activity which suggests that it
has any right under any of the AIM licensed marks or that it has any
association with AIM, except that AIG shall have the right to continue to
service outstanding Contracts bearing any of the AIM licensed marks.
25
<PAGE> 29
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor but,
due to changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall
obtain the prior written approval of the licensor for the use of any new
materials developed to replace the disapproved materials, in the manner set
forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
---------------------------------------
26
<PAGE> 30
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------ --------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
AMERICAN INTERNATIONAL LIFE
ASSURANCE COMPANY OF NEW YORK,
on behalf of itself and its
separate accounts
Attest: /s/ KENNETH D. WALMA By: /s/ KENNETH F. JUDKOWITZ
----------------------- ----------------------------
Name: KENNETH D. WALMA Name: KENNETH F. JUDKOWITZ
----------------------- ----------------------------
Title: ASS'T SECRETARY Title: VICE PRESIDENT
----------------------- ----------------------------
AIG EQUITY SALES CORP.
Attest: /s/ KENNETH D. WALMA By: /s/ KENNETH F. JUDKOWITZ
------------------------ ----------------------------
Name: KENNETH D. WALMA Name: KENNETH F. JUDKOWITZ
------------------------ ----------------------------
Title: Title: VICE PRESIDENT
------------------------ ----------------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Variable Account A
o Variable Account B
o Variable Account C
o Variable Account D
o Variable Account E
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Individual and Group Variable Annuities
o Individual and Group Variable Life Insurance
28
<PAGE> 32
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM Fund
--------------------------
o AIM and Design
[AIM LOGO APPEARS HERE]
29
<PAGE> 1
EXHIBIT 9(n)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC. ,
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 American Enterprise Life To Provide Documents; Information About AVIF . . . . . . . . . . . . . . . 10
4.6 AVIF To Provide Documents; Information About American Enterprise Life . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Notice to American Enterprise Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Of AVIF and AIM by American Enterprise Life and AEFA . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Of American Enterprise Life and AEFA by AVIF and AIM . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of October,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation
("AIM"); American Enterprise Life Insurance Company, an Indiana life insurance
company ("American Enterprise Life"), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto
may amend from time to time (each, an "Account," and collectively, the
"Accounts"); and American Express Financial Advisors Inc. ("AEFA"), an
affiliate of American Enterprise Life and the principal underwriter of the
Contracts (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, American Enterprise Life will be the issuer of certain
variable annuity contracts and/or variable life insurance contracts
("Contracts") as set forth on Schedule A hereto, as the Parties hereto may
amend from time to time, which Contracts (hereinafter collectively, the
"Contracts"), if required by applicable law, will be registered under the 1933
Act; and
WHEREAS, American Enterprise Life will fund the Contracts through the
Accounts, each of which may be divided into two or more subaccounts
("Subaccounts"; reference herein to an "Account" includes reference to each
Subaccount thereof to the extent the context requires); and
WHEREAS, American Enterprise Life will serve as the depositor of the
Accounts, each of which is registered as a unit investment trust investment
company under the 1940 Act (or exempt therefrom), and the security interests
deemed to be issued by the Accounts under the Contracts will be registered as
securities under the 1933 Act (or exempt therefrom); and
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, American Enterprise Life intends to purchase Shares in one or more
of the Funds on behalf of the Accounts to fund the Contracts; and
WHEREAS, AEFA is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to American Enterprise
Life for purchase and redemption at net asset value and with no sales charges,
subject to the terms and conditions of this Agreement. The Board of Directors
of AVIF may refuse to sell Shares of any Fund to any person, or suspend or
terminate the offering of Shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or if, in the sole discretion
of the Directors acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide American Enterprise Life with the net asset value per Share for each
Fund by 5:30 p.m. Central Time on each Business Day. As used herein, "Business
Day" shall mean any day on which (i) the New York Stock
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Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset
value, and (iii) American Enterprise Life is open for business.
(b) American Enterprise Life will use the data provided by AVIF
each Business Day pursuant to paragraph (a) immediately above to calculate
Account unit values and to process transactions that receive that same Business
Day's Account unit values. American Enterprise Life will perform such Account
processing the same Business Day, and will place corresponding orders to
purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following
Business Day; provided, however, that AVIF shall provide additional time to
American Enterprise Life in the event that AVIF is unable to meet the 5:30
p.m. time stated in paragraph (a) immediately above. Such additional time
shall be equal to the additional time that AVIF takes to make the net asset
values available to American Enterprise Life.
(c) With respect to payment of the purchase price by American
Enterprise Life and of redemption proceeds by AVIF, American Enterprise Life
and AVIF shall net purchase and redemption orders with respect to each Fund and
shall transmit one net payment per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), American Enterprise Life
shall be entitled to an adjustment to the number of Shares purchased or
redeemed to reflect the correct net asset value per Share. Any material error
in the calculation or reporting of net asset value per Share, dividend or
capital gain information shall be reported promptly upon discovery to American
Enterprise Life.
2.2 TIMELY PAYMENTS.
American Enterprise Life will wire payment for net purchases to a
custodial account designated by AVIF by 1:00 p.m. Central Time on the same day
as the order for Shares is placed, to the extent practicable. AVIF will wire
payment for net redemptions to an account designated by American Enterprise
Life by 1:00 p.m. Central Time on the same day as the Order is placed, to the
extent practicable, but in any event within five (5) calendar days after the
date the order is placed in order to enable American Enterprise Life to pay
redemption proceeds within the time specified in Section 22(e) of the 1940 Act
or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that American Enterprise
Life receives prior to the close of regular trading on the New York Stock
Exchange on a Business Day will be executed at the net asset values of the
appropriate Funds next computed after receipt by AVIF or its designated agent
of the orders. For purposes of this Section 2.3(a), American Enterprise Life
shall be the designated agent of AVIF for receipt of orders relating to
Contract transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
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(b) All other Share purchases and redemptions by American
Enterprise Life will be effected at the net asset values of the appropriate
Funds next computed after receipt by AVIF or its designated agent of the order
therefor, and such orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to American Enterprise Life of
any income dividends or capital gain distributions payable on the Shares of any
Fund. American Enterprise Life hereby elects to reinvest all dividends and
capital gains distributions in additional Shares of the corresponding Fund at
the ex-dividend date net asset values until American Enterprise Life otherwise
notifies AVIF in writing, it being agreed by the Parties that the ex-dividend
date and the payment date with respect to any dividend or distribution will be
the same Business Day. American Enterprise Life reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to American Enterprise Life. Shares
ordered from AVIF will be recorded in an appropriate title for American
Enterprise Life, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
(b) American Enterprise Life will bear the cost of registering, to
the extent required, each Account as a unit investment trust under the 1940 Act
and registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to each Account and its units of interest and
payment of all applicable registration or filing fees with respect to any of
the foregoing.
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3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) American Enterprise Life will bear the costs of preparing,
filing with the SEC and setting for printing each Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Account Prospectus"), any periodic reports to Contract
owners, annuitants, insureds or participants (as appropriate) under the
Contracts (collectively, "Participants"), voting instruction solicitation
material, and other Participant communications.
(c) American Enterprise Life will print in quantity and deliver to
existing Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready or computer diskette form. AVIF
will print the AVIF statement of additional information, proxy materials
relating to AVIF and periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
American Enterprise Life will bear the expenses of distribution.
These expenses would include by way of illustration, but are not limited to,
the costs of distributing to Participants the following documents, whether they
relate to the Account or AVIF: prospectuses, statements of additional
information, proxy materials and periodic reports. These costs would also
include the costs of preparing, printing, and distributing sales literature and
advertising relating to the Funds, as well as filing such materials with, and
obtaining approval from, the SEC, NASD, any state insurance regulatory
authority, and any other appropriate regulatory authority, to the extent
required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each Fund
as a RIC. AVIF will notify American Enterprise Life immediately upon having a
reasonable basis for believing that a Fund has ceased to so qualify or that it
might not so qualify in the future.
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(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify American Enterprise Life
immediately upon having a reasonable basis for believing that a Fund has ceased
to so comply or that a Fund might not so comply in the future. In the event of
a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Section 1.817-5 of the regulations under the Code.
(c) American Enterprise Life agrees that if the Internal Revenue
Service ("IRS") asserts in writing in connection with any governmental audit or
review of American Enterprise Life or, to American Enterprise Life's knowledge,
of any Participant, that any Fund has failed to comply with the diversification
requirements of Section 817(h) of the Code or American Enterprise Life
otherwise becomes aware of any facts that could give rise to any claim against
AVIF or its affiliates as a result of such a failure or alleged failure:
(i) American Enterprise Life shall promptly notify AVIF
of such assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) American Enterprise Life shall consult with AVIF as
to how to minimize any liability that may arise as a
result of such failure or alleged failure;
(iii) American Enterprise Life shall use its best efforts
to minimize any liability of AVIF or its affiliates
resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was
inadvertent;
(iv) American Enterprise Life shall permit AVIF, its
affiliates and their legal and accounting advisors to
participate in any conferences, settlement
discussions or other administrative or judicial
proceeding or contests (including judicial appeals
thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of
such a failure or alleged failure; provided,
however, that American Enterprise Life will retain
control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by American
Enterprise Life to the IRS, any Participant or any
other claimant in connection with any of the
foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations Section
1.817-5(a)(2)), (a) shall be provided by American
Enterprise Life to AVIF (together with any supporting
information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by American
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<PAGE> 10
Enterprise Life to any such person without the
express written consent of AVIF which shall not be
unreasonably withheld;
(vi) American Enterprise Life shall provide AVIF or its
affiliates and their accounting and legal advisors
with such cooperation as AVIF shall reasonably
request (including, without limitation, by permitting
AVIF and its accounting and legal advisors to review
the relevant books and records of American
Enterprise Life) in order to facilitate review by
AVIF or its advisors of any written submissions
provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any claim
against its arising from such a failure or alleged
failure;
(vii) American Enterprise Life shall not with respect to
any claim of the IRS or any Participant that would
give rise to a claim against AVIF or its affiliates
(a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the
express written consent of AVIF or its affiliates,
which shall not be unreasonably withheld, provided
that American Enterprise Life shall not be required,
after exhausting all administrative penalties, to
appeal any adverse judicial decision unless AVIF or
its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable
basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be
borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if American
Enterprise Life fails to comply with any of the
foregoing clauses (i) through (vii), and such failure
could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
American Enterprise Life may, in its discretion, authorize AVIF or its
affiliates to act in the name of American Enterprise Life in, and to control
the conduct of, such conferences, discussions, proceedings, contests or appeals
and all administrative or judicial appeals thereof, and in that event AVIF or
its affiliates shall bear the fees and expenses associated with the conduct of
the proceedings that it is so authorized to control; provided, that in no event
shall American Enterprise Life have any liability resulting from AVIF's refusal
to accept the proposed settlement or compromise with respect to any failure
caused by AVIF. As used in this Agreement, the term "affiliates" shall have
the same meaning as "affiliated person" as defined in Section 2(a)(3) of the
1940 Act.
(d) American Enterprise Life represents and warrants that the
Contracts currently are and will be treated as annuity contracts or life
insurance contracts under applicable provisions of the Code and that it will
use its best efforts to maintain such treatment; American Enterprise Life will
notify AVIF immediately upon having a reasonable basis for believing that any
of the Contracts have ceased to be so treated or that they might not be so
treated in the future.
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(e) American Enterprise Life represents and warrants that each
Account is a "segregated asset account" and that interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817 of the Code and
the regulations thereunder. American Enterprise Life will use its best efforts
to continue to meet such definitional requirements, and it will notify AVIF
immediately upon having a reasonable basis for believing that such requirements
have ceased to be met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by American Enterprise Life, including, the furnishing of information
not otherwise available to American Enterprise Life which is required by state
insurance law to enable American Enterprise Life to obtain the authority needed
to issue the Contracts in any applicable state.
(b) American Enterprise Life represents and warrants that (i) it
is an insurance company duly organized, validly existing and in good standing
under the laws of the State of Indiana and has full corporate power, authority
and legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under Section 27-1-51
Section 1 Class 1(c) of the Indiana Insurance Code and the regulations
thereunder, and (iii) the Contracts comply in all material respects with all
other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) American Enterprise Life represents and warrants that (i)
interests in each Account pursuant to the Contracts will be registered under
the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be
duly authorized for issuance and sold in compliance with all applicable federal
and state laws, including, without limitation, the 1933 Act, the 1934 Act, the
1940 Act and Indiana law, (iii) each Account is and will remain registered
under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, to the extent required, (v) each Account's 1933
Act registration statement relating to the Contracts, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) American Enterprise
Life will amend the registration statement for its Contracts under the 1933 Act
and for its Accounts under the 1940 Act from time to time as required in order
to effect the continuous offering of its Contracts or as may otherwise be
required by applicable law, and (vii) each Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
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(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify American Enterprise Life of (i)
the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to AVIF's registration
statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC
for any amendment to such registration statement or AVIF Prospectus that may
affect the offering of Shares of AVIF, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund
in any state or jurisdiction, including, without limitation, any circumstances
in which (a) such Shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law, or (b)
such law precludes the use of such Shares as an underlying investment medium of
the Contracts issued or to be issued by American Enterprise Life. AVIF will
make every reasonable effort to prevent the issuance, with respect to any Fund,
of any such stop order, cease and desist order or similar order and, if any
such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) American Enterprise Life will immediately notify AVIF of (i)
the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect
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to each Account's registration statement under the 1933 Act relating to the
Contracts or each Account Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Account Prospectus that may affect
the offering of Shares of AVIF, (iii) the initiation of any proceedings for
that purpose or for any other purpose relating to the registration or offering
of each Account's interests pursuant to the Contracts, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of said interests in
any state or jurisdiction, including, without limitation, any circumstances in
which said interests are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law. American
Enterprise Life will make every reasonable effort to prevent the issuance of
any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
4.5 AMERICAN ENTERPRISE LIFE TO PROVIDE DOCUMENTS; INFORMATION
ABOUT AVIF.
(a) American Enterprise Life will provide to AVIF or its
designated agent at least one (1) complete copy of all SEC registration
statements, Account Prospectuses, reports, any preliminary and final voting
instruction solicitation material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to each
Account or the Contracts, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) American Enterprise Life will provide to AVIF or its
designated agent at least one (1) complete copy of each piece of sales
literature or other promotional material in which AVIF or any of its affiliates
is named, at least five (5) Business Days prior to its use or such shorter
period as the Parties hereto may, from time to time, agree upon. No such
material shall be used if AVIF or its designated agent objects to such use
within five (5) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. AVIF hereby
designates A I M as the entity to receive such sales literature, until such
time as AVIF appoints another designated agent by giving notice to American
Enterprise Life in the manner required by Section 9 hereof.
(c) Neither American Enterprise Life nor any of its affiliates,
will give any information or make any representations or statements on behalf
of or concerning AVIF or its affiliates in connection with the sale of the
Contracts other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(iii) in published reports for AVIF that are in the public domain and approved
by AVIF for distribution; or (iv) in sales literature or other promotional
material approved by AVIF, except with the express written permission of AVIF.
(d) American Enterprise Life shall adopt and implement procedures
reasonably designed to ensure that information concerning AVIF and its
affiliates that is intended for use only by brokers or agents selling the
Contracts (i.e., information that is not intended for distribution to
Participants) ("broker only materials") is so used, and neither AVIF nor any of
its affiliates shall be liable for any losses, damages or expenses relating to
the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for
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use in, a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion
pictures, or other public media, (e.g., on-line networks such as the Internet
or other electronic messages), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act
or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT AMERICAN
ENTERPRISE LIFE.
(a) AVIF will provide to American Enterprise Life at least one (1)
complete copy of all SEC registration statements, AVIF Prospectuses, reports,
any preliminary and final proxy material, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate to
AVIF or the Shares of a Fund, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
(b) AVIF will provide to American Enterprise Life camera ready or
computer diskette copies of all AVIF prospectuses and printed copies, in an
amount specified by American Enterprise Life, of AVIF statements of additional
information, proxy materials, periodic reports to shareholders and other
materials required by law to be sent to Participants who have allocated any
Contract value to a Fund. AVIF will provide such copies to American Enterprise
Life in a timely manner so as to enable American Enterprise Life to print and
distribute such materials within the time required by law to be furnished to
Participants.
(c) AVIF will provide to American Enterprise Life or its
designated agent at least one (1) complete copy of each piece of sales
literature or other promotional material in which American Enterprise Life, or
any of its respective affiliates is named, or that refers to the Contracts, at
least five (5) Business Days prior to its use or such shorter period as the
Parties hereto may, from time to time, agree upon. No such material shall be
used if American Enterprise Life or its designated agent objects to such use
within five (5) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. American
Enterprise Life shall receive all such sales literature until such time as it
appoints a designated agent by giving notice to AVIF in the manner required by
Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning American Enterprise Life, each Account, or the Contracts other than
(i) the information or representations contained in the registration statement,
including each Account Prospectus contained therein, relating to the Contracts,
as such registration statement and Account Prospectus may be amended from time
to time; or (ii) in published reports for the Account or the Contracts that are
in the public domain and approved by American Enterprise Life for distribution;
or (iii) in sales literature or other promotional material approved by American
Enterprise Life or its affiliates, except with the express written permission
of American Enterprise Life.
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(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
American Enterprise Life, and its respective affiliates that is intended for
use only by brokers or agents selling the Contracts (i.e., information that is
not intended for distribution to Participants) ("broker only materials") is so
used, and neither American Enterprise Life, nor any of its respective
affiliates shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with American
Enterprise Life, and trustees of qualified pension and retirement plans
(collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC
has imposed terms and conditions for such orders that are substantially
identical to many of the provisions of this Section 5. Sections 5.2 through
5.8 below shall apply pursuant to such an exemptive order granted to AVIF.
