<PAGE> 1
As filed with the Securities and Exchange Commission on September 28, 1999
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. 14 X
---- ---
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 15 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:
Jim A. Coppedge, 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
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
- --------------------------------------------------------------------------------
Shares of the fund are currently offered only to insurance company
separate accounts.
AIM V.I. Dent Demographic Trends Fund seeks to provide long-term growth
of capital.
-- Registered Trademark --
PROSPECTUS
, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
An investment in the fund is not a
deposit of a bank and is not insured
or guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency. There is a risk
that you could lose a portion or all
of your money.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEAR HERE] INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 3
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AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
-------------------------------------
Table of Contents
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
FUND MANAGEMENT 2
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 2
Advisor Compensation 2
Portfolio Managers 2
OTHER INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchase and Redemption of Shares 2
Pricing of Shares 2
Taxes 3
Dividends and Distributions 3
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
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, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design, AIM Investor and AIM Internet Connection are service marks of
A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 4
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AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
-------------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The fund's
investment objective may be changed by the fund's Board of Directors without
shareholder approval.
The fund seeks to meet its objective by investing in securities of companies
that are likely to benefit from changing demographic, economic and lifestyle
trends. These securities may include common stocks, convertible bonds,
convertible preferred stocks and warrants of companies within a broad range of
market capitalizations. The fund may also invest up to 25% of its total assets
in foreign securities.
The portfolio managers purchase securities of companies that have experienced,
or that they believe have the potential for, above-average, long-term growth in
revenues and earnings. The portfolio managers consider whether to sell a
particular security when they believe the security no longer has that potential.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. This is
especially true with respect to equity securities of small- and medium-sized
companies, whose prices may go up and down more than the prices of equity
securities of larger, more established companies. Also, since equity securities
of small- and medium-sized companies may not be traded as often as equity
securities of larger, more established companies, it may be difficult or
impossible for the fund to sell securities at a desired price.
The prices of growth stocks in which the fund invests may rise and fall more
than the prices of stocks generally.
The values of the convertible securities in which the fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The fund may participate in the Initial Public Offering (IPO) market, and a
significant portion of the fund's returns consequently may be attributable to
its investment in IPOs, which have a magnified impact due to the fund's small
asset base. As the fund's assets grow, it is probable that the effect of the
fund's investment in IPOs on its total returns will decline, which may reduce
the fund's total returns.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
1
<PAGE> 5
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AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Securities and Exchange Commission (SEC) rules do not allow us to provide a bar
chart and performance table for funds that do not have at least a full calendar
year of performance.
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including the fund's investment decisions, the execution of securities
transactions, and obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund. H.S.
Dent Advisors, Inc. (the subadvisor) serves as the fund's subadvisor, and is
located at 6515 Gwin Road, Oakland, California 94611. The subadvisor is
responsible for providing the advisor with macroeconomic, thematic, demographic,
lifestyle trends and sector research, custom reports and investment and market
capitalization recommendations for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives. The subadvisor has acted as an investment advisor since
1999.
ADVISOR COMPENSATION
The advisor is to receive a fee from the fund calculated at the annual rate of
0.85% of the first $2 billion of average daily net assets and 0.80% over $2
billion of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - Edgar M. Larsen, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1996. From 1981 to 1996, he was, among other offices, Senior Vice
President of John Hancock Advisers, Inc. and its predecessors.
- - Lanny H. Sachnowitz, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1987.
- - Derek H. Webb, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1992.
OTHER INFORMATION
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
The fund ordinarily effects orders to purchase and redeem shares at the fund's
next computed net asset value after it receives an order. Life insurance
companies participating in the fund serve as the fund's designee for receiving
orders of separate accounts that invest in the fund.
The fund currently offers shares only to insurance company separate accounts.
In the future, the fund may offer them to pension and retirement plans that
qualify for special federal income tax treatment.
The Board of Directors monitors for possible conflicts among separate accounts
(and will do so for plans) buying shares of the fund. A fund's net asset value
could decrease if it had to sell investment securities to pay redemption
proceeds to a separate account (or plan) withdrawing because of a conflict.
PRICING OF SHARES
The fund prices its shares based on its net asset value. The fund values
portfolio securities for which market quotations are readily available at market
value. The fund values short-term investments maturing within 60 days at
amortized cost, which approximates market value. The fund values all other
securities and assets at their fair value. Securities and other assets quoted in
foreign currencies are valued in U.S. dollars based on the prevailing exchange
rates on that day. In addition, if, between the time trading ends on a
particular security and the close of the New York Stock Exchange (NYSE), events
occur that materially affect the value of the security, the fund may value the
security at its fair value as determined in good faith by or under the
supervision of the Board of Directors. The effect of using fair value pricing is
that the fund's net asset value will be subject to
2
<PAGE> 6
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AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
-------------------------------------
the judgment of the Board of Directors or its designee instead of being
determined by the market. Because the fund may invest in securities that are
primarily listed on foreign exchanges, the value of the fund's shares may change
on days when the separate account will not be able to purchase or redeem shares.
The fund determines the net asset value of its shares as of the close of the
NYSE on each day the NYSE is open for business.
TAXES
The amount, timing and character of distributions to the separate account may be
affected by special tax rules applicable to certain investments purchased by the
fund. Holders of variable contracts should refer to the prospectus for their
contracts for information regarding the tax consequences of owning such
contracts and should consult their tax advisers before investing.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually to separate
accounts of participating life insurance companies.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually to separate
accounts of participating life insurance companies.
At the election of participating life insurance companies, dividends and
distributions are automatically reinvested at net asset value in shares of that
fund.
3
<PAGE> 7
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AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
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OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
SEC, contains more details about the fund and is incorporated by reference into
the prospectus (is legally a part of this prospectus). Annual and semiannual
reports to shareholders contain additional information about the fund's
investments.
If you wish to obtain free copies of the fund's current SAI, please send a
written request to A I M Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 or call (800) 410-4246.
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- --------------------------------------
AIM V.I. Dent Demographic Trends Fund
SEC 1940 Act file number: 811-7452
- --------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 8
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
<TABLE>
<S> <C>
AIM V.I. AGGRESSIVE GROWTH FUND AIM V.I. BALANCED FUND
AIM V.I. BLUE CHIP FUND AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
AIM V.I. GLOBAL GROWTH AND INCOME FUND AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND
AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. HIGH YIELD FUND
AIM V.I. TELECOMMUNICATIONS FUND AIM V.I. MONEY MARKET FUND
</TABLE> 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) 410-4246 (ALL OTHERS).
------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: ___________, 1999
RELATING TO PROSPECTUS DATED: __________, 1999
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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..............................................................4
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................................5
General Brokerage Policy.......................................................5
Allocation of IPO Securities Transactions......................................7
Section 28(e) Standards........................................................7
Portfolio Turnover.............................................................8
Brokerage Commissions Paid.....................................................8
INVESTMENT STRATEGIES AND RISKS.........................................................9
Aggressive Growth Fund.........................................................9
Balanced Fund.................................................................10
Blue Chip Fund................................................................10
Capital Appreciation Fund.....................................................12
Capital Development Fund......................................................12
Dent Demographic Trends Fund..................................................12
Diversified Income Fund.......................................................12
Global Growth and Income Fund.................................................12
Global Utilities Fund.........................................................13
Government Securities Fund....................................................14
Growth Fund...................................................................14
Growth and Income Fund........................................................15
High Yield Fund...............................................................15
International Equity Fund.....................................................15
Money Market Fund.............................................................16
Telecommunications Fund.......................................................17
Value Fund....................................................................18
CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES...........................................18
Money Market Obligations......................................................18
Repurchase Agreements.........................................................19
U.S. Government Agency Mortgage-Backed Securities.............................19
Convertible Securities........................................................20
Real Estate Investments Trusts ("REITs")......................................20
Foreign Securities............................................................21
Foreign Exchange Transactions.................................................22
ADRs and EDRs.................................................................22
Lending of Portfolio Securities...............................................22
Reverse Repurchase Agreements.................................................23
Delayed Delivery Agreements and When-Issued Securities........................23
</TABLE>
i
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<TABLE>
<S> <C>
Dollar Roll Transactions.................................................................................24
Borrowing................................................................................................25
Illiquid Securities......................................................................................25
Special Situations.......................................................................................25
Warrants ................................................................................................25
Short Sales..............................................................................................25
Rule 144A Securities.....................................................................................26
Investment in Other Investment Companies.................................................................26
Temporary Defensive Investments..........................................................................26
Asset Allocation Among Countries.........................................................................26
Utilities Industry.......................................................................................26
OPTIONS, FUTURES AND CURRENCY STRATEGIES..........................................................................27
Introduction.............................................................................................27
General Risks of Options, Futures and Currency Strategies................................................28
Cover .. ................................................................................................28
Writing Call Options.....................................................................................29
Writing Put Options......................................................................................29
Purchasing Put Options...................................................................................29
Purchasing Call Options..................................................................................30
Over-the-Counter Options.................................................................................30
Index Options............................................................................................31
Limitations on Options...................................................................................31
Interest Rate, Currency and Stock Index Futures Contracts................................................31
Options on Futures Contracts.............................................................................32
Forward Contracts........................................................................................32
Limitations on Use of Futures, Options on Futures and Certain Options on Currencies......................33
RISK FACTORS......................................................................................................34
Small Capitalization Companies...........................................................................34
Non-Investment Grade Debt Securities.....................................................................34
Foreign Securities.......................................................................................35
Non-diversified Portfolio (Global Utilities Fund Only)...................................................35
INVESTMENT RESTRICTIONS...........................................................................................36
Fundamental Restrictions.................................................................................36
Non-fundamental Restrictions.............................................................................37
MANAGEMENT........................................................................................................38
Directors and Officers...................................................................................38
Remuneration of Directors.......................................................................41
AIM Funds Retirement Plan for Eligible Directors/Trustees.......................................42
Deferred Compensation Agreements................................................................43
Investment Advisory, Sub-Advisory and Administrative Services Agreements.................................43
The Distribution Agreement...............................................................................49
DETERMINATION OF NET ASSET VALUE..................................................................................49
PURCHASE AND REDEMPTION OF SHARES.................................................................................52
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS..........................................................................52
</TABLE>
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<TABLE>
<S> <C>
MISCELLANEOUS INFORMATION................................................................55
Organization of the Company.....................................................55
Audit Reports...................................................................55
Legal Matters...................................................................56
Custodian and Transfer Agent....................................................56
Principal Holders of Securities.................................................56
Other Information...............................................................60
APPENDIX A..............................................................................A-1
APPENDIX B..............................................................................B-1
APPENDIX C..............................................................................C-1
FINANCIAL STATEMENTS.....................................................................FS
</TABLE>
iii
<PAGE> 12
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. That information can be found in the most recent prospectus for each
of the series portfolios of the Company (each referred to throughout as a
"Fund"), which are:
<TABLE>
<CAPTION>
Date of Most
Fund Name: Recent Prospectus:
--------- -----------------
<S> <C>
AIM V.I. Aggressive Growth Fund May 3, 1999
AIM V.I. Balanced Fund May 3, 1999
AIM V.I. Blue Chip Fund September 24, 1999
AIM V.I. Capital Appreciation Fund May 3, 1999
Supplemented July 1, 1999
AIM V.I. Capital Development Fund May 3, 1999
AIM V.I. Dent Demographic Trends Fund __________, 1999
AIM V.I. Diversified Income Fund May 3, 1999
Supplemented July 1, 1999
AIM V.I. Global Growth and Income Fund May 3, 1999
Supplemented July 1, 1999
and September 14, 1999
AIM V.I. Global Utilities Fund May 3, 1999
Supplemented July 1, 1999
AIM V.I. Government Securities Fund May 3, 1999
AIM V.I. Growth and Income Fund May 3, 1999
AIM V.I. Growth Fund May 3, 1999
AIM V.I. High Yield Fund May 3, 1999
AIM V.I. International Equity Fund May 3, 1999
Supplemented July 1, 1999
AIM V.I. Money Market Fund May 3, 1999
Revised July 1, 1999
AIM V.I. Telecommunications Fund May 3, 1999
Supplemented July 1, 1999
AIM V.I. Value Fund May 3, 1999
</TABLE>
The information regarding all the Funds (except AIM V.I. Blue Chip
Fund, AIM V.I. Dent Demographic Trends Fund, AIM V.I. Global Growth and Income
Fund and AIM V.I. Telecommunications Fund) is included in a Prospectus dated May
3, 1999, as supplemented July 1, 1999. One or more of the 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. Copies of each Prospectus available under a contract or
policy and additional copies of this Statement of Additional Information may be
obtained without charge by contacting the principal distributor of each Fund's
shares, A I M Distributors, Inc. ("AIM Distributors"), 11 Greenway Plaza, Suite
100, Houston, TX 77046-1173 or by calling (800) 410-4246. 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 seventeen 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. Blue Chip Fund ("Blue
Chip Fund"), the AIM V.I. Capital Appreciation Fund ("Capital Appreciation
Fund"), the AIM V.I. Dent Demographic Trends Fund ("Dent Demographic Trends
Fund"), the AIM V.I. Capital Development Fund ("Capital Development Fund"), the
AIM V.I. Diversified Income Fund ("Diversified Income Fund"), the AIM V.I.
Global Growth and Income Fund ("Global Growth and Income Fund"), the AIM V.I.
Global Utilities Fund ("Global
1
<PAGE> 13
Utilities Fund") (formerly known as the AIM V.I. Utilities Fund), the AIM V.I.
Government Securities Fund ("Government Fund"), the AIM V.I. 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. Telecommunications Fund
("Telecommunications 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.
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 AIM V.I. Blue Chip Fund, the AIM V.I. Dent
Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the
AIM V.I. Telecommunications Fund) average annual and cumulative total return for
the period ended June 30, 1999 and average annual and cumulative total returns
for the period May 5, 1993 (commencement of operations) through June 30, 1999,
were as follows:
2
<PAGE> 14
<TABLE>
<CAPTION>
Since
Inception
--------------------------
Period Ended Average
June 30, Annual Cumulative
1999 Return Return
------------ -------- ----------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund** 10.31% 5.98% 7.00%
AIM V.I. Balanced Fund** 17.65% 16.46% 19.41%
AIM V.I. Capital Appreciation Fund 15.81% 18.88% 189.80%
AIM V.I. Capital Development Fund** -1.05% -4.92% -5.70%
AIM V.I. Diversified Income Fund -2.56% 6.41% 46.60%
AIM V.I. Global Utilities Fund* 14.06% 15.36% 109.10%
AIM V.I. Government Securities Fund 1.79% 4.93% 34.48%
AIM V.I. Growth Fund 27.04% 21.35% 229.01%
AIM V.I. Growth and Income Fund* 27.86% 23.34% 195.26%
AIM V.I. High Yield Fund** -2.45% -1.69% -1.95%
AIM V.I. International Equity Fund 1.52% 13.02% 112.35%
AIM V.I. Money Market Fund 4.69% 4.58% 31.69%
AIM V.I. Value Fund 27.94% 22.63% 250.85%
</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.
** The inception date 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 was May 1, 1998.
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, A I M Advisors, Inc. ("AIM") or its affiliates may
waive all or a portion of their fees and/or assume certain expenses of any Fund.
Voluntary fee waivers or reductions or commitments to assume expenses may be
rescinded at any time without further notice to investors. During periods of
voluntary fee
3
<PAGE> 15
waivers or reductions or commitments to assume expenses, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth in
the Fee Table in a Prospectus may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM and the Fund.
Fee waivers or reductions or commitments to reduce expenses will have the effect
of increasing that Fund's yield and total return.
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 any Fund.
Some or all of the Funds may participate in the Initial Public
Offering ("IPO") market, and a significant portion of those Funds' returns
may be attributable to their investment in IPOs, which have a magnified impact
due to the Funds' small asset base. There is no guarantee that as the Funds'
assets grow, they will continue to experience substantially similar performance
by investing in IPOs.
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 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.
4
<PAGE> 16
The simple annualized yield and compounded effective yield for the
Money Market Fund for the 7 days ended June 30, 1999 were 4.44% and 4.54%,
respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the
Company, 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 a Fund in the form of American
Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"), or other
securities representing underlying securities of foreign issuers, or securities
convertible into foreign equity securities. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered form, are designed for use
in the United States securities markets, and EDRs, in bearer form, are designed
for use in European securities markets. ADRs and EDRs may be listed on stock
exchanges, or traded in OTC markets in the United States or Europe, as the case
may be. ADRs, like other securities traded in the United States, will be subject
to negotiated commission rates.
The 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
5
<PAGE> 17
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 will fairly
allocate transactions in such securities among the Fund(s) and these accounts.
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, 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.
6
<PAGE> 18
ALLOCATION OF IPO SECURITIES TRANSACTIONS
From time to time, certain of the AIM Funds may become interested in
participating in security distributions that are available in an IPO, and
occasions may arise when purchases of such securities by one AIM Fund may also
be considered for purchase by one or more other AIM Funds. In such cases, it
shall be AIM's practice to specifically combine or otherwise bunch indications
of interest for IPO securities for all AIM Funds participating in purchase
transactions for that security, and to allocate such transactions in
accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund that seeks to
participate in a particular IPO by reviewing a number of factors, including
suitability of the investment with the AIM Fund's investment objective, policies
and strategies, the liquidity of the AIM Fund if such investment is purchased,
and whether the portfolio manager intends to hold the security as a long-term
investment. The allocation of limited supply securities issued in IPOs will be
made to eligible AIM Funds in a manner designed to be fair and equitable for
the eligible AIM Funds, and so that there is equal allocation of IPOs over the
longer term. Where multiple funds are eligible, rotational participation may
occur, based on the extent to which an AIM Fund has participated in previous
IPOs as well as the size of the AIM Fund. Each eligible AIM Fund with an asset
level of less than $500 million will be placed in one or three tiers, depending
upon its asset level. The AIM Funds in the tier containing funds with the
smallest asset levels will participate first, each receiving a 40 basis point
allocation (rounded to the nearest share round lot that approximates 40 basis
points) (the "Allocation"), based on that AIM Fund's net assets. This process
continues until all of the AIM Funds in the three tiers receive their
Allocations, or until the shares are all allocated. Should securities remain
after this process, eligible AIM Funds will receive their Allocations on a
straight pro rata basis. For the tier of AIM Funds not receiving a full
Allocation, the Allocation may be made only to certain AIM Funds so that each
may receive close to or exactly 40 basis points.
Any AIM Funds with substantially identical investment objectives and
policies will participate in syndicates in amounts that are substantially
proportionate to each other. In these cases, the net assets of the largest AIM
Fund will be used to determine in which tier, as described in the paragraph
above, such group of AIM Funds will be placed. The price per share of
securities purchased in such syndicate transactions will be the same for each
AIM Fund.
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, in
written form or on computer software. Research services may also include the
providing of equipment used to communicate research information, the arranging
of meetings with management of companies and the providing of access to
consultants who supply research information.
The outside research assistance is useful to AIM since the brokers
utilized by AIM as a group tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, this research provides
AIM with a diverse perspective on financial markets. Research services which are
provided to AIM by brokers are available for the benefit of all accounts managed
or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM is of the opinion that
because the broker research supplements rather than replaces its research, the
receipt of such research does not tend to decrease its expenses, but tends to
improve the quality of its investment advice. However, to the extent that AIM
would have purchased any such research services had such services not been
provided by brokers, the expenses of such services to AIM could be considered to
have been reduced accordingly.
For the fiscal year ended December 31, 1998 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:
7
<PAGE> 19
<TABLE>
<CAPTION>
Commissions Transactions
-------------- ------------------
<S> <C> <C>
AIM V. I. Aggressive Growth Fund $ 476 $ 265,096
AIM V. I. Balanced Fund $ 107 $ 73,629
AIM V. I. Capital Appreciation Fund $ 111,070 $ 76,873,344
AIM V. I. Capital Development Fund $ 475 $ 255,434
AIM V. I. Global Utilities Fund $ 1,105 $ 556,721
AIM V. I. Growth Fund $ 58,834 $ 52,124,585
AIM V. I. Growth and Income Fund $ 154,841 $ 136,649,725
AIM V. I. International Equity Fund $ 401 $ 90,510
AIM V. I. Value Fund $ 126,500 $ 120,560,762
</TABLE>
As of December 31, 1998, 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,
FUNDS SACHS & CO.
- ----------------------------------- ----------------
<S> <C>
AIM V.I. Capital Appreciation Fund $ 59,251,734
AIM V.I. Diversified Fund $ 2,305,989
AIM V.I. Global Utilities Fund $ 2,391,815
AIM V.I. Growth Fund $ 31,583,054
AIM V.I. Growth and Income Fund $ 35,491,011
AIM V.I. International Equity Fund $ 17,938,040
AIM V.I. Value Fund $ 77,768,447
</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, 1998. The Balanced Fund, the Growth and Income Fund and the Value
Fund each held an amount of common stock issued by Merrill Lynch & Co. having a
market value of $20,025, $9,345,000 and $2,670,000, respectively. The Growth
Fund held an amount of common stock issued by PaineWebber Group, Inc. having a
market value of $1,224,413.
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. The estimated portfolio turnover rate for the Blue Chip Fund, Dent
Demographic Trends Fund, Global Growth and Income Fund and Telecommunications
Fund is less than 100%. Higher portfolio turnover increases transaction costs to
the Fund.
BROKERAGE COMMISSIONS PAID
Brokerage commissions paid by each of the Funds (except the AIM V.I.
Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global
Growth and Income Fund and the AIM V.I. Telecommunications Fund) listed below
were as follows for the fiscal years ended December 31, 1998, December 31, 1997
and December 31, 1996. The significant change in commissions paid from year to
year for AIM V.I. Capital Appreciation Fund and AIM V.I. Growth and Income Fund
is due to the increase in asset level.
8
<PAGE> 20
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
--------------- ------------- -------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ 2,983 N/A N/A
AIM V.I. Balanced Fund* $ 2,241 N/A N/A
AIM V.I. Capital Appreciation Fund $ 1,017,185 $ 644,279 $ 405,056
AIM V.I. Capital Development Fund* $ 3,748 N/A N/A
AIM V.I. Diversified Income Fund $ 282 $ 2,818 $ 1,670
AIM V.I. Global Utilities Fund $ 18,422 $ 12,208 $ 16,365
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ 876,546 $ 621,467 $ 578,444
AIM V.I. Growth and Income Fund $ 2,834,451 $ 1,190,597 $ 417,167
AIM V.I. High Yield Fund* $ -0- N/A N/A
AIM V.I. International Equity Fund $ 814,499 $ 605,318 $ 557,527
AIM V.I. Money Market Fund $ -0- $ -0- $ -0-
AIM V.I. Value Fund $ 1,920,264 $ 1,503,734 $ 1,126,384
</TABLE>
* Commissions paid are for the period May 1,1998 (date operations
commenced) through December 31, 1998.
INVESTMENT STRATEGIES AND RISKS
Information concerning each Fund's fundamental investment objective is
set forth in the Prospectus under the heading "Investment Objectives and
Strategies." 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 following headings: "Investment Objectives and Strategies" and "Principal
Risks of Investing in the Funds". The following discussion of investment
policies supplements the discussion of the investment strategies and risks set
forth in the Prospectus.
Set forth in this section is a description of each Fund's investment
policies, strategies and practices. The investment objective(s) of each Fund,
except the High Yield Fund and Dent Demographic Trends 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 or Dent Demographic Trends 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.
However, shareholders will be notified before any material change in the
investment policies become effective. Each Fund has adopted investment
restrictions, some of which are fundamental and cannot be changed without
shareholder approval. See "Investment Restrictions" in this 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.
AGGRESSIVE GROWTH FUND
The Fund's investment objective is to achieve long-term growth of
capital. The Fund will invest 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 (i.e., companies with a market capitalization within the
range of small cap stocks in the Russell 2000 Index.) 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
9
<PAGE> 21
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
judgement 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.
BALANCED FUND
The Fund's objective is to achieve as high a total return 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 Rating Services ("S&P") or, in unrated, deemed to be of comparable
quality by AIM, although the Fund may invest to a limited extent in lower-rated
securities. (For a description of the various rating categories, see Appendix A
to this Statement of Additional Information.) 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.
BLUE CHIP FUND
The Fund's primary investment objective is to provide long-term growth
of capital. Current income is a secondary objective. It is anticipated that the
major portion of the Fund's portfolio will ordinarily be invested in common
stocks, convertible securities and bonds of blue chip companies (i.e., companies
with leading market positions and which possess strong financial
characteristics, as described below). There can, of course, be no assurance that
the Fund will in fact achieve its objectives since all investments are
inherently subject to market risks.
The Fund will invest primarily (at least 65% of its total assets) in
the common stocks of blue chip companies as determined by AIM. These companies
will have the potential for above-average growth in earnings or be
well-established in their respective industries. The Fund will generally invest
in large and medium sized companies (i.e., companies which fall in the largest
85% of market capitalization of publicly traded companies listed in the United
States) which possess the following characteristics:
o Market Characteristics
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<PAGE> 22
Blue chip companies are those which occupy (or in AIM's
judgment have the potential to occupy) leading market
positions that are expected to be maintained or enhanced over
time. Strong market positions, particularly in growing
industries, can give a company pricing flexibility as well as
the potential for strong unit sales. These factors can in turn
lead to higher earnings growth and greater share price
appreciation. Market leaders can be identified within an
industry as those companies which have:
- superior growth prospects compared with other companies in
the same industry;
- possession of proprietary technology with the potential to
bring about major changes within an industry; and/or
- leading sales within an industry, or the potential to become
a market leader.
o Financial Characteristics
Blue chip companies possess at least one of the following
attributes:
- faster earnings growth than its competitors and the market
in general;
- higher profit margins relative to its competitors;
- strong cash flow relative to its competitors; and/or
- a balance sheet with relatively low debt and a high return
on equity relative to its competitors.
The Fund will diversify among industries and therefore will not invest
25% or more of its total assets in any one industry.
When AIM believes securities other than common stocks offer opportunity
for long-term growth of capital and income, the Fund may invest in United States
government securities, corporate bonds and debentures and convertible preferred
stocks and debt securities. The Fund will invest only in debt securities (other
than convertible debt securities) which are rated at "Investment Grade" by
either S&P or Moody's. Debt securities in the lowest investment grade (e.g.,
rated BBB by S&P or Baa by Moody's) have speculative characteristics and changes
in economic conditions and other circumstances are more likely to lead to a
weakened capacity on the part of the issuer to make principal and interest
payments than is the case with higher grade bonds. The Fund will limit its
investments in convertible securities to those in which the underlying common
stock is a suitable investment for the Fund without regard to debt rating
category, but will not invest more than 10% of its total assets in convertible
securities. The Fund may invest in United States government securities and
corporate bonds and debentures when AIM believes interest rates on such
investments may decline thereby potentially increasing the market value of such
securities or to meet the additional investment objective of producing current
income. Under normal market conditions, the Fund expects at all times to have at
least 65% of its total assets invested in securities which AIM believes offer
opportunity for long-term growth of capital or income.
The Fund may invest up to 25% of total assets in securities of issuers
domiciled in foreign countries. For the risks involved in investing in foreign
securities, see "Risk Factors - Foreign Securities" in this Statement of
Additional Information.
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<PAGE> 23
CAPITAL APPRECIATION FUND
The Fund's investment objective is growth of capital through investment
in common stocks, with emphasis on medium- and small-sized 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 with excellent
prospects for outstanding future growth, and (2) "earnings acceleration"
companies which AIM believes are currently enjoying a dramatic increase in
profits.
CAPITAL DEVELOPMENT FUND
The Fund's investment objective is long-term growth of capital.
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 products, (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.
DENT DEMOGRAPHIC TRENDS FUND
The Fund's investment objective is long-term growth of capital. The
Fund will seek to achieve its investment objective by investing in companies
that are likely to benefit from demographic, economic and lifestyle trends, as
suggested by Harry S. Dent Jr.'s research.
Dent is an internationally known strategic consultant and best-selling
author who provides the Fund's portfolio managers with macroeconomic and sector
research, along with investment and market capitalization recommendations.
The Fund's portfolio managers then focus on companies that have
historically experienced or are deemed to have the potential for above-average,
long-term growth in revenues and earnings. The Fund makes use of a unique
investment style that blends AIM's earnings momentum approach with proprietary
guidance from Dent.
The Fund also employs objective and unemotional sell decisions. The
Fund's portfolio managers will not hesitate to sell stocks that experience
decelerated earnings and negative earnings revisions. They actively monitor
valuation targets and may reduce positions that they believe have become too
heavily weighted in the Fund's portfolio.
The Fund is not limited exclusively to small-,mid- or large-cap stocks,
which may help minimize the risks associated with sector investing.
Demographic, economic and lifestyle trends may occur in different
phases around the world. The Fund is positioned to potentially capture other
countries' generational cycles by investing in both domestic and foreign stock
issuers.
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) domestic and foreign corporate debt securities, (ii)
U.S. Government securities, including U.S. Government Agency Mortgage-Backed
Securities, (iii) foreign government 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 Statement of Additional
Information. For a description of U.S. Government Agency Mortgage-Backed
Securities, see Appendix B to this Statement of Additional Information.)
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 Statement of Additional Information.