AVIF hereby notifies American Enterprise Life that, in the event that AVIF
implements Mixed and Shared Funding, it may be appropriate to include in the
prospectus pursuant to which a Contract is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period
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of sixty (60) days if a vote of shareholders is required to fill the vacancy or
vacancies; or (c) for such longer period as the SEC may prescribe by order upon
application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). American Enterprise Life agrees to inform the Board
of Directors of AVIF of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, American Enterprise Life
will assist the Board of Directors in carrying out its responsibilities by
providing the Board of Directors with all information reasonably necessary for
the Board of Directors to consider any issue raised, including information as
to a decision by American Enterprise Life to disregard voting instructions of
Participants. American Enterprise Life's responsibilities in connection with
the foregoing shall be carried out with a view only to the interests of
Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, American Enterprise Life will,
if it is a Participating Insurance Company for which a material
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<PAGE> 17
irreconcilable conflict is relevant, at its own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
American Enterprise Life's decision to disregard Participant voting
instructions and that decision represents a minority position or would preclude
a majority vote, American Enterprise Life may be required, at AVIF's election,
to withdraw each Account's investment in AVIF or any Fund. No charge or
penalty will be imposed as a result of such withdrawal. Any such withdrawal
must take place within six (6) months after AVIF gives notice to American
Enterprise Life that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by American
Enterprise Life for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to American
Enterprise Life conflicts with the majority of other state regulators, then
American Enterprise Life will withdraw each Account's investment in AVIF
within six (6) months after AVIF's Board of Directors informs American
Enterprise Life that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal AVIF shall continue
to accept and implement orders by American Enterprise Life for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) American Enterprise Life agrees that any remedial action taken
by it in resolving any material irreconcilable conflict will be carried out at
its expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
American Enterprise Life will not be required by the terms hereof to establish
a new funding medium for any Contracts if an offer to do so has been declined
by vote of a majority of Participants materially adversely affected by the
material irreconcilable conflict.
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<PAGE> 18
5.5 NOTICE TO AMERICAN ENTERPRISE LIFE .
AVIF will promptly make known in writing to American Enterprise Life
the Board of Directors' determination of the existence of a material
irreconcilable conflict, a description of the facts that give rise to such
conflict and the implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
American Enterprise Life and AVIF (or its investment adviser) will at
least annually submit to the Board of Directors of AVIF such reports, materials
or data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans
of a conflict, and determining whether any proposed action adequately remedies
a conflict, will be properly recorded in the minutes of the Board of Directors
or other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
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<PAGE> 19
(b) at the option of AVIF upon institution of formal proceedings
against American Enterprise Life or its affiliates by the NASD, the SEC, any
state insurance regulator or any other regulatory body regarding American
Enterprise Life's obligations under this Agreement or related to the sale of
the Contracts, the operation of each Account, or the purchase of Shares, if, in
each case, AVIF reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on the Fund with respect to which the Agreement
is to be terminated; or
(c) at the option of American Enterprise Life upon institution of
formal proceedings against AVIF, its principal underwriter, or its investment
adviser by the NASD, the SEC, or any state insurance regulator or any other
regulatory body regarding AVIF's obligations under this Agreement or related to
the operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, American Enterprise Life reasonably determines that such proceedings, or
the facts on which such proceedings would be based, have a material likelihood
of imposing material adverse consequences on American Enterprise Life, or the
Subaccount corresponding to the Fund with respect to which the Agreement is to
be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by American Enterprise Life; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of American Enterprise Life if the Fund ceases
to qualify as a RIC under Subchapter M of the Code or under successor or
similar provisions, or if American Enterprise Life reasonably believes that the
Fund may fail to so qualify; or
(g) at the option of American Enterprise Life if the Fund fails to
comply with Section 817(h) of the Code or with successor or similar provisions,
or if American Enterprise Life reasonably believes that the Fund may fail to so
comply; or
(h) at the option of AVIF if the Contracts issued by American
Enterprise Life cease to qualify as annuity contracts or life insurance
contracts under the Code (other than by reason of the Fund's noncompliance with
Section 817(h) or Subchapter M of the Code) or if interests in an Account under
the Contracts are not registered, where required, and, in all material
respects, are not issued or sold in accordance with any applicable federal or
state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
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(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of American Enterprise Life, continue to make available additional
shares of the Fund pursuant to the terms and conditions of this Agreement, for
all Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts."). Specifically, without
limitation, the owners of the Existing Contracts will be permitted to
reallocate investments in the Fund (as in effect on such date), redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 6.3 will not apply to any terminations under Section 5 and the effect
of such terminations will be governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial Termination
Date, except that American Enterprise Life may, by written notice shorten said
six (6) month period in the case of a termination pursuant to Sections 6.1(d),
6.1(f), 6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant
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<PAGE> 21
to Section 6.1(a), the termination date specified in the notice of termination.
Such steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
IDS Tower 10
Minneapolis, MN 55440-0010
Facsimile: (612) 671-2269
Attn: Mr. Peter L. Slattery
Director, Variable Assets Product
Management
CC: Mary Ellyn Minenko, Esq.
Senior Counsel
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, TX 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
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A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, TX 77046
Facsimile: (713) 993-9185
Attn: Mr. Gary Littlepage
CC: Nancy L. Martin, Esq.
Assistant General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, American Enterprise Life will distribute all proxy material furnished
by AVIF to Participants to whom pass-through voting privileges are required to
be extended and will solicit voting instructions from Participants. American
Enterprise Life will vote Shares in accordance with timely instructions
received from Participants. American Enterprise Life will vote Shares that are
(a) not attributable to Participants to whom pass-through voting privileges are
extended, or (b) attributable to Participants, but for which no timely
instructions have been received, in the same proportion as Shares for which
said instructions have been received from Participants, so long as and to the
extent that the SEC continues to interpret the 1940 Act to require pass through
voting privileges for Participants. Neither American Enterprise Life nor any
of its affiliates will in any way recommend action in connection with or oppose
or interfere with the solicitation of proxies for the Shares held for such
Participants. American Enterprise Life reserves the right to vote shares held
in any Account in its own right, to the extent permitted by law. American
Enterprise Life shall be responsible for assuring that each of its Accounts
holding Shares calculates voting privileges in a manner consistent with that of
other Participating Insurance Companies or in the manner required by the Mixed
and Shared Funding exemptive order obtained by AVIF. AVIF will notify American
Enterprise Life of any changes of interpretations or amendments to Mixed and
Shared Funding exemptive order it has obtained. AVIF will comply with all
provisions of the 1940 Act requiring voting by shareholders, and in particular,
AVIF either will provide for annual meetings (except insofar as the SEC may
interpret Section 16 of the 1940 Act not to require such meetings) or will
comply with Section 16(c) of the 1940 Act (although AVIF is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, AVIF will act in accordance with
the SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with American Enterprise Life
concerning any decision to elect or not to elect pursuant to Section 853 of the
Code to pass through the benefit of any foreign tax credits to its
shareholders.
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SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY AMERICAN ENTERPRISE LIFE AND AEFA.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, American Enterprise Life and AEFA agree to indemnify and hold harmless
AVIF, AIM, their respective affiliates, and each person, if any, who controls
AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act
and each of their respective directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of American Enterprise Life and AEFA) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or
sales literature or advertising for the Contracts (or
any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading; provided, that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to American Enterprise Life or AEFA by or
on behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement
to any of the foregoing); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing, not supplied
for use therein by or on behalf of American
Enterprise Life, AEFA or their respective affiliates
and on which such persons have reasonably relied) or
the negligent, illegal or fraudulent conduct of
American Enterprise Life, AEFA or their respective
affiliates or persons under their control (including,
without limitation, their employees and "Associated
Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with
the sale or distribution of the Contracts or Shares;
or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to
state
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therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading if such a statement or omission was made
in reliance upon and in conformity with information
furnished to AVIF, AIM or their respective affiliates
by or on behalf of American Enterprise Life, AEFA or
their respective affiliates for use in AVIF's 1933
Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by American
Enterprise Life or AEFA to perform the obligations,
provide the services and furnish the materials
required of them under the terms of this Agreement,
or any material breach of any representation and/or
warranty made by American Enterprise Life or AEFA in
this Agreement or arise out of or result from any
other material breach of this Agreement by American
Enterprise Life or AEFA; or
(v) arise as a result of failure by the Contracts issued
by American Enterprise Life to qualify as annuity
contracts or life insurance contracts under the Code,
otherwise than by reason of any Fund's failure to
comply with Subchapter M or Section 817(h) of the
Code.
(b) Neither American Enterprise Life nor AEFA shall be liable
under this Section 12.1 with respect to any losses, claims, damages,
liabilities or actions to which an Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance by that Indemnified Party of its duties or by reason of that
Indemnified Party's reckless disregard of obligations or duties (i) under this
Agreement, or (ii) to AVIF.
(c) Neither American Enterprise Life nor AEFA shall be liable
under this Section 12.1 with respect to any action against an Indemnified Party
unless AVIF or AIM shall have notified American Enterprise Life and AEFA in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify American
Enterprise Life and AEFA of any such action shall not relieve American
Enterprise Life and AEFA from any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.1. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, American Enterprise Life and
AEFA shall be entitled to participate, at their own expense, in the defense of
such action and also shall be entitled to assume the defense thereof, with
counsel approved by the Indemnified Party named in the action, which approval
shall not be unreasonably withheld. After notice from American Enterprise Life
or AEFA to such Indemnified Party of American Enterprise Life's or AEFA's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with American Enterprise Life and AEFA and shall bear the fees and
expenses of any additional counsel retained by it, and neither American
Enterprise Life nor AEFA will be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
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<PAGE> 25
12.2 OF AMERICAN ENTERPRISE LIFE AND AEFA BY AVIF AND AIM .
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless American
Enterprise Life, AEFA, their respective affiliates, and each person, if any,
who controls American Enterprise Life, AEFA or their respective affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes
of this Section 12.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AVIF and AIM)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law, or otherwise; provided, the Account owns
shares of the Fund and insofar as such losses, claims, damages, liabilities or
actions:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus or sales literature or advertising of
AVIF (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading; provided, that this agreement to
indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to AVIF, AIM
or their respective affiliates by or on behalf of
American Enterprise Life, AEFA or their respective
affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or
advertising or otherwise for use in connection with
the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of AVIF, AIM
or their respective affiliates and on which such
persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of AVIF, AIM, their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons" as that Term is defined in
Section (n) of Article 1 of the NASD By-Laws), in
connection with the sale or distribution of AVIF
Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, if such statement or
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<PAGE> 26
omission was made in reliance upon and in conformity
with information furnished to American Enterprise
Life, AEFA or their respective affiliates by or on
behalf of AVIF or AIM for use in any Account's 1933
Act registration statement, any Account Prospectus,
sales literature or advertising covering the
Contracts, or any amendment or supplement to any of
the foregoing; or
(iv) arise as a result of any failure by AVIF or AIM to
perform the obligations, provide the services and
furnish the materials required of them under the
terms of this Agreement, or any material breach of
any representation and/or warranty made by AVIF or
AIM in this Agreement or arise out of or result from
any other material breach of this Agreement by AVIF
or AIM.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF or AIM) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to
Participants asserting liability against American Enterprise Life pursuant to
the Contracts, the costs of any ruling and closing agreement or other
settlement with the IRS, and the cost of any substitution by American
Enterprise Life of Shares of another investment company or portfolio for those
of any adversely affected Fund as a funding medium for each Account that
American Enterprise Life reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to American Enterprise
Life, AEFA, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and AIM in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF and AIM of any such action shall not relieve
AVIF and AIM from any liability which they may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and AIM will be entitled to participate, at
their own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the
conduct of any ruling request and closing agreement or other
23
<PAGE> 27
settlement proceeding with the IRS), with counsel approved by the Indemnified
Party named in the action, which approval shall not be unreasonably withheld.
After notice from AVIF or AIM to such Indemnified Party of AVIF's or AIM's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with AVIF and AIM and shall bear the fees and expenses of any additional
counsel retained by it, and neither AVIF nor AIM will be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, American Enterprise Life, AEFA or any
other Participating Insurance Company or any Participant, with respect to any
losses, claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant made by
American Enterprise Life or AEFA hereunder or by any Participating Insurance
Company under an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by American Enterprise Life or any
Participating Insurance Company to maintain its segregated asset account (which
invests in any Fund) as a legally and validly established segregated asset
account under applicable state law and as a duly registered unit investment
trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii)
the failure by American Enterprise Life or any Participating Insurance Company
to maintain its variable annuity or life insurance contracts (with respect to
which any Fund serves as an underlying funding vehicle) as annuity contracts or
life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
24
<PAGE> 28
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of American
Enterprise Life or any of its affiliates (collectively, the "American
Enterprise Life Protected Parties" for purposes of this Section 18),
information maintained regarding those customers, and all computer programs and
procedures or other information developed by the American Enterprise Life
Protected Parties or any of their employees or agents in connection with
American Enterprise Life's performance of its duties under this Agreement are
the valuable property of the American Enterprise Life Protected Parties. AVIF
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the American Enterprise Life Protected
Parties' customers, or any other information or property of the American
Enterprise Life Protected Parties, other than such information as may be
independently developed or compiled by AVIF from information supplied to it by
the American Enterprise Life Protected Parties' customers who also maintain
accounts directly with AVIF, AVIF will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with American Enterprise Life's prior
written consent; or (b) as required by law or judicial process. American
Enterprise Life acknowledges that the identities of the customers of AVIF or
any of its affiliates (collectively the "AVIF Protected Parties" for purposes
of this Section 18), information maintained regarding those customers, and all
computer programs and procedures or other information developed by the AVIF
Protected Parties or any of their employees or agents in connection with
AVIF's performance of its duties under this Agreement are the valuable property
of the AVIF
25
<PAGE> 29
Protected Parties. American Enterprise Life agrees that if it comes into
possession of any list or compilation of the identities of or other information
about the AVIF Protected Parties' customers or any other information or
property of the AVIF Protected Parties, other than such information as may be
independently developed or compiled by American Enterprise Life from
information supplied to it by the AVIF Protected Parties' customers who also
maintain accounts directly with American Enterprise Life, American Enterprise
Life will hold such information or property in confidence and refrain from
using, disclosing or distributing any of such information or other property
except: (a) with AVIF's prior written consent; or (b) as required by law or
judicial process. Each party acknowledges that any breach of the agreements in
this Section 18 would result in immediate and irreparable harm to the other
parties for which there would be no adequate remedy at law and agree that in
the event of such a breach, the other parties will be entitled to equitable
relief by way of temporary and permanent injunctions, as well as such other
relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) AIM, or its affiliates, owns all right, title and interest in
and to the name, trademark and service mark "AIM" and such other tradenames,
trademarks and service marks as may be set forth on Schedule B, as amended from
time to time by written notice from AIM to American Enterprise Life (the "AIM
licensed marks" or the "licensor's licensed marks") and is authorized to use
and to license other persons to use such marks. AIM hereby grants to American
Enterprise Life and its affiliates a non-exclusive license to use the AIM
licensed marks in connection with American Enterprise Life's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license by AIM (a "licensor") to American
Enterprise Life and its affiliates ( the "licensee") shall terminate
automatically upon termination of this Agreement. Upon automatic termination,
the licensee shall cease to use the licensor's licensed marks, except that
American Enterprise Life shall have the right to continue to service any
outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's
elective termination of this license, American Enterprise Life and its
affiliates shall immediately cease to issue any new annuity or life insurance
contracts bearing any of the AIM licensed marks and shall likewise cease any
activity which suggests that it has any right under any of the AIM licensed
marks or that it has any association with AIM, except that American Enterprise
Life shall have the right to continue to service outstanding Contracts bearing
any of the AIM licensed marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor but,
due to changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such
26
<PAGE> 30
disapproved materials. The licensor's approval shall not be unreasonably
withheld, and the licensor, when requesting reconsideration of a prior
approval, shall assume the reasonable expenses of withdrawing and replacing
such disapproved materials. The licensee shall obtain the prior written
approval of the licensor for the use of any new materials developed to replace
the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
-----------------------------------------------
27
<PAGE> 31
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
---------------------------- ----------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ W. GARY LITTLEPAGE
---------------------------- ----------------------------
Nancy L. Martin Name: W. Gary Littlepage
Assistant General Counsel Title: Sr. Vice President
& Assistant Secretary
AMERICAN ENTERPRISE LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ WILLIAM A. STOLTZMANN By: /s/ STUART A. SEDLACEK
---------------------------- ----------------------------
Name: WILLIAM A. STOLTZMANN Name: STUART A. SEDLACEK
---------------------------- ----------------------------
Title: VP Title: EXECUTIVE VICE PRESIDENT
---------------------------- ----------------------------
AMERICAN EXPRESS FINANCIAL
ADVISORS INC.
Attest: /s/ WILLIAM A. STOLTZMANN By: /s/ STUART A. SEDLACEK
---------------------------- ----------------------------
Name: WILLIAM A. STOLTZMANN Name: STUART A. SEDLACEK
---------------------------- ----------------------------
Title: VP Title: VICE PRES.
---------------------------- ----------------------------
28
<PAGE> 32
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o American Enterprise Variable Annuity Account
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Flexible Premium Deferred Variable Annuity Contract Form Nos. 34560
and 43260 (and any state variations thereof)
29
<PAGE> 33
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
o AIM and Design
[AIM LOGO APPEARS HERE]
30
<PAGE> 1
EXHIBIT 9(o)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC. ,
AMERICAN CENTURION LIFE ASSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 American Centurion Life To Provide Documents; Information About AVIF 10
4.6 AVIF To Provide Documents; Information About American Centurion Life 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Notice to American Centurion Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Of AVIF and AIM by American Centurion Life and AEFA . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Of American Centurion Life and AEFA by AVIF and AIM . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of October,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation
("AIM"); American Centurion Life Assurance Company, a New York life insurance
company ("American Centurion Life "), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto
may amend from time to time (each, an "Account," and collectively, the
"Accounts"); and American Express Financial Advisors Inc. ("AEFA"), an
affiliate of American Centurion Life and the principal underwriter of the
Contracts (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, American Centurion Life will be the issuer of certain
variable annuity contracts and/or variable life insurance contracts
("Contracts") as set forth on Schedule A hereto, as the Parties hereto may
amend from time to time, which Contracts (hereinafter collectively, the
"Contracts"), if required by applicable law, will be registered under the 1933
Act; and
WHEREAS, American Centurion Life will fund the Contracts through the
Accounts, each of which may be divided into two or more subaccounts
("Subaccounts"; reference herein to an "Account" includes reference to each
Subaccount thereof to the extent the context requires); and
WHEREAS, American Centurion Life will serve as the depositor of the
Accounts, each of which is registered as a unit investment trust investment
company under the 1940 Act (or exempt therefrom), and the security interests
deemed to be issued by the Accounts under the Contracts will be registered as
securities under the 1933 Act (or exempt therefrom); and
1
<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, American Centurion Life intends to purchase Shares in one or more
of the Funds on behalf of the Accounts to fund the Contracts; and
WHEREAS, AEFA is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to American Centurion
Life for purchase and redemption at net asset value and with no sales charges,
subject to the terms and conditions of this Agreement. The Board of Directors
of AVIF may refuse to sell Shares of any Fund to any person, or suspend or
terminate the offering of Shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or if, in the sole discretion
of the Directors acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide American Centurion Life with the net asset value per Share for each
Fund by 5:30 p.m. Central Time on each Business Day. As used herein, "Business
Day" shall mean any day on which (i) the New York Stock
2
<PAGE> 6
Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset
value, and (iii)American Centurion Life is open for business.
(b) American Centurion Life will use the data provided by AVIF
each Business Day pursuant to paragraph (a) immediately above to calculate
Account unit values and to process transactions that receive that same Business
Day's Account unit values. American Centurion Life will perform such Account
processing the same Business Day, and will place corresponding orders to
purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following
Business Day; provided, however, that AVIF shall provide additional time to
American Centurion Life in the event that AVIF is unable to meet the 5:30 p.m.
time stated in paragraph (a) immediately above. Such additional time shall be
equal to the additional time that AVIF takes to make the net asset values
available to American Centurion Life.
(c) With respect to payment of the purchase price by American
Centurion Life and of redemption proceeds by AVIF, American Centurion Life and
AVIF shall net purchase and redemption orders with respect to each Fund and
shall transmit one net payment per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), American Centurion Life shall
be entitled to an adjustment to the number of Shares purchased or redeemed to
reflect the correct net asset value per Share. Any material error in the
calculation or reporting of net asset value per Share, dividend or capital gain
information shall be reported promptly upon discovery to American Centurion
Life.
2.2 TIMELY PAYMENTS.
American Centurion Life will wire payment for net purchases to a
custodial account designated by AVIF by 1:00 p.m. Central Time on the same day
as the order for Shares is placed, to the extent practicable. AVIF will wire
payment for net redemptions to an account designated by American Centurion Life
by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent
practicable, but in any event within five (5) calendar days after the date the
order is placed in order to enable American Centurion Life to pay redemption
proceeds within the time specified in Section 22(e) of the 1940 Act or such
shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that American Centurion
Life receives prior to the close of regular trading on the New York Stock
Exchange on a Business Day will be executed at the net asset values of the
appropriate Funds next computed after receipt by AVIF or its designated agent
of the orders. For purposes of this Section 2.3(a), American Centurion Life
shall be the designated agent of AVIF for receipt of orders relating to
Contract transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
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(b) All other Share purchases and redemptions by American
Centurion Life will be effected at the net asset values of the appropriate
Funds next computed after receipt by AVIF or its designated agent of the order
therefor, and such orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to American Centurion Life of any
income dividends or capital gain distributions payable on the Shares of any
Fund. American Centurion Life hereby elects to reinvest all dividends and
capital gains distributions in additional Shares of the corresponding Fund at
the ex-dividend date net asset values until American Centurion Life otherwise
notifies AVIF in writing, it being agreed by the Parties that the ex-dividend
date and the payment date with respect to any dividend or distribution will be
the same Business Day. American Centurion Life reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to American Centurion Life. Shares
ordered from AVIF will be recorded in an appropriate title for American
Centurion Life, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
(b) American Centurion Life will bear the cost of registering, to
the extent required, each Account as a unit investment trust under the 1940 Act
and registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to each Account and its units of interest and
payment of all applicable registration or filing fees with respect to any of
the foregoing.
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3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) American Centurion Life will bear the costs of preparing,
filing with the SEC and setting for printing each Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Account Prospectus"), any periodic reports to Contract
owners, annuitants, insureds or participants (as appropriate) under the
Contracts (collectively, "Participants"), voting instruction solicitation
material, and other Participant communications.
(c) American Centurion Life will print in quantity and deliver to
existing Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready or computer diskette form. AVIF
will print the AVIF statement of additional information, proxy materials
relating to AVIF and periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
American Centurion Life will bear the expenses of distribution. These
expenses would include by way of illustration, but are not limited to, the
costs of distributing to Participants the following documents, whether they
relate to the Account or AVIF: prospectuses, statements of additional
information, proxy materials and periodic reports. These costs would also
include the costs of preparing, printing, and distributing sales literature and
advertising relating to the Funds, as well as filing such materials with, and
obtaining approval from, the SEC, NASD, any state insurance regulatory
authority, and any other appropriate regulatory authority, to the extent
required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each Fund
as a RIC. AVIF will notify American Centurion Life immediately upon having a
reasonable basis for believing that a Fund has ceased to so qualify or that it
might not so qualify in the future.
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(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify American Centurion Life
immediately upon having a reasonable basis for believing that a Fund has ceased
to so comply or that a Fund might not so comply in the future. In the event of
a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Section 1.817-5 of the regulations under the Code.
(c) American Centurion Life agrees that if the Internal Revenue
Service ("IRS") asserts in writing in connection with any governmental audit or
review of American Centurion Life or, to American Centurion Life Assurance
Company's knowledge, of any Participant, that any Fund has failed to comply
with the diversification requirements of Section 817(h) of the Code or American
Centurion Life otherwise becomes aware of any facts that could give rise to any
claim against AVIF or its affiliates as a result of such a failure or alleged
failure:
(i) American Centurion Life shall promptly notify AVIF of
such assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) American Centurion Life shall consult with AVIF as to
how to minimize any liability that may arise as a
result of such failure or alleged failure;
(iii) American Centurion Life shall use its best efforts to
minimize any liability of AVIF or its affiliates
resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was
inadvertent;
(iv) American Centurion Life shall permit AVIF, its
affiliates and their legal and accounting advisors to
participate in any conferences, settlement
discussions or other administrative or judicial
proceeding or contests (including judicial appeals
thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of
such a failure or alleged failure; provided, however,
that American Centurion Life will retain control of
the conduct of such conferences discussions,
proceedings, contests or appeals;
(v) any written materials to be submitted by American
Centurion Life to the IRS, any Participant or any
other claimant in connection with any of the
foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations Section
1.817-5(a)(2)), (a) shall be provided by American
Centurion Life to AVIF (together with any supporting
information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by American
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<PAGE> 10
Centurion Life to any such person without the express
written consent of AVIF which shall not be
unreasonably withheld;
(vi) American Centurion Life shall provide AVIF or its
affiliates and their accounting and legal advisors
with such cooperation as AVIF shall reasonably
request (including, without limitation, by permitting
AVIF and its accounting and legal advisors to review
the relevant books and records of American Centurion
Life) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it
pursuant to the preceding clause or its assessment of
the validity or amount of any claim against its
arising from such a failure or alleged failure;
(vii) American Centurion Life shall not with respect to any
claim of the IRS or any Participant that would give
rise to a claim against AVIF or its affiliates (a)
compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the
express written consent of AVIF or its affiliates,
which shall not be unreasonably withheld, provided
that American Centurion Life shall not be required,
after exhausting all administrative penalties, to
appeal any adverse judicial decision unless AVIF or
its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable
basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be
borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if American
Centurion Life fails to comply with any of the
foregoing clauses (i) through (vii), and such failure
could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
American Centurion Life may, in its discretion, authorize AVIF or its
affiliates to act in the name of American Centurion Life in, and to control the
conduct of, such conferences, discussions, proceedings, contests or appeals and
all administrative or judicial appeals thereof, and in that event AVIF or its
affiliates shall bear the fees and expenses associated with the conduct of the
proceedings that it is so authorized to control; provided, that in no event
shall American Centurion Life have any liability resulting from AVIF's refusal
to accept the proposed settlement or compromise with respect to any failure
caused by AVIF. As used in this Agreement, the term "affiliates" shall have
the same meaning as "affiliated person" as defined in Section 2(a)(3) of the
1940 Act.
(d) American Centurion Life represents and warrants that the
Contracts currently are and will be treated as annuity contracts or life
insurance contracts under applicable provisions of the Code and that it will
use its best efforts to maintain such treatment; American Centurion Life will
notify AVIF immediately upon having a reasonable basis for believing that any
of the Contracts have ceased to be so treated or that they might not be so
treated in the future.
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(e) American Centurion Life represents and warrants that each
Account is a "segregated asset account" and that interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817 of the Code and
the regulations thereunder. American Centurion Life will use its best efforts
to continue to meet such definitional requirements, and it will notify AVIF
immediately upon having a reasonable basis for believing that such requirements
have ceased to be met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by American Centurion Life, including, the furnishing of information
not otherwise available to American Centurion Life which is required by state
insurance law to enable American Centurion Life to obtain the authority needed
to issue the Contracts in any applicable state.
(b) American Centurion Life represents and warrants that (i) it is
an insurance company duly organized, validly existing and in good standing
under the laws of the State of New York and has full corporate power, authority
and legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under Section 4240 of
the New York Insurance Law and the regulations thereunder, and (iii) the
Contracts comply in all material respects with all other applicable federal and
state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) American Centurion Life represents and warrants that (i)
interests in each Account pursuant to the Contracts will be registered under
the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be
duly authorized for issuance and sold in compliance with all applicable federal
and state laws, including, without limitation, the 1933 Act, the 1934 Act, the
1940 Act and New York law, (iii) each Account is and will remain registered
under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, to the extent required, (v) each Account's 1933
Act registration statement relating to the Contracts, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) American Centurion
Life will amend the registration statement for its Contracts under the 1933 Act
and for its Accounts under the 1940 Act from time to time as required in order
to effect the continuous offering of its Contracts or as may otherwise be
required by applicable law, and (vii) each Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
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(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify American Centurion Life of (i)
the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to AVIF's registration
statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC
for any amendment to such registration statement or AVIF Prospectus that may
affect the offering of Shares of AVIF, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund
in any state or jurisdiction, including, without limitation, any circumstances
in which (a) such Shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law, or (b)
such law precludes the use of such Shares as an underlying investment medium of
the Contracts issued or to be issued by American Centurion Life. AVIF will
make every reasonable effort to prevent the issuance, with respect to any Fund,
of any such stop order, cease and desist order or similar order and, if any
such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) American Centurion Life will immediately notify AVIF of (i)
the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect
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to each Account's registration statement under the 1933 Act relating to the
Contracts or each Account Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Account Prospectus that may affect
the offering of Shares of AVIF, (iii) the initiation of any proceedings for
that purpose or for any other purpose relating to the registration or offering
of each Account's interests pursuant to the Contracts, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of said interests in
any state or jurisdiction, including, without limitation, any circumstances in
which said interests are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law. American
Centurion Life will make every reasonable effort to prevent the issuance of any
such stop order, cease and desist order or similar order and, if any such order
is issued, to obtain the lifting thereof at the earliest possible time.
4.5 AMERICAN CENTURION LIFE TO PROVIDE DOCUMENTS; INFORMATION
ABOUT AVIF.
(a) American Centurion Life will provide to AVIF or its designated
agent at least one (1) complete copy of all SEC registration statements,
Account Prospectuses, reports, any preliminary and final voting instruction
solicitation material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to each Account or
the Contracts, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
(b) American Centurion Life will provide to AVIF or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
five (5) Business Days prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) Business Days
after receipt of such material or such shorter period as the Parties hereto
may, from time to time, agree upon. AVIF hereby designates A I M as the entity
to receive such sales literature, until such time as AVIF appoints another
designated agent by giving notice to American Centurion Life in the manner
required by Section 9 hereof.
(c) Neither American Centurion Life nor any of its affiliates,
will give any information or make any representations or statements on behalf
of or concerning AVIF or its affiliates in connection with the sale of the
Contracts other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(iii) in published reports for AVIF that are in the public domain and approved
by AVIF for distribution; or (iv) in sales literature or other promotional
material approved by AVIF, except with the express written permission of AVIF.
(d) American Centurion Life shall adopt and implement procedures
reasonably designed to ensure that information concerning AVIF and its
affiliates that is intended for use only by brokers or agents selling the
Contracts (i.e., information that is not intended for distribution to
Participants) ("broker only materials") is so used, and neither AVIF nor any of
its affiliates shall be liable for any losses, damages or expenses relating to
the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for
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use in, a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion
pictures, or other public media, (e.g., on-line networks such as the Internet
or other electronic messages), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act
or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT AMERICAN
CENTURION LIFE.
(a) AVIF will provide to American Centurion Life at least one (1)
complete copy of all SEC registration statements, AVIF Prospectuses, reports,
any preliminary and final proxy material, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate to
AVIF or the Shares of a Fund, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
(b) AVIF will provide to American Centurion Life camera ready or
computer diskette copies of all AVIF prospectuses and printed copies, in an
amount specified by American Centurion Life, of AVIF statements of additional
information, proxy materials, periodic reports to shareholders and other
materials required by law to be sent to Participants who have allocated any
Contract value to a Fund. AVIF will provide such copies to American Centurion
Life in a timely manner so as to enable American Centurion Life, to print and
distribute such materials within the time required by law to be furnished to
Participants.
(c) AVIF will provide to American Centurion Life or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material in which American Centurion Life, or any of its respective
affiliates is named, or that refers to the Contracts, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if American
Centurion Life or its designated agent objects to such use within five (5)
Business Days after receipt of such material or such shorter period as the
Parties hereto may, from time to time, agree upon. American Centurion Life
shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning American Centurion Life, each Account, or the Contracts other than
(i) the information or representations contained in the registration statement,
including each Account Prospectus contained therein, relating to the Contracts,
as such registration statement and Account Prospectus may be amended from time
to time; or (ii) in published reports for the Account or the Contracts that are
in the public domain and approved by American Centurion Life for distribution;
or (iii) in sales literature or other promotional material approved by American
Centurion Life or its affiliates, except with the express written permission of
American Centurion Life.
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<PAGE> 15
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
American Centurion Life, and its respective affiliates that is intended for use
only by brokers or agents selling the Contracts (i.e., information that is not
intended for distribution to Participants) ("broker only materials") is so
used, and neither American Centurion Life, nor any of its respective affiliates
shall be liable for any losses, damages or expenses relating to the improper
use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with American
Centurion Life, and trustees of qualified pension and retirement plans
(collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC
has imposed terms and conditions for such orders that are substantially
identical to many of the provisions of this Section 5. Sections 5.2 through
5.8 below shall apply pursuant to such an exemptive order granted to AVIF.
AVIF hereby notifies American Centurion Life that, in the event that AVIF
implements Mixed and Shared Funding, it may be appropriate to include in the
prospectus pursuant to which a Contract is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period
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<PAGE> 16
of sixty (60) days if a vote of shareholders is required to fill the vacancy or
vacancies; or (c) for such longer period as the SEC may prescribe by order upon
application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). American Centurion Life agrees to inform the Board of
Directors of AVIF of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, American Centurion Life
will assist the Board of Directors in carrying out its responsibilities by
providing the Board of Directors with all information reasonably necessary for
the Board of Directors to consider any issue raised, including information as
to a decision by American Centurion Life to disregard voting instructions of
Participants. American Centurion Life's responsibilities in connection with
the foregoing shall be carried out with a view only to the interests of
Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, American Centurion Life will,
if it is a Participating Insurance Company for which a material
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<PAGE> 17
irreconcilable conflict is relevant, at its own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
American Centurion Life's decision to disregard Participant voting
instructions and that decision represents a minority position or would preclude
a majority vote, American Centurion Life may be required, at AVIF's election,
to withdraw each Account's investment in AVIF or any Fund. No charge or
penalty will be imposed as a result of such withdrawal. Any such withdrawal
must take place within six (6) months after AVIF gives notice to American
Centurion Life that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by American
Centurion Life for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to American
Centurion Life conflicts with the majority of other state regulators, then
American Centurion Life will withdraw each Account's investment in AVIF within
six (6) months after AVIF's Board of Directors informs American Centurion Life
that it has determined that such decision has created a material irreconcilable
conflict, and until such withdrawal AVIF shall continue to accept and implement
orders by American Centurion Life for the purchase and redemption of Shares of
AVIF. No charge or penalty will be imposed as a result of such withdrawal.
(d) American Centurion Life agrees that any remedial action taken
by it in resolving any material irreconcilable conflict will be carried out at
its expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
American Centurion Life will not be required by the terms hereof to establish a
new funding medium for any Contracts if an offer to do so has been declined by
vote of a majority of Participants materially adversely affected by the
material irreconcilable conflict.