GLOBAL GROWTH AND INCOME FUND
The Fund's investment objective is long-term growth of capital together
with current income. In seeking those objectives, the Fund normally invests at
least 65% of its total assets in a combination of blue-chip equity securities
and high quality government bonds. The Fund considers an equity security to be
"blue chip" if: (i) during the issuer's most recent fiscal year the security
offered an above average dividend yield relative to the latest reported dividend
yield on the Morgan Stanley Capital International World Index; and (ii) the
total equity market capitalization of the issuer is at least $1 billion.
Government bonds are deemed to be high quality if at the time of the Fund's
investment they are rated within one of the two highest ratings categories of
Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's,
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<PAGE> 24
a division of The McGraw-Hill Companies, Inc. ("S&P"), i.e., rated Aaa or Aa by
Moody's or AAA or AA by S&P (or a comparable rating of any other nationally
recognized statistical rating organizations "NRSROs") or, if unrated, are
determined by AIM and INVESCO Asset Management Limited ("INVESCO") to be of
comparable quality. (For a description of the various rating categories of
corporate debt securities in which the Fund may invest, see Appendix A to this
Statement of Additional Information.)
Up to 35% of the Fund's assets may be invested in other equity
securities, convertible securities and investment grade government and corporate
debt obligations which AIM/INVESCO believes will assist the Fund in achieving
its objectives.
Equity securities that the Fund may purchase include common stocks,
preferred stocks, and warrants to acquire such stocks and other equity
securities. Government bonds that the Fund may purchase include debt obligations
issued or guaranteed by the U.S. or foreign governments (including foreign
states, provinces or municipalities) or their agencies, authorities or
instrumentalities and debt obligations of supranational entities organized or
supported by several national governments, such as the World Bank and the Asian
Development Bank. The debt obligations held by the Fund may include debt
obligations convertible into equity securities or having attached warrants or
rights to purchase equity securities.
Under normal market conditions, the Fund invests in the securities of
issuers located in at least three different countries. Investments in securities
of issuers in any one country other than the United States, will represent no
more than 40% of the Fund's total assets. The Fund may purchase securities of an
issuer located in one country but denominated in the currency of another country
(or a multinational currency unit).
AIM/INVESCO allocates the Fund's assets among securities of issuers
located in countries where opportunities for meeting the Fund's investment
objectives are expected to be the most attractive. The relative proportions of
equity and debt securities held by the Fund at any one time will vary, and will
depend upon AIM/INVESCO's assessment of global political and economic conditions
and the relative strengths and weaknesses of the world equity and debt markets.
To enable the Fund to respond to general economic changes and market conditions
around the world, the Fund is authorized to invest up to 100% of its assets in
either equity securities or debt securities.
GLOBAL UTILITIES FUND
The Fund's investment objective is to achieve a high level of current
income and secondarily growth of capital, 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 Statement of Additional Information.) During the fiscal year
ended December 31, 1998, 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 Statement of Additional
Information.
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<PAGE> 25
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.
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 issuers 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 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 and 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.
GROWTH FUND
The Fund's investment objective is to seek growth of capital
principally by investing in 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. The 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 Fund management believes are currently
enjoying a dramatic increase in profits.
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<PAGE> 26
GROWTH AND INCOME FUND
The Fund's primary investment objective is growth of capital, with a
secondary objective of current income. The Fund seeks to meet these objectives
by investing at least 65% of its net assets in income-producing securities,
including dividend-paying common stocks and convertible securities. The Fund's
portfolio managers purchase securities of established companies that have
long-term above-average growth in earnings and dividends, and growth companies
that they believe have the potential for above-average growth in earnings and
dividends. The Fund's portfolio managers consider whether to sell a particular
security when they believe the security no longer has that potential or the
capacity to generate income.
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(1). (For a description of the various rating
categories, see Appendix A to this Statement of Additional Information.) 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.
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.
INTERNATIONAL EQUITY FUND
The Fund's investment objective is to provide long-term growth of
capital by investing in a diversified portfolio of international equity
securities whose issuers are considered 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
- -------------------------------------
(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 & Poor's Corp., Moody's Investors Service, Inc.,
Thomson Bankwatch, Duff and Phelps, Inc., Fitch IBCA, 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.
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<PAGE> 27
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 Statement of
Additional Information.
MONEY MARKET FUND
The Fund's investment objective is 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 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 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 comparable quality to a
rated security that meets the foregoing quality standards. For a more complete
definition of a "First Tier" security, see "Money Market Obligations" in this
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 Statement of Additional Information.
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<PAGE> 28
TELECOMMUNICATIONS FUND
The Fund's investment objective is long-term growth of capital. It
seeks its objective by investing primarily in equity securities of companies
throughout the world engaged in the development, manufacture or sale of
telecommunications services or equipment.
At least 65% of the Fund's total assets normally will be invested in
common and preferred stocks and warrants to acquire such stocks issued by
telecommunications companies. A "telecommunications company" is an entity in
which (i) at least 50% of either its revenues or earnings was derived from
telecommunications activities, or (ii) at least 50% of its assets was devoted to
telecommunications activities, based on the issuer's most recent fiscal year.
The remainder of the assets of the Fund may be invested in debt securities
issued by telecommunications companies and/or equity and debt securities of
companies outside of the telecommunications industry which, in the opinion of
AIM, stand to benefit from developments in the telecommunications industries.
(For a description of the various rating categories of corporate debt securities
in which the Fund may invest, see Appendix A to this Statement of Additional
Information). The Fund may, in pursuit of its objective, invest up to 5% of its
total assets in below investment grade debt securities. See "Risk Factors --
Non-Investment Grade Debt Securities" for more information concerning the risk
factors associated with investing in such securities.
The Fund may invest substantially in securities denominated in one or
more currencies. Under normal conditions, the Fund invests in the equity
securities of issuers located in at least three different countries, including
the United States. No more than 40% of the Fund's total assets will be invested
in securities of issuers in any one country other than the United States.
Telecommunications companies cover a variety of sectors, ranging from
companies concentrating on established technologies to those primarily engaged
in emerging or developing technologies. The characteristics of companies
focusing on the same technology will vary among countries depending upon the
extent to which the technology is established in the particular country. AIM
will allocate the Fund's investments among these sectors depending upon its
assessment of their relative long-term growth potentials.
The Fund will invest primarily in issuers engaged in designing,
developing or providing the following products and services: communications
equipment and services (including equipment and services for both data and voice
transmission); electronic components and equipment; broadcasting (including
television and radio, satellite, microwave and cable television and
narrowcasting); computer equipment, mobile communications and cellular
radio/paging; electronic mail; local and wide area networking and linkage of
word and data processing systems; publishing and information systems; videotext
and teletext; and emerging technologies combining telephone, television and/or
computer systems.
Telecommunications is a global industry with significant, growing
markets outside of the United States. A sizeable proportion of the companies
that comprise the telecommunications industry are headquartered outside of the
United States. From time to time, however, a significant portion of the Fund's
assets may be invested in the securities of domestic issuers.
AIM uses its financial expertise in markets located throughout the
world in attempting to identify those countries and telecommunications companies
then providing the greatest potential for long-term capital appreciation. In
this fashion, AIM and the Fund seek to enable shareholders to capitalize on the
substantial investment opportunities and the potential for long-term growth of
capital presented by the global telecommunications industry. AIM will allocate
the Fund's assets among securities of countries and in currency denominations
and industry sectors where opportunities for meeting the Fund's investment
objective are expected to be the most attractive.
AIM believes that there are opportunities for continued growth in
demand for components, products, media and systems to collect, store, retrieve,
transmit, process, distribute, record, reproduce and use information. The
pervasive societal impact of communications and information technologies has
been accelerated by the lower costs and higher efficiencies that result from the
blending of computers with
17
<PAGE> 29
telecommunications systems. Accordingly, companies engage in the production of
methods for using electronic and, potentially, video technology to communicate
information are expected to be important in the Fund's portfolio. Older
technologies, such as photography and print, also may be represented, however.
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. This secondary objective would be satisfied
principally from the income (interest and dividends) generated by the common
stocks, convertible bonds and convertible preferred stocks that make up the
Fund's portfolio. The Fund should not be purchased by those who seek income as
their primary investment objective.
In addition to the securities described above, the Fund may also
acquire preferred stocks and debt instruments having prospects for growth of
capital. Although these different types of securities can be expected to
generate amounts of income to satisfy the Fund's secondary objective, they will
be purchased for their potential for growth of capital.
The primary thrust of AIM's search for undervalued equity securities is
in four categories: (1) out-of-favor cyclical growth companies; (2) established
growth companies that are undervalued compared to historical relative valuation
parameters; (3) companies where there is early but tangible evidence of
improving prospects which are not yet reflected in the price of the company's
equity securities; and (4) companies whose equity securities are selling at
prices that do not reflect the current market value of its assets and where
there is reason to expect realization of this potential in the form of increased
equity values.
CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES
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 this 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. 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
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a significant degree in these instruments, its ability to achieve its investment
objective 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, or AIM/INVESCO for the Global Growth and Income
Fund, may invest all or substantially all of the assets of the Aggressive Growth
Fund, the Balanced Fund, the Dent Demographic Trends Fund, the Diversified
Income Fund, the Global Growth and Income Fund, the Global Utilities Fund, the
High Yield Fund, the International Fund and the Telecommunications Fund in cash
or Money Market Obligations, including repurchase agreements, denominated in
foreign currencies.
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 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 case, is issued by an issuer
with a short-term rating from the Requisite NRSROs 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
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.
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.
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
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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
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 of 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.
REAL ESTATE INVESTMENTS TRUSTS ("REITs")
To the extent consistent with their respective investment objectives
and policies, each of the Funds (except the Government Fund and the Money Market
Fund) may invest in equity and/or debt securities issued by REITs. Such
investments will not exceed (i) 25% of the total assets of the Aggressive Growth
Fund, the Balanced Fund, the Blue Chip Fund, the Capital Appreciation Fund, the
Capital Development Fund, the Dent Demographic Trends Fund, the Global Utilities
Fund, the Growth Fund, the Growth and Income Fund, the International Fund and
the Value Fund; and (ii) 10% of the total assets of the Diversified Income Fund
and the High Yield Fund.
REITs are trusts which sell equity or debt securities to investors and
use the proceeds to invest in real estate or interest therein. A REIT may focus
on particular projects, such as apartment complexes, or geographic regions, such
as the Southeastern United States, or both.
To the extent that the Fund has the ability to invest in REITs, the
Fund could conceivably own real estate directly as a result of a default on the
securities it owns. The Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, limitations on rents, changes in
neighborhood values, the appeal of properties to tenants, and increases in
interest rates.
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In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain exemption from the 1940 Act. Changes in interest rates may
also affect the value of debt securities held by a Fund. By investing in REITs
indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
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 and the Growth and Income Fund; (ii) 25% of the value of
the total assets of the Aggressive Growth Fund, the Blue Chip Fund, the Capital
Development Fund, the Dent Demographic Trends Fund, the High Yield Fund and the
Value Fund; (iii) 50% of the value of the total assets of the Diversified Income
Fund and the Money Market Fund (however, the Money Market Fund may only invest
in foreign securities denominated in U.S. dollars); (iv) 75% of the value of the
total assets of the Telecommunications Fund; (v) 80% of the value of the total
assets of the Global Utilities Fund; and (vi) 90% of the value of the total
assets of the Global Growth and Income 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 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.
The Global Growth and Income Fund may invest up to 90% of its total
assets in securities of foreign companies. Under normal market conditions, the
Global Growth and Income Fund will be invested in securities of issuers located
in at least three different countries. Investments in securities of issuers in
any one country other than the United States, will represent no more than 40%
of the Fund's total assets. The Fund may purchase securities of an issuer
located in one country but denominated in the currency of another country (or a
multinational currency unit).
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.
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
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may invest up to 20% of its total assets in securities exchangeable for or
convertible into stock or foreign companies.
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 Statement of Additional Information.
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.
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.
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. 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. 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
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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.
Loans will only be made to persons deemed by AIM to be of good standing and will
not be made unless, in the judgment of AIM, the consideration to be earned from
such loans would justify the risk.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale by the Fund of portfolio
securities, with an agreement that the Fund will repurchase the securities at an
agreed upon price, date and interest payment. Each Fund may employ reverse
repurchase agreements (i) for temporary emergency purposes, such as to meet
unanticipated net redemptions so as to avoid liquidating other portfolio
securities during unfavorable market conditions; (ii) to cover short-term cash
requirements resulting from the timing of trade settlements; (iii) to take
advantage of market situations where the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. 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. 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 a Fund in lieu of liquidating may decline below
the repurchase price of the securities sold by the Fund which 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 Statement of Additional
Information 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 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 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. 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.
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
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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, 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.
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.
The Government Fund may engage in buy/sell back transactions (a form of
delayed delivery agreement). In a buy/sell back transaction, the Fund enters a
trade to sell securities at one price and simultaneously enters a trade to buy
the same securities at another price for settlement at a future date.
DOLLAR ROLL TRANSACTIONS
In order to enhance portfolio returns and manage prepayment risk, 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 prepayments 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
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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.
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 Blue Chip Fund, the Capital Development
Fund, the Dent Demographic Trends Fund, the Global Growth and Income Fund, the
Growth and Income Fund and the Telecommunications 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.
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
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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 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.
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 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.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Each of the Funds may invest in other investment companies to the
extent permitted by the 1940 Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The Funds have obtained an
exemptive order from the SEC allowing them to invest in money market funds that
have AIM or an affiliate of AIM as an investment adviser (the "Affiliated Money
Market Funds"), provided that investments in Affiliated Money Market Funds do
not exceed 25% of the total assets of such Fund. With respect to a Fund's
purchase of shares of the Affiliated Money Market Funds, the Fund will
indirectly pay the advisory fees and other operating expenses of the Affiliated
Money Market Funds.
TEMPORARY DEFENSIVE INVESTMENTS
In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, each of the Funds may
temporarily hold all or a portion of its assets in cash, money market
instruments, bonds, or other debt securities. Each of the Funds may also invest
up to 25% of its total assets in Affiliated Money Market Funds for these
purposes. For a description of the various rating categories of corporate bonds
and commercial paper in which the Funds may invest, see the Appendix to this
Statement of Additional Information.
ASSET ALLOCATION AMONG COUNTRIES
The Global Growth and Income Fund currently contemplates that it will
invest principally in securities of issuers in the United States, Canada, Japan,
the Western European nations, New Zealand and Australia, and it may invest in
securities denominated in more than one currency.
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.
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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 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.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
Each of the Funds (except the Money Market Fund) may each use forward
contracts, futures contracts, options on securities, options on indices, options
on currencies, and options on futures contracts to attempt to hedge against the
overall level of investment and currency risk normally associated with each
Fund's investments. These instruments are often referred to as "derivatives,"
which may be defined as financial instruments whose performance is derived, at
least in part, from the performance of another asset (such as a security,
currency or an index of securities).
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GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Funds of options, futures contracts and forward currency
contracts involves special considerations and risks, as described below. Risks
pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract, forward contract or option thereon at
any particular time.
(5) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
COVER
Transactions using forward contracts, futures contracts and options
(other than options purchased by a Fund) expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward contracts or futures contracts or (2) cash, liquid assets
and/or short-term debt securities with a value sufficient at all times to cover
its potential obligations not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities. To the extent that
a futures contract, forward contract or option is deemed to be illiquid, the
assets used to "cover" the Fund's obligation will also be treated as illiquid
for purposes of determining the Fund's maximum allowable investment in illiquid
securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward contract, futures contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of a Fund's
assets is used for cover or otherwise set aside, it could affect portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
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WRITING CALL OPTIONS
Each of the Funds may write (sell) covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the writer of a
call option, a Fund would have the obligation to deliver the underlying
security, cash or currency (depending on the type of derivative) to the holder
(buyer) at a specified price (the exercise price) at any time until (American
style) or on (European style) a certain date (the expiration date). So long as
the obligation of a Fund continues, it may be assigned an exercise notice,
requiring it to deliver the underlying security, cash or currency against
payment of the exercise price. This obligation terminates upon the expiration of
the call option, or such earlier time at which a Fund effects a closing purchase
transaction by purchasing an option identical to that previously sold.
When writing a call option a Fund, in return for the premium, gives up
the opportunity for profit from a price increase in the underlying security,
contract or currency above the exercise price, and retains the risk of loss
should the price of the security, contract or currency decline. Unlike one who
owns securities, contracts or currencies not subject to an option, a Fund has no
control over when it may be required to sell the underlying securities,
contracts or currencies, since most options may be exercised at any time prior
to the option's expiration. If a call option that a Fund has written expires, it
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security, contract or
currency during the option period. If the call option is exercised, a Fund will
realize a gain or loss from the sale of the underlying security, contract or
currency, which will be increased or offset by the premium received.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option.
Closing transactions may be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security, contract or currency
from being called or to permit the sale of the underlying security, contract or
currency. Furthermore, effecting a closing transaction will permit the Fund to
write another call option on the underlying security, contract or currency with
either a different exercise price or expiration date, or both.
WRITING PUT OPTIONS
Each of the Funds may write (sell) covered put options on securities,
futures contracts, forward contracts, indices and currencies. As the writer of a
put option, a Fund would have the obligation to buy the underlying security,
contract or currency (depending on the type of derivative) at the exercise price
at any time until (American style) or on (European style) the expiration date.
This obligation terminates upon the expiration of the put option, or such
earlier time at which a Fund effects a closing purchase transaction by
purchasing an option identical to that previously sold.
A Fund would write a put option at an exercise price that, reduced by
the premium received on the option, reflects the lower price it is willing to
pay for the underlying security, contract or currency. The risk in such a
transaction would be that the market price of the underlying security, contract
or currency would decline below the exercise price less the premium received.
PURCHASING PUT OPTIONS
Each of the Funds may purchase covered put options on securities,
futures contracts, forward contracts, indices and currencies. As the holder of a
put option, a Fund would have the right to sell the underlying security,
contract or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise such option or permit such
option to expire.
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A Fund may purchase a put option on an underlying security, contract or
currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon exercise of
said option. Conversely, if the underlying security, contract or currency does
not decline in value, the option may expire worthless and the premium paid for
the protective put would be lost.
A Fund may also purchase put options on underlying securities,
contracts or currencies against which it has written other put options. For
example, where a Fund has written a put option on an underlying security, rather
than entering a closing transaction of the written option, it may purchase a put
option with a different exercise price and/or expiration date that would
eliminate some or all of the risk associated with the written put. Used in
combinations, these strategies are commonly referred to as "put spreads."
Likewise, a Fund may write call options on underlying securities, contracts or
currencies against which it has purchased protective put options. This strategy
is commonly referred to as a "collar."
PURCHASING CALL OPTIONS
Each of the Funds may purchase covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the holder of a
call option, a Fund would have the right to purchase the underlying security,
contract or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise such options or permit such
options to expire.
Call options may be purchased by a Fund for the purpose of acquiring
the underlying security, contract or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable a Fund to acquire the
security, contract or currency at the exercise price of the call option plus the
premium paid. So long as it holds such a call option, rather than the underlying
security or currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security, contract or currency
and, in such event, could allow the call option to expire, incurring a loss only
to the extent of the premium paid for the option.
Each of the Funds may also purchase call options on underlying
securities, contracts or currencies against which it has written other call
options. For example, where a Fund has written a call option on an underlying
security, rather than entering a closing transaction of the written option, it
may purchase a call option with a different exercise price and/or expiration
date that would eliminate some or all of the risk associated with the written
call. Used in combinations, these strategies are commonly referred to as "call
spreads."
OVER-THE-COUNTER OPTIONS
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. A Fund will not purchase an OTC option unless it
believes that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of an average
of the last bid prices obtained from dealers, unless a quotation from only one
dealer is available, in which case only that dealer's price will be used. In the
case of OTC options, there can be no assurance that a liquid secondary market
will exist for any particular option at any specific time. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
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The staff of the SEC considers purchased OTC options (i.e. the market
value of the option) to be illiquid securities. A Fund may also sell OTC options
and, in connection therewith, segregate assets or cover its obligations with
respect to OTC options written by it. The assets used as cover for OTC options
written by the Fund will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities
or futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call or put times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
LIMITATIONS ON OPTIONS
A Fund will not write options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at
the time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Each of the Funds may enter into interest rate, currency or stock index
futures contracts (collectively, "Futures" or "Futures Contracts") as a hedge
against changes in prevailing levels of interest rates, currency exchange rates
or stock price levels, respectively, in order to establish more definitely the
effective return on securities or currencies held or intended to be acquired by
it. A Fund's hedging may include sales of Futures as an offset against the
effect of expected increases in interest rates, and decreases in currency
exchange rates and stock prices, and purchases of Futures as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
A Futures Contract is a two party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement
price, in the case of an index future) for a specified price at a designated
date, time and place. A stock index future provides for the delivery, at a
designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading on the contract and the price agreed upon in the Futures Contract; no
physical delivery of stocks comprising the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Future is outstanding.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon
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in the United States are regulated under the Commodity Exchange Act and by the
Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and
trading thereon are not regulated by the CFTC and are not subject to the same
regulatory controls. For a further discussion of the risks associated with
investments in foreign securities, see "Foreign Securities" in this Statement of
Additional Information.
Closing out an open Future is effected by entering into an offsetting
Future for the same aggregate amount of the identical financial instrument or
currency and the same delivery date. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular Future at a particular time. If a Fund is not able to enter into an
offsetting transaction, it will continue to be required to maintain the margin
deposits on the Future.
A Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures will be sold to protect against a decline in the price of
securities or currencies that the Fund owns, or Futures will be purchased to
protect the Fund against an increase in the price of securities or currencies it
has committed to purchase or expects to purchase.
"Margin" with respect to Futures is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and maintain its open
positions in Futures. A margin deposit made when the Futures Contract is entered
("initial margin") is intended to ensure the Fund's performance under the
Futures Contract. The margin required for a particular Future is set by the
exchange on which the Future is traded and may be significantly modified from
time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures more or less valuable, a process known as
marking-to-market.
If a Fund were unable to liquidate a Future or an option on a Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account.
FORWARD CONTRACTS
A forward contract is an obligation, usually arranged with a commercial
bank or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund either
may accept or make delivery of the currency at the maturity of the forward
contract. A Fund may also, if its contra party agrees prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
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.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward contracts with respect to a specific
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purchase or sale of a security, or with respect to its portfolio positions
generally. When 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 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.
The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does establish a
rate of exchange in advance. In addition, while forward contract sales limit the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on
Futures Contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the total assets of the Fund, after taking into account unrealized
profits and unrealized losses on any contracts it has entered into. This
guideline may be modified by the Board, without a shareholder vote. This
limitation does not limit the percentage of the Fund's assets at risk to 5%.
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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.
NON-INVESTMENT GRADE DEBT SECURITIES
The Balanced Fund, the Diversified Income Fund, the High Yield Fund,
and to a lesser extent the Dent Demographic Trends Fund, the Global Utilities
Fund and the Telecommunications Fund may 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
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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 based 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.
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.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by the Fund.
POLITICAL AND ECONOMIC RISK. The economies of many of the countries in
which the Fund may invest are not as developed as the United States economy and
may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Fund's investments.
REGULATORY RISK. Foreign companies are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies. Income from
foreign securities owned by the Fund may be reduced by a withholding tax at the
source, which tax would reduce dividend income payable to the Fund's
shareholders.
MARKET RISK. The securities markets in many of the countries in which
the Fund invests will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies and
governments may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs as well as
administrative difficulties (such as the need to use foreign custodians) may be
associated with the maintenance of assets in foreign jurisdictions. There is
35
<PAGE> 47
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.)
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;
(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
36
<PAGE> 48
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; and
(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.
Each Fund may, notwithstanding 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.
(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.
37
<PAGE> 49
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. Unless
otherwise indicated, the address of each director and executive officer is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (80) Director and Chairman of the Board of Directors, A I M
Chairman Management Group Inc., A I M Advisors,
Inc. and 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 (55) 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 (75) 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.
EDWARD K. DUNN, JR. (64) Director Chairman of the Board of Directors,
2 Hopkins Plaza, 20th Floor Mercantile Mortgage Corp. Formerly, Vice
Baltimore, MD 21201 Chairman of the Board of Directors and
President, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares.
JACK FIELDS (47) Director Chief Executive Officer, Texana Global, Inc.
8810 Will Clayton Parkway (foreign trading company) and Twenty First
Jetero Plaza, Suite E Century, Inc. (a governmental affairs
Humble, TX 77338 company). Formerly, Member of the U.S.
House of Representatives.
</TABLE>
- --------
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
38
<PAGE> 50
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
<S> <C> <C>
**CARL FRISCHLING (62) Director Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm). Formerly, Partner, Reid & Priest
New York, NY 10022 (law firm).
*ROBERT H. GRAHAM (52) Director and Director, President and Chief Executive
President Officer, A I M Management Group Inc.;
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.
PREMA MATHAI-DAVIS (49) Director Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department
New York, NY 10118 for the Aging; and Member of the Board of
Directors, Metropolitan Transportation
Authority of New York State.
LEWIS F. PENNOCK (57) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
LOUIS S. SKLAR (60) 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
GARY T. CRUM (52) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Executive Vice
President, A I M Management Group Inc.
and A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP
PLC.
</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.
39
<PAGE> 51
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
<S> <C> <C>
CAROL F. RELIHAN (45) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Senior Vice President, General Counsel and
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.
and A I M Distributors, Inc.
DANA R. SUTTON (40) Vice President and Vice President and Fund Controller,
Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
ROBERT G. ALLEY (51) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
STUART W. COCO (44) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
MELVILLE B. COX (56) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., and Fund
Management Company.
KAREN DUNN KELLEY (39) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
EDGAR M. LARSEN (59) Vice President Vice President, A I M Capital Management,
Inc.
</TABLE>
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, Dunn
(Chairman), Fields, Frischling, Pennock, Sklar and Ms. Mathai-Davis. 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.
40
<PAGE> 52
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock, Sklar (Chairman) and Ms. Mathai-Davis.
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 (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Ms. Mathai-Davis.
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 investment companies managed or advised by AIM. All of
the Directors' executive officers hold similar offices with some or all of the
other investment companies managed or advised by AIM.
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.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended December 31, 1998 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 $ 13,095 $ 37,485 $ 96,000
Owen Daly II $ 13,095 $ 122,898 $ 96,000
Edward K. Dunn, Jr. $ 11,098 $ -0- $ 78,889
Jack Fields $ 13,024 $ 15,826 $ 95,500
Carl Frischling(4) $ 13,024 $ 97,791 $ 95,500
Robert H. Graham $ -0- $ -0- $ -0-
John F. Kroeger(5) $ 8,980 $ 107,896 $ 91,654
Prema Mathai-Davis $ 4,625 $ -0- $ 32,636
Lewis F. Pennock $ 13,024 $ 45,766 $ 95,500
Ian W. Robinson(6) $ 12,876 $ 94,442 $ 94,500
Louis S. Sklar $ 12,952 $ 90,232 $ 95,500
</TABLE>
41
<PAGE> 53
- -------------------
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended December 31, 1998, including
interest earned thereon, was $60,584.
(2) During the fiscal year ended December 31, 1998, the total amount of
expenses allocated to the Company in respect of such retirement
benefits was $21,293. Data reflects compensation estimated for the
calendar year ended December 31, 1998.
(3) Each Director serves as a director or trustee of a total of 12
registered investment companies advised by AIM. Data reflects
compensation estimated for the calendar year ended December 31, 1998.
(4) The Company paid the law firm of Kramer, Levin, Naftalis & Frankel LLP
$35,121 in legal fees for services provided to the Funds during the
fiscal year ended December 31, 1998. Mr. Frischling, a Director of the
Company, is a partner in such firm.
(5) Mr. Kroeger was a director until June 11, 1998, when he resigned. On
that date he became a consultant to the Company. Of the amount listed
above $4,723 was for compensation for service as a director and the
remainder as a consultant. Mr. Kroeger passed away on November 26,
1998. Mr. Kroeger's widow will receive his pension as described below
under "AIM Funds Retirement Plan for Eligible Directors/Trustee."
(6) Mr. Robinson was a director until March 12, 1999, when he retired.
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 retirement equal to a maximum
of 75% of the annual 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) and based on 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 for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger,
Pennock, Robinson, Sklar and Ms. Mathai-Davis are 11, 11, 0, 1, 21, 20, 17, 11,
9 and 0 years, respectively.
42
<PAGE> 54
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of
Years of
Service With Annual Retirement
the Applicable Compensation Paid By All
AIM Funds Applicable AIM Funds
-------------- -------------------------
<S> <C>
10 $67,500
9 $60,750
8 $54,000
7 $47,250
6 $40,500
5 $33,750
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Dunn, Fields, Frischling, 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 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.
INVESTMENT ADVISORY, SUB-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. In addition, AIM has entered into
a Sub-Advisory Agreement, dated December 14, 1998 (the "Sub-Advisory
Agreement"), with INVESCO Asset Management Limited ("INVESCO"), an indirect
wholly owned subsidiary of AMVESCAP PLC, with respect to the Global Growth and
Income Fund. The address of INVESCO is 11 Devonshire Square, London, England EC2
M4YR. AIM has also entered into a Sub-Advisory Agreement, dated
________________, 1999 (also a "Sub-Advisory Agreement") with H.S. Dent
Advisors, Inc. ("Dent"), with respect to the Dent Demographic Trends Fund. The
address of Dent is 6515 Giwin Road, Oakland, California 94611. See "Fund
Management" in the Prospectus.
43
<PAGE> 55
AIM was organized in 1976, and along with its subsidiaries, manages or
advises over 110 investment portfolios encompassing a broad range of investment
objectives. 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 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 and the Sub-Advisory Agreements
for the Global Growth and Income Fund and the Dent Demographic Trends Fund
provide that they will each 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 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, 2000. The Advisory Agreement
became effective on February 28, 1997. The Sub-Advisory Agreement for the Global
Growth and Income Fund was initially approved by the Company's Board of
Directors (including the affirmative vote of all of the Non-Interested
Directors) on September 26, 1998, and was approved by the Fund's sole
shareholder and became effective December 14, 1998. The Sub-Advisory Agreement
for the Dent Demographic Trends Fund was initially approved by the Company's
Board of Directors (including the affirmative vote of all of the Non-Interested
Directors) on September 24, 1999, and became effective __________, 1999.
The Advisory and Sub-Advisory Agreements provide that each company, AIM
(in the case of the Advisory Agreement), INVESCO (in the case of the Global
Growth and Income Sub-Advisory Agreement), and Dent (in the case of the Dent
Demographic Trends Fund Sub-Advisory Agreement), may terminate such agreement
with respect to any Fund(s) on sixty (60) days' written notice without penalty.
Each agreement terminates automatically in the event of its assignment.
As compensation for its services, AIM pays 0.49% of the advisory fees
it receives pursuant to the Advisory Agreement with respect to Global Growth and
Income Fund to INVESCO. As compensation for its services, AIM pays Dent the
following fees pursuant to the Sub-Advisory Agreement with respect to the Dent
Demographic Trends Fund:
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- --------
<S> <C>
First $1 billion........................................................................................... 0.13%
Over $1 billion, to and including $2 billion............................................................... 0.10%
Over $2 billion............................................................................................ 0.07%
</TABLE>
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Fund's detriment during the
period stated in the agreement between AIM and the Fund.
44
<PAGE> 56
Pursuant to the Advisory Agreement, AIM receives a fee from each of the
AIM V.I. Aggressive Growth Fund, the AIM V.I. Balanced Fund, the AIM V.I. Blue
Chip Fund, the AIM V.I. Capital Appreciation Fund, the AIM V.I. Capital
Development Fund, the Dent Demographic Trends Fund, the AIM V.I. Diversified
Income Fund, the AIM V.I. Global Growth and 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. High Yield Fund, the AIM
V.I. International Equity Fund, the AIM V.I. Money Market Fund, the AIM V.I.
Telecommunications Fund and the 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. BLUE CHIP FUND
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. DENT DEMOGRAPHIC TRENDS FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- --------
<S> <C>
First $2 billion.......................................................................................... 0.85%
Over $2 billion........................................................................................... 0.80%
</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>
45
<PAGE> 57
AIM V.I. GLOBAL GROWTH AND INCOME FUND
AIM V.I. TELECOMMUNICATIONS FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- --------
<S> <C>
Average Daily Net Assets ................................................................................. 1.00%
</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 of the Funds (except the AIM V.I. Blue Chip Fund, the AIM V.I.
Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the
AIM V.I. Telecommunications Fund) paid to AIM a management fee (net of fee
waivers) for the fiscal years ended December 31, 1998, December 31, 1997, and
December 31, 1996, under the Advisory Agreement and a prior, substantially
identical advisory agreement, as follows:
46
<PAGE> 58
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
---------------- ------------------- ---------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ 1,609 N/A N/A
AIM V.I. Balanced Fund* $ -0- N/A N/A
AIM V.I. Capital Appreciation Fund $ 3,521,837 $ 3,083,708 $ 1,884,838
AIM V.I. Capital Development Fund* $ -0- N/A N/A
AIM V.I. Diversified Income Fund $ 580,119 $ 447,539 $ 306,235
AIM V.I. Global Utilities Fund $ 161,488 $ 106,309 $ 57,054
AIM V.I. Government Securities Fund $ 221,956 $ 138,550 $ 107,471
AIM V.I. Growth Fund $ 1,941,818 $ 1,453,488 $ 916,484
AIM V.I. Growth and Income Fund $ 5,556,833 $ 2,609,695 $ 678,242
AIM V.I. High Yield Fund* $ -0- N/A N/A
AIM V.I. International Equity Fund $ 1,744,127 $ 1,519,323 $ 924,578
AIM V.I. Money Market Fund $ 252,407 $ 254,546 $ 264,855
AIM V.I. Value Fund $ 5,570,566 $ 3,303,799 $ 1,955,091
</TABLE>
* Fees paid were for the period May 1, 1998 (date operations commenced)
through December 31, 1998.
For the fiscal years ended December 31, 1998, December 31, 1997 and
December 31, 1996, AIM waived management fees for each Fund (except the AIM V.I.
Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global
Growth and Income Fund and the AIM V.I. Telecommunications Fund) as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
---------------- ------------------- ---------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ 11,445 N/A N/A
AIM V.I. Balanced Fund* $ 21,238 N/A N/A
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0-
AIM V.I. Capital Development Fund* $ 9,522 N/A N/A
AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0-
AIM V.I. Global Utilities Fund $ -0- $ -0- $ 15,954
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0- $ -0-
AIM V.I. High Yield Fund* $ 20,728 N/A N/A
AIM V.I. International Equity Fund $ -0- $ -0- $ -0-
AIM V.I. Money Market Fund $ -0- $ -0- $ -0-
AIM V.I. Value Fund $ -0- $ -0- $ -0-
</TABLE>
* Fees waived were for the period May 1, 1998 (date operations commenced)
through December 31, 1998.
47
<PAGE> 59
In addition to the management fees paid by each Fund (except the AIM V.I. Blue
Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth
and Income Fund and the AIM V.I. Telecommunications Fund) for the fiscal years
ended December 31, 1998, December 31, 1997 and December 31, 1996, AIM absorbed
other expenses as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------- ----------------- -----------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ 43,400 N/A N/A
AIM V.I. Balanced Fund* $ 25,501 N/A N/A
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0-
AIM V.I. Capital Development Fund* $ 48,808 N/A N/A
AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0-
AIM V.I. Global Utilities Fund $ -0- $ -0- $ -0-
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0- $ -0-
AIM V.I. High Yield Fund* $ 24,798 N/A N/A
AIM V.I. International Equity Fund $ -0- $ -0- $ -0-
AIM V.I. Money Market Fund $ -0- $ -0- $ -0-
AIM V.I. Value Fund $ -0- $ -0- $ -0-
</TABLE>
* Fee amounts are for the period May 1, 1998 (date operations commenced)
through December 31, 1998.
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. 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,
currently 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.
48
<PAGE> 60
For the fiscal years ended December 31, 1998, December 31, 1997 and December
31, 1996, AIM received reimbursement of administrative services costs from each
of the Funds (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic
Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I.
Telecommunications Fund) pursuant to the Administrative Services Agreement and
the Prior Administrative Services Agreement as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
-------------- ----------- ------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ 26,658 N/A N/A
AIM V.I. Balanced Fund* $ 26,649 N/A N/A
AIM V.I. Capital Appreciation Fund $ 62,063 $43,588 $46,623
AIM V.I. Capital Development Fund* $ 26,658 N/A N/A
AIM V.I. Diversified Income Fund $ 47,528 $48,683 $49,500
AIM V.I. Global Utilities Fund $ 46,855 $47,128 $47,729
AIM V.I. Government Securities Fund $ 50,152 $37,872 $38,695
AIM V.I. Growth Fund $ 57,128 $44,692 $39,552
AIM V.I. Growth and Income Fund $ 296,138 $43,065 $38,784
AIM V.I. High Yield Fund* $ 28,103 N/A N/A
AIM V.I. International Equity Fund $ 76,026 $59,724 $58,644
AIM V.I. Money Market Fund $ 36,480 $38,289 $29,412
AIM V.I. Value Fund $ 420,725 $53,632 $47,116
</TABLE>
* Fees paid were for the period May 1, 1998 (date operations commenced)
through December 31, 1998.
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 "Fund
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 for such purpose. The Company or AIM Distributors may
terminate its Distribution Agreement on sixty (60) days' written notice without
penalty. The Distribution Agreement will terminate automatically in the event of
its assignment.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (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
49
<PAGE> 61
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.
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.
50
<PAGE> 62
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 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 closing bid price 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 closing bid price 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.
51
<PAGE> 63
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.
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.
The Board of Directors monitors for possible conflicts among separate
accounts (and will do so for plans) buying shares of the Funds. Conflicts could
develop for a variety of reasons. For example, differences in treatment under
tax and other laws or the failure by a separate account to comply with such laws
could cause a conflict. To eliminate a conflict, the Board of Directors may
require a separate account or Plan to withdraw its participation in a Fund. A
Fund's net asset value could decrease if it had to sell investment securities to
pay redemptions proceeds to a separate account (or plan) withdrawing because of
a conflict.
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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS. The Funds declare and distribute dividends
representing substantially all net investment income as follows:
52
<PAGE> 64
<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. Blue Chip Fund ........................................ annually annually
AIM V.I. Capital Appreciation Fund ............................. annually annually
AIM V.I. Capital Development Fund .............................. annually annually
AIM V.I. Dent Demographic Trends Fund .......................... annually annually
AIM V.I. Diversified Income Fund ............................... annually annually
AIM V.I. Global Utilities Fund ................................. annually annually
AIM V.I. Global Growth and Income Fund ......................... annually annually
AIM V.I. Government Securities Fund ............................ annually annually
AIM V.I. Growth Fund ........................................... annually annually
AIM V.I. Growth and 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. Telecommunications Fund................................ annually annually
AIM V.I. Value Fund ............................................ annually annually
</TABLE>
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.
53
<PAGE> 65
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.
Each Fund is treated as a separate association taxable as a
corporation.
Because each Fund intends to qualify under the Code as a RIC for each
taxable year, 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, at least 98% of its capital gain net income for the 12-month
period ending on October 31 of the calendar year and certain other amounts. Each
Fund intends to make sufficient distributions to avoid imposition of the excise
tax. Some Funds meet an exception which results in their not being subject to
excise tax.
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.
54
<PAGE> 66
MISCELLANEOUS 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 seventeen separate portfolios (i.e., the Funds).
The authorized capital stock of the Company consists of 4,500,000,000
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. BLUE CHIP 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 as the AIM
V.I. DENT DEMOGRAPHIC TRENDS 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 GROWTH AND INCOME FUND shares, 250,000,000 shares are classified AIM V.I.
GLOBAL UTILITIES FUND shares, 250,000,000 shares are classified AIM V.I.
GOVERNMENT SECURITIES FUND shares, 250,000,000 are classified AIM V.I. GROWTH
FUND shares, 250,000,000 shares are classified AIM V.I. GROWTH AND INCOME FUND
shares, 250,000,000 shares are classified AIM V.I. 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. TELECOMMUNICATIONS 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 the 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.
There are not preemptive or conversion rights applicable to any of the
Company's shares. Each Fund's shares, when issued, are fully paid and
non-assessable.
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, Eight Penn Center Plaza, Philadelphia, PA 19103, serves
as the auditors of each Fund.
55
<PAGE> 67
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.
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 September 22,
1999, and the percentage of the outstanding shares of such Fund owned by such
shareholders as of such date are set out below. The address of A I M Advisors,
Inc. is 11 Greenway Plaza, Suite 100, Houston, TX 77046. The address of
Connecticut General Life Insurance Company is 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. The address
of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey
is Gateway Center Three, 13th Floor, Newark, NJ 07102. The address of First
Citicorp Life Insurance Company is One Court Square, Long Island City, NY 11120.
The address of Union Central Life Insurance Company is 1876 Waycross Road,
Cincinnati, OH 45240. The address for Hartford Life Insurance Company is 200
Hopmeadow Street, Simsburg, CT 06089. The address of Security Life of Denver
Insurance Company is 1290 Broadway, Denver, CO 80203. The address of Aetna Life
Insurance and Annuity Company is 151 Farmington Avenue, Hartford, CT 06156.
AIM V.I. AGGRESSIVE 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>
Glenbrook Life & Annuity Company -0- -0- 100%*
</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.
56
<PAGE> 68
AIM V.I. BALANCED 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>
Glenbrook Life & Annuity Company -0- -0- 75.85%*
Union Central Life Insurance Company -0- -0- 24.01%
</TABLE>
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>
Connecticut General Life Insurance Company -0- -0- 40.48%*
Glenbrook Life & Annuity Company -0- -0- 19.84%
Merrill Lynch Life Insurance Company -0- -0- 15.80%
Aetna Life Insurance and Annuity Company -0- -0- 11.84%
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT 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>
Glenbrook Life & Annuity Company -0- -0- 89.75%*
A I M Advisors, Inc. -0- -0- 10.09%
</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>
Connecticut General Life Insurance Company -0- -0- 58.10%*
Glenbrook Life & Annuity Company -0- -0- 33.91%*
</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.
57
<PAGE> 69
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>
Connecticut General Life Insurance Company -0- -0- 50.06%*
Glenbrook Life & Annuity Company -0- -0- 43.48%*
</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>
Connecticut General Life Insurance Company -0- -0- 34.99%*
Glenbrook Life & Annuity Company -0- -0- 25.34%*
First Citicorp Life Insurance Company -0- -0- 22.62%
Security Life of Denver Insurance Company -0- -0- 8.44%
</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>
Connecticut General Life Insurance Company -0- -0- 47.78%*
Glenbrook Life & Annuity Company -0- -0- 26.40%*
Aetna Life Insurance and Annuity Company -0- -0- 9.76%
</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.
58
<PAGE> 70
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- 62.06%*
Glenbrook Life & Annuity Company -0- -0- 9.75%
Connecticut General Life Insurance Company -0- -0- 9.21%
Pruco Life Insurance Company -0- -0- 8.26%
</TABLE>
AIM V.I. HIGH YIELD 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>
Glenbrook Life & Annuity Company -0- -0- 53.92%*
Hartford Life Insurance Company -0- -0- 33.38%*
A I M Advisors, Inc. -0- -0- 12.70%
</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>
Connecticut General Life Insurance Company -0- -0- 53.10%*
Glenbrook Life & Annuity Company -0- -0- 22.93%
First Citicorp Life Insurance Company -0- -0- 6.75%
</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.
59
<PAGE> 71
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>
Connecticut General Life Insurance Company -0- -0- 66.74%*
Glenbrook Life & Annuity Company -0- -0- 31.32%*
</TABLE>
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>
Connecticut General Life Insurance Company -0- -0- 26.60%*
Merrill Lynch Life Insurance Company -0- -0- 25.94%*
Pruco Life Insurance Company of New Jersey -0- -0- 14.34%
Glenbrook Life & Annuity Company -0- -0- 12.49%
</TABLE>
A I M Advisors, Inc. provided the initial capitalization of the AIM
V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I.
Global Growth and Income Fund and the AIM V.I. Telecommunications 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 A I M Advisors, Inc. to
less than 1% of the total shares outstanding, as long as A I M Advisors, Inc.
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.
- --------
* 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.
As of September 22, 1999, 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.
60
<PAGE> 72
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:
A-1
<PAGE> 73
*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.
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's 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" maybe 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:
A-2
<PAGE> 74
*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 IBCA 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.
*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.
A-3
<PAGE> 75
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-4
<PAGE> 76
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.
B-1
<PAGE> 77
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.
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.
B-2
<PAGE> 78
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-3
<PAGE> 79
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.
C-1
<PAGE> 80
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-2
<PAGE> 81
FINANCIAL STATEMENTS
FS
<PAGE> 82
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 88.49%
AIR FREIGHT - 0.35%
Expeditors International of Washington, Inc. 1,000 $ 27,250
- ---------------------------------------------------------------------
AIRLINES - 0.11%
Alaska Air Group, Inc.(a) 200 8,350
- ---------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 1.20%
Gentex Corp.(a) 1,500 42,000
- ---------------------------------------------------------------------
Meritor Automotive, Inc. 1,200 30,600
- ---------------------------------------------------------------------
Tower Automotive, Inc.(a) 800 20,350
- ---------------------------------------------------------------------
92,950
- ---------------------------------------------------------------------
BANKS (REGIONAL) - 2.30%
Bank United Corp. - Class A 1,000 40,187
- ---------------------------------------------------------------------
Community First Bankshares, Inc. 1,500 35,812
- ---------------------------------------------------------------------
First Republic Bank(a) 900 26,044
- ---------------------------------------------------------------------
Southwest Bancorporation of Texas, Inc.(a) 2,300 41,400
- ---------------------------------------------------------------------
Trustmark Corp. 1,500 34,312
- ---------------------------------------------------------------------
177,755
- ---------------------------------------------------------------------
BIOTECHNOLOGY - 0.18%
IDEXX Laboratories, Inc.(a) 600 13,987
- ---------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.46%
Hispanic Broadcasting Corp.(a) 1,300 98,637
- ---------------------------------------------------------------------
Radio One, Inc.(a) 300 13,950
- ---------------------------------------------------------------------
112,587
- ---------------------------------------------------------------------
BUILDING MATERIALS - 1.04%
Elcor Corp. 900 39,319
- ---------------------------------------------------------------------
NCI Building Systems, Inc.(a) 600 12,825
- ---------------------------------------------------------------------
Simpson Manufacturing Co., Inc.(a) 600 28,500
- ---------------------------------------------------------------------
80,644
- ---------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.54%
OM Group, Inc. 1,200 41,400
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 5.05%
Adtran, Inc.(a) 1,100 40,012
- ---------------------------------------------------------------------
ANTEC Corp.(a) 900 28,856
- ---------------------------------------------------------------------
Comverse Technology, Inc.(a) 1,150 86,825
- ---------------------------------------------------------------------
Dycom Industries, Inc.(a) 900 50,400
- ---------------------------------------------------------------------
Harmonic, Inc.(a) 1,000 57,437
- ---------------------------------------------------------------------
Polycom, Inc.(a) 200 7,800
- ---------------------------------------------------------------------
Proxim, Inc.(a) 900 52,200
- ---------------------------------------------------------------------
Uniphase Corp.(a) 400 66,400
- ---------------------------------------------------------------------
389,930
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE) - 1.51%
Genesis Microchip, Inc.(a) 1,100 $ 25,987
- --------------------------------------------------------------------
National Instruments Corp.(a) 1,300 52,487
- --------------------------------------------------------------------
Visual Networks, Inc.(a) 1,200 38,400
- --------------------------------------------------------------------
116,874
- --------------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.70%
Emulex Corp.(a) 700 77,831
- --------------------------------------------------------------------
International Network Services(a) 900 36,337
- --------------------------------------------------------------------
VeriSign, Inc.(a) 200 17,250
- --------------------------------------------------------------------
131,418
- --------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 3.81%
Cybex Computer Products Corp.(a) 1,100 30,662
- --------------------------------------------------------------------
DSP Communications, Inc.(a) 1,500 43,312
- --------------------------------------------------------------------
Jabil Circuit, Inc.(a) 900 40,612
- --------------------------------------------------------------------
Network Applicance, Inc.(a) 400 22,350
- --------------------------------------------------------------------
QLogic Corp.(a) 600 79,200
- --------------------------------------------------------------------
SanDisk Corp.(a) 1,200 54,000
- --------------------------------------------------------------------
Xircom, Inc.(a) 800 24,050
- --------------------------------------------------------------------
294,186
- --------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 8.64%
American Management Systems, Inc.(a) 500 16,031
- --------------------------------------------------------------------
Analytical Surveys, Inc.(a) 400 9,950
- --------------------------------------------------------------------
AVT Corp.(a) 900 34,087
- --------------------------------------------------------------------
Citrix Systems, Inc.(a) 1,000 56,500
- --------------------------------------------------------------------
Concord Communications, Inc.(a) 300 13,500
- --------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 1,200 61,650
- --------------------------------------------------------------------
Gemstar International Group Ltd.(a) 900 58,725
- --------------------------------------------------------------------
InfoCure Corp.(a) 500 26,469
- --------------------------------------------------------------------
ISS Group, Inc.(a) 400 15,100
- --------------------------------------------------------------------
Jack Henry & Associates 400 15,700
- --------------------------------------------------------------------
Macromedia, Inc.(a) 700 24,675
- --------------------------------------------------------------------
Medical Manager Corp.(a) 900 39,825
- --------------------------------------------------------------------
Mercury Interactive Corp.(a) 900 31,837
- --------------------------------------------------------------------
Micromuse, Inc.(a) 500 24,937
- --------------------------------------------------------------------
Peregrine Systems, Inc.(a) 300 7,706
- --------------------------------------------------------------------
QRS Corp.(a) 300 23,400
- --------------------------------------------------------------------
Rational Software Corp.(a) 1,700 55,994
- --------------------------------------------------------------------
ScanSource, Inc.(a) 500 10,812
- --------------------------------------------------------------------
Transaction Systems Architects, Inc.-Class A(a) 600 23,400
- --------------------------------------------------------------------
USWeb Corp.(a) 1,500 33,281
- --------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-1
<PAGE> 83
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES) - CONTINUED
Veritas Software Corp.(a) 650 $ 61,709
- ------------------------------------------------------------------
Verity, Inc.(a) 400 21,675
- ------------------------------------------------------------------
666,963
- ------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.78%
Action Performance Companies, Inc.(a) 500 16,500
- ------------------------------------------------------------------
Fossil, Inc.(a) 900 43,537
- ------------------------------------------------------------------
60,037
- ------------------------------------------------------------------
CONSUMER FINANCE - 0.50%
AmeriCredit Corp.(a) 1,000 16,000
- ------------------------------------------------------------------
Doral Financial Corp. 1,300 22,425
- ------------------------------------------------------------------
38,425
- ------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.40%
Patterson Dental Co.(a) 900 31,275
- ------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.18%
CommScope, Inc.(a) 1,000 30,750
- ------------------------------------------------------------------
Cree Research, Inc.(a) 700 53,856
- ------------------------------------------------------------------
Electro Scientific Industries, Inc.(a) 100 4,178
- ------------------------------------------------------------------
Oak Industries, Inc.(a) 800 34,950
- ------------------------------------------------------------------
Pinnacle Systems, Inc.(a) 1,300 43,712
- ------------------------------------------------------------------
Sammina Corp.(a) 600 45,525
- ------------------------------------------------------------------
Sawtek, Inc.(a) 600 27,525
- ------------------------------------------------------------------
SLI, Inc.(a) 200 5,400
- ------------------------------------------------------------------
245,896
- ------------------------------------------------------------------
ELECTRONICS (DEFENSE) - 0.56%
Aeroflex, Inc.(a) 2,200 43,450
- ------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 2.40%
Alpha Industries, Inc.(a) 2,550 121,444
- ------------------------------------------------------------------
Waters Corp.(a) 1,200 63,750
- ------------------------------------------------------------------
185,194
- ------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 7.57%
American Xtal Technology, Inc.(a) 600 14,288
- ------------------------------------------------------------------
ANADIGICS, Inc.(a) 1,100 40,700
- ------------------------------------------------------------------
Apex PC Solutions, Inc.(a) 650 13,325
- ------------------------------------------------------------------
Applied Micro Circuits Corp.(a) 900 74,025
- ------------------------------------------------------------------
Burr-Brown Corp.(a) 500 18,312
- ------------------------------------------------------------------
Dallas Semiconductor Corp. 500 25,250
- ------------------------------------------------------------------
Flextronics International, Ltd.(a) 700 38,850
- ------------------------------------------------------------------
Micrel, Inc.(a) 500 37,000
- ------------------------------------------------------------------
Microchip Technology, Inc.(a) 1,500 71,062
- ------------------------------------------------------------------
PMC-Sierra, Inc.(a) 800 47,150
- ------------------------------------------------------------------
SDL, Inc.(a) 900 45,956
- ------------------------------------------------------------------
Semtech Corp.(a) 900 46,912
- ------------------------------------------------------------------
TranSwitch Corp.(a) 600 28,425
- ------------------------------------------------------------------
Unitrode Corp.(a) 1,500 43,031
- ------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 600 40,463
- ------------------------------------------------------------------
584,749
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ENTERTAINMENT - 0.75%
SFX Entertainment, Inc.-Class A(a) 900 $ 57,600
- ------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 1.73%
Advanced Energy Industries, Inc.(a) 800 32,450
- ------------------------------------------------------------------
Asyst Technologies, Inc.(a) 900 26,944
- ------------------------------------------------------------------
Brooks Automation, Inc.(a) 400 10,825
- ------------------------------------------------------------------
Credence Systems Corp.(a) 700 25,988
- ------------------------------------------------------------------
Etec Systems, Inc.(a) 500 16,625
- ------------------------------------------------------------------
Novellus Systems, Inc.(a) 300 20,475
- ------------------------------------------------------------------
133,307
- ------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 0.75%
NCO Group, Inc.(a) 600 22,800
- ------------------------------------------------------------------
SEI Investments Co. 400 35,300
- ------------------------------------------------------------------
58,100
- ------------------------------------------------------------------
FOODS - 0.42%
Hain Food Group, Inc. (The)(a) 1,200 24,750
- ------------------------------------------------------------------
United Natural Foods, Inc.(a) 300 7,425
- ------------------------------------------------------------------
32,175
- ------------------------------------------------------------------
FOOTWEAR - 0.36%
K-Swiss, Inc. 600 27,900
- ------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.40%
Station Casinos, Inc.(a) 1,500 30,563
- ------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.09%
Alpharma, Inc.-Class A 1,500 53,344
- ------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 1,200 30,450
- ------------------------------------------------------------------
83,794
- ------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.87%
Health Management Associates, Inc.-Class A(a) 1,500 16,875
- ------------------------------------------------------------------
Province Healthcare Co.(a) 1,100 21,450
- ------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 600 28,650
- ------------------------------------------------------------------
66,975
- ------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.55%
Express Scripts, Inc.-Class A(a) 700 42,131
- ------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.12%
Henry Schein, Inc.(a) 1,000 31,688
- ------------------------------------------------------------------
MiniMed, Inc.(a) 500 38,469
- ------------------------------------------------------------------
Osteotech, Inc.(a) 1,750 50,313
- ------------------------------------------------------------------
ResMed, Inc.(a) 800 26,550
- ------------------------------------------------------------------
Sybron International Corp.(a) 1,500 41,344
- ------------------------------------------------------------------
Syncor International Corp.(a) 500 18,000
- ------------------------------------------------------------------
VISX, Inc.(a) 700 55,431
- ------------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 1,150 55,991
- ------------------------------------------------------------------
317,786
- ------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-2
<PAGE> 84
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES) - 1.88%
Advance Paradigm, Inc.(a) 700 $ 42,700
- -----------------------------------------------------------------
Capital Senior Living Group(a) 800 8,000
- -----------------------------------------------------------------
Hooper Holmes, Inc. 1,800 36,675
- -----------------------------------------------------------------
OEC Medical Systems, Inc.(a) 400 9,800
- -----------------------------------------------------------------
Renal Care Group, Inc.(a) 900 23,288
- -----------------------------------------------------------------
Res-Care, Inc.(a) 200 4,550
- -----------------------------------------------------------------
Veterinary Centers of America, Inc.(a) 1,500 20,344
- -----------------------------------------------------------------
145,357
- -----------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.80%
FPIC Insurance Group, Inc.(a) 900 43,650
- -----------------------------------------------------------------
HCC Insurance Holdings, Inc. 800 18,150
- -----------------------------------------------------------------
61,800
- -----------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.63%
Hambrecht & Quist Group(a) 1,300 48,263
- -----------------------------------------------------------------
INVESTMENT MANAGEMENT - 1.27%
Affiliated Managers Group, Inc.(a) 100 3,019
- -----------------------------------------------------------------
Eaton Vance Corp. 1,000 34,438
- -----------------------------------------------------------------
Knight/Trimark Group, Inc.-Class A(a) 1,000 60,313
- -----------------------------------------------------------------
97,770
- -----------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.21%
International Speedway Corp.-Class A 100 4,750
- -----------------------------------------------------------------
Speedway Motorsports, Inc.(a) 300 11,794
- -----------------------------------------------------------------
16,544
- -----------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.25%
Spartech Corp. 600 18,975
- -----------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.32%
Astec Industries, Inc.(a) 600 24,450
- -----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.35%
Daisytek International Corp.(a) 1,649 26,899
- -----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.75%
Cal Dive International, Inc.(a) 600 17,925
- -----------------------------------------------------------------
Global Industries Ltd.(a) 1,700 21,781
- -----------------------------------------------------------------
Maverick Tube Corp.(a) 1,300 18,119
- -----------------------------------------------------------------
57,825
- -----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.70%
Cabot Oil & Gas Corp.-Class A 600 11,175
- -----------------------------------------------------------------
Evergreen Resources, Inc.(a) 1,200 30,225
- -----------------------------------------------------------------
Stone Energy Corp.(a) 300 12,713
- -----------------------------------------------------------------
54,113
- -----------------------------------------------------------------
PERSONAL CARE - 0.47%
Steiner Leisure Ltd.(a) 1,200 36,375
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING - 0.37%
IDG Books Worldwide, Inc.-Class A(a) 1,200 $ 21,900
- ------------------------------------------------------------------
Meredith Corp. 200 6,925
- ------------------------------------------------------------------
28,825
- ------------------------------------------------------------------
RAILROADS - 0.52%
MotivePower Industries, Inc.(a) 2,150 39,775
- ------------------------------------------------------------------
RESTAURANTS - 1.72%
CEC Entertainment, Inc.(a) 1,400 59,150
- ------------------------------------------------------------------
Foodmaker, Inc.(a) 1,100 31,213
- ------------------------------------------------------------------
Papa John's International, Inc.(a) 300 13,406
- ------------------------------------------------------------------
Sonic Corp.(a) 900 29,363
- ------------------------------------------------------------------
133,132
- ------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.27%
Fastenal Co. 400 20,975
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 0.85%
CDW Computer Centers, Inc.(a) 1,500 66,000
- ------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.97%
99 Cents Only Stores(a) 575 28,714
- ------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 450 19,800
- ------------------------------------------------------------------
Family Dollar Stores, Inc. 1,100 26,400
- ------------------------------------------------------------------
74,914
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.24%
Wild Oats Markets, Inc.(a) 600 18,206
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 4.27%
Cheap Tickets, Inc.(a) 100 3,650
- ------------------------------------------------------------------
Claire's Stores, Inc. 1,600 41,000
- ------------------------------------------------------------------
Cost Plus, Inc.(a) 950 43,225
- ------------------------------------------------------------------
Footstar, Inc.(a) 1,200 44,625
- ------------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 1,200 26,400
- ------------------------------------------------------------------
Linens 'N Things, Inc.(a) 1,000 43,750
- ------------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 1,200 60,450
- ------------------------------------------------------------------
Rent-A-Center, Inc.(a) 1,100 26,400
- ------------------------------------------------------------------
Rent-Way, Inc.(a) 700 17,238
- ------------------------------------------------------------------
Tuesday Morning Corp.(a) 900 22,950
- ------------------------------------------------------------------
329,688
- ------------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 4.70%
Abercrombie & Fitch Co.-Class A(a) 1,276 61,248
- ------------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 1,500 68,250
- ------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 1,300 58,500
- ------------------------------------------------------------------
Buckle, Inc. (The)(a) 850 24,438
- ------------------------------------------------------------------
Children's Place Retail Stores, Inc. (The)(a) 800 32,400
- ------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 2,133 54,392
- ------------------------------------------------------------------
Pacific Sunwear of California(a) 1,800 43,875
- ------------------------------------------------------------------
Wet Seal, Inc.-Class A(a) 700 20,038
- ------------------------------------------------------------------
363,141
- ------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-3
<PAGE> 85
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SAVINGS & LOAN COMPANIES - 0.21%
Queens County Bancorp, Inc. 500 $ 16,188
- ------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.45%
Acxiom Corp.(a) 1,100 27,431
- ------------------------------------------------------------------
Forrester Research, Inc.(a) 800 20,000
- ------------------------------------------------------------------
Metris Companies, Inc. 1,200 48,900
- ------------------------------------------------------------------
TMP Worldwide, Inc.(a) 250 15,875
- ------------------------------------------------------------------
112,206
- ------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.68%
Bright Horizons Family Solutions, Inc.(a) 600 11,325
- ------------------------------------------------------------------
Cerner Corp.(a) 800 16,775
- ------------------------------------------------------------------
Championship Auto Racing Teams, Inc.(a) 200 5,988
- ------------------------------------------------------------------
Copart, Inc.(a) 900 19,125
- ------------------------------------------------------------------
G & K Services, Inc.-Class A 300 15,713
- ------------------------------------------------------------------
Iron Mountain, Inc.(a) 300 8,588
- ------------------------------------------------------------------
Metzler Group, Inc.(a) 400 11,050
- ------------------------------------------------------------------
Provant, Inc.(a) 500 7,781
- ------------------------------------------------------------------
Regis Corp. 1,750 33,579
- ------------------------------------------------------------------
129,924
- ------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 1.76%
Critical Path, Inc.(a) 100 5,531
- ------------------------------------------------------------------
Insight Enterprises, Inc.(a) 2,050 50,738
- ------------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 300 18,600
- ------------------------------------------------------------------
SunGard Data Systems, Inc.(a) 600 20,700
- ------------------------------------------------------------------
Sykes Enterprises, Inc.(a) 1,200 40,050
- ------------------------------------------------------------------
135,619
- ------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 4.29%
Affiliated Computer Services, Inc.-Class A(a) 900 45,563
- ------------------------------------------------------------------
CheckFree Holdings Corp.(a) 800 22,050
- ------------------------------------------------------------------
Concord EFS, Inc.(a) 1,400 59,238
- ------------------------------------------------------------------
CSG Systems International, Inc.(a) 1,500 39,281
- ------------------------------------------------------------------
FactSet Research Systems, Inc. 350 19,819
- ------------------------------------------------------------------
Lason Holdings, Inc.(a) 200 9,925
- ------------------------------------------------------------------
MedQuist, Inc.(a) 1,100 48,125
- ------------------------------------------------------------------
National Computer Systems, Inc. 1,400 47,250
- ------------------------------------------------------------------
NOVA Corp.(a) 1,614 40,350
- ------------------------------------------------------------------
331,601
- ------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.42%
Cornell Corrections, Inc.(a) 100 1,644
- ------------------------------------------------------------------
Tetra Tech, Inc.(a) 1,875 30,938
- ------------------------------------------------------------------
32,582
- ------------------------------------------------------------------
SPECIALTY PRINTING - 0.43%
Valassis Communications, Inc.(a) 900 32,962
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.85%
Amdocs Ltd.(a) 900 $ 20,475
- -----------------------------------------------------------------------------
Powerwave Technologies, Inc.(a) 1,400 45,150
- -----------------------------------------------------------------------------
65,625
- -----------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.46%
Quicksilver, Inc.(a) 1,350 35,183
- -----------------------------------------------------------------------------
TEXTILES (HOME FURNISHINGS) - 0.47%
Mohawk Industries, Inc.(a) 1,200 36,450
- -----------------------------------------------------------------------------
TRUCKERS - 0.61%
M.S. Carriers, Inc.(a) 300 8,897
- -----------------------------------------------------------------------------
Swift Transportation Co., Inc.(a) 1,750 38,500
- -----------------------------------------------------------------------------
47,397
- -----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $5,290,053) 6,832,415
- -----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS - 2.64%
CANADA - 0.61%
Biovail Corporation International
(Health Care-Hospital Management)(a) 500 25,531
- -----------------------------------------------------------------------------
Cinar Films Inc.-Class B (Entertainment)(a) 100 2,450
- -----------------------------------------------------------------------------
Ritchie Bros. Auctioneers Inc. (Services-Commercial &
Consumer)(a) 500 19,063
- -----------------------------------------------------------------------------
47,044
- -----------------------------------------------------------------------------
FRANCE - 0.24%
Business Objects S.A.-ADR (Computers-Software &
Services)(a) 500 18,250
- -----------------------------------------------------------------------------
IRELAND - 0.62%
Ryanair Holdings PLC-ADR (Airlines)(a) 900 47,700
- -----------------------------------------------------------------------------
ISRAEL - 0.62%
Check Point Technologies Ltd. (Computers-Software &
Services)(a) 900 48,263
- -----------------------------------------------------------------------------
NETHERLANDS - 0.27%
Core Laboratories N.V. (Oil & Gas-Drilling Equipment)(a) 1,500 20,906
- -----------------------------------------------------------------------------
UNITED KINGDOM - 0.28%
Select Appointments Holdings PLC-ADR (Services-
Employment)(a) 900 21,600
- -----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$166,346) 203,763
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-4
<PAGE> 86
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT(b) - 7.73%
Dean Witter Reynolds, Inc., 4.85%, 07/01/99
(Cost $597,100)(c) $597,100 $ 597,100
- -----------------------------------------------------------------
TOTAL INVESTMENTS - 98.86% 7,633,278
- -----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.14% 87,843
- -----------------------------------------------------------------
NET ASSETS - 100.00% $7,721,121
=================================================================
</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 repuchase 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 06/30/99 with a maturing value of
$100,013,472. Collateralized by U.S. Government obligations.