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5.5 NOTICE TO AMERICAN CENTURION LIFE.
AVIF will promptly make known in writing to American Centurion Life
the Board of Directors' determination of the existence of a material
irreconcilable conflict, a description of the facts that give rise to such
conflict and the implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
American Centurion Life and AVIF (or its investment adviser) will at
least annually submit to the Board of Directors of AVIF such reports, materials
or data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans
of a conflict, and determining whether any proposed action adequately remedies
a conflict, will be properly recorded in the minutes of the Board of Directors
or other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
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<PAGE> 19
(b) at the option of AVIF upon institution of formal proceedings
against American Centurion Life or its affiliates by the NASD, the SEC, any
state insurance regulator or any other regulatory body regarding American
Centurion Life's obligations under this Agreement or related to the sale of the
Contracts, the operation of each Account, or the purchase of Shares, if, in
each case, AVIF reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on the Fund with respect to which the Agreement
is to be terminated; or
(c) at the option of American Centurion Life upon institution of
formal proceedings against AVIF, its principal underwriter, or its investment
adviser by the NASD, the SEC, or any state insurance regulator or any other
regulatory body regarding AVIF's obligations under this Agreement or related to
the operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, American Centurion Life reasonably determines that such proceedings, or
the facts on which such proceedings would be based, have a material likelihood
of imposing material adverse consequences on American Centurion Life, or the
Subaccount corresponding to the Fund with respect to which the Agreement is to
be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by American Centurion Life; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of American Centurion Life if the Fund ceases to
qualify as a RIC under Subchapter M of the Code or under successor or similar
provisions, or if American Centurion Life reasonably believes that the Fund may
fail to so qualify; or
(g) at the option of American Centurion Life if the Fund fails to
comply with Section 817(h) of the Code or with successor or similar provisions,
or if American Centurion Life reasonably believes that the Fund may fail to so
comply; or
(h) at the option of AVIF if the Contracts issued by American
Centurion Life cease to qualify as annuity contracts or life insurance
contracts under the Code (other than by reason of the Fund's noncompliance with
Section 817(h) or Subchapter M of the Code) or if interests in an Account under
the Contracts are not registered, where required, and, in all material
respects, are not issued or sold in accordance with any applicable federal or
state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
16
<PAGE> 20
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of American Centurion Life, continue to make available additional shares
of the Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts."). Specifically, without
limitation, the owners of the Existing Contracts will be permitted to
reallocate investments in the Fund (as in effect on such date), redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 6.3 will not apply to any terminations under Section 5 and the effect
of such terminations will be governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial Termination
Date, except that American Centurion Life may, by written notice shorten said
six (6) month period in the case of a termination pursuant to Sections 6.1(d),
6.1(f), 6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant
17
<PAGE> 21
to Section 6.1(a), the termination date specified in the notice of termination.
Such steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
AMERICAN CENTURION LIFE ASSURANCE COMPANY
IDS Tower 10
Minneapolis, MN 55440-0010
Facsimile: (612) 671-2269
Attn: Mr. Peter L. Slattery
Director, Variable Assets Product
Management
CC: Mary Ellyn Minenko, Esq.
Senior Counsel
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, TX 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
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<PAGE> 22
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, TX 77046
Facsimile: (713) 993-9185
Attn: Mr. Gary Littlepage
CC: Nancy L. Martin, Esq.
Assistant General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, American Centurion Life will distribute all proxy material furnished by
AVIF to Participants to whom pass-through voting privileges are required to be
extended and will solicit voting instructions from Participants. American
Centurion Life will vote Shares in accordance with timely instructions received
from Participants. American Centurion Life will vote Shares that are (a) not
attributable to Participants to whom pass-through voting privileges are
extended, or (b) attributable to Participants, but for which no timely
instructions have been received, in the same proportion as Shares for which
said instructions have been received from Participants, so long as and to the
extent that the SEC continues to interpret the 1940 Act to require pass through
voting privileges for Participants. Neither American Centurion Life nor any of
its affiliates will in any way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Participants. American Centurion Life reserves the right to vote shares held in
any Account in its own right, to the extent permitted by law. American
Centurion Life shall be responsible for assuring that each of its Accounts
holding Shares calculates voting privileges in a manner consistent with that of
other Participating Insurance Companies or in the manner required by the Mixed
and Shared Funding exemptive order obtained by AVIF. AVIF will notify American
Centurion Life of any changes of interpretations or amendments to Mixed and
Shared Funding exemptive order it has obtained. AVIF will comply with all
provisions of the 1940 Act requiring voting by shareholders, and in particular,
AVIF either will provide for annual meetings (except insofar as the SEC may
interpret Section 16 of the 1940 Act not to require such meetings) or will
comply with Section 16(c) of the 1940 Act (although AVIF is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, AVIF will act in accordance with
the SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with American Centurion Life
concerning any decision to elect or not to elect pursuant to Section 853 of the
Code to pass through the benefit of any foreign tax credits to its
shareholders.
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SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY AMERICAN CENTURION LIFE AND AEFA.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, American Centurion Life and AEFA agree to indemnify and hold harmless
AVIF, AIM, their respective affiliates, and each person, if any, who controls
AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act
and each of their respective directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of American Centurion Life and AEFA) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to American Centurion Life or AEFA
by or on behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of American
Centurion Life, AEFA or their respective affiliates and
on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of American
Centurion Life, AEFA or their respective affiliates or
persons under their control (including, without
limitation, their employees and "Associated Persons," as
that term is defined in paragraph (m) of Article I of the
NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state
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<PAGE> 24
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon
and in conformity with information furnished to AVIF, AIM
or their respective affiliates by or on behalf of
American Centurion Life, AEFA or their respective
affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by American Centurion
Life or AEFA to perform the obligations, provide the
services and furnish the materials required of them under
the terms of this Agreement, or any material breach of
any representation and/or warranty made by American
Centurion Life or AEFA in this Agreement or arise out of
or result from any other material breach of this
Agreement by American Centurion Life or AEFA; or
(v) arise as a result of failure by the Contracts issued by
American Centurion Life to qualify as annuity contracts
or life insurance contracts under the Code, otherwise
than by reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Neither American Centurion Life nor AEFA shall be liable under
this Section 12.1 with respect to any losses, claims, damages, liabilities or
actions to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii)
to AVIF.
(c) Neither American Centurion Life nor AEFA shall be liable under
this Section 12.1 with respect to any action against an Indemnified Party
unless AVIF or AIM shall have notified American Centurion Life and AEFA in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify American
Centurion Life and AEFA of any such action shall not relieve American Centurion
Life and AEFA from any liability which they may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.1. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, American Centurion Life and AEFA shall be
entitled to participate, at their own expense, in the defense of such action
and also shall be entitled to assume the defense thereof, with counsel approved
by the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from American Centurion Life or AEFA to
such Indemnified Party of American Centurion Life's or AEFA's election to
assume the defense thereof, the Indemnified Party will cooperate fully with
American Centurion Life and AEFA and shall bear the fees and expenses of any
additional counsel retained by it, and neither American Centurion Life nor AEFA
will be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
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12.2 OF AMERICAN CENTURION LIFE AND AEFA BY AVIF AND AIM .
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless American
Centurion Life, AEFA, their respective affiliates, and each person, if any, who
controls American Centurion Life, AEFA or their respective affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes
of this Section 12.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AVIF and AIM)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law, or otherwise; provided, the Account owns
shares of the Fund and insofar as such losses, claims, damages, liabilities or
actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF, AIM
or their respective affiliates by or on behalf of
American Centurion Life, AEFA or their respective
affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or
advertising or otherwise for use in connection with the
sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF, AIM or their respective
affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct
of AVIF, AIM, their respective affiliates or persons
under their control (including, without limitation, their
employees and "Associated Persons" as that Term is
defined in Section (n) of Article 1 of the NASD By-Laws),
in connection with the sale or distribution of AVIF
Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or
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<PAGE> 26
omission was made in reliance upon and in conformity with
information furnished to American Centurion Life, AEFA or
their respective affiliates by or on behalf of AVIF or
AIM for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF or AIM to
perform the obligations, provide the services and furnish
the materials required of them under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AVIF or AIM in this Agreement or
arise out of or result from any other material breach of
this Agreement by AVIF or AIM.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF or AIM) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to
Participants asserting liability against American Centurion Life pursuant to
the Contracts, the costs of any ruling and closing agreement or other
settlement with the IRS, and the cost of any substitution by American Centurion
Life of Shares of another investment company or portfolio for those of any
adversely affected Fund as a funding medium for each Account that American
Centurion Life reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to American Centurion
Life, AEFA, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and AIM in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF and AIM of any such action shall not relieve
AVIF and AIM from any liability which they may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and AIM will be entitled to participate, at
their own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the
conduct of any ruling request and closing agreement or other
23
<PAGE> 27
settlement proceeding with the IRS), with counsel approved by the Indemnified
Party named in the action, which approval shall not be unreasonably withheld.
After notice from AVIF or AIM to such Indemnified Party of AVIF's or AIM's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with AVIF and AIM and shall bear the fees and expenses of any additional
counsel retained by it, and neither AVIF nor AIM will be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, American Centurion Life, AEFA or any
other Participating Insurance Company or any Participant, with respect to any
losses, claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant made by
American Centurion Life or AEFA hereunder or by any Participating Insurance
Company under an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by American Centurion Life or any
Participating Insurance Company to maintain its segregated asset account (which
invests in any Fund) as a legally and validly established segregated asset
account under applicable state law and as a duly registered unit investment
trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii)
the failure by American Centurion Life or any Participating Insurance Company
to maintain its variable annuity or life insurance contracts (with respect to
which any Fund serves as an underlying funding vehicle) as annuity contracts or
life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
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SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of American
Centurion Life or any of its affiliates (collectively, the "American Centurion
Life Protected Parties" for purposes of this Section 18), information
maintained regarding those customers, and all computer programs and procedures
or other information developed by the American Centurion Life Protected Parties
or any of their employees or agents in connection with American Centurion
Life's performance of its duties under this Agreement are the valuable property
of the American Centurion Life Protected Parties. AVIF agrees that if it comes
into possession of any list or compilation of the identities of or other
information about the American Centurion Life Protected Parties' customers, or
any other information or property of the American Centurion Life Protected
Parties, other than such information as may be independently developed or
compiled by AVIF from information supplied to it by the American Centurion Life
Protected Parties' customers who also maintain accounts directly with AVIF,
AVIF will hold such information or property in confidence and refrain from
using, disclosing or distributing any of such information or other property
except: (a) with American Centurion Life's prior written consent; or (b) as
required by law or judicial process. American Centurion Life acknowledges that
the identities of the customers of AVIF or any of its affiliates (collectively,
the "AVIF Protected Parties" for purposes of this Section 18), information
maintained regarding those customers, and all computer programs and procedures
or other information developed by the AVIF Protected Parties or any of their
employees or agents in connection with AVIF's performance of its duties under
this Agreement are the valuable property of the AVIF
25
<PAGE> 29
Protected Parties. American Centurion Life agrees that if it comes into
possession of any list or compilation of the identities of or other information
about the AVIF Protected Parties' customers or any other information or
property of the AVIF Protected Parties, other than such information as may be
independently developed or compiled by American Centurion Life from information
supplied to it by the AVIF Protected Parties' customers who also maintain
accounts directly with American Centurion Life, American Centurion Life will
hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property except:
(a) with AVIF's prior written consent; or (b) as required by law or judicial
process. Each party acknowledges that any breach of the agreements in this
Section 18 would result in immediate and irreparable harm to the other parties
for which there would be no adequate remedy at law and agree that in the event
of such a breach, the other parties will be entitled to equitable relief by way
of temporary and permanent injunctions, as well as such other relief as any
court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) AIM, or its affiliates, owns all right, title and interest in
and to the name, trademark and service mark "AIM" and such other tradenames,
trademarks and service marks as may be set forth on Schedule B, as amended from
time to time by written notice from AIM to American Centurion Life (the "AIM
licensed marks" or the "licensor's licensed marks") and is authorized to use
and to license other persons to use such marks. AIM hereby grants to American
Centurion Life and its affiliates a non-exclusive license to use the AIM
licensed marks in connection with American Centurion Life's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license by AIM (a "licensor") to American
Centurion Life and its affiliates ( the "licensee") shall terminate
automatically upon termination of this Agreement. Upon automatic termination,
the licensee shall cease to use the licensor's licensed marks, except that
American Centurion Life shall have the right to continue to service any
outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's
elective termination of this license, American Centurion Life and its
affiliates shall immediately cease to issue any new annuity or life insurance
contracts bearing any of the AIM licensed marks and shall likewise cease any
activity which suggests that it has any right under any of the AIM licensed
marks or that it has any association with AIM, except that American Centurion
Life shall have the right to continue to service outstanding Contracts bearing
any of the AIM licensed marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor but,
due to changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such
26
<PAGE> 30
disapproved materials. The licensor's approval shall not be unreasonably
withheld, and the licensor, when requesting reconsideration of a prior
approval, shall assume the reasonable expenses of withdrawing and replacing
such disapproved materials. The licensee shall obtain the prior written
approval of the licensor for the use of any new materials developed to replace
the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
__________________________________________
27
<PAGE> 31
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- -------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ W. GARY LITTLEPAGE
------------------------- -------------------------
Nancy L. Martin Name: W. Gary Littlepage
Assistant General Counsel Title: Sr. Vice President
& Assistant Secretary
AMERICAN CENTURION LIFE ASSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ ERIC L. MARHOUN By: /s/ STUART A. SEDLACEK
------------------------- -------------------------
Name: ERIC L. MARHOUN Name: STUART A. SEDLACEK
------------------------- -------------------------
Title: SECRETARY/GENERAL Title: EXEC. V.P.
------------------------- ------------------------
COUNSEL
AMERICAN EXPRESS FINANCIAL
ADVISORS INC.
Attest: /s/ WILLIAM A. STOLTZMANN By: /s/ STUART A. SEDLACEK
------------------------- -------------------------
Name: WILLIAM A. STOLTZMANN Name: STUART A. SEDLACEK
------------------------- -------------------------
Title: VP Title: VICE PRES.
------------------------- -------------------------
28
<PAGE> 32
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o ACL Variable Annuity Account 2
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Flexible Premium Deferred Variable Annuity Contract Form No. 45054
29
<PAGE> 33
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
o AIM and Design
[AIM LOGO APPEARS HERE]
30
<PAGE> 1
EXHIBIT 9(p)
[AMERICAN EXPRESS FINANCIAL ADVISORS LETTERHEAD]
October 30,1997
Mr. Robert H. Graham
President
A I M Advisors, Inc.
11 Greenway Plaza Suite 1919
Houston, TX 77046
Mr. W. Gary Littlepage
Senior Vice President
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Dear Messrs. Graham and Littlepage:
This letter sets forth the agreement among American Enterprise Life Insurance
Company ("American Enterprise Life") and American Centurion Life Assurance
Company ("American Centurion Life") (American Enterprise Life and American
Centurion Life collectively are referred to as the "Insurance Companies"), A I M
Advisors, Inc. (the "Advisor") and A I M Distributors, Inc. (the "Distributor")
(the Advisor and the Distributor collectively are referred to as "A I M")
concerning certain administrative services.
1. Services and Expenses. The Advisor and the Distributor serve as
the investment advisor and principal underwriter, respectively, of the AIM
Variable Insurance Funds, Inc. ("AVIF"). The Insurance Companies have
entered into Participation Agreements with AVIF and the Distributor, each
dated October 30, 1997 (collectively, the "Participation Agreements"), as
these agreements may be amended from time to time, pursuant to which AVIF
will make shares of the AIM V.I. Growth and Income Fund, the AIM V.I.
International Equity Fund and the AIM V.I. Value Fund (collectively, the
"Funds") available to the Insurance Companies to fund variable annuity
contracts (the "Contracts") through the American Enterprise Variable
Annuity Account and ACL Variable Annuity Account 2 (collectively, the
"Accounts").
The Participation Agreements provide that the Insurance Companies will, at
their expense, print and deliver to existing owners of the
<PAGE> 2
Contracts (the "Contractowners") the Funds' prospectuses and will deliver,
at their expense, the Funds' statements of additional information,
shareholder reports, proxy materials and other Contractowner
communications. Further, the Insurance Companies will incur various
administrative expenses in connection with the servicing of Contractowners
who have allocated Contract value to the Funds. The types of services that
the Insurance Companies will perform in connection with making the Funds
available as investment options under the Contracts and with servicing the
Contractowners are set forth in Schedule A to this letter agreement.
2. Fees and Payments. The parties wish to allocate expenses in a manner
that is fair and equitable and consistent with the best interest of the
Contractowners. Further, the parties wish to establish a means for
allocating expenses that does not entail the expense and inconvenience of
separately identifying and accounting for each item of expense. In
consideration of the mutual benefits and promises contained in this letter
agreement, A I M agrees to pay the Insurance Companies a fee based on the
average daily net asset value of the shares of the Funds held in the
Accounts. The fee will be calculated based on the following schedule:
<TABLE>
<CAPTION>
FUNDS' ASSETS (MILLIONS) ANNUALIZED FEE RATE
------------------------ -------------------
<S> <C>
$0 but less than $50 0%
$50 but less than $150 0.15% of 1%
$150 but less than $250 0.20% of 1%
$250 and over 0.25% of 1%
</TABLE>
For each calendar year the Annualized Fee Rate to be used in calculating
the fee will be the Annualized Fee Rate applicable to the highest average
assets invested in the Funds by the Accounts during such calendar year. The
fee will be calculated and paid quarterly. If during a calendar year the
Annualized Fee Rate increases, any fee previously paid for such calendar
year at a lower Annualized Fee Rate will be recalculated and the difference
will be paid. Annualized Fee Rates will be adjusted if the investment
management fee rate paid by the Funds to the Advisor changes. Annualized
Fee Rates will be increased or decreased by a percentage, the numerator of
which is the basis point change in the existing investment management fee
and the denominator of which is the existing investment management fee paid
prior to such change. A I M and the Insurance Companies agree to review
this fee arrangement if at some future date, an AVIF fund is not promoted
in the Contracts or in a successor product. If, at some future date, an
AVIF fund is not included as an investment option,
2
<PAGE> 3
A I M may, at its option, terminate this letter agreement with respect to
such fund no longer included as an option.