Investment Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. AGGRESSIVE GROWTH F UND
FS-5
<PAGE> 87
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, market value (cost $6,053,499) $ 7,633,278
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 19,385
- ---------------------------------------------------------------------
Investments sold 97,177
- ---------------------------------------------------------------------
Dividends and interest 232
- ---------------------------------------------------------------------
Reimbursement from advisor 7,791
- ---------------------------------------------------------------------
Investment for deferred compensation plan 4,109
- ---------------------------------------------------------------------
Total assets 7,761,972
- ---------------------------------------------------------------------
LIABILITIES:
Payables For:
Investments purchased 21,528
- ---------------------------------------------------------------------
Deferred compensation plan 4,109
- ---------------------------------------------------------------------
Accrued directors' fees 1,850
- ---------------------------------------------------------------------
Accrued operating expenses 13,364
- ---------------------------------------------------------------------
Total liabilities 40,851
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $ 7,721,121
=====================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 725,342
=====================================================================
Net asset value, offering and redemption price per share $10.64
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 25,887
- ---------------------------------------------------------------------
Dividends 2,493
- ---------------------------------------------------------------------
Total investment income 28,380
- ---------------------------------------------------------------------
EXPENSES:
Advisory fees 23,307
- ---------------------------------------------------------------------
Administrative services fees 18,696
- ---------------------------------------------------------------------
Custodian fees 19,445
- ---------------------------------------------------------------------
Directors' fees and expenses 4,076
- ---------------------------------------------------------------------
Professional fees 15,926
- ---------------------------------------------------------------------
Other 2,802
- ---------------------------------------------------------------------
Total expenses 84,252
- ---------------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (49,897)
- ---------------------------------------------------------------------
Expenses paid indirectly (71)
- ---------------------------------------------------------------------
Net expenses 34,284
- ---------------------------------------------------------------------
Net investment income (loss) (5,904)
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (250,107)
- ---------------------------------------------------------------------
Futures contracts 19,210
- ---------------------------------------------------------------------
(230,897)
- ---------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 906,569
- ---------------------------------------------------------------------
Futures contracts (15,300)
- ---------------------------------------------------------------------
891,269
- ---------------------------------------------------------------------
Net gain from investment securities and futures contracts 660,372
- ---------------------------------------------------------------------
Net increase in net assets resulting from operations $ 654,468
=====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. AGGRESSIVE GROWTH FUND
FS-6
<PAGE> 88
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the period May 1, 1998 (date
operations commenced) through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (5,904) $ 15,665
- --------------------------------------------------------------------------------
Net realized gain (loss) from investment securities
and futures contracts (230,897) (395,537)
- --------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and futures contracts 891,269 688,510
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 654,468 308,638
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income -- (22,273)
- --------------------------------------------------------------------------------
Net increase from capital stock transactions 2,667,550 4,112,738
- --------------------------------------------------------------------------------
Net increase in net assets 3,322,018 4,399,103
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 4,399,103 --
- --------------------------------------------------------------------------------
End of period $7,721,121 $4,399,103
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $6,776,466 $4,108,916
- --------------------------------------------------------------------------------
Undistributed net investment income (loss) (8,690) (2,786)
- --------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and futures contracts (626,434) (395,537)
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 1,579,779 688,510
- --------------------------------------------------------------------------------
$7,721,121 $4,399,103
================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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. Aggressive Growth Fund (the "Fund"). The Fund's investment
objective is to achieve long-term growth of capital. The Fund commenced
operations on May 1, 1998. 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 closing bid price on that day. 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
closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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. 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
AIM V.I. AGGRESSIVE GROWTH FUND
FS-7
<PAGE> 89
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. Such distributions are
declared and paid annually.
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 had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $354,222 as of December 31, 1998, which expires,
if not previously utilized, through the year 2006. The Fund cannot
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized.
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 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.
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 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. During the six
months ended June 30, 1999, AIM waived expenses of $23,307 and reimbursed
expenses of $26,590.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $18,696 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,860 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 $71 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $71 during the six months ended June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the six months ended June 30, 1999 was
$5,285,080 and $2,535,794, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,700,157
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (125,042)
=========================================================================
Net unrealized appreciation of investment securities $1,575,115
=========================================================================
</TABLE>
Cost of investments for tax purposes is $6,058,163.
AIM V.I. AGGRESSIVE GROWTH FUND
FS-8
<PAGE> 90
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the period May 1, 1998 (date operations commenced) through December 31,
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Sold 569,447 $5,544,171 464,162 $4,261,686
- -------------------------------------------------------------------------------
Issued as reinvestment of dividends -- -- 2,421 22,273
- -------------------------------------------------------------------------------
Reacquired (290,726) (2,876,621) (19,962) (171,221)
- -------------------------------------------------------------------------------
278,721 $2,667,550 446,621 $4,112,738
===============================================================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during six months ended June 30, 1999 and the period May 1, 1998 (date
operations commenced) through December 31, 1998.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Net asset value, beginning of period $ 9.85 $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) 0.04
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.80 (0.14)
- --------------------------------------------------------------------------------
Total from investment operations 0.79 (0.10)
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (0.05)
- --------------------------------------------------------------------------------
Net asset value, end of period $10.64 $ 9.85
================================================================================
Total return(a) 8.02% (0.94)%
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $7,721 $4,399
================================================================================
Ratio of expenses to average net assets(b) 1.18%(c) 1.16%(d)
================================================================================
Ratio of net investment income (loss) to average net
assets(e) (0.20)%(c) 0.96%(d)
================================================================================
Portfolio turnover rate 52% 30%
================================================================================
</TABLE>
(a) Total return is not annualized for periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.89% (annualized) and 4.62% (annualized) for 1999-1998.
(c) Ratios are annualized and based on average net assets of $5,874,843.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (1.92)% (annualized) and (2.50)% (annualized) for 1999-
1998.
AIM V.I. AGGRESSIVE GROWTH FUND
FS-9
<PAGE> 91
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 29.33%
AGRICULTURAL PRODUCTS - 0.48%
Cargill, Inc., Notes, 6.875%, 05/01/28(a)
(Acquired 03/12/99; Cost $149,703) $150,000 $ 139,551
- -----------------------------------------------------------------------------------------------------
AIRLINES - 0.76%
Delta Air Lines, Inc.,
Deb., 10.375%, 12/15/22 100,000 124,234
- -----------------------------------------------------------------------------------------------------
Notes, 6.65%, 03/15/04 100,000 98,262
- -----------------------------------------------------------------------------------------------------
222,496
- -----------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.98%
General Motors Acceptance Corp., Bonds, 6.15%, 04/05/07 300,000 287,506
- -----------------------------------------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.04%
HSBC Holdings PLC (United Kingdom), Sub. Notes, 7.50%, 07/15/09 10,000 10,112
- -----------------------------------------------------------------------------------------------------
BANKS (MONEY CENTER) - 2.20%
Bank of America Corp., Unsec. Sub. Notes, 7.125%, 03/01/09 200,000 200,814
- -----------------------------------------------------------------------------------------------------
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 200,000 205,782
- -----------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development
(The), Deb., 8.25%, 09/01/16 200,000 236,834
- -----------------------------------------------------------------------------------------------------
643,430
- -----------------------------------------------------------------------------------------------------
BANKS (REGIONAL) - 1.03%
HSBC USA, Inc., Unsec. Sub. Notes, 7.00%, 11/01/06 100,000 98,920
- -----------------------------------------------------------------------------------------------------
Mercantile Bancorp, Inc., Unsec. Sub. Notes, 7.30%,
06/15/07 200,000 202,486
- -----------------------------------------------------------------------------------------------------
301,406
- -----------------------------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.86%
Comcast Cable Communications, Unsec. Unsub. Notes, 6.20%, 11/15/08 100,000 93,307
- -----------------------------------------------------------------------------------------------------
CSC Holdings, Inc., Sr. Unsec. Deb., 7.625%, 07/15/18 50,000 47,329
- -----------------------------------------------------------------------------------------------------
7.875%, 02/15/18 100,000 97,062
- -----------------------------------------------------------------------------------------------------
TCI Communications, Inc., Sr. Notes, 8.00%, 08/01/05 200,000 211,684
- -----------------------------------------------------------------------------------------------------
USA Networks, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 11/15/05 100,000 96,084
- -----------------------------------------------------------------------------------------------------
545,466
- -----------------------------------------------------------------------------------------------------
CHEMICALS - 0.74%
Airgas, Inc., Medium Term Notes, 7.14%, 03/08/04 50,000 48,056
- -----------------------------------------------------------------------------------------------------
Nova Gas Transmission Ltd. (Canada), Yankee Deb., 8.50%, 12/15/12 150,000 166,812
- -----------------------------------------------------------------------------------------------------
214,868
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CHEMICALS (DIVERSIFIED) - 0.16%
Monsanto Co., Deb., 6.50%, 12/01/18(a) (Acquired 12/04/98; Cost $49,791) $ 50,000 $ 45,202
- -----------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.32%
Lucent Technologies, Unsec. Deb., 6.45%, 03/15/29 100,000 92,029
- -----------------------------------------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.65%
American Greetings Corp., Unsec. Notes, 6.10%, 08/01/28 200,000 190,706
- -----------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.85%
Beneficial Corp. - Series H Medium Term Notes, 6.94%, 12/15/06 250,000 249,265
- -----------------------------------------------------------------------------------------------------
ELECTRIC COMPANIES - 2.38%
Cleveland Electric Illuminating Co. (The), Sr. Sec.
Series D Notes, 7.43%, 11/01/09 50,000 50,376
- -----------------------------------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Notes, 8.125%, 05/15/02 150,000 152,974
- -----------------------------------------------------------------------------------------------------
Commonwealth Edison Co., First Mortgage Notes, 7.50%, 07/01/13 70,000 73,592
- -----------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes, 9.25%, 10/01/01 200,000 212,072
- -----------------------------------------------------------------------------------------------------
Series G Sr. Unsec. Notes, 7.75%, 10/01/08 200,000 206,000
- -----------------------------------------------------------------------------------------------------
695,014
- -----------------------------------------------------------------------------------------------------
ENTERTAINMENT - 1.16%
Time Warner, Inc., Deb.,
9.125%, 01/15/13 145,000 165,852
- -----------------------------------------------------------------------------------------------------
9.15%, 02/01/23 150,000 174,254
- -----------------------------------------------------------------------------------------------------
340,106
- -----------------------------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 0.32%
Associates Corp. of North America, Sr. Deb., 6.95%, 11/01/18 100,000 95,213
- -----------------------------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.16%
Beckman Coulter Inc., Sr. Unsec. Gtd. Notes, 7.45%, 03/04/08 50,000 47,617
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.38%
Procter & Gamble Co. (The), Putable Deb., 8.00%, 09/01/24 100,000 111,698
- -----------------------------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.37%
Sun Life Canada Capital Trust, Gtd. Notes, 8.526%,
05/29/49(a) (Acquired 03/29/99; Cost $104,510) 100,000 101,107
- -----------------------------------------------------------------------------------------------------
Torchmark Corp., Notes, 7.875%, 05/15/23 300,000 300,291
- -----------------------------------------------------------------------------------------------------
401,398
- -----------------------------------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-10
<PAGE> 92
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY) - 1.57%
Florida Windstorm,
Sr. Notes, 6.85%, 08/25/07(a) (Acquired 01/07/99; Cost
$106,456) $100,000 $ 99,328
- ------------------------------------------------------------------------------
Sr. Sec. Bonds, 7.125%, 02/25/19(a) (Acquired 03/26/99;
Cost $149,177) 150,000 148,418
- ------------------------------------------------------------------------------
Terra Nova Holdings Co. (United Kingdom),
Sr. Yankee Sec. Gtd. Notes, 7.20%, 08/15/07 70,000 68,034
- ------------------------------------------------------------------------------
Unsec. Gtd. Notes, 7.00%, 05/15/08(a) (Acquired
02/25/99; Cost $146,335) 150,000 143,588
- ------------------------------------------------------------------------------
459,368
- ------------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.16%
Merrill Lynch & Co., Unsec. Notes, 6.875%, 11/15/18 50,000 46,788
- ------------------------------------------------------------------------------
NATURAL GAS - 2.78%
CMS Panhandle Holding Company, Sr. Notes, 6.125%,
03/15/04(a) (Acquired 06/08/99; Cost $194,612) 200,000 194,772
- ------------------------------------------------------------------------------
Enron Corp.,
Notes, 6.75%, 08/01/09 170,000 163,288
- ------------------------------------------------------------------------------
Sr. Sub. Deb., 8.25%, 09/15/12 200,000 212,070
- ------------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 50,000 49,250
- ------------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 100,000 98,793
- ------------------------------------------------------------------------------
National Fuel Gas Co., Series D Medium Term Notes,
6.303%, 05/27/08 100,000 95,927
- ------------------------------------------------------------------------------
814,100
- ------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.67%
NRG Energy, Inc., Sr. Unsec. Notes, 7.50%, 06/01/09 200,000 197,296
- ------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.21%
CE Generation LLC, Notes, 7.416%, 12/15/18(a) (Acquired
04/13/99; Cost $205,604) 200,000 194,372
- ------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., Sr. Unsec. Bonds,
8.48%, 09/15/28 150,000 160,616
- ------------------------------------------------------------------------------
354,988
- ------------------------------------------------------------------------------
RAILROADS - 0.62%
CSX Corp. - Series C Medium Term Notes, 6.80%, 12/01/28 200,000 180,382
- ------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.94%
Laidlaw, Inc. (Canada), Yankee Deb., 6.70%, 05/01/08 100,000 90,817
- ------------------------------------------------------------------------------
Protection One, Inc., Sr. Unsec. Gtd. Notes, 7.375%,
08/15/05 200,000 184,996
- ------------------------------------------------------------------------------
275,813
- ------------------------------------------------------------------------------
SOVEREIGN DEBT - 1.05%
Province of Manitoba (Canada), Yankee Deb., 7.75%,
07/17/16 100,000 107,912
- ------------------------------------------------------------------------------
Province of Quebec (Canada),
Series A Yankee Notes, 6.29%, 03/06/26 100,000 99,809
- ------------------------------------------------------------------------------
Series A Putable Yankee Notes, 5.735%, 03/02/26 100,000 99,638
- ------------------------------------------------------------------------------
307,359
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 2.36%
Centel Capital, Deb., 9.00%, 10/15/19 $200,000 $ 235,502
- ----------------------------------------------------------------------------
MCI Communications Corp.,
Putable Sr. Unsec. Deb., 7.125%, 06/15/27 200,000 202,114
- ----------------------------------------------------------------------------
Sr. Unsec. Notes, 6.50%, 04/15/10 100,000 96,126
- ----------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Notes,
6.125%, 11/15/08 70,000 65,548
- ----------------------------------------------------------------------------
6.875%, 11/15/28 100,000 91,588
- ----------------------------------------------------------------------------
690,878
- ----------------------------------------------------------------------------
TELEPHONE - 1.78%
Cable & Wireless Communications PLC (United Kingdom),
Yankee Notes, 6.75%, 12/01/08 200,000 191,890
- ----------------------------------------------------------------------------
Electric Lightwave, Inc., Notes, 6.05%, 05/15/04(a)
(Acquired 04/21/99; Cost $199,854) 200,000 193,870
- ----------------------------------------------------------------------------
GTE California, Inc., Unsec. Deb., 6.75%, 05/15/27 70,000 65,823
- ----------------------------------------------------------------------------
SBC Communications, Inc., Deb., 7.375%, 07/15/43 70,000 68,674
- ----------------------------------------------------------------------------
520,257
- ----------------------------------------------------------------------------
WASTE MANAGEMENT - 0.35%
WMX Technologies, Inc., Unsec. Putable Notes, 7.10%,
08/01/26 100,000 101,310
- ----------------------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $8,944,326) 8,581,622
- ----------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES -
2.18%
COMMUNICATIONS EQUIPMENT - 0.42%
Comverse Technology, Inc., Conv. Unsec. Sub. Deb.,
4.50%, 07/01/05 66,000 123,337
- ----------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.22%
Candescent Technology Corp., Sr. Conv. Sub. Deb.,
7.00%, 05/01/03(a) (Acquired 11/06/98-02/10/99; Cost
$72,036) 83,000 64,740
- ----------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 0.48%
Exodus Communications, Inc., Conv. Sub. Notes, 5.00%,
03/15/06(a) (Acquired 02/25/99; Cost $30,000) 30,000 80,813
- ----------------------------------------------------------------------------
Veritas Software Corp., Conv. Unsec. Notes, 5.25%,
11/01/04 25,000 58,609
- ----------------------------------------------------------------------------
139,422
- ----------------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 0.21%
Alpharma, Inc., Conv. Sr. Unsec. Sub. Notes, 3.00%,
06/01/06(a) (Acquired 05/27/99; Cost $50,000) 50,000 61,500
- ----------------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.30%
Amazon.com, Inc.,
Conv. Deb., 4.75%, 02/01/09(a) (Acquired 01/29/99-
02/18/99; Cost $47,342) 50,000 48,531
- ----------------------------------------------------------------------------
Conv. Sub. Deb., 4.75%, 02/01/09 40,000 38,825
- ----------------------------------------------------------------------------
87,356
- ----------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-11
<PAGE> 93
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL) - 0.11%
AnnTaylor Stores Corp., Conv. Gtd. Bond, 0.55%,
06/18/19(a) (Acquired 06/14/99; Cost $27,653) $ 50,000 $ 31,625
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.28%
Global Telesystems Group, Conv. Notes, 8.75%, 06/30/00 20,000 81,400
- -----------------------------------------------------------------------------
TELEPHONE - 0.16%
Telefonos de Mexico S.A. (Mexico), Conv. Yankee Notes,
4.25%, 06/15/04 47,000 47,999
- -----------------------------------------------------------------------------
Total U.S. Dollar Denominated Convertible Bonds &
Notes (Cost $504,483) 637,379
- -----------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC COMMON STOCKS - 36.57%
AUTOMOBILES - 0.29%
Ford Motor Co. 1,500 84,656
- -----------------------------------------------------------------------------
BANKS (MONEY CENTER) - 0.74%
Bank of America Corp. 600 43,987
- -----------------------------------------------------------------------------
Chase Manhattan Corp. (The) 2,000 173,250
- -----------------------------------------------------------------------------
217,237
- -----------------------------------------------------------------------------
BANKS (REGIONAL) - 0.25%
Bank United Corp. - Class A 1,800 72,337
- -----------------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.03%
PepsiCo, Inc. 200 7,737
- -----------------------------------------------------------------------------
BIOTECHNOLOGY - 0.42%
Biogen, Inc.(b) 1,000 64,312
- -----------------------------------------------------------------------------
Genzyme Corp.(b) 1,200 58,200
- -----------------------------------------------------------------------------
Genzyme Surgical Products(b) 215 947
- -----------------------------------------------------------------------------
123,459
- -----------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.75%
CBS Corp.(b) 3,500 152,031
- -----------------------------------------------------------------------------
Hispanic Broadcasting Corp.(b) 2,200 166,925
- -----------------------------------------------------------------------------
Univision Communications, Inc.(b) 2,900 191,400
- -----------------------------------------------------------------------------
510,356
- -----------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.46%
ADC Telecommunications, Inc.(b) 1,600 72,900
- -----------------------------------------------------------------------------
ANTEC Corp.(b) 2,900 92,981
- -----------------------------------------------------------------------------
Lucent Technologies, Inc. 4,905 330,781
- -----------------------------------------------------------------------------
Motorola, Inc. 1,000 94,750
- -----------------------------------------------------------------------------
Tellabs, Inc.(b) 1,900 128,369
- -----------------------------------------------------------------------------
719,781
- -----------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 1.22%
Dell Computer Corp.(b) 2,600 96,200
- -----------------------------------------------------------------------------
International Business Machines Corp. 1,000 129,250
- -----------------------------------------------------------------------------
Sun Microsystems, Inc.(b) 1,900 130,862
- -----------------------------------------------------------------------------
356,312
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING) - 0.76%
3Com Corp.(b) 1,100 $ 29,356
- -----------------------------------------------------------------------------
Cisco Systems, Inc.(b) 3,000 193,500
- -----------------------------------------------------------------------------
222,856
- -----------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.53%
EMC Corp.(b) 2,800 154,000
- -----------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 2.79%
America Online, Inc. 2,900 320,450
- -----------------------------------------------------------------------------
Computer Associates International, Inc. 400 22,000
- -----------------------------------------------------------------------------
Concord Communications, Inc.(b) 1,200 54,000
- -----------------------------------------------------------------------------
InfoSpace.com, Inc.(b) 1,800 84,600
- -----------------------------------------------------------------------------
ISS Group, Inc.(b) 1,600 60,400
- -----------------------------------------------------------------------------
Microsoft Corp.(b) 1,900 171,356
- -----------------------------------------------------------------------------
USWeb Corp.(b) 4,600 102,062
- -----------------------------------------------------------------------------
814,868
- -----------------------------------------------------------------------------
CONSUMER FINANCE - 0.17%
SLM Holding Corp. 1,100 50,394
- -----------------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.28%
Cardinal Health, Inc. 1,250 80,156
- -----------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.46%
General Electric Co. 1,200 135,600
- -----------------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.48%
Quanta Services, Inc.(b) 3,200 140,800
- -----------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.60%
Intel Corp. 2,400 142,800
- -----------------------------------------------------------------------------
Microchip Technology, Inc.(b) 700 33,162
- -----------------------------------------------------------------------------
175,962
- -----------------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.23%
Applied Materials, Inc.(b) 900 66,487
- -----------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.78%
American Express Co. 700 91,087
- -----------------------------------------------------------------------------
Citigroup, Inc. 2,250 106,875
- -----------------------------------------------------------------------------
Fannie Mae 1,700 116,237
- -----------------------------------------------------------------------------
FINOVA Group, Inc. 1,000 52,625
- -----------------------------------------------------------------------------
Freddie Mac 2,000 116,000
- -----------------------------------------------------------------------------
MGIC Investment Corp. 800 38,900
- -----------------------------------------------------------------------------
521,724
- -----------------------------------------------------------------------------
FOODS - 0.42%
Keebler Foods Co.(b) 1,400 42,525
- -----------------------------------------------------------------------------
Ralston-Ralston Purina Group 2,600 79,137
- -----------------------------------------------------------------------------
121,662
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-12
<PAGE> 94
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED) - 1.69%
Abbott Laboratories 700 $ 31,850
- -------------------------------------------------------------------
American Home Products Corp. 2,400 138,000
- -------------------------------------------------------------------
Bristol-Myers Squibb Co. 1,200 84,525
- -------------------------------------------------------------------
Johnson & Johnson 900 88,200
- -------------------------------------------------------------------
Warner-Lambert Co. 2,200 152,625
- -------------------------------------------------------------------
495,200
- -------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 0.28%
Barr Laboratories, Inc.(b) 300 11,962
- -------------------------------------------------------------------
Forest Laboratories, Inc.(b) 1,500 69,375
- -------------------------------------------------------------------
81,337
- -------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 1.53%
Lilly (Eli) & Co. 1,300 93,113
- -------------------------------------------------------------------
Merck & Co., Inc. 1,400 103,600
- -------------------------------------------------------------------
Pfizer, Inc. 1,300 142,675
- -------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 700 39,769
- -------------------------------------------------------------------
Schering-Plough Corp. 1,300 68,900
- -------------------------------------------------------------------
448,057
- -------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.20%
Sunrise Assisted Living, Inc.(b) 1,700 59,288
- -------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.09%
Baxter International, Inc. 1,100 66,688
- -------------------------------------------------------------------
Becton, Dickinson & Co. 1,500 45,000
- -------------------------------------------------------------------
Guidant Corp. 2,500 128,594
- -------------------------------------------------------------------
Medtronic, Inc. 1,900 147,963
- -------------------------------------------------------------------
VISX, Inc.(b) 2,800 221,725
- -------------------------------------------------------------------
609,970
- -------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.34%
MAXIMUS, Inc.(b) 2,000 57,500
- -------------------------------------------------------------------
Omnicare, Inc. 1,600 20,200
- -------------------------------------------------------------------
Quintiles Transnational Corp.(b) 500 21,000
- -------------------------------------------------------------------
98,700
- -------------------------------------------------------------------
HOUSEHOLD FURNISHING & APPLIANCES - 0.49%
Ethan Allen Interiors, Inc. 2,900 109,475
- -------------------------------------------------------------------
Maytag Corp. 500 34,844
- -------------------------------------------------------------------
144,319
- -------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.15%
Procter & Gamble, Co. (The) 500 44,625
- -------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.45%
Equitable Companies, Inc. 1,300 87,100
- -------------------------------------------------------------------
Nationwide Financial Services, Inc. - Class A 1,000 45,250
- -------------------------------------------------------------------
132,350
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE) - 0.76%
American International Group, Inc. 1,300 $ 152,181
- -------------------------------------------------------------------
CIGNA Corp. 800 71,200
- -------------------------------------------------------------------
223,381
- -------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.34%
Everest Reinsurance Holdings, Inc. 1,000 32,625
- -------------------------------------------------------------------
Travelers Property Casualty Corp. - Class A 1,700 66,513
- -------------------------------------------------------------------
99,138
- -------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.22%
Goldman Sachs Group, Inc. (The) 450 32,513
- -------------------------------------------------------------------
Hambrecht & Quist Group(b) 1,600 59,400
- -------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,500 119,906
- -------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 1,400 143,500
- -------------------------------------------------------------------
355,319
- -------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.04%
Federated Investors, Inc. - Class B 700 12,556
- -------------------------------------------------------------------
LODGING - HOTELS - 0.15%
Carnival Corp. 900 43,650
- -------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.45%
Tyco International Ltd. 1,400 132,650
- -------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.24%
Superior TeleCom, Inc. 2,850 71,250
- -------------------------------------------------------------------
NATURAL GAS - 0.66%
Enron Corp. 1,100 89,925
- -------------------------------------------------------------------
Williams Companies, Inc. (The) 2,400 102,150
- -------------------------------------------------------------------
192,075
- -------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.21%
Conoco, Inc. - Class A 2,200 61,325
- -------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 0.13%
Exxon Corp. 500 38,563
- -------------------------------------------------------------------
PERSONAL CARE - 0.36%
Avon Products, Inc. 800 44,400
- -------------------------------------------------------------------
Gillette Co. 1,500 61,500
- -------------------------------------------------------------------
105,900
- -------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.56%
AES Corp.(b) 2,100 122,063
- -------------------------------------------------------------------
MidAmerican Energy Holdings Co.(b) 1,200 41,550
- -------------------------------------------------------------------
163,613
- -------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.19%
Boston Properties, Inc. 900 32,288
- -------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 800 24,450
- -------------------------------------------------------------------
56,738
- -----------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-13
<PAGE> 95
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (BUILDING SUPPLIES) - 0.40%
Home Depot, Inc. (The) 1,800 $ 115,988
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.39%
Albertson's, Inc. 693 35,733
- -----------------------------------------------------------------
Safeway, Inc.(b) 1,600 79,200
- -----------------------------------------------------------------
114,933
- -----------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.47%
Dayton Hudson Corp. 2,100 136,500
- -----------------------------------------------------------------
RETAIL (SPECIALTY) - 0.34%
Linens 'N Things, Inc.(b) 2,300 100,625
- -----------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.79%
Omnicom Group, Inc. 500 40,000
- -----------------------------------------------------------------
Outdoor Systems, Inc.(b) 2,900 105,850
- -----------------------------------------------------------------
Young & Rubicam, Inc. 1,900 86,331
- -----------------------------------------------------------------
232,181
- -----------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.32%
Apollo Group, Inc. - Class A(b) 3,500 92,969
- -----------------------------------------------------------------
Avis Rent A Car, Inc.(b) 2,800 81,550
- -----------------------------------------------------------------
Hertz Corp. - Class A 2,300 142,600
- -----------------------------------------------------------------
Metzler Group, Inc.(b) 2,500 69,063
- -----------------------------------------------------------------
386,182
- -----------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.57%
Ceridian Corp.(b) 1,100 35,956
- -----------------------------------------------------------------
DST Systems, Inc.(b) 1,100 69,162
- -----------------------------------------------------------------
Paychex, Inc. 1,950 62,156
- -----------------------------------------------------------------
167,274
- -----------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.53%
AT&T Corp. 1,650 92,091
- -----------------------------------------------------------------
IXC Communications, Inc.(b) 1,800 70,762
- -----------------------------------------------------------------
MCI WorldCom, Inc.(b) 2,000 172,500
- -----------------------------------------------------------------
WinStar Communications, Inc.(b) 2,300 112,125
- -----------------------------------------------------------------
447,478
- -----------------------------------------------------------------
TELEPHONE - 1.80%
Bell Atlantic Corp. 1,400 91,525
- -----------------------------------------------------------------
McLeodUSA, Inc. - Class A(b) 1,100 60,500
- -----------------------------------------------------------------
Nextlink Communications, Inc. - Class A(b) 1,100 81,813
- -----------------------------------------------------------------
Qwest Communications International, Inc.(b) 5,800 191,763
- -----------------------------------------------------------------
SBC Communications, Inc. 1,300 75,400
- -----------------------------------------------------------------
Time Warner Telecom, Inc.(b) 900 26,100
- -----------------------------------------------------------------
527,101
- -----------------------------------------------------------------
TOBACCO - 0.15%
Philip Morris Companies, Inc. 1,100 44,206
- -----------------------------------------------------------------
TRUCKERS - 0.11%
C.H. Robinson Worldwide, Inc. 900 33,075
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT - 0.28%
Allied Waste Industries, Inc.(b) 2,700 $ 53,325
- ------------------------------------------------------------------
Republic Services, Inc.(b) 1,200 29,700
- ------------------------------------------------------------------
83,025
- ------------------------------------------------------------------
WATER UTILITIES - 0.23%
Azurix Corp.(b) 3,300 66,000
- ------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $9,292,386) 10,700,956
- ------------------------------------------------------------------
DOMESTIC PREFERRED STOCKS - 0.75%
CHEMICALS (DIVERSIFIED) - 0.14%
Monsanto Co., $2.60 Conv. Pfd. 1,000 40,125
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 0.16%
PSINet, Inc., $3.375 Conv. Pfd. 1,000 48,250
- ------------------------------------------------------------------
PERSONAL CARE - 0.12%
Estee Lauder Co., $3.805 Conv. Pfd. 400 34,500
- ------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.08%
United Rentals Trust I, $3.25 Conv. Pfd.(a)
(Acquired 12/10/98; Cost $19,375) 500 23,125
- ------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.22
Global Telesystems Group, Inc., $3.625 Conv.
(Acquired 05/05/99; Cost $54,136) 1,000 66,000
- ------------------------------------------------------------------
TELEPHONE - 0.03%
Nextlink Communications, Inc., $3.25 Conv. Pfd. 100 9,113
- ------------------------------------------------------------------
Total Domestic Preferred Stocks
(Cost $199,132) 221,113
- ------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE
BONDS NOTES - 3.62%(c)
AUSTRALIA - 0.21%
New South Wales Treasury Corp. (Sovereign
Debt), Gtd. Notes, 7.00%, 04/01/04 90,000 61,582
- ------------------------------------------------------------------
CANADA - 0.12%
Clearnet Communications, Inc. (Telephone),
Unsec. Sr. Disc. Notes, 5.303%, 02/15/09(d) 50,000 18,663
- ------------------------------------------------------------------
GMAC Canada Ltd. (Financial Diversified), Sr.
Unsec. Gtd. Unsub. Notes, 6.50%, 03/23/04 10,000 15,794
- ------------------------------------------------------------------
34,457
- ------------------------------------------------------------------
DENMARK - 0.36%
Kingdom of Denmark (Sovereign Debt), Bonds,
7.00%, 12/15/04 670,000 104,486
- ------------------------------------------------------------------
GERMANY - 0.39%
Bundesrepublik Deutschland (Sovereign Debt),
Bonds, 7.25%, 10/21/02 50,000 57,218
- ------------------------------------------------------------------
Treuhandanstalt (Sovereign Debt), Gtd. Notes,
6.00%, 11/12/03 50,000 55,736
- ------------------------------------------------------------------
112,954
- ------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-14
<PAGE> 96
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NETHERLANDS - 0.39%
Dresdner Finance B.V. (Banks - Major Regional), Series 11
Gtd. Notes, 3.072%, 07/30/03 EUR 60,000 $ 61,695
- --------------------------------------------------------------------------------
Hypovereins Finance N.V. (Banks - Major Regional), Gtd.
Series E Medium Term Notes, 6.00%, 03/12/07 DEM 25,000 13,859
- --------------------------------------------------------------------------------
Mannesmann Finance B.V. (Machinery - Diversified), Gtd.
Unsec. Unsub. Notes, 4.75%, 05/27/09 EUR 10,000 9,850
- --------------------------------------------------------------------------------
Prudential Financial B.V. (Investment Banking/Brokerage),
Sr. Unsec. Gtd. Bonds, 9.375%, 06/04/07 GBP 15,000 27,953
- --------------------------------------------------------------------------------
113,357
- --------------------------------------------------------------------------------
NEW ZEALAND - 0.41%
International Bank for Reconstruction & Development
(Banks - Money Center), Unsec. Notes, 5.50%, 04/15/04NZD 200,000 100,248
- --------------------------------------------------------------------------------
New Zealand Government (Sovereign Debt), Bonds, 10.00%,
03/15/02 NZD 20,000 11,716
- --------------------------------------------------------------------------------
Bonds, 8.00%, 04/15/04 NZD 15,000 8,515
- --------------------------------------------------------------------------------
120,479
- --------------------------------------------------------------------------------
SWEDEN - 0.63%
AB Spintab (Banks - Regional), Series 161, Unsec. Deb.,
7.50%, 06/15/04 SEK 600,000 77,548
- --------------------------------------------------------------------------------
Stadshypotek A.B. (Banks - Regional), Series 1562, Notes,
3.50%, 09/15/04 SEK 1,000,000 108,214
- --------------------------------------------------------------------------------
185,762
- --------------------------------------------------------------------------------
UNITED KINGDOM - 0.87%
European Investment Bank (Banks - Money Center), Unsec.
Unsub. Notes, 7.625%, 12/07/07 GBP 30,000 52,512
- --------------------------------------------------------------------------------
Lloyds Bank PLC (Banks - Major Regional), Sub. Notes,
5.25%, 07/14/08 DEM 50,000 26,317
- --------------------------------------------------------------------------------
Merrill Lynch & Co. (Investment Banking/Brokerage), Sr.
Unsec. Unsub. Notes, 7.375%, 12/17/07 GBP 55,000 90,810
- --------------------------------------------------------------------------------
National Power PLC (Electric Companies), Sr. Unsec.
Unsub. Notes, 8.00%, 02/21/07 AUD 100,000 67,754
- --------------------------------------------------------------------------------
Union Bank Switzerland London, (Banks - Major Regional),
Unsec. Sub. Notes, 7.375%, 11/26/04 GBP 10,000 16,456
- --------------------------------------------------------------------------------
253,849
- --------------------------------------------------------------------------------
UNITED STATES - 0.24%
General Electric Capital Corp. (Financial - Diversified),
Sr. Unsec. Unsub. Notes, 6.00%, 02/05/03 GBP 20,000 31,524
- --------------------------------------------------------------------------------
Global Notes (Sovereign Debt), Unsec. Sr. Notes, 6.875%,
06/07/02 GBP 25,000 40,394
- --------------------------------------------------------------------------------
71,918
- --------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Non-Convertible Bonds
& Notes (Cost $1,112,965) 1,058,844
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES -
0.29%
FRANCE - 0.11%
France Telecom (Telephone), Conv. Bonds,
2.00%, 01/01/04 FRF 183,680 $ 31,959
- --------------------------------------------------------------------------------
NETHERLANDS - 0.18%
Koninklijke Ahold N.V. (Retail-Food Chains), Sub. Notes,
3.00%, 09/30/03 NLG 91,000 52,665
- --------------------------------------------------------------------------------
Total Non - U.S. Dollar Denominated Convertible Bonds &
Notes (Cost $89,464) 84,624
- --------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.16%
BERMUDA - 0.48%
Global Crossing Ltd. (Telecommunications - Long
Distance)(b) 3,329 141,899
- --------------------------------------------------------------------------------
CANADA - 0.24%
AT&T Canada, Inc. (Telephone)(b) 900 57,656
- --------------------------------------------------------------------------------
Cadillac Fairview Corp. (Land Development)(b) 600 11,325
- --------------------------------------------------------------------------------
68,981
- --------------------------------------------------------------------------------
CAYMAN ISLANDS - 0.03%
Scottish Annuity & Life Holdings, Ltd. (Insurance -
Life/Health) 800 8,600
- --------------------------------------------------------------------------------
FINLAND - 0.69%
Fortum Corp. (Electric Companies) 2,100 10,150
- --------------------------------------------------------------------------------
Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 2,100 192,281
- --------------------------------------------------------------------------------
202,431
- --------------------------------------------------------------------------------
FRANCE - 0.50%
AXA (Insurance - Multi-Line) 340 41,453
- --------------------------------------------------------------------------------
AXA-ADR (Insurance - Multi-Line) 1,200 74,775
- --------------------------------------------------------------------------------
France Telecom S.A. - ADR (Communications Equipment) 400 30,800
- --------------------------------------------------------------------------------
147,028
- --------------------------------------------------------------------------------
GERMANY - 0.18%
DaimlerChrysler A.G. (Automobiles) 587 52,170
- --------------------------------------------------------------------------------
NETHERLANDS - 0.69%
Equant N.V. (Computers - Networking)(b) 400 36,854
- --------------------------------------------------------------------------------
Equant N.V. - ADR (Computers - Networking)(b) 700 65,887
- --------------------------------------------------------------------------------
Libertel N.V. (Telecommunications - Cellular/Wireless)(b) 5,000 97,907
- --------------------------------------------------------------------------------
200,648
- --------------------------------------------------------------------------------
SOUTH KOREA - 0.19%
Korea Telecom Corp. - ADR (Telephone)(b) 1,384 55,360
- --------------------------------------------------------------------------------
UNITED KINGDOM - 0.16%
SmithKline Beecham PLC - ADR (Health Care - Drugs - Major
Pharmaceuticals) 700 46,244
- --------------------------------------------------------------------------------
Total Foreign Stocks (Cost $774,796) 923,361
- --------------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-15
<PAGE> 97
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 3.63%
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 2.14%
Medium Term Notes, 6.18%, 03/15/01 $ 300,000 $ 301,956
- --------------------------------------------------------------------------------
Pass through certificates, 6.50%, 11/01/28 334,587 322,980
- --------------------------------------------------------------------------------
624,936
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 0.67%
Pass through certificates, 6.50%, 03/15/29 203,735 196,095
- --------------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.82%
Debentures, 8.35%, 01/31/01 230,000 238,800
- --------------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $1,086,449) 1,059,831
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 2.78%
U.S. TREASURY BONDS - 0.62%
5.50%, 08/15/28 200,000 182,818
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES - 2.16%
15.75%, 11/15/01 25,000 30,565
- --------------------------------------------------------------------------------
5.75%, 04/30/03(e) 600,000 600,797
- --------------------------------------------------------------------------------
631,362
- --------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $843,726) 814,180
- --------------------------------------------------------------------------------
Total Investments, Excluding Repurchase Agreement (Cost
$22,847,727) 24,081,910
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 16.39%(f)
Dean Witter Reynolds, Inc., 4.85%, 07/01/99(g)
(Cost $4,794,569) 4,794,569 4,794,569
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.70% 28,876,479
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.30% 381,361
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $29,257,840
- --------------------------------------------------------------------------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) 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 06/30/99 was $1,636,542
which represented 5.59% of the Fund's net assets.
(b) Non-income producing security.
(c) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(d) Discounted bond at purchase. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(e) A portion of the principal balance was pledged as collateral to cover
margin requirements for open future contracts. See Note 8.
(f) 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 is at least 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.
(g) Joint repurchase agreement entered into 06/30/99 with a maturing value of
$100,013,472. Collateralized by U.S. Government obligations.
Investment Abbreviations:
ADR - American Depositary Receipt
AUD - Australian Dollar
CAD - Canadian Dollars
Conv. - Convertible
Deb. - Debentures
DEM - German Deutsche Mark
Disc. - Discounted
DKK - Danish Krone
EUR - Euro
FRF - French Franc
GBP - British Pound Sterling
Gtd. - Guaranteed
NLG - Dutch Guilder
NZD - New Zealand Dollar
Pfd. - Preferred
Sec. - Secured
SEK - Swedish Krona
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
See Notes to Financial Statements.
AIM V.I. BALANCED FUND
FS-16
<PAGE> 98
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreement, at market value (cost
$22,847,727) $24,081,910
- -------------------------------------------------------------------------------
Repurchase agreement (cost $4,794,569) 4,794,569
- -------------------------------------------------------------------------------
Receivables for:
Investments sold 175,493
- -------------------------------------------------------------------------------
Capital stock sold 311,703
- -------------------------------------------------------------------------------
Dividends and interest 209,982
- -------------------------------------------------------------------------------
Forward currency contracts - closed 7,180
- -------------------------------------------------------------------------------
Forward currency contracts - open 5,851
- -------------------------------------------------------------------------------
Variation margin 68,750
- -------------------------------------------------------------------------------
Investment for deferred compensation plan 4,119
- -------------------------------------------------------------------------------
Other assets 29,534
- -------------------------------------------------------------------------------
Total assets 29,689,091
- -------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 374,205
- -------------------------------------------------------------------------------
Forward currency contracts - closed 907
- -------------------------------------------------------------------------------
Deferred compensation plan 4,119
- -------------------------------------------------------------------------------
Accrued advisory fees 29,120
- -------------------------------------------------------------------------------
Accrued directors' fees 2,100
- -------------------------------------------------------------------------------
Accrued operating expenses 20,800
- -------------------------------------------------------------------------------
Total liabilities 431,251
- -------------------------------------------------------------------------------
Net assets applicable to shares outstanding $29,257,840
===============================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- -------------------------------------------------------------------------------
Outstanding 2,485,880
===============================================================================
Net asset value, offering and redemption price per share $ 11.77
===============================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 347,458
- ----------------------------------------------------------------------------
Dividends (net of foreign withholding tax $799) 31,778
- ----------------------------------------------------------------------------
Total investment income 379,236
- ----------------------------------------------------------------------------
EXPENSES:
Advisory fees 71,737
- ----------------------------------------------------------------------------
Administrative services fees 24,726
- ----------------------------------------------------------------------------
Custodian fees 17,985
- ----------------------------------------------------------------------------
Directors' fees and expenses 4,227
- ----------------------------------------------------------------------------
Professional fees 15,986
- ----------------------------------------------------------------------------
Other 7,869
- ----------------------------------------------------------------------------
Total expenses 142,530
- ----------------------------------------------------------------------------
Less: Expenses paid indirectly (44)
- ----------------------------------------------------------------------------
Fees waived by advisor (29,276)
- ----------------------------------------------------------------------------
Net expenses 113,210
- ----------------------------------------------------------------------------
Net investment income 266,026
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (119,060)
- ----------------------------------------------------------------------------
Foreign currencies (2,190)
- ----------------------------------------------------------------------------
Forward contracts 2,411
- ----------------------------------------------------------------------------
Futures contracts 290,025
- ----------------------------------------------------------------------------
Option contracts (1,319)
- ----------------------------------------------------------------------------
169,867
- ----------------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 652,827
- ----------------------------------------------------------------------------
Foreign currencies 5,788
- ----------------------------------------------------------------------------
Futures contracts 20,338
- ----------------------------------------------------------------------------
678,953
- ----------------------------------------------------------------------------
Net gain from investment securities and futures contracts 848,820
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,114,846
============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. BALANCED FUND
FS-17
<PAGE> 99
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the period May 1, 1998 (date
operations commenced) through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 266,026 $ 105,191
- --------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 169,867 135,495
- --------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 678,953 700,688
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,114,846 941,374
- --------------------------------------------------------------------------------
Dividends from net investment income -- (115,294)
- --------------------------------------------------------------------------------
Distributions from net realized gains -- (20,295)
- --------------------------------------------------------------------------------
Net increase from capital stock transactions 17,799,658 9,537,551
- --------------------------------------------------------------------------------
Net increase in net assets 18,914,504 10,343,336
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 10,343,336 --
- --------------------------------------------------------------------------------
End of period $29,257,840 $10,343,336
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $27,336,079 $ 9,536,421
- --------------------------------------------------------------------------------
Undistributed net investment income 263,236 (2,790)
- --------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and options
contracts 278,884 109,017
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and futures contracts 1,379,641 700,688
- --------------------------------------------------------------------------------
$29,257,840 $10,343,336
- --------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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. Balanced Fund (the "Fund"). The Fund's investment objective is
to achieve as high a total return to investors as possible, consistent with
preservation of capital. The Fund commenced operations on May 1, 1998.
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 closing bid price on that day. 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
closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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. Occasionally, events affecting the values of such securities and
such
AIM V.I. BALANCED FUND
FS-18
<PAGE> 100
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. Such distributions are
declared and paid annually.
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 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. 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.
F. 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.
G. Bond Premiums - It is the policy of the Fund not to amortize market
premiums on bonds for financial reporting purposes.
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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.
AIM V.I. BALANCED FUND
FS-19
<PAGE> 101
Outstanding forward currency contracts at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO
SETTLEMENT ----------------- UNREALIZED
DATE DELIVER RECEIVE VALUE APPRECIATION
----------- --------------------------------
<S> <C> <C> <C> <C>
7/22/99 SEK 1,500,000 180,690 176,956 3,734
8/26/99 NZD 50,000 27,380 26,502 878
10/6/99 GBP 175,000 277,333 276,094 1,239
------------- -----
485,403 479,552 5,851
======= ======= =====
</TABLE>
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 $150 million of the Fund's average daily net assets, plus 0.50% of
the Fund's average daily net assets in excess of $150 million. During the six
months ended June 30, 1999, AIM waived fees of $29,276.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $21,885 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,866 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 $44 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $44 during the six months ended June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the six months ended June 30, 1999 was
$18,705,015 and $2,693,975, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,970,046
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (735,863)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $1,234,183
=========================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the period May 1, 1998 (date operations commenced) through December 31,
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold 1,615,711 $18,469,709 954,695 $9,785,741
- -----------------------------------------------------------------------
Issued as reinvestment of
distributions -- -- 12,578 135,589
- -----------------------------------------------------------------------
Reacquired (58,458) (670,051) (38,646) (383,779)
- -----------------------------------------------------------------------
1,557,253 $17,799,658 928,627 $9,537,551
=======================================================================
</TABLE>
NOTE 8 - OPEN FUTURES CONTRACTS
On June 30, 1999, $3,363,750 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>
NUMBER OF UNREALIZED
CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION
--------- -----------------------------------
<S> <C> <C> <C>
S&P 500 Index 11 September 99/Buy 140,113
======================================================
</TABLE>
NOTE 9 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the period ended June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION
CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period -- $ --
- -------------------------------------------
Written 6 1,782
- -------------------------------------------
Closed (6) (1,782)
- -------------------------------------------
End of period -- $ --
===========================================
</TABLE>
AIM V.I. BALANCED FUND
FS-20
<PAGE> 102
NOTE 10 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period ended June 30, 1999 and the period May 1, 1998 (date
operation commenced) through December 31, 1998.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999(a) 1998
-------- ------------
<S> <C> <C>
Net asset value, beginning of period $ 11.14 $ 10.00
- -------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.12
- -------------------------------------------------------------------------
Net gains on securities (both realized and
unrealized) 0.47 1.18
- -------------------------------------------------------------------------
Total from investment operations 0.63 1.30
- -------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income -- (0.14)
- -------------------------------------------------------------------------
Distributions from net realized gains -- (0.02)
- -------------------------------------------------------------------------
Total Distributions -- (0.16)
- -------------------------------------------------------------------------
Net asset value, end of period $ 11.77 $ 11.14
=========================================================================
Total return(b) 5.66% 13.02%
=========================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $29,258 $10,343
=========================================================================
Ratio of expenses to average net assets(c) 1.18%(d) 1.18%(e)
=========================================================================
Ratio of net investment income to average net
assets(f) 2.78%(d) 3.71%(e)
=========================================================================
Portfolio turnover rate 16% 9%
=========================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.49% (annualized) and 2.83% (annualized) for 1999-1998.
(d) Ratios are annualized and based on average net assets of $19,288,525.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursement were 2.47% (annualized) and 2.07% (annualized) for 1999-1998.