As soon as practicable after the end of each calendar quarter, the
Insurance Companies will send A I M at the address and in the manner set
forth in the Participation Agreements, a statement of the average daily
value for the preceding quarter of shares of such Funds as to which the fee
is calculated, together with a statement of the amount of such fee
allocated to American Enterprise Life and American Centurion Life. If the
fee calculation made by the Insurance Companies does not agree with the fee
calculation made by A I M, the parties will work together to promptly
resolve any such difference.
A I M will pay American Enterprise Life and American Centurion Life each
Company's pro-rata share of such fee within thirty (30) days after the end
of the calendar quarter. Such payment will be by wire transfers unless the
amount thereof is less than $500. Wire transfers will be sent to the
accounts and in the manner specified by American Enterprise Life and
American Centurion Life. Such wire transfers will be separate from wire
transfers of redemption proceeds and distributions. Amounts less than $500
may be paid by check or by another method acceptable to the parties.
For purposes of this Paragraph 2, the average daily value of the shares of
the Funds will be based on the net asset values reported by such Funds to
the Insurance Companies. No adjustments will be made to such net asset
values to correct errors in the net asset values so reported for any day
unless such error is corrected and the corrected net asset value per share
is reported to the Insurance Companies before 5:00 p.m. Central time on the
first Business Day after the day to which the error relates.
3. Nature of Payments. The parties to this letter agreement recognize and
agree that A I M's payments to the Insurance Companies relate to
administrative services only and do not constitute payment in any manner
for investment advisory or distribution services. The amount of the fee
payments made by A I M to the Insurance Companies pursuant to Paragraph 2 of
this letter agreement will not be deemed to be conclusive with respect to
actual administrative expenses or savings of A I M.
4. Term. This letter agreement will remain in full force and effect for so
long as assets of the Funds are attributable to amounts invested by the
Insurance Companies under the Participation Agreements, unless terminated
in accordance with Paragraphs 2 or 5 of this letter
3
<PAGE> 4
agreement. In accordance with Section 6.3 of the Participation Agreements,
this Service Fee will continue to be due and payable with respect to the
shares attributable to Existing Contracts.
5. Termination. This letter agreement will be terminated upon mutual
agreement of the parties hereto in writing, or as required by law.
6. Amendment. This letter agreement may be amended only upon mutual
agreement of the parties hereto in writing.
7. Counterparts. This letter agreement may be executed in counterparts, each
of which will be deemed an original but all of which will together
constitute one and the same instrument.
8. Governing Law. This letter agreement will be construed and the provisions
hereof will be interpreted under and in accordance with the laws of the
State of Minnesota.
9. Entire Agreement. This letter agreement, together with the attached
Schedules or attachments, contains the entire agreement among the parties
and supersedes any prior or inconsistent agreements, understandings or
arrangements among the parties with respect to the subject matter of this
letter agreement, all of which are merged herein.
4
<PAGE> 5
If this letter agreement is consistent with your understanding of the matters we
discussed concerning administrative expense payments, kindly sign below and
return a signed copy to us.
<TABLE>
Very truly yours,
AMERICAN ENTERPRISE LIFE ATTEST:
INSURANCE COMPANY
<S> <C>
Signature: /s/ STUART A. SEDLACEK Signature: /s/ WILLIAM A. STOLTZMANN
-------------------------------- ----------------------------------
By: STUART A. SEDLACEK By: WILLIAM A. STOLTZMANN
--------------------------------------- ----------------------------------------
Title: EXEC. V.P. Title: VP
------------------------------------ --------------------------------------
AMERICAN CENTURION LIFE ATTEST:
ASSURANCE COMPANY
Signature: /s/ STUART A. SEDLACEK Signature: /s/ ERIC L. MARHOUN
-------------------------------- ----------------------------------
By: STUART A. SEDLACEK By: ERIC L. MARHOUN
--------------------------------------- ----------------------------------------
Title: PRESIDENT Title: SECRETARY/GENERAL COUNSEL
------------------------------------ -------------------------------------
Acknowledged and Agreed:
A I M ADVISORS, INC. (For Both):
Signature: /s/ ROBERT H. GRAHAM ATTEST:
--------------------------------
By: Robert H Graham Signature: /s/ NANCY L. MARTIN
---------------------------------
Title: President By: Nancy L. Martin
------------------------------------
Title: Assistant Secretary
A I M DISTRIBUTORS, INC.
Signature: /s/ W. G. LITTLEPAGE
--------------------------------
By: W. Gary Littlepage
Title: Senior Vice President
Attachment: Schedule A
</TABLE>
5
<PAGE> 6
Schedule A
Pursuant to the letter agreement to which this Schedule is attached, the
Insurance Companies will perform the following administrative services:
1. Maintain master accounts with the Funds and such accounts will be in
the name of American Enterprise Life or American Centurion Life (or their
nominees) as the record owners of shares on behalf of the Accounts.
2. Determine the net amount to be transmitted to the Accounts as a
result of redemptions of shares of the Funds based on Contractowners' redemption
requests. Disburse or credit to the Accounts all proceeds of redemptions of
shares of the Funds. Notify the Funds of the cash required to meet payments.
3. Determine the net amount to be transmitted to the Funds as a result
of purchases of shares of the Funds based on Contractowners purchase payments
and transfers allocated to the Accounts investing in the Funds. Transmit net
purchase payment receipts to the Funds' custodian.
4. Distribute to Contractowners copies of the Funds' prospectuses,
proxy materials, periodic fund reports to Contractowners and other materials
that the Funds are required by law or otherwise to provide to its shareholders.
5. Maintain and preserve all records as required by law to be
maintained and preserved in connection with providing administrative services
including, but not limited to, recording the issuance of shares of the Funds,
recording transfers and redemptions, and reconciling and balancing the Accounts.
6. Provide Contractowner services including, but not limited to, advice
with respect to inquiries related to the Funds (not including information about
performance or related to sales) and communicating with Contractowners about
Funds' (and Accounts') performance.
7. Provide other administrative support for the Funds as mutually
agreed to by the Insurance Companies and the Funds and relieve the Funds of
other usual or incidental administrative services provided to individual
Contractowners.
6
<PAGE> 1
EXHIBIT 9(q)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
SECURITY LIFE OF DENVER,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
ING AMERICA EQUITIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Timely Pricing and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Timely Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Other (Non-Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Other (Sales-Related) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 SECURITY LIFE To Provide Documents; Information About AVIF . . . . . . . . . . . . . . . . . . . . . 10
4.6 AVIF To Provide Documents; Information About SECURITY LIFE . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Disinterested Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Conflict Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Notice to SECURITY LIFE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Information Requested by Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance with SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Funds To Remain Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Survival of Warranties and Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Continuance of Agreement for Certain Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Of AVIF by SECURITY LIFE and ING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Of SECURITY LIFE and ING by AVIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 20. Parties to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 3rd day of December,
1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); Security Life of Denver, a Colorado life insurance
company ("SECURITY LIFE"), on behalf of itself and each of its segregated
asset accounts listed in Schedule A hereto, as the parties hereto may amend
from time to time (each, an "Account," and collectively, the "Accounts"); and
ING America Equities, Inc., an affiliate of SECURITY LIFE and the principal
underwriter of the Contracts ("ING") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, SECURITY LIFE will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by
applicable law, will be registered under the 1933 Act; and
WHEREAS, SECURITY LIFE will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, SECURITY LIFE will serve as the depositor of the Accounts,
each of which is registered as a unit investment trust investment company under
the 1940 Act (or exempt therefrom), and the security interests deemed to be
issued by the Accounts under the Contracts will be registered as securities
under the 1933 Act (or exempt therefrom); and
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, SECURITY LIFE intends to purchase Shares in one or more of the
Funds on behalf of the Accounts to fund the Contracts; and
WHEREAS, ING is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to SECURITY LIFE for
purchase and redemption at net asset value and with no sales charges, subject
to the terms and conditions of this Agreement. The Board of Directors of AVIF
may refuse to sell Shares of any Fund to any person, or suspend or terminate
the offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein
shall include a reference to any such additional Fund. Schedule A, as amended
from time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to
provide SECURITY LIFE with the net asset value per Share for each Fund by 5:30
p.m. Central Time on each Business Day.
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As used herein, "Business Day" shall mean any day on which (i) the New York
Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net
asset value, and (iii) SECURITY LIFE is open for business.
(b) SECURITY LIFE will use the data provided by AVIF each Business
Day pursuant to paragraph (a) immediately above to calculate Account unit
values and to process transactions that receive that same Business Day's
Account unit values. SECURITY LIFE will perform such Account processing the
same Business Day, and will place corresponding orders to purchase or redeem
Shares with AVIF by 9:00 a.m. Central Time the following Business Day;
provided, however, that AVIF shall provide additional time to SECURITY LIFE in
the event that AVIF is unable to meet the 5:30 p.m. time stated in paragraph
(a) immediately above. Such additional time shall be equal to the additional
time that AVIF takes to make the net asset values available to SECURITY LIFE.
(c) With respect to payment of the purchase price by SECURITY LIFE
and of redemption proceeds by AVIF, SECURITY LIFE and AVIF shall net purchase
and redemption orders with respect to each Fund and shall transmit one net
payment per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), SECURITY LIFE shall be
entitled to an adjustment to the number of Shares purchased or redeemed to
reflect the correct net asset value per Share. Any material error in the
calculation or reporting of net asset value per Share, dividend or capital gain
information shall be reported promptly upon discovery to SECURITY LIFE.
2.2 TIMELY PAYMENTS.
SECURITY LIFE will wire payment for net purchases to a custodial
account designated by AVIF by 1:00 p.m. Central Time on the same day as the
order for Shares is placed, to the extent practicable. AVIF will wire payment
for net redemptions to an account designated by SECURITY LIFE by 1:00 p.m.
Central Time on the same day as the Order is placed, to the extent practicable,
but in any event within five (5) calendar days after the date the order is
placed in order to enable SECURITY LIFE to pay redemption proceeds within the
time specified in Section 22(e) of the 1940 Act or such shorter period of time
as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that SECURITY LIFE
receives prior to the close of regular trading on the New York Stock Exchange
on a Business Day will be executed at the net asset values of the appropriate
Funds next computed after receipt by AVIF or its designated agent of the
orders. For purposes of this Section 2.3(a), SECURITY LIFE shall be the
designated agent of AVIF for receipt of orders relating to Contract
transactions on each Business Day and receipt by such designated agent shall
constitute receipt by AVIF; provided that AVIF receives notice of such
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orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by SECURITY
LIFE will be effected at the net asset values of the appropriate Funds next
computed after receipt by AVIF or its designated agent of the order therefor,
and such orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to SECURITY LIFE of any income
dividends or capital gain distributions payable on the Shares of any Fund.
SECURITY LIFE hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-dividend
date net asset values until SECURITY LIFE otherwise notifies AVIF in writing,
it being agreed by the Parties that the ex-dividend date and the payment date
with respect to any dividend or distribution will be the same Business Day.
SECURITY LIFE reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to SECURITY LIFE. Shares ordered from
AVIF will be recorded in an appropriate title for SECURITY LIFE, on behalf of
its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms
N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
(b) SECURITY LIFE will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2
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Notices with respect to each Account and its units of interest and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) SECURITY LIFE will bear the costs of preparing, filing with
the SEC and setting for printing each Account's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other
Participant communications.
(c) SECURITY LIFE will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready form. AVIF will print the AVIF
statement of additional information, proxy materials relating to AVIF and
periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
SECURITY LIFE will bear the expenses of distribution. These expenses
would include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising relating
to the Funds, as well as filing such materials with, and obtaining approval
from, the SEC, the NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as
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amended (the "Code"), and represents that it will use its best efforts to
qualify and to maintain qualification of each Fund as a RIC. AVIF will notify
SECURITY LIFE immediately upon having a reasonable basis for believing that a
Fund has ceased to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify SECURITY LIFE immediately upon
having a reasonable basis for believing that a Fund has ceased to so comply or
that a Fund might not so comply in the future. In the event of a breach of
this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
(c) SECURITY LIFE agrees that if the Internal Revenue Service
("IRS") asserts in writing in connection with any governmental audit or review
of SECURITY LIFE or, to SECURITY LIFE's knowledge, of any Participant, that any
Fund has failed to comply with the diversification requirements of Section
817(h) of the Code or SECURITY LIFE otherwise becomes aware of any facts that
could give rise to any claim against AVIF or its affiliates as a result of such
a failure or alleged failure:
(i) SECURITY LIFE shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) SECURITY LIFE shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) SECURITY LIFE shall use its best efforts to minimize
any liability of AVIF or its affiliates resulting
from such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS
that such failure was inadvertent;
(iv) SECURITY LIFE shall permit AVIF, its affiliates and
their legal and accounting advisors to participate in
any conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS,
any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; provided, however, that SECURITY
LIFE will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by SECURITY
LIFE to the IRS, any Participant or any other
claimant in connection with any of the foregoing
proceedings or contests (including, without
limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations
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Section 1.817-5(a)(2)), (a) shall be provided by
SECURITY LIFE to AVIF (together with any supporting
information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by SECURITY LIFE to
any such person without the express written consent
of AVIF which shall not be unreasonably withheld;
(vi) SECURITY LIFE shall provide AVIF or its affiliates
and their accounting and legal advisors with such
cooperation as AVIF shall reasonably request
(including, without limitation, by permitting AVIF
and its accounting and legal advisors to review the
relevant books and records of SECURITY LIFE) in order
to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the
preceding clause or its assessment of the validity or
amount of any claim against its arising from such a
failure or alleged failure;
(vii) SECURITY LIFE shall not with respect to any claim of
the IRS or any Participant that would give rise to a
claim against AVIF or its affiliates (a) compromise
or settle any claim, (b) accept any adjustment on
audit, or (c) forego any allowable administrative or
judicial appeals, without the express written consent
of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that SECURITY LIFE
shall not be required, after exhausting all
administrative penalties, to appeal any adverse
judicial decision unless AVIF or its affiliates shall
have provided an opinion of independent counsel to
the effect that a reasonable basis exists for taking
such appeal; and provided further that the costs of
any such appeal shall be borne equally by the Parties
hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if SECURITY
LIFE fails to comply with any of the foregoing
clauses (i) through (vii), and such failure could be
shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
SECURITY LIFE may, in its discretion, authorize AVIF or its affiliates to act
in the name of SECURITY LIFE in, and to control the conduct of, such
conferences, discussions, proceedings, contests or appeals and all
administrative or judicial appeals thereof, and in that event AVIF or its
affiliates shall bear the fees and expenses associated with the conduct of the
proceedings that it is so authorized to control; provided, that in no event
shall SECURITY LIFE have any liability resulting from AVIF's refusal to accept
the proposed settlement or compromise with respect to any failure caused by
AVIF. As used in this Agreement, the term "affiliates" shall have the same
meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
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(d) SECURITY LIFE represents and warrants that the Contracts
currently are and will be treated as annuity contracts or life insurance
contracts under applicable provisions of the Code and that it will use its best
efforts to maintain such treatment; SECURITY LIFE will notify AVIF immediately
upon having a reasonable basis for believing that any of the Contracts have
ceased to be so treated or that they might not be so treated in the future.
(e) SECURITY LIFE represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. SECURITY LIFE will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to
be met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by SECURITY LIFE, including, the furnishing of information not
otherwise available to SECURITY LIFE which is required by state insurance law
to enable SECURITY LIFE to obtain the authority needed to issue the Contracts
in any applicable state.
(b) SECURITY LIFE represents and warrants that (i) it is an
insurance company duly organized, validly existing and in good standing under
the laws of the State of Colorado and has full corporate power, authority and
legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under Section 10-7-402
of the Colorado Insurance Law and the regulations thereunder, and (iii) the
Contracts comply in all material respects with all other applicable federal and
state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Maryland and has full power, authority, and legal right to execute, deliver,
and perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) SECURITY LIFE represents and warrants that (i) interests in
each Account pursuant to the Contracts are or will be registered under the 1933
Act to the extent required by the 1933 Act, (ii) the Contracts will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940
Act and Colorado law, (iii) each Account is and will remain registered under
the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does
and will comply in all material respects with the requirements of the 1940 Act
and the rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any
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amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) SECURITY LIFE will
amend the registration statement for its Contracts under the 1933 Act and for
its Accounts under the 1940 Act from time to time as required in order to
effect the continuous offering of its Contracts or as may otherwise be required
by applicable law, and (vii) each Account Prospectus will at all times comply
in all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and to
the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify SECURITY LIFE of (i) the issuance
by any court or regulatory body of any stop order, cease and desist order, or
other similar order with respect to AVIF's registration statement under the
1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or AVIF Prospectus that may affect the offering of
Shares of AVIF, (iii) the initiation of any proceedings for that purpose or
for any
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other purpose relating to the registration or offering of AVIF's Shares, or
(iv) any other action or circumstances that may prevent the lawful offer or
sale of Shares of any Fund in any state or jurisdiction, including, without
limitation, any circumstances in which (a) such Shares are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law, or (b) such law precludes the use of such Shares as an
underlying investment medium of the Contracts issued or to be issued by
SECURITY LIFE. AVIF will make every reasonable effort to prevent the issuance,
with respect to any Fund, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof
at the earliest possible time.