AIM V.I. BALANCED FUND
FS-21
<PAGE> 103
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 91.53%
AIRLINES - 0.26%
Southwest Airlines Co. 65,500 $ 2,038,688
- ----------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.74%
Danaher Corp. 63,900 3,714,187
- ----------------------------------------------------------------------
SPX Corp.(a) 25,000 2,087,500
- ----------------------------------------------------------------------
5,801,687
- ----------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.50%
Northern Trust Corp. 40,000 3,880,000
- ----------------------------------------------------------------------
BANKS (REGIONAL) - 2.78%
AmSouth Bancorporation 57,450 1,332,122
- ----------------------------------------------------------------------
Bank United Corp. - Class A 50,000 2,009,375
- ----------------------------------------------------------------------
Compass Bancshares, Inc. 65,000 1,771,250
- ----------------------------------------------------------------------
First Tennessee National Corp. 70,000 2,681,875
- ----------------------------------------------------------------------
Firstar Corp. 128,000 3,584,000
- ----------------------------------------------------------------------
Golden State Bancorp, Inc.(a) 78,000 1,716,000
- ----------------------------------------------------------------------
Mercantile Bankshares Corp. 26,000 919,750
- ----------------------------------------------------------------------
North Fork Bancorporation, Inc. 127,700 2,721,606
- ----------------------------------------------------------------------
Old Kent Financial Corp. 42,315 1,771,941
- ----------------------------------------------------------------------
TCF Financial Corp. 40,000 1,115,000
- ----------------------------------------------------------------------
Zions Bancorporation 33,200 2,108,200
- ----------------------------------------------------------------------
21,731,119
- ----------------------------------------------------------------------
BIOTECHNOLOGY - 0.88%
Biogen, Inc.(a) 102,200 6,572,738
- ----------------------------------------------------------------------
Celera Genomics(a) 17,150 277,616
- ----------------------------------------------------------------------
6,850,354
- ----------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 3.37%
Adelphia Communications Corp.(a) 50,000 3,181,250
- ----------------------------------------------------------------------
AT&T Corp. - Liberty Media Group - Class A(a) 154,000 5,659,500
- ----------------------------------------------------------------------
Chancellor Media Corp. - Class A(a) 73,072 4,028,094
- ----------------------------------------------------------------------
Cox Communications, Inc. - Class A(a) 24,000 883,500
- ----------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 47,100 3,573,713
- ----------------------------------------------------------------------
TCA Cable TV, Inc. 30,400 1,687,200
- ----------------------------------------------------------------------
Univision Communications, Inc.(a) 74,900 4,943,400
- ----------------------------------------------------------------------
USA Networks, Inc.(a) 59,600 2,391,450
- ----------------------------------------------------------------------
26,348,107
- ----------------------------------------------------------------------
BUILDING MATERIALS - 0.23%
Masco Corp. 62,400 1,801,800
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT - 7.02%
ADC Telecommunications, Inc.(a) 76,000 $ 3,462,750
- ----------------------------------------------------------------------
Comverse Technology, Inc.(a) 76,650 5,787,075
- ----------------------------------------------------------------------
Corning, Inc. 163,200 11,444,400
- ----------------------------------------------------------------------
General Instrument Corp.(a) 95,000 4,037,500
- ----------------------------------------------------------------------
Lucent Technologies, Inc. 196,185 13,230,226
- ----------------------------------------------------------------------
Motorola, Inc. 40,000 3,790,000
- ----------------------------------------------------------------------
QUALCOMM, Inc.(a) 25,700 3,687,950
- ----------------------------------------------------------------------
Scientific-Atlanta, Inc. 99,300 3,574,800
- ----------------------------------------------------------------------
Uniphase Corp.(a) 35,300 5,859,800
- ----------------------------------------------------------------------
54,874,501
- ----------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.69%
Apple Computer, Inc.(a) 50,500 2,338,781
- ----------------------------------------------------------------------
Comdisco, Inc. 118,600 3,039,125
- ----------------------------------------------------------------------
5,377,906
- ----------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.28%
VeriSign, Inc.(a) 25,300 2,182,125
- ----------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.58%
Adaptec, Inc.(a) 102,200 3,608,938
- ----------------------------------------------------------------------
EMC Corp.(a) 178,000 9,790,000
- ----------------------------------------------------------------------
Lexmark International Group, Inc.(a) 102,400 6,764,800
- ----------------------------------------------------------------------
20,163,738
- ----------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 9.46%
America Online, Inc. 38,000 4,199,000
- ----------------------------------------------------------------------
At Home Corp.(a) 50,000 2,696,872
- ----------------------------------------------------------------------
BMC Software, Inc.(a) 204,600 11,048,400
- ----------------------------------------------------------------------
Citrix Systems, Inc.(a) 153,400 8,667,100
- ----------------------------------------------------------------------
Compuware Corp.(a) 254,600 8,099,462
- ----------------------------------------------------------------------
Electronic Arts, Inc.(a) 51,000 2,766,750
- ----------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 97,300 4,998,787
- ----------------------------------------------------------------------
Intuit, Inc.(a) 55,000 4,956,875
- ----------------------------------------------------------------------
Lycos, Inc.(a) 61,000 5,604,375
- ----------------------------------------------------------------------
Novell, Inc.(a) 96,800 2,565,200
- ----------------------------------------------------------------------
RealNetworks, Inc.(a) 29,000 1,997,375
- ----------------------------------------------------------------------
Siebel Systems, Inc.(a) 30,000 1,991,250
- ----------------------------------------------------------------------
Sterling Software, Inc.(a) 63,600 1,697,325
- ----------------------------------------------------------------------
Synopsys, Inc.(a) 77,000 4,249,437
- ----------------------------------------------------------------------
Verio, Inc.(a) 35,000 2,432,500
- ----------------------------------------------------------------------
Veritas Software Corp.(a) 63,200 6,000,050
- ----------------------------------------------------------------------
73,970,758
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-22
<PAGE> 104
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.07%
Action Performance Companies, Inc.(a) 16,000 $ 528,000
- -------------------------------------------------------------------
CONSUMER FINANCE - 2.38%
Capital One Financial Corp. 121,800 6,782,737
- -------------------------------------------------------------------
Countrywide Credit Industries, Inc. 32,500 1,389,375
- -------------------------------------------------------------------
Providian Financial Corp. 86,300 8,069,050
- -------------------------------------------------------------------
SLM Holding Corp. 51,050 2,338,728
- -------------------------------------------------------------------
18,579,890
- -------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.20%
Patterson Dental Co.(a) 7,300 253,675
- -------------------------------------------------------------------
U.S. Foodservice(a) 31,200 1,329,900
- -------------------------------------------------------------------
1,583,575
- -------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.82%
American Power Conversion Corp.(a) 254,600 5,123,825
- -------------------------------------------------------------------
Conexant Systems, Inc.(a) 57,000 3,309,562
- -------------------------------------------------------------------
Sanmina Corp.(a) 48,300 3,664,762
- -------------------------------------------------------------------
Solectron Corp.(a) 153,400 10,229,862
- -------------------------------------------------------------------
Symbol Technologies, Inc. 133,875 4,936,641
- -------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 125,000 2,625,000
- -------------------------------------------------------------------
29,889,652
- -------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.86%
PE Corp-PE Biosystems Group 40,000 4,590,000
- -------------------------------------------------------------------
Waters Corp.(a) 40,000 2,125,000
- -------------------------------------------------------------------
6,715,000
- -------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 7.13%
Altera Corp.(a) 134,400 4,947,600
- -------------------------------------------------------------------
Analog Devices, Inc.(a) 151,600 7,608,425
- -------------------------------------------------------------------
Atmel Corp.(a) 48,400 1,267,475
- -------------------------------------------------------------------
Cypress Semiconductor Corp.(a) 96,200 1,587,300
- -------------------------------------------------------------------
Linear Technology Corp. 102,000 6,859,500
- -------------------------------------------------------------------
LSI Logic Corp.(a) 100,700 4,644,787
- -------------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 76,600 5,093,900
- -------------------------------------------------------------------
Microchip Technology, Inc.(a) 69,100 3,273,612
- -------------------------------------------------------------------
National Semiconductor Corp.(a) 105,000 2,657,812
- -------------------------------------------------------------------
PMC-Sierra, Inc.(a) 153,000 9,017,437
- -------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 43,100 2,906,556
- -------------------------------------------------------------------
Xilinx, Inc.(a) 102,200 5,850,950
- -------------------------------------------------------------------
55,715,354
- -------------------------------------------------------------------
ENTERTAINMENT - 0.49%
SFX Entertainment, Inc. - Class A(a) 60,000 3,840,000
- -------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 1.67%
Applied Materials, Inc.(a) 43,900 3,243,112
- -------------------------------------------------------------------
KLA-Tencor Corp.(a) 59,200 3,840,600
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR) - CONTINUED
Novellus Systems, Inc.(a) 22,000 $ 1,501,500
- ---------------------------------------------------------------------
Teradyne, Inc.(a) 62,600 4,491,550
- ---------------------------------------------------------------------
13,076,762
- ---------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 0.66%
FINOVA Group, Inc. 54,600 2,873,325
- ---------------------------------------------------------------------
MGIC Investment Corp. 46,633 2,267,530
- ---------------------------------------------------------------------
5,140,855
- ---------------------------------------------------------------------
FOODS - 0.24%
Keebler Foods Co.(a) 61,600 1,871,100
- ---------------------------------------------------------------------
FOOTWEAR - 0.51%
Nike, Inc. - Class B 63,200 4,001,350
- ---------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.34%
Mandalay Resort Group(a) 91,600 1,935,050
- ---------------------------------------------------------------------
MGM Grand, Inc.(a) 15,200 744,800
- ---------------------------------------------------------------------
2,679,850
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.68%
Alpharma, Inc. - Class A 44,750 1,591,422
- ---------------------------------------------------------------------
Forest Laboratories, Inc.(a) 22,400 1,036,000
- ---------------------------------------------------------------------
Jones Pharma Inc. 120,500 4,744,687
- ---------------------------------------------------------------------
Medicis Pharmaceutical Corp. - Class A(a) 64,050 1,625,269
- ---------------------------------------------------------------------
MedImmune, Inc.(a) 30,000 2,032,500
- ---------------------------------------------------------------------
Mylan Laboratories, Inc. 30,400 805,600
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 38,100 1,335,881
- ---------------------------------------------------------------------
13,171,359
- ---------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.57%
Health Management Associates, Inc. - Class A(a) 109,002 1,226,272
- ---------------------------------------------------------------------
Universal Health Services, Inc. - Class B(a) 68,400 3,266,100
- ---------------------------------------------------------------------
4,492,372
- ---------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.73%
Express Scripts, Inc. - Class A(a) 71,600 4,309,425
- ---------------------------------------------------------------------
Trigon Healthcare, Inc.(a) 38,300 1,393,162
- ---------------------------------------------------------------------
5,702,587
- ---------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.31%
Bausch & Lomb, Inc. 51,100 3,909,150
- ---------------------------------------------------------------------
Biomet, Inc. 114,200 4,539,450
- ---------------------------------------------------------------------
Guidant Corp. 79,200 4,073,850
- ---------------------------------------------------------------------
Henry Schein, Inc.(a) 34,985 1,108,587
- ---------------------------------------------------------------------
Stryker Corp. 50,600 3,042,325
- ---------------------------------------------------------------------
Sybron International Corp.(a) 51,400 1,416,712
- ---------------------------------------------------------------------
18,090,074
- ---------------------------------------------------------------------
HOMEBUILDING - 0.11%
Clayton Homes, Inc. 78,525 898,130
- ---------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-23
<PAGE> 105
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD FURNISHING & APPLIANCES - 0.66%
Leggett & Platt, Inc. 102,200 $ 2,842,437
- ---------------------------------------------------------------
Maytag Corp. 33,800 2,355,438
- ---------------------------------------------------------------
5,197,875
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.25%
Dial Corp. (The) 53,000 1,970,937
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.80%
AFLAC, Inc. 47,200 2,259,700
- ---------------------------------------------------------------
Provident Companies, Inc. 76,600 3,064,000
- ---------------------------------------------------------------
Torchmark Corp. 28,000 955,500
- ---------------------------------------------------------------
6,279,200
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 2.55%
Bear Stearns Companies, Inc. 60,000 2,805,000
- ---------------------------------------------------------------
Lehman Brothers Holdings, Inc. 27,000 1,680,750
- ---------------------------------------------------------------
Schwab (Charles) Corp. 117,500 12,910,312
- ---------------------------------------------------------------
TD Waterhouse Group, Inc.(a) 100,000 2,506,245
- ---------------------------------------------------------------
19,902,307
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT - 1.09%
Federated Investors, Inc. - Class B 105,400 1,890,613
- ---------------------------------------------------------------
Franklin Resources, Inc. 60,000 2,437,500
- ---------------------------------------------------------------
T. Rowe Price Associates, Inc. 109,800 4,213,575
- ---------------------------------------------------------------
8,541,688
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 1.59%
Callaway Golf Co. 106,700 1,560,488
- ---------------------------------------------------------------
Harley-Davidson, Inc. 120,000 6,525,000
- ---------------------------------------------------------------
Hasbro, Inc. 50,000 1,396,875
- ---------------------------------------------------------------
Mattel, Inc. 104,000 2,749,500
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 5,600 220,150
- ---------------------------------------------------------------
12,452,013
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.15%
Pentair, Inc. 25,500 1,166,625
- ---------------------------------------------------------------
NATURAL GAS - 0.31%
El Paso Energy Corp. 68,000 2,392,750
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 3.15%
Baker Hughes, Inc. 105,000 3,517,500
- ---------------------------------------------------------------
BJ Services Co.(a) 102,000 3,002,625
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 125,000 4,632,812
- ---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 40,000 1,135,000
- ---------------------------------------------------------------
Global Industries Ltd.(a) 143,000 1,832,188
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 115,000 2,120,313
- ---------------------------------------------------------------
Smith International, Inc.(a) 85,000 3,692,188
- ---------------------------------------------------------------
Transocean Offshore, Inc. 50,000 1,312,500
- ---------------------------------------------------------------
Varco International, Inc.(a) 140,000 1,531,250
- ---------------------------------------------------------------
Weatherford International, Inc.(a) 50,000 1,831,250
- ---------------------------------------------------------------
24,607,626
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION) - 0.41%
Apache Corp. 67,000 $ 2,613,000
- ------------------------------------------------------------------
Santa Fe Snyder Corp.(a) 80,000 610,000
- ------------------------------------------------------------------
3,223,000
- ------------------------------------------------------------------
PUBLISHING - 0.69%
Reader's Digest Association, Inc. - Class A 60,000 2,385,000
- ------------------------------------------------------------------
The McGraw-Hill Companies, Inc. 56,200 3,031,288
- ------------------------------------------------------------------
5,416,288
- ------------------------------------------------------------------
RAILROADS - 0.90%
Kansas City Southern Industries, Inc. 110,000 7,019,375
- ------------------------------------------------------------------
RESTAURANTS - 1.53%
Brinker International, Inc.(a) 102,200 2,778,563
- ------------------------------------------------------------------
Outback Steakhouse, Inc.(a) 99,800 3,923,388
- ------------------------------------------------------------------
Papa John's International, Inc.(a) 31,100 1,389,781
- ------------------------------------------------------------------
Starbucks Corp.(a) 103,200 3,876,450
- ------------------------------------------------------------------
11,968,182
- ------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.51%
Lowe's Companies, Inc. 70,000 3,968,125
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 2.34%
Best Buy Co., Inc.(a) 116,000 7,830,000
- ------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 103,000 4,532,000
- ------------------------------------------------------------------
Circuit City Stores-Circuit City Group 63,400 5,896,200
- ------------------------------------------------------------------
18,258,200
- ------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.83%
Federated Department Stores, Inc.(a) 30,000 1,588,125
- ------------------------------------------------------------------
Kohl's Corp.(a) 64,000 4,940,000
- ------------------------------------------------------------------
6,528,125
- ------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.95%
Consolidated Stores Corp.(a) 100,200 2,705,400
- ------------------------------------------------------------------
Dollar General Corp. 83,300 2,415,700
- ------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 92,475 4,068,900
- ------------------------------------------------------------------
Family Dollar Stores, Inc. 145,600 3,494,400
- ------------------------------------------------------------------
Ross Stores, Inc. 51,400 2,589,275
- ------------------------------------------------------------------
15,273,675
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.37%
Kroger Co.(a) 103,400 2,888,738
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 2.62%
Bed Bath & Beyond, Inc.(a) 140,000 5,390,000
- ------------------------------------------------------------------
eToys, Inc.(a) 32,500 1,324,375
- ------------------------------------------------------------------
Linens 'N Things, Inc.(a) 66,600 2,913,750
- ------------------------------------------------------------------
Payless ShoeSource, Inc.(a) 25,000 1,337,500
- ------------------------------------------------------------------
Staples, Inc.(a) 306,781 9,491,022
- ------------------------------------------------------------------
20,456,647
- ------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-24
<PAGE> 106
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL) - 2.08%
Abercrombie & Fitch Co. - Class A(a) 50,000 $ 2,400,000
- ---------------------------------------------------------------------
Gap, Inc. (The) 38,963 1,962,736
- ---------------------------------------------------------------------
Intimate Brands, Inc. 65,730 3,113,959
- ---------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 117,625 2,999,438
- ---------------------------------------------------------------------
Talbots, Inc. 25,800 983,625
- ---------------------------------------------------------------------
TJX Companies, Inc. 144,300 4,806,994
- ---------------------------------------------------------------------
16,266,752
- ---------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.91%
Astoria Financial Corp. 50,000 2,196,875
- ---------------------------------------------------------------------
Dime Bancorp, Inc. 129,800 2,612,225
- ---------------------------------------------------------------------
GreenPoint Financial Corp. 70,000 2,296,875
- ---------------------------------------------------------------------
7,105,975
- ---------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 2.44%
Interpublic Group of Companies, Inc. 25,500 2,208,938
- ---------------------------------------------------------------------
Lamar Advertising Co.(a) 116,000 4,748,750
- ---------------------------------------------------------------------
Omnicom Group, Inc. 127,300 10,184,000
- ---------------------------------------------------------------------
TMP Worldwide, Inc.(a) 30,000 1,905,000
- ---------------------------------------------------------------------
19,046,688
- ---------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.81%
Apollo Group, Inc. - Class A(a) 65,500 1,739,844
- ---------------------------------------------------------------------
ChoicePoint, Inc.(a) 31,500 2,114,438
- ---------------------------------------------------------------------
Cintas Corp. 77,100 5,180,156
- ---------------------------------------------------------------------
Convergys Corp.(a) 37,800 727,650
- ---------------------------------------------------------------------
Galileo International, Inc. 40,000 2,137,500
- ---------------------------------------------------------------------
Viad Corp. 74,100 2,292,469
- ---------------------------------------------------------------------
14,192,057
- ---------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 0.68%
Ciber, Inc.(a) 49,300 942,863
- ---------------------------------------------------------------------
Policy Management Systems Corp.(a) 29,100 873,000
- ---------------------------------------------------------------------
SunGard Data Systems, Inc.(a) 102,200 3,525,900
- ---------------------------------------------------------------------
5,341,763
- ---------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 4.25%
Affiliated Computer Services, Inc. - Class A(a) 51,500 2,607,188
- ---------------------------------------------------------------------
Ceridian Corp.(a) 108,400 3,543,325
- ---------------------------------------------------------------------
Concord EFS, Inc.(a) 229,800 9,723,413
- ---------------------------------------------------------------------
CSG Systems International, Inc.(a) 109,300 2,862,294
- ---------------------------------------------------------------------
DST Systems, Inc.(a) 30,300 1,905,113
- ---------------------------------------------------------------------
Equifax, Inc. 44,100 1,573,819
- ---------------------------------------------------------------------
Fiserv, Inc.(a) 192,225 6,019,045
- ---------------------------------------------------------------------
National Data Corp. 48,000 2,052,000
- ---------------------------------------------------------------------
Paychex, Inc. 92,962 2,963,164
- ---------------------------------------------------------------------
33,249,361
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SPECIALTY PRINTING - 0.25%
Valassis Communications, Inc.(a) 52,500 $ 1,922,813
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.72%
Crown Castle International Corp.(a) 130,000 2,705,626
- -------------------------------------------------------------------------------
Metromedia Fiber Network, Inc. - Class A(a) 81,000 2,910,938
- -------------------------------------------------------------------------------
5,616,564
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.80%
Global TeleSystems Group, Inc.(a) 77,000 6,237,000
- -------------------------------------------------------------------------------
TELEPHONE - 0.99%
CenturyTel, Inc. 114,900 4,567,275
- -------------------------------------------------------------------------------
Cincinnati Bell, Inc. 37,800 942,638
- -------------------------------------------------------------------------------
NTL Inc.(a) 25,500 2,197,781
- -------------------------------------------------------------------------------
7,707,694
- -------------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.91%
Jones Apparel Group, Inc.(a) 127,800 4,385,138
- -------------------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 36,900 2,712,150
- -------------------------------------------------------------------------------
7,097,288
- -------------------------------------------------------------------------------
TEXTILES (HOME FURNISHINGS) - 0.16%
Shaw Industries, Inc.(a) 77,000 1,270,500
- -------------------------------------------------------------------------------
WASTE MANAGEMENT - 0.27%
Waste Management, Inc. 38,775 2,084,156
- -------------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $475,881,299) 715,646,680
- -------------------------------------------------------------------------------
FOREIGN STOCKS - 1.54%
FINLAND - 0.89%
Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 75,800 6,940,437
- -------------------------------------------------------------------------------
FRANCE - 0.05%
Coflexip S.A.-ADR Manufacturing (Specialized) 10,100 439,350
- -------------------------------------------------------------------------------
ISRAEL - 0.26%
Check Point Software Technologies Ltd.
(Computers - Software & Services)(a) 37,500 2,010,938
- -------------------------------------------------------------------------------
NETHERLANDS - 0.26%
ASM Lithography Holding N.V. (Electronics -
Semiconductors)(a) 34,000 2,018,750
- -------------------------------------------------------------------------------
UNITED KINGDOM - 0.08%
Stolt Comex Seaway, S.A. (Oil & Gas - Exploration &
Production)(a) 40,000 435,000
- -------------------------------------------------------------------------------
Stolt Comex Seaway, S.A.-ADR (Oil & Gas - Exploration &
Production)(a) 20,000 215,000
- -------------------------------------------------------------------------------
650,000
- -------------------------------------------------------------------------------
Total Foreign Stocks (Cost $5,915,783) 12,059,475
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-25
<PAGE> 107
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TIME DEPOSIT - 4.48%
CIBC Oppenheimer Corp.,
5.50%, 07/01/99 (Cost $35,000,000) $35,000,000 $ 35,000,000
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT(b) - 2.30%
CIBC Oppenheimer Corp., 5.00%, 07/01/99(c) (Cost
$17,964,962) 17,964,962 17,964,962
- --------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.85% 780,671,117
==========================================================================
OTHER ASSETS LESS LIABILITIES - 0.15% 1,157,305
==========================================================================
NET ASSETS - 100.00% $781,828,422
==========================================================================
</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 insure 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 06/30/99 with a maturing value of
$50,006,945. Collateralized by U.S. Government obligations.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-26
<PAGE> 108
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $534,762,044) $780,671,117
- ----------------------------------------------------------------------
Receivables for:
Investments sold 3,247,035
- ----------------------------------------------------------------------
Capital stock sold 121,724
- ----------------------------------------------------------------------
Dividends and interest 209,154
- ----------------------------------------------------------------------
Investment for deferred compensation plan 25,924
- ----------------------------------------------------------------------
Other assets 3,586
- ----------------------------------------------------------------------
Total assets 784,278,540
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,013,059
- ----------------------------------------------------------------------
Capital stock reacquired 979,481
- ----------------------------------------------------------------------
Deferred compensation plan 25,924
- ----------------------------------------------------------------------
Options written (Premiums received $55,014) 48,138
- ----------------------------------------------------------------------
Accrued advisory fees 378,472
- ----------------------------------------------------------------------
Accrued directors' fees 2,600
- ----------------------------------------------------------------------
Accrued administrative services fees 1,543
- ----------------------------------------------------------------------
Accrued operating expenses 901
- ----------------------------------------------------------------------
Total liabilities 2,450,118
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $781,828,422
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 28,331,017
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share $ 27.60
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 1,528,477
- -----------------------------------------------------------------------------
Dividends (net of $11,410 foreign withholding tax) 1,130,620
- -----------------------------------------------------------------------------
Total investment income 2,659,097
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,192,484
- -----------------------------------------------------------------------------
Administrative services fees 81,413
- -----------------------------------------------------------------------------
Custodian fees 40,019
- -----------------------------------------------------------------------------
Directors' fees and expenses 6,556
- -----------------------------------------------------------------------------
Other 56,683
- -----------------------------------------------------------------------------
Total expenses 2,377,155
- -----------------------------------------------------------------------------
Less: Expenses paid indirectly (653)
- -----------------------------------------------------------------------------
Net expenses 2,376,502
- -----------------------------------------------------------------------------
Net investment income 282,595
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 10,924,678
- -----------------------------------------------------------------------------
Option contracts 56,376
- -----------------------------------------------------------------------------
10,981,054
- -----------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 55,741,424
- -----------------------------------------------------------------------------
Foreign currencies (59)
- -----------------------------------------------------------------------------
Option contracts 6,877
- -----------------------------------------------------------------------------
55,748,242
- -----------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and
option contracts 66,729,296
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $67,011,891
=============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-27
<PAGE> 109
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-----------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 282,595 $ 631,581
- -------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies and option contracts 10,981,054 22,808,693
- -------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option
contracts 55,748,242 78,385,559
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 67,011,891 101,825,833
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income -- (922,615)
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (16,345,246)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 67,568,528 39,909,953
- -------------------------------------------------------------------------------
Net increase in net assets 134,580,419 124,467,925
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 647,248,003 522,780,078
- -------------------------------------------------------------------------------
End of year $781,828,422 $647,248,003
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $501,871,979 $434,303,451
- -------------------------------------------------------------------------------
Undistributed net investment income 982,957 700,362
- -------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 33,057,595 22,076,541
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 245,915,891 190,167,649
- -------------------------------------------------------------------------------
$781,828,422 $647,248,003
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 closing bid price on that day. 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 closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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
AIM V.I. CAPITAL APPRECIATION FUND
FS-28
<PAGE> 110
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. Such distributions are
declared and paid annually.
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. 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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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 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.
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.
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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $24,338 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$3,785 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.
AIM V.I. CAPITAL APPRECIATION FUND
FS-29
<PAGE> 111
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $653 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $653 during the six months ended June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during six months ended June 30, 1999 was
$303,472,725 and $210,334,406, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $254,151,392
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,651,958)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $245,499,434
===========================================================================
</TABLE>
Cost of investments for tax purposes is $535,171,683.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 7,045,261 $ 179,792,985 4,333,736 $ 99,858,597
- -------------------------------------------------------------------------------
Issued as reinvestment of
distributions -- -- 740,474 17,267,861
- -------------------------------------------------------------------------------
Reacquired (4,403,773) (112,224,457) (3,416,071) (77,216,505)
- -------------------------------------------------------------------------------
2,641,488 $ 67,568,528 1,658,139 $ 39,909,953
- -------------------------------------------------------------------------------
</TABLE>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended June 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION
CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------------
<S> <C> <C>
Beginning of period -- $ --
- ------------------------------------------
Written 803 123,950
- ------------------------------------------
Closed (383) (45,713)
- ------------------------------------------
Expired (165) (23,223)
- ------------------------------------------
End of period 255 $ 55,014
==========================================
</TABLE>
Open call option contracts written at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30,
CONTRACT STRIKE NUMBER OF PREMIUMS 1999 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- --------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nike Inc. - Class B Aug 99 $70 255 $55,014 $48,137 $6,877
- -----------------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-30
<PAGE> 112
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the year ended January 31, 1995.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JANUARY 31,
--------- -------------------------------------- -----------
1999 1998 1997 1996 1995 1995
--------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
- ----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.01 0.02 0.03 0.02 0.04 0.05
- ----------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.39 4.12 2.58 2.89 4.46 (0.54)
- ----------------------------------------------------------------------------------------------
Total from investment
operations 2.40 4.14 2.61 2.91 4.50 (0.49)
- ----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.04) (0.02) (0.03) -- (0.04)
- ----------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.65) (0.27) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions -- (0.69) (0.29) (0.03) -- (0.04)
- ----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 27.60 $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05
==============================================================================================
Total return(a) 9.53% 19.30% 13.51% 17.58% 37.38% (3.91)%
==============================================================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s omitted) $ 781,828 $647,248 $522,642 $370,063 $212,152 $88,177
==============================================================================================
Ratio of expenses to
average net assets 0.67%(b) 0.67% 0.68% 0.73% 0.75%(c) 0.84%
==============================================================================================
Ratio of net investment
income to average net
assets 0.08%(b) 0.11% 0.18% 0.18% 0.39%(c) 0.46%
==============================================================================================
Portfolio turnover rate 32% 83% 65% 59% 37% 81%
==============================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $716,051,232.
(c) Annualized.