(b) SECURITY LIFE will immediately notify AVIF of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Contracts or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus that may affect the offering of Shares of AVIF,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of each Account's interests
pursuant to the Contracts, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any state or
jurisdiction, including, without limitation, any circumstances in which said
interests are not registered and, in all material respects, issued and sold in
accordance with applicable state and federal law. SECURITY LIFE will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
4.5 SECURITY LIFE TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) SECURITY LIFE will provide to AVIF or its designated agent at
least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction
solicitation material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to each Account or
the Contracts, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
(b) SECURITY LIFE will provide to AVIF or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
five (5) Business Days prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) Business Days
after receipt of such material or such shorter period as the Parties hereto
may, from time to time, agree upon. AVIF hereby designates A I M as the entity
to receive such sales literature, until such time as AVIF appoints another
designated agent by giving notice to SECURITY LIFE in the manner required by
Section 9 hereof.
(c) Neither SECURITY LIFE nor any of its affiliates, will give any
information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in
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connection with the sale of the Contracts other than (i) the information or
representations contained in the registration statement, including the AVIF
Prospectus contained therein, relating to Shares, as such registration
statement and AVIF Prospectus may be amended from time to time; or (ii) in
reports or proxy materials for AVIF; or (iii) in published reports for AVIF
that are in the public domain and approved by AVIF for distribution; or (iv) in
sales literature or other promotional material approved by AVIF, except with
the express written permission of AVIF.
(d) SECURITY LIFE shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker
only materials") is so used, and neither AVIF nor any of its affiliates shall
be liable for any losses, damages or expenses relating to the improper use of
such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials and any other material constituting sales
literature or advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT SECURITY LIFE.
(a) AVIF will provide to SECURITY LIFE at least one (1) complete
copy of all SEC registration statements, AVIF Prospectuses, reports, any
preliminary and final proxy material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to AVIF
or the Shares of a Fund, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) AVIF will provide to SECURITY LIFE camera ready or computer
diskette copies of all AVIF prospectuses and printed copies, in an amount
specified by SECURITY LIFE, of AVIF statements of additional information, proxy
materials, periodic reports to shareholders and other materials required by law
to be sent to Participants who have allocated any Contract value to a Fund.
AVIF will provide such copies to SECURITY LIFE in a timely manner so as to
enable SECURITY LIFE, as the case may be, to print and distribute such
materials within the time required by law to be furnished to Participants.
(c) AVIF will provide to SECURITY LIFE or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which SECURITY
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LIFE, or any of its respective affiliates is named, or that refers to the
Contracts, at least five (5) Business Days prior to its use or such shorter
period as the Parties hereto may, from time to time, agree upon. No such
material shall be used if SECURITY LIFE or its designated agent objects to such
use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon.
SECURITY LIFE shall receive all such sales literature until such time as it
appoints a designated agent by giving notice to AVIF in the manner required by
Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning SECURITY LIFE, each Account, or the Contracts other than (i) the
information or representations contained in the registration statement,
including each Account Prospectus contained therein, relating to the Contracts,
as such registration statement and Account Prospectus may be amended from time
to time; or (ii) in published reports for the Account or the Contracts that are
in the public domain and approved by SECURITY LIFE for distribution; or (iii)
in sales literature or other promotional material approved by SECURITY LIFE or
its affiliates, except with the express written permission of SECURITY LIFE.
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
SECURITY LIFE, and its respective affiliates that is intended for use only by
brokers or agents selling the Contracts (i.e., information that is not intended
for distribution to Participants) ("broker only materials") is so used, and
neither SECURITY LIFE, nor any of its respective affiliates shall be liable for
any losses, damages or expenses relating to the improper use of such broker
only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life
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<PAGE> 16
insurance contracts, separate accounts of insurance companies unaffiliated with
SECURITY LIFE, and trustees of qualified pension and retirement plans
(collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC
has imposed terms and conditions for such orders that are substantially
identical to many of the provisions of this Section 5. Sections 5.2 through
5.8 below shall apply pursuant to such an exemptive order granted to AVIF.
AVIF hereby notifies SECURITY LIFE that, in the event that AVIF implements
Mixed and Shared Funding, it may be appropriate to include in the prospectus
pursuant to which a Contract is offered disclosure regarding the potential
risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in AVIF
("Participating Plans"). SECURITY LIFE agrees to inform the Board of Directors
of AVIF of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants
of different Participating Insurance Companies;
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<PAGE> 17
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, SECURITY LIFE will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by SECURITY LIFE to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, SECURITY LIFE will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including
another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of
making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of
the 1940 Act or a new separate account that is operated
as a management company.
(b) If the material irreconcilable conflict arises because of
SECURITY LIFE's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
SECURITY LIFE may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a
result of such withdrawal. Any such withdrawal must take place within six (6)
months after AVIF gives notice to SECURITY LIFE that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by SECURITY LIFE for the purchase and redemption of Shares of
AVIF.
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<PAGE> 18
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to SECURITY LIFE
conflicts with the majority of other state regulators, then SECURITY LIFE will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs SECURITY LIFE that it has determined that such
decision has created a material irreconcilable conflict, and until such
withdrawal AVIF shall continue to accept and implement orders by SECURITY LIFE
for the purchase and redemption of Shares of AVIF. No charge or penalty will
be imposed as a result of such withdrawal.
(d) SECURITY LIFE agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Contracts.
SECURITY LIFE will not be required by the terms hereof to establish a new
funding medium for any Contracts if an offer to do so has been declined by vote
of a majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO SECURITY LIFE.
AVIF will promptly make known in writing to SECURITY LIFE the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
SECURITY LIFE and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans
of a conflict, and determining whether any proposed action adequately remedies
a conflict, will be properly recorded in the minutes of the Board of Directors
or other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this Section
5 shall be
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deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a),
4.4(b), 4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC,
unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against SECURITY LIFE or its affiliates by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding SECURITY LIFE's
obligations under this Agreement or related to the sale of the Contracts, the
operation of each Account, or the purchase of Shares, if, in each case, AVIF
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Fund with respect to which the Agreement is to be
terminated; or
(c) at the option of SECURITY LIFE upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, SECURITY LIFE reasonably determines that such proceedings, or the facts
on which such proceedings would be based, have a material likelihood of
imposing material adverse consequences on SECURITY LIFE, or the Subaccount
corresponding to the Fund with respect to which the Agreement is to be
terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by SECURITY LIFE; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
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<PAGE> 20
(f) at the option of SECURITY LIFE if the Fund ceases to qualify
as a RIC under Subchapter M of the Code or under successor or similar
provisions, or if SECURITY LIFE reasonably believes that the Fund may fail to
so qualify; or
(g) at the option of SECURITY LIFE if the Fund fails to comply
with Section 817(h) of the Code or with successor or similar provisions, or if
SECURITY LIFE reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by SECURITY LIFE
cease to qualify as annuity contracts or life insurance contracts under the
Code (other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued
or sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given
at least six (6) months in advance of the effective date of termination unless
a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given
at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24) hours
after the terminating Party learns of the event causing termination to be
required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of SECURITY LIFE, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts."). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that
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this Section 6.3 will not apply to any terminations under Section 5 and the
effect of such terminations will be governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares
of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial Termination
Date, except that SECURITY LIFE may, by written notice shorten said six (6)
month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f),
6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required
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or permitted by this Agreement will be given to the following persons at the
following addresses and facsimile numbers, or such other persons, addresses or
facsimile numbers as the Party receiving such notices or communications may
subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SECURITY LIFE OF DENVER
1290 Broadway
Denver, CO 80203
Facsimile: (303) 860-2134
Attn: Anna M. Kautzman,
Assistant General Counsel
ING AMERICA EQUITIES, INC.
1290 Broadway
Denver, CO 80203
Facsimile: (303) 860-2134
Attn: Anna M. Kautzman,
Assistant General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, SECURITY LIFE will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. SECURITY LIFE will vote
Shares in accordance with timely instructions received from Participants.
SECURITY LIFE will vote Shares that are (a) not attributable to Participants to
whom pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither SECURITY LIFE nor any of its affiliates will in any way recommend
action in connection with or oppose or interfere with the solicitation of
proxies for the Shares held for such Participants. SECURITY LIFE reserves the
right to vote shares held in any Account in its own
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right, to the extent permitted by law. SECURITY LIFE shall be responsible for
assuring that each of its Accounts holding Shares calculates voting privileges
in a manner consistent with that of other Participating Insurance Companies or
in the manner required by the Mixed and Shared Funding exemptive order obtained
by AVIF. AVIF will notify SECURITY LIFE of any changes of interpretations or
amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF
will comply with all provisions of the 1940 Act requiring voting by
shareholders, and in particular, AVIF either will provide for annual meetings
(except insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings) or will comply with Section 16(c) of the 1940 Act
(although AVIF is not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
AVIF will act in accordance with the SEC's interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with SECURITY LIFE concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY SECURITY LIFE AND ING.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, SECURITY LIFE and ING agree to indemnify and hold harmless AVIF, its
affiliates, and each person, if any, who controls AVIF or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes
of this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of SECURITY LIFE
and ING) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise; provided, the
Account owns shares of the Fund and insofar as such losses, claims, damages,
liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in any Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in
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reliance upon and in conformity with information
furnished to SECURITY LIFE or ING by or on behalf of AVIF
for use in any Account's 1933 Act registration statement,
any Account Prospectus, the Contracts, or sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of SECURITY
LIFE, ING or their respective affiliates and on which
such persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of SECURITY LIFE, ING or
their respective affiliates or persons under their
control (including, without limitation, their employees
and "Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts
or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of SECURITY LIFE, ING or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by SECURITY LIFE or ING
to perform the obligations, provide the services and
furnish the materials required of them under the terms of
this Agreement, or any material breach of any
representation and/or warranty made by SECURITY LIFE or
ING in this Agreement or arise out of or result from any
other material breach of this Agreement by SECURITY LIFE
or ING; or
(v) arise as a result of failure by the Contracts issued by
SECURITY LIFE to qualify as annuity contracts or life
insurance contracts under the Code, otherwise than by
reason of any Fund's failure to comply with Subchapter M
or Section 817(h) of the Code.
(b) Neither SECURITY LIFE nor ING shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or
actions to which an Indemnified Party would
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otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of that Indemnified Party's reckless disregard of obligations or duties
(i) under this Agreement, or (ii) to AVIF.
(c) Neither SECURITY LIFE nor ING shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless
AVIF shall have notified SECURITY LIFE and ING in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify SECURITY LIFE and ING of any such
action shall not relieve SECURITY LIFE and ING from any liability which they
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this Section 12.1. Except as otherwise provided herein, in
case any such action is brought against an Indemnified Party, SECURITY LIFE and
ING shall be entitled to participate, at their own expense, in the defense of
such action and also shall be entitled to assume the defense thereof, with
counsel approved by the Indemnified Party named in the action, which approval
shall not be unreasonably withheld. After notice from SECURITY LIFE or ING to
such Indemnified Party of SECURITY LIFE's or ING's election to assume the
defense thereof, the Indemnified Party will cooperate fully with SECURITY LIFE
and ING and shall bear the fees and expenses of any additional counsel retained
by it, and neither SECURITY LIFE nor ING will be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently
incurred by such Indemnified Party independently in connection with the defense
thereof, other than reasonable costs of investigation.
12.2 OF SECURITY LIFE AND ING BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless SECURITY LIFE, ING,
their respective affiliates, and each person, if any, who controls SECURITY
LIFE, ING or their respective affiliates within the meaning of Section 15 of
the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of AVIF ) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus or sales literature or advertising of
AVIF (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading; provided, that this agreement to
indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information
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furnished to AVIF or its affiliates by or on behalf
of SECURITY LIFE, ING or their respective affiliates
for use in AVIF's 1933 Act registration statement,
AVIF Prospectus, or in sales literature or
advertising or otherwise for use in connection with
the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of AVIF or
its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of AVIF or its affiliates or
persons under its control (including, without
limitation, their employees and "Associated Persons"
as that Term is defined in Section (n) of Article 1
of the NASD By-Laws), in connection with the sale or
distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to SECURITY LIFE, ING or their respective
affiliates by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform
the obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any
representation and/or warranty made by AVIF in this
Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of
AVIF) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
23
<PAGE> 27
asserting liability against SECURITY LIFE pursuant to the Contracts, the costs
of any ruling and closing agreement or other settlement with the IRS, and the
cost of any substitution by SECURITY LIFE of Shares of another investment
company or portfolio for those of any adversely affected Fund as a funding
medium for each Account that SECURITY LIFE reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance by that Indemnified Party of its duties
or by reason of such Indemnified Party's reckless disregard of its obligations
and duties (i) under this Agreement, or (ii) to SECURITY LIFE, ING, each
Account or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect
to any action against an Indemnified Party unless the Indemnified Party shall
have notified AVIF in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the action shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify AVIF of any such action shall not relieve AVIF from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12.2. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, AVIF will be entitled to participate, at its own expense, in the defense
of such action and also shall be entitled to assume the defense thereof (which
shall include, without limitation, the conduct of any ruling request and
closing agreement or other settlement proceeding with the IRS), with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, SECURITY LIFE, ING or any other Participating Insurance
Company or any Participant, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by SECURITY LIFE or ING
hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants;
(ii) the failure by SECURITY LIFE or any Participating Insurance Company to
maintain its segregated asset account (which invests in any Fund) as a legally
and validly established segregated asset account under applicable state law and
as a duly registered unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by SECURITY LIFE or any
Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
24
<PAGE> 28
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to
be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
25
<PAGE> 29
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of SECURITY
LIFE or any of its affiliates (collectively, the "SECURITY LIFE Protected
Parties" for purposes of this Section 18), information maintained regarding
those customers, and all computer programs and procedures or other information
developed by the SECURITY LIFE Protected Parties or any of their employees or
agents in connection with SECURITY LIFE's performance of its duties under this
Agreement are the valuable property of the SECURITY LIFE Protected Parties.
AVIF agrees that if it comes into possession of any list or compilation of the
identities of or other information about the SECURITY LIFE Protected Parties'
customers, or any other information or property of the SECURITY LIFE Protected
Parties, other than such information as may be independently developed or
compiled by AVIF from information supplied to it by the SECURITY LIFE Protected
Parties' customers who also maintain accounts directly with AVIF, AVIF will
hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property except:
(a) with SECURITY LIFE's prior written consent; or (b) as required by law or
judicial process. SECURITY LIFE acknowledges that the identities of the
customers of AVIF or any of its affiliates (collectively the "AVIF Protected
Parties" for purposes of this Section 18), information maintained regarding
those customers, and all computer programs and procedures or other information
developed by the AVIF Protected Parties or any of their employees or agents in
connection with AVIF's performance of its duties under this Agreement are the
valuable property of the AVIF Protected Parties. SECURITY LIFE agrees that if
it comes into possession of any list or compilation of the identities of or
other information about the AVIF Protected Parties' customers or any other
information or property of the AVIF Protected Parties, other than such
information as may be independently developed or compiled by SECURITY LIFE from
information supplied to it by the AVIF Protected Parties' customers who also
maintain accounts directly with SECURITY LIFE, SECURITY LIFE will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with AVIF's
prior written consent; or (b) as required by law or judicial process. Each
party acknowledges that any breach of the agreements in this Section 18 would
result in immediate and irreparable harm to the other parties for which there
would be no adequate remedy at law and agree that in the event of such a
breach, the other parties will be entitled to equitable relief by way of
temporary and permanent injunctions, as well as such other relief as any court
of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an
affiliate of AVIF, owns all right, title and interest in and to the name,
trademark and service mark "AIM" and such other tradenames, trademarks and
service marks as may be set forth on Schedule B, as amended from time to time
by written notice from AIM to SECURITY LIFE (the "AIM licensed marks" or the
"licensor's licensed marks") and is authorized to use and to license other
persons to use such
26
<PAGE> 30
marks. SECURITY LIFE and its affiliates are hereby granted a non-exclusive
license to use the AIM licensed marks in connection with SECURITY LIFE's
performance of the services contemplated under this Agreement, subject to the
terms and conditions set forth in this Section 19.
(b) The grant of license to SECURITY LIFE and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that SECURITY LIFE shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, SECURITY LIFE and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or
that it has any association with AIM, except that SECURITY LIFE shall have the
right to continue to service outstanding Contracts bearing any of the AIM
licensed marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor but,
due to changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall
obtain the prior written approval of the licensor for the use of any new
materials developed to replace the disapproved materials, in the manner set
forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and
27
<PAGE> 31
records (including copies thereof) in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
---------------------------
28
<PAGE> 32
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
----------------------------- ---------------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
SECURITY LIFE OF DENVER, on behalf of
itself and its separate accounts
Attest: /s/ ANNA M. KAUTZMAN By: /s/ CAROL D. HARD
----------------------------- ---------------------------------
Name: Anna M. Kautzman Name: Carol D. Hard
Title: Assistant General Counsel Title: Senior Vice President
ING AMERICA EQUITIES, INC.
Attest: /s/ ANNA M. KAUTZMAN By: /s/ CAROL D. HARD
----------------------------- ---------------------------------
Name: Anna M. Kautzman Name: Carol D. Hard
Title: Assistant General Counsel Title: President
29
<PAGE> 33
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o SECURITY LIFE OF DENVER
Separate Account L1
Separate Account A1
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
o FIRST LINE VARIABLE UNIVERSAL LIFE
o THE EXCHEQUER VARIABLE ANNUITY
30
<PAGE> 34
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
o AIM and Design
[AIM LOGO]
31
<PAGE> 1
EXHIBIT 9(t)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated December 18,
1996, by and among AIM Variable Insurance Funds, Inc., a Maryland corporation,
A I M Distributors, Inc., a Delaware corporation, and ML Life Insurance Company
of New York, a New York life insurance company, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
ML of New York Variable Annuity Separate Account A
ML of New York Variable Life Separate Account
ML of New York Variable Life Separate Account II
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Merrill Lynch Funds Retirement Plus
Merrill Lynch Funds Investor Life
Merrill Lynch Funds Investor Life Plus
Merrill Lynch Funds Estate Investor I
Merrill Lynch Funds Estate Investor II
Prime Plan V, VI, 7
Prime Plan Investor"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: May 1, 1997
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 2
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
ML LIFE INSURANCE COMPANY OF
NEW YORK
Attest: /s/ LIZETTE PENA By: /s/ ILLEGIBLE
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 9(v)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated December 18, 1996, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, and Merrill Lynch Life Insurance
Company, an Arkansas life insurance company, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
"SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Merrill Lynch Life Variable Annuity Separate Account A
Merrill Lynch Variable Life Separate Account
Merrill Lynch Life Variable Life Separate Account II
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Merrill Lynch Funds Retirement Plus
Merrill Lynch Funds Investor Life
Merrill Lynch Funds Investor Life Plus
Merrill Lynch Funds Estate Investor I
Merrill Lynch Funds Estate Investor II
Prime Plan V, VI, 7
Prime Plan Investor"
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: May 1, 1997
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------- --------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 2
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------------ --------------------------------
Assistant Secretary President
(SEAL)
MERRILL LYNCH LIFE INSURANCE COMPANY
Attest: /s/ LIZETTE PENA By: /s/ ILLEGIBLE
------------------------------ --------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 9(y)
[AMERICAN EXPRESS FINANCIAL ADVISORS LETTERHEAD]
September 27, 1997
Mr. Robert H. Graham
President
A I M Advisors, Inc.
11 Greenway Plaza Suite 1919
Houston, TX 77046
Mr. W. Gary Littlepage
Senior Vice President
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Dear Messrs. Graham and Littlepage:
This letter sets forth the agreement among IDS Insurance Company "IDS Life") and
IDS Life Insurance Company of New York ("IDS Life of New York") (IDS Life and
IDS Life of New York are collectively referred to as the "Insurance Companies"),
A I M Advisors, Inc. (the "Advisor") and A I M Distributors, Inc. (the
"Distributor") (the Advisor and the Distributor are collectively referred to as
"A I M") concerning certain administrative services.
1. Services and Expenses. The Advisor and the Distributor serve as the
investment advisor and principal underwriter, respectively, of the AIM
Variable Insurance Funds, Inc. ("AVIF"). IDS Life has entered into a
Participation Agreement with AVIF and the Distributor dated March 4, 1996
and amended on October 7, 1996 and IDS Life of New York has entered into a
Participation Agreement with AVIF and the Distributor dated October 7, 1996
(collectively, the "Participation Agreements"), as these agreements may be
amended from time to time, pursuant to which AVIF will make shares of the
AIM V. I. Growth and Income Fund (the "Fund") available to the Insurance
Companies to fund variable annuity contracts and variable life insurance
contracts (collectively, the "Contracts") through IDS Life Variable Account
10, IDS Life Variable Life Separate Account, IDS Life of New York Flexible
Portfolio Annuity Account and IDS Life of New York Account 8 (collectively,
the "Accounts").
The Participation Agreements provide that the Insurance Companies will, at
their expense, print and deliver to existing owners of the
<PAGE> 2
Contracts (the "Contractowners") the Fund prospectus and will deliver, at
their expense, the Fund's statement of additional information, shareholder
reports, proxy materials and other Contractowner communications. Further,
the Insurance Companies will incur various administrative expenses in
connection with the servicing of Contractowners who have allocated Contract
value to the Fund. The types of services that the Insurance Companies will
perform in connection with making the Fund available as an investment
option under the Contracts and with servicing the Contractowners are set
forth in Schedule A to this letter agreement.
2. Fees and Payments. The parties wish to allocate expenses in a manner that
is fair and equitable and consistent with the best interest of the
Contractowners. Further, the parties wish to establish a means for
allocating expenses that does not entail the expense and inconvenience of
separately identifying and accounting for each item of expense. In
consideration of the mutual benefits and promises contained in this letter
agreement, A I M agrees to pay the Insurance Companies a fee based on the
average daily net asset value of the shares of the Fund held in the
Accounts. The fee will be calculated based on the following schedule:
<TABLE>
<CAPTION>
Fund Assets (millions) Annualized Fee Rate
---------------------- -------------------
<S> <C>
$0 but less than $50 0%
$50 but less than $150 0.15% of 1%
$150 but less than $250 0.20% of 1%
$250 and over 0.25% of 1%
</TABLE>
For each calendar year the Annualized Fee Rate to be used in calculating
the fee will be the Annualized Fee Rate applicable to the highest average
assets invested in the Fund by the Accounts during such calendar year. The
fee will be calculated and paid quarterly. If during a calendar year the
Annualized Fee Rate increases, any fee previously paid for such calendar
year at a lower Annualized Fee Rate will be recalculated and the difference
will be paid. Annualized Fee Rates will be adjusted if the investment
management fee rate paid by the Fund to the Advisor changes. Annualized Fee
Rates will be increased or decreased by a percentage, the numerator of
which is the basis point change in the existing investment management fee
and the denominator of which is the existing investment management fee paid
prior to such change. A I M and the Insurance Companies agree to review
this fee arrangement if, at some future date, an AVIF fund is not promoted
in any of the Contracts or in a successor product. If; at some future date,
an AVIF fund is not included as an investment
2
<PAGE> 3
option, A I M may, at its option, terminate this letter agreement with
respect to such fund no longer included as an option.
As soon as practicable after the end of each calendar quarter, IDS Life
will send A I M at the address and in the manner set forth in the
Participation Agreements, a statement of the average daily value for the
preceding quarter of shares of such Fund as to which the fee is calculated,
together with a statement of the amount of such fee allocated to IDS Life
and IDS Life of New York. If the fee calculation made by the Insurance
Companies does not agree with the fee calculation made by A I M, the
parties will work together to promptly resolve any such difference.
A I M will pay IDS Life and IDS Life of New York each Company's prorata
share of such fee within thirty (30) days after the end of the calendar
quarter. Such payment will be by wire transfers unless the amount thereof
is less than $500. Wire transfers will be sent to the accounts and in the
manner specified by IDS Life and IDS Life of New York. Such wire transfers
will be separate from wire transfers of redemption proceeds and
distributions. Amounts less than $500 may be paid by check or by another
method acceptable to the parties.
For purposes of this Paragraph 2, the average daily value of the shares of
the Fund will be based on the net asset values reported by such Fund to the
Insurance Companies. No adjustments will be made to such net asset values
to correct errors in the net asset values so reported for any day unless
such error is corrected and the corrected net asset value per share is
reported to the Insurance Companies before 5:00 p.m. Central time on the
first Business Day after the day to which the error relates.
3. Nature of Payments. The parties to this letter agreement recognize and
agree that A I M's payments to the Insurance Companies relate to
administrative services only and do not constitute payment in any manner
for investment advisory or distribution services. The amount of the fee
payments made by A I M to the Insurance Companies pursuant to Paragraph 2
of this letter agreement will not be deemed to be conclusive with respect
to actual administrative expenses or savings of A I M.
4. Term. This letter agreement will remain in full force and effect for so
long as assets of the Fund are attributable to amounts invested by the
Insurance Companies under the Participation Agreements, unless terminated
in accordance with Paragraphs 2 or 5 of this letter agreement. In
accordance with Section 6.3 of the Participation
3
<PAGE> 4
Agreements, this Service Fee will continue to be due and payable with
respect to the shares attributable to Existing Contracts.
5. Termination. This letter agreement will be terminated upon mutual agreement
of the parties hereto in writing, or as required by law.
6. Amendment. This letter agreement may be amended only upon mutual agreement
of the parties hereto in writing.
7. Counterparts. This letter agreement may be executed in counterparts, each
of which will be deemed an original but all of which will together
constitute one and the same instrument.
8. Governing Law. This letter agreement will be construed and the provisions
hereof will be interpreted under and in accordance with the laws of the
State of Minnesota.
9. Entire Agreement. This letter agreement, together with the attached
Schedules or attachments, contains the entire agreement among the parties
and supersedes any prior or inconsistent agreements, understandings or
arrangements among the parties with respect to the subject matter of this
letter agreement, all of which are merged herein.
4
<PAGE> 5
If this letter agreement is consistent with your understanding of the matters we
discussed concerning administrative expense payments, kindly sign below and
return a signed copy to us.
Very truly yours,
<TABLE>
IDS LIFE INSURANCE COMPANY ATTEST:
<S> <C>
Signature: /s/ RICHARD W. KLING Signature: /s/ WILLIAM A. STOLTZMANN
------------------------------ -----------------------------------
By: Richard W. Kling By: William A. Stoltzmann
------------------------------------ ------------------------------------------
Title: President Title: Secretary
---------------------------------- ---------------------------------------
IDS LIFE INSURANCE COMPANY ATTEST:
OF NEW YORK
Signature /s/ Richard W. Kling Signature: /s/ WILLIAM A. STOLTZMANN
------------------------------ -----------------------------------
By: Richard W. Kling By: William A. Stoltzmann
------------------------------------ ------------------------------------------
Title: Chairman of the Board and Title: Counsel
---------------------------------- ---------------------------------------
President
----------------------------------
Acknowledged and Agreed:
A I M ADVISORS, INC. (For Both):
Signature: /s/ ROBERT H. GRAHAM ATTEST:
------------------------------
By: Robert H. Graham Signature: /s/ NANCY L. MARTIN
----------------------------------
Title: President By: Nancy L. Martin
Title: Assistant Secretary
A I M DISTRIBUTORS, INC.
Signature: /s/ W. G. LITTLEPAGE
------------------------------
By: W. Gary Littlepage
Title: Senior Vice President
Attachment: Schedule A
</TABLE>
5
<PAGE> 6
Schedule A
Pursuant to the letter agreement to which this Schedule is attached, the
Insurance Companies will perform the following administrative services:
1. Maintain master accounts with the Fund and such accounts will be in
the name of IDS Life and IDS Life of New York (or their nominees) as the record
owners of shares on behalf of the Accounts.
2. Determine the net amount to be transmitted to the Accounts as a
result of redemptions of Fund shares based on Contractowners' redemption
requests. Disburse or credit to the Accounts all proceeds of redemptions of
shares of the Fund. Notify the Fund of the cash required to meet payments.
3. Determine the net amount to be transmitted to the Fund as a result
of purchases of Fund shares based on Contractowners' purchase payments and
transfers allocated to the Accounts investing in the Fund. Transmit net purchase
payment receipts to the Fund's custodian.
4. Distribute to Contractowners copies of the Fund's prospectus, proxy
materials, periodic fund reports to Contractowners and other materials that the
Fund is required by law or otherwise to provide to its shareholders.
5. Maintain and preserve all records as required by law to be
maintained and preserved in connection with providing administrative services
including, but not limited to, recording the issuance of Fund shares, recording
transfers and redemptions, and reconciling and balancing the Accounts.
6. Provide Contractowner services including, but not limited to,
financial advisors' advice with respect to inquiries related to the Fund (not
including information about performance or related to sales) and communicating
with Contractowners about Fund (and Accounts') performance.
7. Provide other administrative support for the Fund as mutually agreed
to by the Insurance Companies and the Fund and relieve the Fund of other usual
or incidental administrative services provided to individual Contractowners.
6
<PAGE> 1
EXHIBIT 9(bb)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated September 21,
1996, by and among AIM Variable Insurance Funds, Inc., a Maryland corporation,
A I M Distributors, Inc., a Delaware corporation, Pruco Life Insurance Company,
an Arizona life insurance company, and Pruco Securities Corporation, a New
Jersey corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"SCHEDULE A
<TABLE>
<CAPTION>
FUNDS AVAILABLE UNDER SEPARATE ACCOUNTS POLICIES FUNDED BY THE
THE POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
- ----------------------------- --------------------- ----------------------
<S> <C> <C>
AIM V.I. Growth and Income Pruco Life Flexible Premium Discovery Select Annuity
Fund Variable Annuity Account, Contract
AIM V.I. Value Fund established June 16, 1995
AIM V.I. Value Fund Pruco Life Variable Variable Universal Life
Appreciable Account, Insurance Policy"
established January 13, 1984
</TABLE>
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: July 1, 1997
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 2
PRUCO LIFE INSURANCE COMPANY
Attest: /s/ ILLEGIBLE By: /s/ ESTHER H. MILNES
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
PRUCO SECURITIES CORPORATION
Attest: /s/ ILLEGIBLE By: /s/ RICHARD A. TOPP
------------------------------ ------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 9(ee)
AMENDMENT NO. 2
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated December 19, 1995, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Glenbrook Life and Annuity Company,
an Illinois life insurance company and Allstate Life Financial Services, Inc.,
a Delaware corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
"SCHEDULE A
<TABLE>
<CAPTION>
SEPARATE ACCOUNTS UTILIZING THE FUNDS FUNDS AVAILABLE UNDER THE SEPARATE ACCOUNTS
------------------------------------- -------------------------------------------
<S> <C>
Glenbrook Life and Annuity Company AIM V.I. Capital Appreciation Fund
Separate Account A* AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund
AIM V.I. Government Securities Fund
Glenbrook Life A I M Variable Life AIM V.I. Growth Fund
Separate Account A** AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Value Fund
</TABLE>
_______________
* The Policy funded by the Separate Account is
Individual and Group Flexible Premium Deferred
Variable Annuity Contracts
** The Contract funded by the Separate Account
is AIM Lifetime Plus(SM) Variable Life"
All other terms and provisions of the Agreement not amended herein shall remain
in full force and effect.
Page 1 of 2
<PAGE> 2
Effective Date: September 2, 1997
<TABLE>
<S> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------------- --------------------------------------------
Assistant Secretary President
(SEAL)
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------------------- --------------------------------------------
Assistant Secretary President
(SEAL)
GLENBROOK LIFE AND ANNUITY COMPANY
Attest: /s/ BRENDA D. SNEED By: /s/ PETER H. HICKEN
------------------------------------- --------------------------------------------
Assistant Secretary President
(SEAL)
ALLSTATE LIFE FINANCIAL SERVICES, INC.
Attest: /s/ ILLEGIBLE By: /s/ ROBERT J. KELLY
------------------------------------- --------------------------------------------
Assistant Secretary President
(SEAL)
</TABLE>
Page 2 of 2
<PAGE> 1
EXHIBIT 9(ii)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated February 10, 1995,
by and between AIM Variable Insurance Funds, Inc., a Maryland corporation, and
Citicorp Life Insurance Company, an Arizona corporation, is hereby amended as
follows:
Schedule A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS SUBJECT TO THE PARTICIPATION AGREEMENT
Name of Separate Account and Date
Established by Board of Directors:
Citicorp Life Variable Annuity Separate Account (July 6, 1994)
Policies Funded by Separate Account:
Portfolios Applicable to Policies:
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
AIM V.I. International Equity Fund"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: February 3, 1997
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------ -----------------------------
Assistant Secretary President
(SEAL)
CITICORP LIFE INSURANCE COMPANY
Attest: /s/ RICHARD M. ZUCKERMAN By: /s/ [ILLEGIBLE]
------------------------------ -----------------------------
Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 9(kk)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated February 10, 1995,
by and between AIM Variable Insurance Funds, Inc., a Maryland corporation, and
First Citicorp Life Insurance Company, a New York corporation, is hereby
amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS SUBJECT TO THE PARTICIPATION AGREEMENT
Name of Separate Account and Date
Established by Board of Directors:
First Citicorp Life Variable Annuity Separate Account (July 6, 1994)
Policies Funded by Separate Account:
Portfolios Applicable to Policies:
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
AIM V.I. International Equity Fund"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Effective Date: February 3, 1997
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------ -----------------------------
Assistant Secretary President
(SEAL)
FIRST CITICORP LIFE INSURANCE COMPANY
Attest: /s/ RICHARD M. ZUCKERMAN By: /s/ [ILLEGIBLE]
------------------------------ -----------------------------
Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 10(d)
[LETTERHEAD OF FREEDMAN, LEVY, KROLL & SIMONDS]
February 5, 1998
OPINION AND CONSENT OF COUNSEL
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Executives:
This opinion is given in connection with the filing with the Securities
and Exchange Commission ("SEC") by AIM Variable Insurance Funds, Inc., a
Maryland corporation (the "Fund"), of Post-Effective Amendment No. 9 under the
Securities Act of 1933 ("1933 Act") and Amendment No. 10 under the Investment
Company Act of 1940 ("1940 Act") to the Fund's Registration Statement on Form
N-1A (File No. 33-57340 and No. 811-7452, the "Registration Statement"),
relating to an indefinite number of the Fund's three billion, five-hundred
million authorized shares of common stock, par value $.001 per share, which
includes, among others, 250 million authorized shares of each of the AIM V.I.
Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital Development
Fund, and AIM V.I. High Yield Fund (collectively, the "Portfolios"),
respectively, each Portfolio being a separate series of the Fund's common
stock. The Fund's authorized shares of common stock relating to these
Portfolios are hereinafter referred to collectively as the "Shares."