AIM V.I. CAPITAL APPRECIATION FUND
FS-31
<PAGE> 113
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCK & OTHER EQUITY
INTERESTS - 91.38%
AEROSPACE/DEFENSE - 0.67%
HEICO Corp. 800 $ 19,400
- --------------------------------------------------------------------
Kroll-O'Gara Co. (The)(a) 600 13,237
- --------------------------------------------------------------------
32,637
- --------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.98%
Dura Automotive Systems, Inc.(a) 700 23,275
- --------------------------------------------------------------------
Keystone Automotive Industries, Inc.(a) 800 13,900
- --------------------------------------------------------------------
Stoneridge, Inc.(a) 800 10,800
- --------------------------------------------------------------------
47,975
- --------------------------------------------------------------------
BANKS (REGIONAL) - 2.13%
Banco Santandr Puerto Rico 600 10,837
- --------------------------------------------------------------------
Bank United Corp. - Class A 700 28,131
- --------------------------------------------------------------------
Colonial BancGroup, Inc. (The) 1,900 26,481
- --------------------------------------------------------------------
Independence Community Bank Corp. 1,600 21,600
- --------------------------------------------------------------------
North Fork Bancorporation, Inc. 800 17,050
- --------------------------------------------------------------------
104,099
- --------------------------------------------------------------------
BEVERAGES (ALCOHOLIC) - 0.54%
Canandaigua Brands, Inc. - Class A(a) 500 26,219
- --------------------------------------------------------------------
BIOTECHNOLOGY - 0.72%
IDEXX Laboratories, Inc.(a) 800 18,650
- --------------------------------------------------------------------
Pharmaceutical Product Development, Inc.(a) 600 16,425
- --------------------------------------------------------------------
35,075
- --------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 3.23%
Citadel Communications Corp.(a) 600 21,712
- --------------------------------------------------------------------
Cox Radio, Inc. - Class A(a) 500 27,125
- --------------------------------------------------------------------
Emmis Communications Corp.(a) 400 19,750
- --------------------------------------------------------------------
Entercom Communications Corp.(a) 600 25,650
- --------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 300 22,762
- --------------------------------------------------------------------
Metro Networks, Inc.(a) 400 21,350
- --------------------------------------------------------------------
Univision Communications, Inc.(a) 300 19,800
- --------------------------------------------------------------------
158,149
- --------------------------------------------------------------------
BUILDING MATERIALS - 0.36%
TJ International, Inc. 300 9,300
- --------------------------------------------------------------------
White Cap Industries, Inc.(a) 700 8,269
- --------------------------------------------------------------------
17,569
- --------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.56%
W.R. Grace & Co.(a) 1,500 27,562
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMEN - 3.09%
Comverse Technology, Inc.(a) 550 $ 41,525
- --------------------------------------------------------------------
Digital Microwave Corp.(a) 1,000 12,750
- --------------------------------------------------------------------
General Instrument Corp.(a) 700 29,750
- --------------------------------------------------------------------
Gilat Satellite Networks Ltd.(a) 400 21,000
- --------------------------------------------------------------------
NorthEast Optic Network, Inc.(a) 1,100 16,569
- --------------------------------------------------------------------
PairGain Technologies, Inc.(a) 1,300 14,950
- --------------------------------------------------------------------
REMEC, Inc.(a) 900 14,512
- --------------------------------------------------------------------
151,056
- --------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.31%
Bell & Howell Co.(a) 400 15,125
- --------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 1.53%
Actel Corp.(a) 1,000 14,750
- --------------------------------------------------------------------
DSP Communications, Inc.(a) 1,000 28,875
- --------------------------------------------------------------------
Jabil Circuit, Inc.(a) 400 18,050
- --------------------------------------------------------------------
QLogic Corp.(a) 100 13,200
- --------------------------------------------------------------------
74,875
- --------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 6.10%
AppNet Systems, Inc.(a) 400 5,375
- --------------------------------------------------------------------
Avant! Corp.(a) 800 10,100
- --------------------------------------------------------------------
Best Software, Inc.(a) 650 10,481
- --------------------------------------------------------------------
Dendrite International, Inc.(a) 500 18,062
- --------------------------------------------------------------------
Eclipsys Corp.(a) 100 2,394
- --------------------------------------------------------------------
Genesys Tellecommunications Laboratories, Inc.(a) 400 10,000
- --------------------------------------------------------------------
HNC Software, Inc.(a) 300 9,244
- --------------------------------------------------------------------
InfoCure Corp.(a) 900 47,644
- --------------------------------------------------------------------
Lycos, Inc.(a) 200 18,375
- --------------------------------------------------------------------
Mentor Graphics Corp.(a) 1,500 19,219
- --------------------------------------------------------------------
Mercury Interactive Corp.(a) 400 14,150
- --------------------------------------------------------------------
Peregrine Systems, Inc.(a) 1,000 25,687
- --------------------------------------------------------------------
Rational Software Corp.(a) 600 19,762
- --------------------------------------------------------------------
Structural Dynamics Research Corp.(a) 1,200 22,275
- --------------------------------------------------------------------
Symantec Corp.(a) 1,300 33,150
- --------------------------------------------------------------------
Transaction Systems Architects, Inc. - Class A(a) 500 19,500
- --------------------------------------------------------------------
Unigraphics Solutions, Inc.(a) 700 13,169
- --------------------------------------------------------------------
298,587
- --------------------------------------------------------------------
CONSUMER FINANCE - 0.96%
American Capital Strategies, Ltd. 200 3,650
- --------------------------------------------------------------------
AmeriCredit Corp.(a) 1,500 24,000
- --------------------------------------------------------------------
Cash America International, Inc. 1,500 19,312
- --------------------------------------------------------------------
46,962
- --------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-32
<PAGE> 114
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD & HEALTH) - 0.39%
Performance Food Group Co.(a) 700 $ 19,031
- --------------------------------------------------------
ELECTRIC COMPANIES - 0.50%
Avista Corp. 1,500 24,375
- --------------------------------------------------------
ELECTRICAL EQUIPMENT - 4.17%
Conexant Systems, Inc.(a) 500 29,031
- --------------------------------------------------------
Cree Research, Inc.(a) 500 38,469
- --------------------------------------------------------
DII Group, Inc.(a) 600 22,387
- --------------------------------------------------------
Oak Industries, Inc.(a) 500 21,844
- --------------------------------------------------------
PCD, Inc.(a) 300 3,300
- --------------------------------------------------------
Pinnacle Systems, Inc.(a) 600 20,175
- --------------------------------------------------------
Sawtek, Inc.(a) 500 22,937
- --------------------------------------------------------
SCI Systems, Inc.(a) 400 19,000
- --------------------------------------------------------
SLI, Inc.(a) 1,000 27,000
- --------------------------------------------------------
204,143
- --------------------------------------------------------
ELECTRONICS (DEFENSE) - 0.61%
Aeroflex, Inc.(a) 1,500 29,625
- --------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 2.14%
Alpha Industries, Inc.(a) 700 33,337
- --------------------------------------------------------
Methode Electronics, Inc. - Class A 500 11,437
- --------------------------------------------------------
Quanta Services, Inc.(a) 1,100 48,400
- --------------------------------------------------------
Varian, Inc.(a) 300 4,050
- --------------------------------------------------------
Varian Medical Systems, Inc. 300 7,575
- --------------------------------------------------------
104,799
- --------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 1.76%
Micrel, Inc.(a) 300 22,200
- --------------------------------------------------------
Microchip Technology, Inc.(a) 800 37,900
- --------------------------------------------------------
Unitrode Corp.(a) 900 25,819
- --------------------------------------------------------
85,919
- --------------------------------------------------------
ENTERTAINMENT - 1.28%
LodgeNet Entertainment Corp.(a) 400 5,575
- --------------------------------------------------------
Loews Cineplex Entertainment Corp.(a) 1,300 14,137
- --------------------------------------------------------
Pixar, Inc.(a) 400 17,250
- --------------------------------------------------------
SFX Entertainment, Inc. - Class A(a) 400 25,600
- --------------------------------------------------------
62,562
- --------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.39%
DuPont Photomasks, Inc.(a) 100 4,787
- --------------------------------------------------------
Teradyne, Inc.(a) 200 14,350
- --------------------------------------------------------
19,137
- --------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.00%
FINOVA Group, Inc. 400 21,050
- --------------------------------------------------------
MicroFinancial, Inc. 700 10,019
- --------------------------------------------------------
SEI Investments Co. 200 17,650
- --------------------------------------------------------
48,719
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOODS - 1.14%
American Italian Pasta Co. - Class A(a) 850 $ 25,819
- --------------------------------------------------------------------
Keebler Foods Co.(a) 500 15,187
- --------------------------------------------------------------------
United Natural Foods, Inc.(a) 600 14,850
- --------------------------------------------------------------------
55,856
- --------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.13%
Alpharma, Inc. - Class A 700 24,894
- --------------------------------------------------------------------
Barr Laboratories, Inc.(a) 600 23,925
- --------------------------------------------------------------------
Jones Pharma, Inc. 400 15,750
- --------------------------------------------------------------------
Mylan Laboratories, Inc. 1,500 39,750
- --------------------------------------------------------------------
104,319
- --------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.62%
Health Management Associates, Inc. - Class A(a) 900 10,125
- --------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 1,500 20,156
- --------------------------------------------------------------------
30,281
- --------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.25%
Express Scripts, Inc.-Class A(a) 200 12,037
- --------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.39%
Cyberonics, Inc.(a) 600 7,500
- --------------------------------------------------------------------
Henry Schein, Inc.(a) 1,000 31,687
- --------------------------------------------------------------------
Lifecore Biomedical, Inc.(a) 600 6,900
- --------------------------------------------------------------------
Sybron International Corp.(a) 800 22,050
- --------------------------------------------------------------------
68,137
- --------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 3.10%
Advance Paradigm, Inc.(a) 400 24,400
- --------------------------------------------------------------------
Cairage Services, Inc., Gtd. Conv. Pfd.,
7.00%(a) (Acquired 05/27/99; Cost $20,000)(b) 400 22,150
- --------------------------------------------------------------------
Capital Senior Living Corp.(a) 800 8,000
- --------------------------------------------------------------------
CareInsite, Inc.(a) 100 4,725
- --------------------------------------------------------------------
Omnicare, Inc. 800 10,100
- --------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 1,600 22,600
- --------------------------------------------------------------------
Renal Care Group, Inc.(a) 600 15,525
- --------------------------------------------------------------------
Renex Corp.(a) 300 1,631
- --------------------------------------------------------------------
United Payors & United Providers, Inc.(a) 1,100 25,506
- --------------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 900 17,213
- --------------------------------------------------------------------
151,850
- --------------------------------------------------------------------
HOUSEHOLD FURNISHING & APPLIANCES - 0.49%
Service Experts, Inc.(a) 1,100 24,131
- --------------------------------------------------------------------
HOUSEWARES - 0.34%
Windmere-Durable Holdings, Inc.(a) 1,000 16,875
- --------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.20%
Nationwide Financial Services, Inc. -Class A 400 18,100
- --------------------------------------------------------------------
Scottish Annuity & Life Holdings, Ltd. 1,200 12,900
- --------------------------------------------------------------------
UICI(a) 1,000 27,625
- --------------------------------------------------------------------
58,625
- --------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-33
<PAGE> 115
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE) - 0.30%
Century Business Services, Inc.(a) 1,000 $ 14,500
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.06%
CNA Surety Corp. 800 12,250
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 900 20,419
- ---------------------------------------------------------------
Radian Group, Inc. 393 19,183
- ---------------------------------------------------------------
51,852
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.38%
Hambrecht & Quist Group(a) 500 18,563
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.86%
Affiliated Managers Group, Inc.(a) 800 24,150
- ---------------------------------------------------------------
Knight/Trimark Group, Inc. - Class A(a) 300 18,094
- ---------------------------------------------------------------
42,244
- ---------------------------------------------------------------
LODGING-HOTELS - 0.32%
Prime Hospitality Corp.(a) 1,300 15,600
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.45%
Applied Power, Inc. - Class A 800 21,850
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.32%
Spartech Corp. 500 15,813
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 1.58%
Alpine Group, Inc. (The)(a) 1,000 16,063
- ---------------------------------------------------------------
American Bank Note Holographics, Inc.(a) 1,000 2,750
- ---------------------------------------------------------------
Armor Holdings, Inc.(a) 1,500 15,656
- ---------------------------------------------------------------
Howmet International, Inc.(a) 100 1,719
- ---------------------------------------------------------------
Mettler-Toledo International, Inc.(a) 1,100 27,294
- ---------------------------------------------------------------
Superior TeleCom, Inc. 550 13,750
- ---------------------------------------------------------------
77,232
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.33%
School Specialty, Inc.(a) 1,000 16,063
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 2.18%
BJ Services Co.(a) 800 23,550
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 400 14,825
- ---------------------------------------------------------------
Key Energy Group, Inc.(a) 8,000 28,500
- ---------------------------------------------------------------
Newpark Resources, Inc.(a) 1,500 13,313
- ---------------------------------------------------------------
Transocean Offshore, Inc. 1,000 26,250
- ---------------------------------------------------------------
106,438
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 2.16%
Anadarko Petroleum Corp. 400 14,725
- ---------------------------------------------------------------
Apache Corp. 600 23,400
- ---------------------------------------------------------------
Basin Exploration, Inc.(a) 1,100 22,069
- ---------------------------------------------------------------
Devon Energy Corp. 800 28,600
- ---------------------------------------------------------------
Newfield Exploration Co.(a) 600 17,063
- ---------------------------------------------------------------
105,857
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PAPER & FOREST PRODUCTS - 0.68%
Potlatch Corp. 300 $ 13,181
- ------------------------------------------------------------------
Rayonier, Inc. 400 19,925
- ------------------------------------------------------------------
33,106
- ------------------------------------------------------------------
PERSONAL CARE - 1.18%
Chattem, Inc.(a) 900 28,631
- ------------------------------------------------------------------
Playtex Products, Inc.(a) 500 7,781
- ------------------------------------------------------------------
Steiner Leisure Ltd.(a) 700 21,219
- ------------------------------------------------------------------
57,631
- ------------------------------------------------------------------
PUBLISHING - 0.37%
IDG Books Worldwide, Inc. - Class A(a) 1,000 18,250
- ------------------------------------------------------------------
RAILROADS - 0.54%
MotivePower Industries, Inc.(a) 1,000 18,500
- ------------------------------------------------------------------
Westinghouse Air Brake Co. 300 7,781
- ------------------------------------------------------------------
26,281
- ------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.51%
AMRESCO Capital Trust, Inc. 550 5,225
- ------------------------------------------------------------------
Apartment Investment & Management Co. - Class A 600 25,650
- ------------------------------------------------------------------
Colonial Properties Trust 600 16,950
- ------------------------------------------------------------------
Correctional Properties Trust 1,000 15,750
- ------------------------------------------------------------------
Manufactured Home Communities, Inc. 400 10,400
- ------------------------------------------------------------------
73,975
- ------------------------------------------------------------------
RESTAURANTS - 1.33%
CEC Entertainment, Inc.(a) 750 31,688
- ------------------------------------------------------------------
Dave & Buster's, Inc.(a) 1,000 29,000
- ------------------------------------------------------------------
Luby's, Inc. 300 4,500
- ------------------------------------------------------------------
65,188
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 0.45%
CDW Computer Centers, Inc.(a) 500 22,000
- ------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.29%
Family Dollar Stores, Inc. 600 14,400
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.02%
BJ's Wholesale Club, Inc.(a) 800 24,050
- ------------------------------------------------------------------
Wild Oats Markets, Inc.(a) 850 25,792
- ------------------------------------------------------------------
49,842
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 4.98%
Claire's Stores, Inc. 300 7,688
- ------------------------------------------------------------------
CSK Auto Corp.(a) 1,000 27,000
- ------------------------------------------------------------------
Electronics Boutique Holdings Corp.(a) 300 4,275
- ------------------------------------------------------------------
Footstar, Inc.(a) 400 14,875
- ------------------------------------------------------------------
General Nutrition Companies, Inc.(a) 1,200 27,975
- ------------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 800 17,600
- ------------------------------------------------------------------
Linens 'N Things, Inc.(a) 700 30,625
- ------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-34
<PAGE> 116
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY) - (CONTINUED)
Lithia Motors, Inc. - Class A(a) 600 $ 12,300
- -----------------------------------------------------------
Michaels Stores, Inc.(a) 900 27,563
- -----------------------------------------------------------
Rainbow Rentals, Inc.(a) 600 6,900
- -----------------------------------------------------------
Rent-A-Center, Inc.(a) 800 19,200
- -----------------------------------------------------------
Rent-Way, Inc.(a) 876 21,572
- -----------------------------------------------------------
Zale Corp.(a) 650 26,000
- -----------------------------------------------------------
243,573
- -----------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 1.18%
AnnTaylor Stores Corp.(a) 400 18,000
- -----------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 1,100 28,050
- -----------------------------------------------------------
Wet Seal, Inc. - Class A(a) 400 11,450
- -----------------------------------------------------------
57,500
- -----------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.59%
Allied Capital Corp. 1,200 28,800
- -----------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 3.83%
ACNielsen Corp.(a) 800 24,200
- -----------------------------------------------------------
Acxiom Corp.(a) 920 22,943
- -----------------------------------------------------------
Forrester Research, Inc.(a) 200 5,000
- -----------------------------------------------------------
HA-LO Industries, Inc.(a) 1,650 16,294
- -----------------------------------------------------------
Lamar Advertising Co.(a) 550 22,516
- -----------------------------------------------------------
Nielsen Media Research(a) 933 27,290
- -----------------------------------------------------------
Penton Media, Inc. 600 14,550
- -----------------------------------------------------------
Snyder Communications, Inc.(a) 700 22,925
- -----------------------------------------------------------
TeleTech Holdings, Inc.(a) 900 9,113
- -----------------------------------------------------------
Young & Rubicam, Inc. 500 22,719
- -----------------------------------------------------------
187,550
- -----------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 5.64%
Central Parking Corp. 700 23,975
- -----------------------------------------------------------
Copart, Inc.(a) 800 17,000
- -----------------------------------------------------------
F.Y.I., Inc.(a) 600 18,825
- -----------------------------------------------------------
INSpire Insurance Solutions, Inc.(a) 1,000 14,500
- -----------------------------------------------------------
Iron Mountain, Inc.(a) 1,050 30,056
- -----------------------------------------------------------
Jones Lang LaSalle Inc.(a) 300 8,944
- -----------------------------------------------------------
MAXIMUS, Inc.(a) 700 20,125
- -----------------------------------------------------------
Pegasus Systems, Inc.(a) 500 18,719
- -----------------------------------------------------------
Pre-Paid Legal Services, Inc.(a) 900 24,469
- -----------------------------------------------------------
Primark Corp.(a) 700 19,644
- -----------------------------------------------------------
Regis Corp. 1,250 23,984
- -----------------------------------------------------------
Stamps.com(a) 300 5,250
- -----------------------------------------------------------
Stewart Enterprises, Inc. - Class A 1,100 16,019
- -----------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 900 24,469
- -----------------------------------------------------------
Trammell Crow Co.(a) 600 9,863
- -----------------------------------------------------------
275,842
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMPUTER SYSTEMS) - 2.01%
Insight Enterprises, Inc.(a) 675 $ 16,706
- -----------------------------------------------------------------
Policy Management Systems Corp.(a) 500 15,000
- -----------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 200 12,400
- -----------------------------------------------------------------
SunGard Data Systems, Inc.(a) 800 27,600
- -----------------------------------------------------------------
Sykes Enterprises, Inc.(a) 800 26,700
- -----------------------------------------------------------------
98,406
- -----------------------------------------------------------------
SERVICES (DATA PROCESSING) - 2.79%
BISYS Group, Inc.(a) 650 38,025
- -----------------------------------------------------------------
CSG Systems International, Inc.(a) 700 18,331
- -----------------------------------------------------------------
Lason Holdings, Inc.(a) 500 24,813
- -----------------------------------------------------------------
MedQuist, Inc.(a) 600 26,250
- -----------------------------------------------------------------
National Data Corp. 400 17,100
- -----------------------------------------------------------------
4Front Technologies, Inc.(a) 1,200 11,850
- -----------------------------------------------------------------
136,369
- -----------------------------------------------------------------
SERVICES (EMPLOYMENT) - 1.30%
Heidrick & Sttuggles International, Inc.(a) 1,600 30,400
- -----------------------------------------------------------------
Korn/Ferry International(a) 1,000 17,000
- -----------------------------------------------------------------
Labor Ready, Inc.(a) 500 16,250
- -----------------------------------------------------------------
63,650
- -----------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 2.20%
Casella Waste Systems, Inc.(a) 1,100 28,600
- -----------------------------------------------------------------
Cornell Corrections, Inc.(a) 1,100 18,081
- -----------------------------------------------------------------
Tetra Tech, Inc.(a) 900 14,850
- -----------------------------------------------------------------
Wackenhut Corrections Corp.(a) 1,100 21,794
- -----------------------------------------------------------------
Waste Connections, Inc.(a) 800 24,400
- -----------------------------------------------------------------
107,725
- -----------------------------------------------------------------
SPECIALTY PRINTING - 0.56%
World Color Press, Inc.(a) 1,000 27,500
- -----------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.80%
Powerwave Technologies, Inc.(a) 800 25,800
- -----------------------------------------------------------------
Western Wireless Corp. - Class A(a) 500 13,500
- -----------------------------------------------------------------
39,300
- -----------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 2.60%
CapRock Communications Corp.(a) 400 16,200
- -----------------------------------------------------------------
ITC DeltaCom, Inc.(a) 900 25,200
- -----------------------------------------------------------------
IXC Communications, Inc.(a) 900 35,381
- -----------------------------------------------------------------
Network Plus Corp.(a) 1,600 33,400
- -----------------------------------------------------------------
Viatel, Inc.(a) 300 16,838
- -----------------------------------------------------------------
127,019
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-35
<PAGE> 117
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT - 1.51%
Catalytica, Inc.(a) 1,700 $ 23,800
- ---------------------------------------------------------------------------------
Safety-Kleen Corp.(a) 1,400 25,375
- ---------------------------------------------------------------------------------
U.S. Liquids, Inc.(a) 1,000 20,875
- ---------------------------------------------------------------------------------
Waste Industries, Inc.(a) 200 3,575
- ---------------------------------------------------------------------------------
73,625
- ---------------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests (Cost
$3,948,620) 4,469,855
- ---------------------------------------------------------------------------------
FOREIGN STOCKS - 1.81%
BERMUDA - 0.32%
Annuity and Life Reassurance (Holdings), Ltd. (Insurance -
Life/Health) 700 15,706
- ---------------------------------------------------------------------------------
CANADA - 0.67%
Biovail Corp. International (Health Care - Drugs - Generic
& Other)(a) 300 15,319
- ---------------------------------------------------------------------------------
Celestica Inc. (Electronics-Semiconductors)(a) 400 17,325
- ---------------------------------------------------------------------------------
32,644
- ---------------------------------------------------------------------------------
IRELAND - 0.54%
Ryanair Holdings PLC-ADR (Airlines)(a) 500 26,500
- ---------------------------------------------------------------------------------
ISRAEL - 0.22%
Check Point Software Technologies Ltd. (Computers -
Software & Services)(a) 200 10,725
- ---------------------------------------------------------------------------------
UNITED KINGDOM - 0.06%
Stolt Comex Seaway, S.A. (Oil & Gas - Exploration &
Production)(a) 250 2,719
- ---------------------------------------------------------------------------------
Total Foreign Stocks (Cost $69,988) 88,294
- ---------------------------------------------------------------------------------
Total Investments, Excluding Repurchase Agreements (Cost
$4,018,608) 4,558,149
- ---------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT - 15.01%(c)
Dean Witter Reynolds, Inc., 4.85%, 07/01/99(d)
(Cost $734,156) $ 734,156 734,156
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS - 108.20% 5,292,305
=================================================================================
LIABILITIES LESS OTHER ASSETS - (8.20%) (400,974)
=================================================================================
NET ASSETS - 100.00% $4,891,331
=================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) 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 this security has been determined in
accordance with procedures established by the board of Directors. The
market value at 06/30/99 represents 0.45% of the Fund's net assets.
(c) 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 is at least 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.
(d) Joint repurchase agreement entered into 6/30/99 with a maturing value of
$100,013,472. Collateralized by U.S. Government obligations.
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Gtd - Guaranteed
Pfd - Preferred
See Notes to Financial Statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-36
<PAGE> 118
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding Repurchase Agreement, at market
value (cost $4,018,608) $ 4,558,149
- ----------------------------------------------------------------------
Repurchase Agreement (cost $734,156) 734,156
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 14,995
- ----------------------------------------------------------------------
Dividends and interest 1,072
- ----------------------------------------------------------------------
Investments sold 68,687
- ----------------------------------------------------------------------
Reimbursement from advisor 4,967
- ----------------------------------------------------------------------
Investment for deferred compensation plan 4,108
- ----------------------------------------------------------------------
Total assets 5,386,134
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 479,625
- ----------------------------------------------------------------------
Deferred compensation plan 4,108
- ----------------------------------------------------------------------
Accrued directors' fees 1,844
- ----------------------------------------------------------------------
Accrued operating expenses 9,226
- ----------------------------------------------------------------------
Total liabilities 494,803
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 4,891,331
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 521,151
======================================================================
Net asset value, offering and redemption price per share $ 9.39
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 10,230
- --------------------------------------------------------------------
Dividends (net of $26 foreign withholding tax) 5,882
- --------------------------------------------------------------------
Total investment income 16,112
- --------------------------------------------------------------------
EXPENSES:
Advisory fees 13,222
- --------------------------------------------------------------------
Administrative services fees 18,686
- --------------------------------------------------------------------
Custodian fees 19,706
- --------------------------------------------------------------------
Directors' fees and expenses 3,648
- --------------------------------------------------------------------
Professional fees 11,251
- --------------------------------------------------------------------
Other 2,666
- --------------------------------------------------------------------
Total expenses 69,179
- --------------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (48,201)
- --------------------------------------------------------------------
Expenses paid indirectly (59)
- --------------------------------------------------------------------
Net expenses 20,919
- --------------------------------------------------------------------
Net investment income (loss) (4,807)
- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (77,077)
- --------------------------------------------------------------------
Option contracts (1,254)
- --------------------------------------------------------------------
Foreign currencies (30)
- --------------------------------------------------------------------
(78,361)
- --------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 244,592
- --------------------------------------------------------------------
Foreign currencies (4)
- --------------------------------------------------------------------
244,588
- --------------------------------------------------------------------
Net gain from investment securities and futures contracts 166,227
- --------------------------------------------------------------------
Net increase in net assets resulting from operations $161,420
====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-37
<PAGE> 119
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the period May 1, 1998 (date
operations commenced) through December 31, 1998
(Unaudited)
<TABLE>
<S> <C> <C>
JUNE 30, DECEMBER 31,
OPERATIONS: 1999 1998
---------- ------------
Net investment income (loss) $ (4,807) $ 8,126
- ---------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts (78,361) (254,021)
- ---------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 244,588 294,948
- ---------------------------------------------------------------------------------
Net increase in net assets resulting from operations 161,420 49,053
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income -- (12,074)
- ---------------------------------------------------------------------------------
Net increase from capital stock transactions 1,557,443 3,135,489
- ---------------------------------------------------------------------------------
Net increase in net assets 1,718,863 3,172,468
- ---------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 3,172,468 --
- ---------------------------------------------------------------------------------
End of period $4,891,331 $3,172,468
=================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,692,073 $3,134,630
- ---------------------------------------------------------------------------------
Undistributed net investment income (loss) (7,868) (3,061)
- ---------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and futures contracts (332,410) (254,049)
- ---------------------------------------------------------------------------------
Unrealized appreciation of investment securities 539,536 294,948
- ---------------------------------------------------------------------------------
$4,891,331 $3,172,468
=================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 Development Fund (the "Fund"). The Fund's investment
objective is long-term capital appreciation. The Fund commenced operations on
May 1, 1998. 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 closing bid price on that day. 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 closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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. 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
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-38
<PAGE> 120
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. Such distributions are
declared and paid annually.
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 had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $204,323 as of December 31, 1998, which expires,
if not previously utilized, through the year 2006. The Fund cannot
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized.
D. 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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
E. 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.
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.
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 $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. During the six
months ended June 30, 1999, AIM waived advisory fees and reimbursed expenses
of $48,201.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $18,686 for accounting and administrative services rendered
by AIM.
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.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $59 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $59 during the six months ended June 30, 1999.
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.
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-39
<PAGE> 121
NOTE 5 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the six months ended June 30, 1999 was
$3,786,427 and $2,277,019, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 641,969
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (107,928)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 534,041
=======================================================================
</TABLE>
Cost of investments for tax purposes is $4,024,108.
NOTE 7 - CALL OPTION CONTRACTS
Transactions in call options written during the period ended June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION
CONTRACTS
------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------
<S> <C> <C>
Beginning of Period - $ -
- ---------------------------------------
Written 9 912
- ---------------------------------------
Closed (7) (756)
- ---------------------------------------
Expired (2) (156)
- ---------------------------------------
End of Period - $ -
=======================================
</TABLE>
NOTE 8 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the period May 1, 1998 (date operations commenced) through December 31,
1998 as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Sold 197,937 $1,740,318 403,978 $3,617,838
- --------------------------------------------------------------------
Issued as reinvestment of
distributions - - 1,426 12,074
- --------------------------------------------------------------------
Reacquired (21,236) (182,875) (60,954) (494,423)
- --------------------------------------------------------------------
176,701 $1,557,443 344,450 $3,135,489
====================================================================
</TABLE>
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, and the period May 1, 1998 (date
operations commenced) through December 31, 1998.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999(a) 1998
-------- ------------
<S> <C> <C>
Net asset value, beginning of period $ 9.21 $10.00
- ----------------------------------------------------- ------ ------
Income from investment operations:
Net investment income (0.01) 0.03 (a)
- ----------------------------------------------------- ------ ------
Net gains (losses) on securities (both realized and
unrealized) 0.19 (0.78)
- ----------------------------------------------------- ------ ------
Total from investment operations 0.18 (0.75)
- ----------------------------------------------------- ------ ------
Less distributions:
Dividends from net investment income - (0.04)
- ----------------------------------------------------- ------ ------
Net asset value, end of period $ 9.39 $ 9.21
===================================================== ====== ======
Total return(b) 1.95% (7.51)%
===================================================== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $4,891 $3,172
===================================================== ====== ======
Ratio of expenses to average net assets(c) 1.19%(d) 1.21%
===================================================== ====== ======
Ratio of net investment income (loss) to average net
assets(e) (0.27)%(d) 0.62%
===================================================== ====== ======
Portfolio turnover rate 49% 45%
===================================================== ====== ======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
3.92% (annualized) and 5.80% (annualized) for 1999-1998 respectively.
(d) Ratios are annualized and based on average net assets of $3,555,211.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (3.01)% (annualized) and (3.97)% (annualized) for 1999-
1998 respectively.