We have examined the following: the Fund's Articles of Incorporation,
dated January 22, 1993; the Fund's Articles of Amendment, as filed with the
State of Maryland on April 13, 1993, April 15, 1993, and April 12, 1995; the
Fund's Articles Supplementary, as filed with the State of Maryland on April 12,
1994, and February 4, 1998; the Fund's By-Laws; relevant resolutions of the
Fund's Board of Directors, dated December 9, 1997 and certified by the Fund's
Assistant Secretary on January 30, 1998, authorizing the creation of each
Portfolio and the issuance of the Shares, and minutes of certain meetings of
the Board of Directors related thereto, including draft minutes of meeting of
the Board of Directors held on December 9, 1997; the Notification of
Registration on Form N-8A filed with the SEC under the 1940 Act on January 25,
1993; the Registration Statement as originally filed with the SEC under the
1933 Act and the 1940 Act on
<PAGE> 2
the same date, and the amendments thereto filed with the SEC, including
Post-Effective Amendment No. 9 to the Registration Statement substantially in
the form in which it is to be filed with the SEC; a Certificate of Good
Standing issued by the State of Maryland on February 4, 1998; pertinent
provisions of the laws of Maryland; and such other records, certificates,
documents and statutes that we have deemed relevant in order to render the
opinion expressed herein.
Based on the foregoing examination, we are of the opinion that:
1. The Fund is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland; and
2. The Shares to be offered for sale by the Fund, when issued in the
manner contemplated by the Registration Statement, as amended,
will be legally issued, fully-paid, and non-assessable.
This letter expresses our opinion as to the Maryland General
Corporation Law, addressing matters such as due formation and, in effect, the
authorization and issuance of shares of common stock, but does not extend to
the securities or "Blue Sky" laws of Maryland or to federal securities or other
laws.
We consent to the use of this opinion as an Exhibit to the Registration
Statement, as amended.
Very truly yours,
/s/ FREEDMAN, LEVY, KROLL & SIMONDS
Freedman, Levy, Kroll & Simonds
<PAGE> 1
EXHIBIT 10(e)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports each dated February 4, 1998 on the
financial statements and financial highlights of 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, AIM V.I. Money Market Fund,
and AIM V.I. Value Fund, each a series of AIM Variable Insurance Funds, Inc.
Such financial statements and financial highlights are included in the
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A of
AIM Variable Insurance Funds, Inc. We also consent to the references to our
Firm in such Registration Statement.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 9, 1998
<PAGE> 1
EXHIBIT 13(a)
February __, 1998
Board of Directors
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
RE: INITIAL CAPITAL INVESTMENT IN FOUR NEW PORTFOLIOS OF
AIM VARIABLE INSURANCE FUNDS, INC. (THE "FUND")
Gentlemen:
We are purchasing shares of the Fund for the purpose of providing
initial investment for the four new investment portfolios of the Fund. The
purpose of this letter is to set out our understanding of the conditions of and
our promises and representations concerning this investment.
We hereby agree to purchase shares equal to the following dollar
amount for each portfolio:
AIM V.I. Aggressive Growth Fund $__________
AIM V.I. Balanced Fund $__________
AIM V.I. Capital Development Fund $__________
AIM V.I. High Yield Fund $__________
We understand that the initial net asset value per share for each of
the portfolios named above will be $10.00.
We hereby represent that we are purchasing these shares solely for our
own account and solely for investment purposes without any intent of
distributing or reselling said shares. We further represent that disposition
of said shares will only be by direct redemption to or repurchase by the Fund.
We further agree to provide the applicable Fund with at least ten
days' advance written notice of any intended redemption and agree that we will
work with the Fund with respect to the amount of such redemption so as not to
place a burden on the Fund and to facilitate normal portfolio management of the
Fund.
Sincerely yours,
INVESCO Trust Company
By:
---------------------------------
Ronald L. Grooms
Sr. Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I. GROWTH
FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> AIM V.I. GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 206,991,234
<INVESTMENTS-AT-VALUE> 259,454,775
<RECEIVABLES> 1,768,121
<ASSETS-OTHER> 20,194
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 261,243,090
<PAYABLE-FOR-SECURITIES> 1,327,198
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,064,122
<TOTAL-LIABILITIES> 2,391,320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 183,975,681
<SHARES-COMMON-STOCK> 13,054,326
<SHARES-COMMON-PRIOR> 10,990,000
<ACCUMULATED-NII-CURRENT> 1,182,806
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21,643,385
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52,049,898
<NET-ASSETS> 258,851,770
<DIVIDEND-INCOME> 1,864,707
<INTEREST-INCOME> 990,927
<OTHER-INCOME> 0
<EXPENSES-NET> (1,643,861)
<NET-INVESTMENT-INCOME> 1,211,773
<REALIZED-GAINS-CURRENT> 22,109,980
<APPREC-INCREASE-CURRENT> 28,069,985
<NET-CHANGE-FROM-OPS> 51,391,738
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,119,140)
<DISTRIBUTIONS-OF-GAINS> (8,443,286)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,757,339
<NUMBER-OF-SHARES-REDEEMED> (1,185,922)
<SHARES-REINVESTED> 492,909
<NET-CHANGE-IN-ASSETS> 80,213,878
<ACCUMULATED-NII-PRIOR> 1,090,173
<ACCUMULATED-GAINS-PRIOR> 7,976,691
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,453,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,645,569
<AVERAGE-NET-ASSETS> 224,542,366
<PER-SHARE-NAV-BEGIN> 16.25
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 4.27
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.68)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.83
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I. CAPITAL
APPRECIATION FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> AIM V.I. CAPITAL APPRECIATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 404,013,691
<INVESTMENTS-AT-VALUE> 515,795,781
<RECEIVABLES> 9,591,012
<ASSETS-OTHER> 21,040
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 525,407,833
<PAYABLE-FOR-SECURITIES> 1,977,594
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 650,161
<TOTAL-LIABILITIES> 2,627,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,408,721
<SHARES-COMMON-STOCK> 24,031,390
<SHARES-COMMON-PRIOR> 19,043,829
<ACCUMULATED-NII-CURRENT> 868,542
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,720,725
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 111,782,090
<NET-ASSETS> 522,780,078
<DIVIDEND-INCOME> 1,141,020
<INTEREST-INCOME> 3,099,764
<OTHER-INCOME> 0
<EXPENSES-NET> (3,326,775)
<NET-INVESTMENT-INCOME> 914,009
<REALIZED-GAINS-CURRENT> 16,155,941
<APPREC-INCREASE-CURRENT> 35,953,703
<NET-CHANGE-FROM-OPS> 53,023,653
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (536,874)
<DISTRIBUTIONS-OF-GAINS> (6,902,664)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,656,144
<NUMBER-OF-SHARES-REDEEMED> (5,025,910)
<SHARES-REINVESTED> 357,327
<NET-CHANGE-IN-ASSETS> 152,716,913
<ACCUMULATED-NII-PRIOR> 491,407
<ACCUMULATED-GAINS-PRIOR> 6,467,448
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,083,708
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,331,932
<AVERAGE-NET-ASSETS> 493,118,049
<PER-SHARE-NAV-BEGIN> 19.43
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 2.58
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.75
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I.
GOVERNMENT SECURITIES FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> AIM V.I. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 32,662,725
<INVESTMENTS-AT-VALUE> 33,399,857
<RECEIVABLES> 431,555
<ASSETS-OTHER> 20,448
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,851,860
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,064
<TOTAL-LIABILITIES> 52,064
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,984,676
<SHARES-COMMON-STOCK> 3,167,800
<SHARES-COMMON-PRIOR> 2,485,318
<ACCUMULATED-NII-CURRENT> 1,585,397
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (507,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 737,132
<NET-ASSETS> 33,799,796
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,862,279
<OTHER-INCOME> 0
<EXPENSES-NET> (241,821)
<NET-INVESTMENT-INCOME> 1,620,458
<REALIZED-GAINS-CURRENT> (100,162)
<APPREC-INCREASE-CURRENT> 728,502
<NET-CHANGE-FROM-OPS> 2,248,798
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,600)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,272,288
<NUMBER-OF-SHARES-REDEEMED> (591,274)
<SHARES-REINVESTED> 1,468
<NET-CHANGE-IN-ASSETS> 9,273,280
<ACCUMULATED-NII-PRIOR> 653,121
<ACCUMULATED-GAINS-PRIOR> (483,896)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 138,550
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 241,821
<AVERAGE-NET-ASSETS> 27,710,072
<PER-SHARE-NAV-BEGIN> 9.87
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.67
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I.
DIVERSIFIED INCOME FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> AIM V.I. DIVERSIFIED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 84,751,367
<INVESTMENTS-AT-VALUE> 87,069,717
<RECEIVABLES> 2,247,388
<ASSETS-OTHER> 18,049
<OTHER-ITEMS-ASSETS> 72,201
<TOTAL-ASSETS> 89,407,355
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (88,703)
<TOTAL-LIABILITIES> (88,703)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,655,246
<SHARES-COMMON-STOCK> 7,914,436
<SHARES-COMMON-PRIOR> 6,161,471
<ACCUMULATED-NII-CURRENT> 4,195,077
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,653,603
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,814,526
<NET-ASSETS> 89,318,652
<DIVIDEND-INCOME> 64,710
<INTEREST-INCOME> 5,682,303
<OTHER-INCOME> 0
<EXPENSES-NET> (596,555)
<NET-INVESTMENT-INCOME> 5,150,458
<REALIZED-GAINS-CURRENT> 1,075,468
<APPREC-INCREASE-CURRENT> 695,704
<NET-CHANGE-FROM-OPS> 6,921,630
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (77,788)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,860,755
<NUMBER-OF-SHARES-REDEEMED> (1,114,698)
<SHARES-REINVESTED> 6,908
<NET-CHANGE-IN-ASSETS> 25,694,881
<ACCUMULATED-NII-PRIOR> 1,655,895
<ACCUMULATED-GAINS-PRIOR> 95,809
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447,539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 598,068
<AVERAGE-NET-ASSETS> 74,589,876
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> 0.73
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I. GLOBAL
UTILITIES FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> AIM V.I. GLOBAL UTILITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,784,425
<INVESTMENTS-AT-VALUE> 22,408,527
<RECEIVABLES> 199,241
<ASSETS-OTHER> 13,684
<OTHER-ITEMS-ASSETS> 3,246
<TOTAL-ASSETS> 22,624,698
<PAYABLE-FOR-SECURITIES> 503,055
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,782
<TOTAL-LIABILITIES> 545,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,836,039
<SHARES-COMMON-STOCK> 1,446,729
<SHARES-COMMON-PRIOR> 1,081,455
<ACCUMULATED-NII-CURRENT> 439,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 179,652
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,623,594
<NET-ASSETS> 22,078,861
<DIVIDEND-INCOME> 376,432
<INTEREST-INCOME> 290,021
<OTHER-INCOME> 0
<EXPENSES-NET> (207,804)
<NET-INVESTMENT-INCOME> 458,649
<REALIZED-GAINS-CURRENT> 176,145
<APPREC-INCREASE-CURRENT> 2,779,707
<NET-CHANGE-FROM-OPS> 3,414,501
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (6,795)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 505,614
<NUMBER-OF-SHARES-REDEEMED> (140,799)
<SHARES-REINVESTED> 459
<NET-CHANGE-IN-ASSETS> 8,503,288
<ACCUMULATED-NII-PRIOR> (3,023)
<ACCUMULATED-GAINS-PRIOR> (5,748)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 106,309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 207,983
<AVERAGE-NET-ASSETS> 16,297,147
<PER-SHARE-NAV-BEGIN> 12.55
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 2.40
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.26
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I.
INTERNATIONAL EQUITY FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> AIM V.I. INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 168,107,886
<INVESTMENTS-AT-VALUE> 208,328,827
<RECEIVABLES> 2,861,176
<ASSETS-OTHER> 18,579
<OTHER-ITEMS-ASSETS> 1,138,250
<TOTAL-ASSETS> 212,346,832
<PAYABLE-FOR-SECURITIES> 918,035
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 406,212
<TOTAL-LIABILITIES> 1,324,247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,283,064
<SHARES-COMMON-STOCK> 12,319,556
<SHARES-COMMON-PRIOR> 10,129,698
<ACCUMULATED-NII-CURRENT> 1,134,854
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (580,780)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,185,447
<NET-ASSETS> 211,022,585
<DIVIDEND-INCOME> 2,884,830
<INTEREST-INCOME> 366,128
<OTHER-INCOME> 0
<EXPENSES-NET> (1,878,192)
<NET-INVESTMENT-INCOME> 1,372,766
<REALIZED-GAINS-CURRENT> (743,433)
<APPREC-INCREASE-CURRENT> 11,878,346
<NET-CHANGE-FROM-OPS> 12,507,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (955,397)
<DISTRIBUTIONS-OF-GAINS> (3,362,028)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,963,552
<NUMBER-OF-SHARES-REDEEMED> (1,031,143)
<SHARES-REINVESTED> 257,449
<NET-CHANGE-IN-ASSETS> 45,284,507
<ACCUMULATED-NII-PRIOR> 937,128
<ACCUMULATED-GAINS-PRIOR> 3,305,038
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,519,323
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,879,397
<AVERAGE-NET-ASSETS> 202,576,375
<PER-SHARE-NAV-BEGIN> 16.36
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 1.03
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.13
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I. MONEY
MARKET FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK>0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 7
<NAME> AIM V.I. MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 58,680,767
<INVESTMENTS-AT-VALUE> 58,680,767
<RECEIVABLES> 69,211
<ASSETS-OTHER> 29,450
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,779,428
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 144,807
<TOTAL-LIABILITIES> 144,807
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,634,564
<SHARES-COMMON-STOCK> 58,634,564
<SHARES-COMMON-PRIOR> 63,529,436
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 57
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 58,634,621
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,562,612
<OTHER-INCOME> 0
<EXPENSES-NET> (372,558)
<NET-INVESTMENT-INCOME> 3,190,054
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,190,054
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,190,054)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,948,357
<NUMBER-OF-SHARES-REDEEMED> (97,033,283)
<SHARES-REINVESTED> 3,190,054
<NET-CHANGE-IN-ASSETS> (4,894,872)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 57
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 254,546
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 372,718
<AVERAGE-NET-ASSETS> 63,641,415
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I. VALUE
FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK>0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 8
<NAME> AIM V.I. VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 614,872,608
<INVESTMENTS-AT-VALUE> 715,964,547
<RECEIVABLES> 5,070,462
<ASSETS-OTHER> 63,275
<OTHER-ITEMS-ASSETS> 395,713
<TOTAL-ASSETS> 721,493,997
<PAYABLE-FOR-SECURITIES> 29,455,924
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,196,580
<TOTAL-LIABILITIES> 30,652,504
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 536,384,006
<SHARES-COMMON-STOCK> 33,161,794
<SHARES-COMMON-PRIOR> 21,152,339
<ACCUMULATED-NII-CURRENT> 5,579,627
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 47,575,497
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 101,302,363
<NET-ASSETS> 690,841,493
<DIVIDEND-INCOME> 6,123,798
<INTEREST-INCOME> 3,138,907
<OTHER-INCOME> 0
<EXPENSES-NET> (3,683,746)
<NET-INVESTMENT-INCOME> 5,578,959
<REALIZED-GAINS-CURRENT> 47,871,104
<APPREC-INCREASE-CURRENT> 51,486,076
<NET-CHANGE-FROM-OPS> 104,936,139
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,026,082)
<DISTRIBUTIONS-OF-GAINS> (18,500,854)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,245,239
<NUMBER-OF-SHARES-REDEEMED> (1,424,104)
<SHARES-REINVESTED> 1,188,320
<NET-CHANGE-IN-ASSETS> 321,106,347
<ACCUMULATED-NII-PRIOR> 6,016,241
<ACCUMULATED-GAINS-PRIOR> 18,215,756
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,303,799
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,687,570
<AVERAGE-NET-ASSETS> 529,874,605
<PER-SHARE-NAV-BEGIN> 17.48
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 4.05
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.83
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AIM V.I. GROWTH &
INCOME FUND FOR THE DECEMBER 31, 1997 ANNUAL REPORT.
</LEGEND>
<CIK> 0000896435
<NAME> AIM VARIABLE INSURANCE FUNDS, INC.
<SERIES>
<NUMBER> 9
<NAME> AIM V.I. GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 566,330,159
<INVESTMENTS-AT-VALUE> 654,025,922
<RECEIVABLES> 12,406,210
<ASSETS-OTHER> 27,378
<OTHER-ITEMS-ASSETS> 16,995
<TOTAL-ASSETS> 666,476,505
<PAYABLE-FOR-SECURITIES> 26,264,800
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,099,160
<TOTAL-LIABILITIES> 27,383,960
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,626,187
<SHARES-COMMON-STOCK> 33,868,543
<SHARES-COMMON-PRIOR> 13,923,332
<ACCUMULATED-NII-CURRENT> 4,850,844
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,421,873
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 87,213,641
<NET-ASSETS> 639,112,545
<DIVIDEND-INCOME> 5,115,419
<INTEREST-INCOME> 2,487,104
<OTHER-INCOME> 0
<EXPENSES-NET> (2,834,905)
<NET-INVESTMENT-INCOME> 4,767,618
<REALIZED-GAINS-CURRENT> 9,736,106
<APPREC-INCREASE-CURRENT> 66,989,418
<NET-CHANGE-FROM-OPS> 81,493,142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (326,695)
<DISTRIBUTIONS-OF-GAINS> (490,042)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,645,975
<NUMBER-OF-SHARES-REDEEMED> (745,032)
<SHARES-REINVESTED> 44,268
<NET-CHANGE-IN-ASSETS> 429,780,914
<ACCUMULATED-NII-PRIOR> 329,728
<ACCUMULATED-GAINS-PRIOR> 256,002
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,609,695
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,839,937
<AVERAGE-NET-ASSETS> 414,115,808
<PER-SHARE-NAV-BEGIN> 15.03
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 3.74
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.87
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