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-40
<PAGE> 122
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES -
65.23%
AGRICULTURAL PRODUCTS - 0.52%
Cargill, Inc., Notes, 6.875%,
05/01/28 (Acquired 03/12/99; Cost $499,010)(b) $ 500,000 $ 465,170
- -------------------------------------------------------------------------------
AIR FREIGHT - 0.46%
Atlas Air, Inc., Sr. Unsec. Notes, 10.75%, 08/01/05 400,000 411,000
- -------------------------------------------------------------------------------
AIRLINES - 3.22%
Airplanes Pass Through Trust, Series D Gtd. Sub. Bonds,
10.875%, 03/15/19 300,000 289,093
- -------------------------------------------------------------------------------
Delta Air Lines, Inc., Deb.,
9.00%, 05/15/16 825,000 900,537
- -------------------------------------------------------------------------------
10.375%, 12/15/22 600,000 745,404
- -------------------------------------------------------------------------------
Dunlop Stand Aero Holdings, Sr. Notes, 11.875%,
05/15/09 (Acquired 05/07/99; Cost $458,008)(b) 460,000 469,200
- -------------------------------------------------------------------------------
United Air Lines, Inc., Pass Through Ctfs., 9.56%,
10/19/18 425,000 476,467
- -------------------------------------------------------------------------------
2,880,701
- -------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.85%
Advance Stores Co., Inc., Series B Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 04/15/08 390,000 374,400
- -------------------------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 380,000 383,800
- -------------------------------------------------------------------------------
758,200
- -------------------------------------------------------------------------------
AUTOMOBILES - 0.51%
General Motors Corp., Deb., 8.80%,
03/01/21 400,000 455,816
- -------------------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.58%
Regions Financial Corp., Sub. Notes, 7.75%, 09/15/24 500,000 518,815
- -------------------------------------------------------------------------------
BANKS (MONEY CENTER) - 2.54%
Deutsche Bank Financial, Unsec. Gtd. Sub. Deb., 6.70%,
12/13/06 750,000 735,382
- -------------------------------------------------------------------------------
First Union Bancorp, Sub. Deb., 7.50%,
04/15/35 800,000 823,128
- -------------------------------------------------------------------------------
HSBC Holdings PLC (United Kingdom), Sub. Notes, 7.50%,
07/15/09 700,000 707,826
- -------------------------------------------------------------------------------
2,266,336
- -------------------------------------------------------------------------------
BANKS (REGIONAL) - 0.33%
Mercantile Bancorp, Inc., Sub. Notes, 6.375%,
01/15/04 300,000 295,059
- -------------------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.49%
Coca-Cola Enterprises, Inc., Putable Notes, 8.35%,
06/20/20(c) 2,000,000 442,300
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.91%
Comcast Cable Communications, Notes, 8.50%, 05/01/27 $ 500,000 $ 557,455
- --------------------------------------------------------------------------------
CSC Holdings, Inc.,
Sr. Unsec. Notes, 7.875%, 12/15/07 500,000 503,760
- --------------------------------------------------------------------------------
Deb., 7.875%, 02/15/18 400,000 388,248
- --------------------------------------------------------------------------------
Deb., 7.625%, 07/15/18 1,000,000 946,580
- --------------------------------------------------------------------------------
Fox Family Worldwide, Inc., Sr. Unsec. Disc. Notes
10.25%, 11/01/07(d) 840,000 529,200
- --------------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc. Notes, 11.875%,
10/15/07(d) 1,000,000 582,500
- --------------------------------------------------------------------------------
Liberty Media Group, Deb., 7.875%, 07/15/09(b) 400,000 397,616
- --------------------------------------------------------------------------------
USA Networks, Inc., Sr. Unsec. Gtd. Notes, 6.75%,
11/15/05 500,000 480,421
- --------------------------------------------------------------------------------
4,385,780
- --------------------------------------------------------------------------------
CHEMICALS - 1.59%
Airgas, Inc., Medium Term Notes, 7.14%, 03/08/04 750,000 720,840
- --------------------------------------------------------------------------------
Nova Gas Transmission Ltd. (Canada), Yankee Deb.,
8.50%, 12/15/12 500,000 556,040
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes,
11.75%, 08/15/06 185,000 143,375
- --------------------------------------------------------------------------------
1,420,255
- --------------------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.45%
Rohm and Hass Co., Deb., 7.85%, 07/15/29(b) 400,000 399,708
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.47%
Dialog Corp. PLC (United Kingdom), Series A Sr. Sub.
Yankee Notes, 11.00%, 11/15/07 350,000 318,500
- --------------------------------------------------------------------------------
Northern Telecom (Canada), Yankee Notes, 6.00%,
09/01/03 100,000 98,701
- --------------------------------------------------------------------------------
417,201
- --------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.57%
Exodus Communications, Sr. Unsec. Notes, 11.25%,
07/01/08 480,000 507,600
- --------------------------------------------------------------------------------
CONSUMER FINANCE - 0.90%
GMAC, Notes, 9.00%, 10/15/02 750,000 806,775
- --------------------------------------------------------------------------------
ELECTRIC COMPANIES - 2.52%
Cleveland Electric Illumination, Series D Sr. Sec.
Notes, 7.88%, 11/01/17 500,000 512,468
- --------------------------------------------------------------------------------
El Paso Electric Co.,
Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 500,000 539,250
- --------------------------------------------------------------------------------
Series E Sec. First Mortgage Bonds, 9.40%,
05/01/11 150,000 168,647
- --------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-41
<PAGE> 123
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES - (CONTINUED)
Niagara Mohawk Power Corp., Series G Sr. Unsec. Notes,
7.75%, 10/01/08 $1,000,000 $ 1,030,000
- -------------------------------------------------------------------------------
2,250,365
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.19%
Electronic Retailing Systems International, Inc., Sr.
Disc. Notes, 13.25%, 02/01/04(d) 590,000 168,150
- -------------------------------------------------------------------------------
ENTERTAINMENT - 1.44%
Ascent Entertainment Group, Sr. Sec. Disc. Notes,
11.875%, 12/15/04(d) 350,000 253,750
- -------------------------------------------------------------------------------
Time Warner, Inc., Deb., 9.125%, 01/15/13 900,000 1,029,429
- -------------------------------------------------------------------------------
1,283,179
- -------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 2.41%
Associates Corp. of North America, Series B Sr. Deb.,
7.95%, 02/15/10 750,000 794,235
- -------------------------------------------------------------------------------
Finova Capital Corp., Unsec. Notes, 7.40%, 05/06/06 750,000 758,325
- -------------------------------------------------------------------------------
Sumitomo Bank International Finance N.V. (Netherlands),
Gtd. Sub. Notes, 8.50%, 06/15/09 600,000 604,931
- -------------------------------------------------------------------------------
2,157,491
- -------------------------------------------------------------------------------
FOODS - 1.58%
AmeriServe Food Distributors, Inc., Sr. Unsec. Gtd.
Notes, 8.875%, 10/15/06 115,000 106,375
- -------------------------------------------------------------------------------
ConAgra, Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,307,774
- -------------------------------------------------------------------------------
1,414,149
- -------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.44%
Venetian Casino Resort LLC, Sec. Gtd. Mortgage Notes,
12.25%, 11/15/04 400,000 394,000
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.33%
ALARIS Medical, Inc., Sr. Unsec. Gtd. Sub. Notes,
9.75%, 12/01/06 300,000 295,500
- -------------------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.46%
Team Health, Inc., Sr. Sub. Notes, 12.00%, 03/15/09
(Acquired 03/05/99; Cost $400,000)(b) 400,000 408,000
- -------------------------------------------------------------------------------
HOMEBUILDING - 0.55%
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes, 8.00%,
02/01/09 520,000 494,000
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.44%
Procter & Gamble Co. (The), Putable Deb., 8.00%,
09/01/24 350,000 390,943
- -------------------------------------------------------------------------------
HOUSEWARES - 0.54%
Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 500,000 482,500
- -------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.15%
Americo Life, Inc., Sr. Sub. Notes, 9.25%, 06/01/05 75,000 76,125
- -------------------------------------------------------------------------------
Torchmark Corp., Notes, 7.875%,
05/15/23 950,000 950,922
- -------------------------------------------------------------------------------
1,027,047
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
IRON & STEEL - 0.40%
Acme Metals, Inc., Sr. Unsec. Gtd. Notes, 10.875%,
12/15/07(e) $ 588,000 $ 67,620
- -------------------------------------------------------------------------------
GS Industries, Inc., Sr. Gtd. Notes, 12.00%, 09/01/04 350,000 290,500
- -------------------------------------------------------------------------------
358,120
- -------------------------------------------------------------------------------
LODGING-HOTELS - 1.34%
Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes,
12.50%, 03/15/07 390,000 345,150
- -------------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sec. First Mortgage
Notes, 9.75%, 10/01/05 550,000 526,625
- -------------------------------------------------------------------------------
Stena Line A.B. (Sweden), Sr. Yankee Notes, 10.625%,
06/01/08 430,000 325,725
- -------------------------------------------------------------------------------
1,197,500
- -------------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.60%
Elgin National Industries, Series B Sr. Unsec. Gtd.
Notes, 11.00%, 11/01/07 240,000 238,800
- -------------------------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd. Sub. Notes, 11.00%,
04/15/07 340,000 300,900
- -------------------------------------------------------------------------------
539,700
- -------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.44%
MMI Products, Inc., Sr. Unsec. Sub. Notes, 11.25%,
04/15/07 380,000 391,400
- -------------------------------------------------------------------------------
METALS MINING - 0.97%
Centaur Mining & Exploration Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 550,000 507,375
- -------------------------------------------------------------------------------
Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%,
11/01/05 370,000 356,147
- -------------------------------------------------------------------------------
863,522
- -------------------------------------------------------------------------------
NATURAL GAS - 2.38%
Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 500,000 467,460
- -------------------------------------------------------------------------------
Enron Corp.,
Sr. Sub. Deb., 6.75%, 07/01/05 450,000 444,578
- -------------------------------------------------------------------------------
Notes, 6.75%, 08/01/09 750,000 720,390
- -------------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 500,000 493,965
- -------------------------------------------------------------------------------
2,126,393
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.55%
NRG Energy, Inc., Sr. Unsec. Notes, 7.50%, 06/01/09 500,000 493,240
- -------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.90%
Chesapeake Energy Corp., Series B Sr. Unsec. Gtd.
Notes, 9.625%, 05/01/05 175,000 164,500
- -------------------------------------------------------------------------------
Queen Sand Resources, Inc., Sr. Unsec. Gtd. Notes,
12.50%, 07/01/08 240,000 152,400
- -------------------------------------------------------------------------------
Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%,
06/01/07 500,000 488,080
- -------------------------------------------------------------------------------
804,980
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-42
<PAGE> 124
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (REFINING & MARKETING) - 0.33%
Texas Petrochemical Corp., Sr. Unsec. Sub. Notes,
11.125%, 07/01/06 $ 330,000 $ 295,350
- -------------------------------------------------------------------------------
PERSONAL CARE - 1.08%
Alberto-Culver Corp., Unsec. Deb., 6.375%, 06/15/28 1,000,000 963,800
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.33%
AES Corp., Sr. Notes, 8.00%, 12/31/08 750,000 708,750
- -------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., Sr. Unsec. Bonds,
8.48%, 09/15/28 450,000 481,847
- -------------------------------------------------------------------------------
1,190,597
- -------------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 1.85%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 845,333
- -------------------------------------------------------------------------------
Putable Bonds, 7.43%, 10/01/26 500,000 506,450
- -------------------------------------------------------------------------------
United News & Media PLC (United Kingdom), Yankee Notes,
7.75%, 07/01/09 300,000 299,448
- -------------------------------------------------------------------------------
1,651,231
- -------------------------------------------------------------------------------
RAILROADS - 1.92%
CSX Corp., Sr. Unsec. Putable Deb.,
6.95%, 05/01/27 300,000 301,128
- -------------------------------------------------------------------------------
7.25%, 05/01/27 750,000 755,025
- -------------------------------------------------------------------------------
Norfolk Southern Corp., Putable Bonds, 7.05%,
05/01/37 650,000 661,778
- -------------------------------------------------------------------------------
1,717,931
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.58%
Glenborough Properties, Series B Sr. Unsec. Notes,
7.625%, 03/15/05 800,000 713,142
- -------------------------------------------------------------------------------
Spieker Properties LP, Unsec. Deb., 7.35%, 12/01/17 750,000 696,840
- -------------------------------------------------------------------------------
1,409,982
- -------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.30%
Plainwell, Inc., Series B Sr. Unsec. Sub. Notes,
11.00%, 03/01/08 330,000 265,650
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 1.64%
CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub.
Notes, 9.625%, 06/01/08 370,000 348,725
- -------------------------------------------------------------------------------
CSK Auto Inc., Series A Sr. Gtd. Sub. Notes, 11.00%,
11/01/06 260,000 269,100
- -------------------------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub. Notes, 10.25%,
06/01/08 330,000 339,900
- -------------------------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec. Gtd. Sub. Notes,
11.00%, 08/15/08 500,000 503,750
- -------------------------------------------------------------------------------
1,461,475
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.83%
Big 5 Corp., Series B Sr. Unsec. Notes, 10.875%,
11/15/07 500,000 510,000
- -------------------------------------------------------------------------------
J Crew Operating Corp., Sr. Sub. Notes, 10.375%,
10/15/07 240,000 236,400
- -------------------------------------------------------------------------------
746,400
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SAVINGS & LOAN COMPANIES - 0.91%
Sovereign Bancorp, Inc., Sub. Notes, 8.00%, 03/15/03 $ 800,000 $ 809,832
- ------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.35%
MDC Corporation, Inc. (Canada), Sr. Unsec. Sub. Yankee
Notes, 10.50%, 12/01/06 300,000 313,500
- ------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.68%
Hydrochem Industrial Service, Series B Sr. Sec. Gtd.
Sub. Notes, 10.375%, 08/01/07 170,000 153,850
- ------------------------------------------------------------------------------
Laidlaw, Inc. (Canada), Yankee Deb., 6.70%, 05/01/08 500,000 454,085
- ------------------------------------------------------------------------------
607,935
- ------------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.41%
MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes,
11.375%, 01/15/08 380,000 370,500
- ------------------------------------------------------------------------------
SHIPPING - 0.31%
Pegasus Shipping Hellas Co. (Bermuda), Series A Sr.
Sec. Gtd. Mortgage Notes, 11.875%, 11/15/04 500,000 277,500
- ------------------------------------------------------------------------------
SOVEREIGN DEBT - 2.57%
Province of Manitoba (Canada), Yankee Bonds, 7.75%,
07/17/16 700,000 755,384
- ------------------------------------------------------------------------------
Province of Quebec (Canada),
Series A Putable Yankee Notes, 5.735%, 03/02/26 750,000 747,285
- ------------------------------------------------------------------------------
Series A Yankee Notes, 6.29%, 03/06/26 800,000 798,472
- ------------------------------------------------------------------------------
2,301,141
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.95%
Clearnet Communications Inc. (Canada), Sr. Yankee
Unsec. Disc. Notes, 14.75%, 12/15/05(d) 110,000 100,650
- ------------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec. Notes, 12.00%,
11/01/08 560,000 638,400
- ------------------------------------------------------------------------------
PageMart Wireless, Inc., Sr. Sub. Disc. Notes, 11.25%,
02/01/08(d) 750,000 311,250
- ------------------------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Notes, 11.125%, 06/01/07 670,000 693,450
- ------------------------------------------------------------------------------
1,743,750
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 4.28%
Bell Canada (Canada), Yankee Deb., 9.50%, 10/15/10 350,000 414,561
- ------------------------------------------------------------------------------
Call-Net Enterprises, Inc. (Canada), Sr. Unsec. Disc.
Yankee Notes, 8.94%, 08/15/08(d) 290,000 163,850
- ------------------------------------------------------------------------------
Centel Capital, Deb., 9.00%, 10/15/19 320,000 376,803
- ------------------------------------------------------------------------------
Econophone, Inc., Sr. Unsec. Notes, 13.50%, 07/15/07 750,000 800,625
- ------------------------------------------------------------------------------
Esprit Telecom Group PLC (United Kingdom), Sr. Unsec.
Yankee Notes, 11.50%, 12/15/07 350,000 381,500
- ------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 1,000,000 1,010,570
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-43
<PAGE> 125
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - (CONTINUED)
Tele1 Europe A.B. (Sweden), Sr. Notes, 13.00%,
05/15/09(f) $ 400,000 $ 420,000
- -----------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), Sr. Notes,
13.25%, 05/15/08(f) 250,000 260,000
- -----------------------------------------------------------------------------
3,827,909
- -----------------------------------------------------------------------------
TELEPHONE - 2.79%
Cable & Wireless Communications PLC (United Kingdom),
Yankee Notes, 6.75%, 03/06/08 750,000 720,870
- -----------------------------------------------------------------------------
ESAT Telecom Group PLC (Ireland), Sr. Yankee Disc.
Notes, 12.50%, 02/01/07(d) 470,000 336,050
- -----------------------------------------------------------------------------
NTL Communications Corp., Series B Sr. Unsec. Notes,
11.50%, 10/01/08 440,000 487,300
- -----------------------------------------------------------------------------
SBC Communications, Inc., Deb., 7.375%,
07/15/43 750,000 735,795
- -----------------------------------------------------------------------------
Worldwide Fiber, Inc., Sr. Notes, 12.50%,
12/15/05 (Acquired 01/28/99; Cost $215,250)(b) 210,00 212,625
- -----------------------------------------------------------------------------
2,492,640
- -----------------------------------------------------------------------------
TRUCKERS - 0.45%
Travelcenters of America, Inc., Sr. Unsec. Gtd. Sub.
Deb., 10.25%, 04/01/07 400,000 402,000
- -----------------------------------------------------------------------------
TRUCKS & PARTS - 0.13%
Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%,
11/15/06 110,000 117,700
- -----------------------------------------------------------------------------
WASTE MANAGEMENT - 1.52%
Browning-Ferris, Deb., 9.25%, 05/01/21 350,000 346,343
- -----------------------------------------------------------------------------
WMX Technologies, Inc., Unsec. Putable Notes, 7.10%,
08/01/26 1,000,000 1,013,100
- -----------------------------------------------------------------------------
1,359,443
- -----------------------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $60,805,603) 58,297,161
- -----------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES -
1.76%
RETAIL (SPECIALTY) - 0.54%
Amazon.com Inc., Conv. Deb., 4.75%,
02/01/09, (Acquired 01/29/99; Cost $501,875)(b) 500,000 485,312
- -----------------------------------------------------------------------------
SHIPPING - 0.65%
Hutchison Delta Finance (Cayman Islands), Conv.
Unsec. Notes, 7.00%, 11/08/02 500,000 580,000
- -----------------------------------------------------------------------------
TELEPHONE - 0.57%
Bell Atlantic Financial Services, Inc., Conv. Bonds,
4.25%, 09/15/05 500,000 511,099
- -----------------------------------------------------------------------------
Total U.S. Dollar Denominated Convertible Bonds &
Notes (Cost $1,584,375) 1,576,411
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(g) VALUE
<S> <C> <C> <C>
NON-U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS &
NOTES - 17.99%
CANADA - 8.40%
Bank of Montreal (Banks-Money Center), Sub. Deb.,
7.92%, 07/31/12 CAD 850,000 $ 639,793
- -------------------------------------------------------------------------------
Bell Mobility Cellular, Inc. (Telecommunications-
(Cellular/Wireless), Deb., 6.55%, 06/02/08 CAD 750,000 503,597
- -------------------------------------------------------------------------------
Canadian Oil Debco Inc.
(Oil & Gas-Exploration & Production),
Deb., 11.00%, 10/31/00 CAD 450,000, 327,231
- -------------------------------------------------------------------------------
Canadian Pacific Ltd.
(Manufacturing-Diversified),
Unsec. Notes, 5.85%, 03/30/09 CAD 500,000 330,550
- -------------------------------------------------------------------------------
Clearnet Communications Inc. (Telecommunications-
Cellular/Wireless), Sr. Disc. Notes,
11.75%, 08/13/07(d) CAD 1,500,000 687,139
- -------------------------------------------------------------------------------
10.40%, 05/15/08(d) CAD 1,600,000 651,510
- -------------------------------------------------------------------------------
GMAC Canada Ltd. (Financial Diversified), Sr.
Unsec. Gtd. Unsub. Notes,
6.50%, 03/23/04 GBP 400,000 631,749
- -------------------------------------------------------------------------------
Loblaw Co. Ltd. (Retail-Food Chains), Unsec.
Notes, 6.45%, 03/01/39 CAD 650,000 421,646
- -------------------------------------------------------------------------------
Microcell Telecommunications, Sr. Yankee Unsec.
Disc. Notes, 11.125%, 10/15/07(d) CAD 1,000,000 419,070
- -------------------------------------------------------------------------------
NAV Canada (Services-Commercial & Consumer),
Bonds, 7.40%, 06/01/27 CAD 1,000,000 784,554
- -------------------------------------------------------------------------------
Poco Petroleums Ltd.
(Oil & Gas-Exploration & Production),
Unsec. Deb., 6.60%, 09/11/07 CAD 750,000 486,261
- -------------------------------------------------------------------------------
Telegobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 CAD 850,000 625,712
- -------------------------------------------------------------------------------
TransCanada Pipelines (Natural Gas), Series Q
Deb., 10.625%, 10/20/09 CAD 500,000 442,694
- -------------------------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 CAD 280,000 211,510
- -------------------------------------------------------------------------------
Westcoast Energy, Inc. (Natural Gas), Unsec.
Series V Deb., 6.45%, 12/18/06 (Acquired
12/03/96; Cost $369,585)(b) CAD 500,000 345,792
- -------------------------------------------------------------------------------
7,508,808
- -------------------------------------------------------------------------------
GERMANY - 0.67%
International Bank for Reconstruction &
Development (Banks-Money Center), Unsec. Global
Bonds, 7.125%, 04/12/05 DEM 1,000,000 600,713
- -------------------------------------------------------------------------------
NETHERLANDS - 2.50%
Dresdner Finance B.V. (Banks-Major Regional),
Series 11 Gtd. Notes, 3.072%, 07/30/03 EUR 650,000 668,365
- -------------------------------------------------------------------------------
Hypovereins Finance N.V. (Banks-Major Regional),
Gtd. Series E Medium Term Notes, 6.00%, 03/12/07 DEM 210,000 116,420
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-44
<PAGE> 126
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(g) VALUE
<S> <C> <C> <C>
NETHERLANDS - (CONTINUED)
KPNQWest B.V. (Telecommunications-Long
Distance), Sr. Unsec. Notes, 7.125%, 06/01/09
(Acquired 05/25/99; Cost $683,257)(b) EUR 650,000 $ 669,890
- -----------------------------------------------------------------------------------
Mannesmann Finance B.V. (Machinery Diversified),
Gtd. Unsec. Unsub. Notes, 4.75%, 05/27/09 EUR 250,000 246,260
- -----------------------------------------------------------------------------------
Prudential Financial B.V. (Investment
Banking/Brokerage), Sr. Unsec. Gtd. Bonds,
9.375%, 06/04/07 GBP 285,000 531,110
- -----------------------------------------------------------------------------------
2,232,045
- -----------------------------------------------------------------------------------
NEW ZEALAND - 0.89%
Inter-American Development Bank, (Banks-Money
Center), Unsec. Bonds, 5.75%, 04/15/04 NZD 1,000,000 506,404
- -----------------------------------------------------------------------------------
International Bank for Reconstruction &
Development (Banks-Money Center), Sr. Unsec.
Notes, 6.77%, 08/20/07(c) NZD 1,000,000 288,989
- -----------------------------------------------------------------------------------
795,393
- -----------------------------------------------------------------------------------
SWEDEN - 1.34%
AB Spintab (Banks-Regional), Series 161 Unsec.
Deb., 7.50%, 06/15/04 SEK 3,400,000 439,437
- -----------------------------------------------------------------------------------
Stadshypotek A.B. (Banks-Regional), Series 1562
Notes, 3.50%, 09/15/04 SEK 7,000,000 757,500
- -----------------------------------------------------------------------------------
1,196,937
- -----------------------------------------------------------------------------------
UNITED KINGDOM - 3.48%
European Investment Bank (Banks-Money Center),
Unsec. Unsub. Notes, 7.625%, 12/07/07 GBP 375,000 656,404
- -----------------------------------------------------------------------------------
Lloyds Bank PLC (Banks-Major Regional), Sub.
Notes, 5.25%, 07/14/08 DEM 850,000 447,391
- -----------------------------------------------------------------------------------
Merrill Lynch & Co. (Investment
Banking/Brokerage), Sr. Unsec. Unsub. Notes,
7.375%, 12/17/07 GBP 270,000 445,795
- -----------------------------------------------------------------------------------
National Power PLC (Electric Companies), Sr.
Unsec. Unsub. Notes, 8.00%, 02/21/07 AUD 500,000 338,771
- -----------------------------------------------------------------------------------
Sutton Bridge Financial Ltd. (Financial-
Diversified), Gtd. Eurobonds, 8.625%, 06/30/22
(Acquired 05/29/97; Cost $733,585)(b) GBP 450,000 812,449
- -----------------------------------------------------------------------------------
Union Bank Switzerland London,
(Banks-Major Regional),
Unsec. Sub. Notes, 7.375%, 11/26/04 GBP 250,000 411,393
- -----------------------------------------------------------------------------------
3,112,203
- -----------------------------------------------------------------------------------
UNITED STATES - 0.71%
General Electric Capital Corp. (Financial-
Diversified), Sr. Unsec. Unsub. Notes, 6.00%, 02/05/03 GBP 400,000 630,472
- -----------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Non-
Convertible Bonds & Notes (Cost $16,923,716) 16,076,571
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(g) VALUE
<S> <C> <C> <C>
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS &
NOTES - 1.25%
LUXEMBOURG - 0.61%
Daimler-Benz A.G. (Automobiles), Series WW Conv.
Gtd. Unsub. Eurobonds,
4.125%, 07/05/03 DEM 570,000 $ 549,651
- -----------------------------------------------------------------------------
UNITED KINGDOM - 0.64%
Telewest Communications PLC (Leisure Time-
Products), Sr. Unsec. Conv. Notes, 5.25%,
02/19/07 GBP 350,000 571,159
- -----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible
Bonds & Notes (Cost $1,052,352) 1,120,810
- -----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED GOVERNMENT BONDS &
NOTES - 6.36%
AUSTRALIAN DOLLAR - 1.07%
New South Wales Treasury Corp., Gtd., Notes,
7.00%, 04/01/04 AUD 1,400,000 957,938
- -----------------------------------------------------------------------------
BRITISH POUND STERLING - 0.81%
Federal National Mortgage Association, 6.875%,
06/07/02 GBP 450,000 727,085
- -----------------------------------------------------------------------------
CANADIAN DOLLAR - 1.67%
British Columbia Municipal Finance Authority,
Bonds, 7.75%, 12/01/05 CAD 500,000 373,292
- -----------------------------------------------------------------------------
Ontario Province, Unsec. Sr. Unsub. Notes, 8.00%,
03/11/03 CAD 750,000 545,405
- -----------------------------------------------------------------------------
Province of Ontario, Sr. Unsub. Notes, 6.25%,
12/03/08 NZD 1,000,000 481,050
- -----------------------------------------------------------------------------
Quebec (Province of), Deb., 9.375%, 01/16/23 CAD 100,000 93,285
- -----------------------------------------------------------------------------
1,493,032
- -----------------------------------------------------------------------------
DANISH KRONE - 0.68%
Kingdom of Denmark, Bonds, 7.00%, 12/15/04 DKK 3,900,000 608,202
- -----------------------------------------------------------------------------
EURO - 1.94%
Bundesrepublik Deutschland, Series 92 Bonds,
7.25%, 10/21/02 EUR 520,000 595,069
- -----------------------------------------------------------------------------
Treuhandanstalt, Gtd. Notes, 6.00%, 11/12/03 EUR 1,020,000 1,137,014
- -----------------------------------------------------------------------------
1,732,083
- -----------------------------------------------------------------------------
NEW ZEALAND DOLLAR - 0.19%
New Zealand Government, Bonds,
10.00%, 03/15/02 NZD 145,000 84,942
- -----------------------------------------------------------------------------
8.00%, 04/15/04 NZD 145,000 82,309
- -----------------------------------------------------------------------------
167,251
- -----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Government
Bonds & Notes
(Cost $5,914,805) 5,685,591
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-45
<PAGE> 127
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY INTERESTS - 1.88%
BANKS (REGIONAL) - 1.84%
First Republic Capital Corp., Series A-$105 Pfd. (Acquired
05/26/99; Cost $750,000)(b) 750 $ 750,469
- ------------------------------------------------------------------------------
Societe Generale (France) 2,150 378,679
- ------------------------------------------------------------------------------
Westpac Banking Corp., STRYPES Trust-$3.135
Conv. Pfd. 16,000 518,000
- ------------------------------------------------------------------------------
1,647,148
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.04%
Nextel Communications, Inc.-Class A(h) 742 37,239
- ------------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $1,535,880) 1,684,387
- ------------------------------------------------------------------------------
WARRANTS - 0.08%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00%
Knology Holdings, Inc., expiring 10/15/07 (Acquired
03/12/98; Cost $0)(b)(i) 1,000 2,250
- ------------------------------------------------------------------------------
Wireless One, Inc., expiring 10/19/00(i) 420 4
- ------------------------------------------------------------------------------
2,254
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.00%
Electronic Retailing Systems International, Inc., expiring
02/01/04(i) 590 2,950
- ------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel, Inc., expiring 04/15/03(i) 230 2
- ------------------------------------------------------------------------------
PERSONAL CARE - 0.00%
IHF Capital, Inc., Series I, expiring 11/14/99(i) 150 75
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Clearnet Communications Inc. (Canada), expiring
09/15/05(i) 891 7,573
- ------------------------------------------------------------------------------
Loral Space & Communications, Ltd.,
expiring 01/15/07(i) 580 6,090
- ------------------------------------------------------------------------------
13,663
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.02%
Versatel Telecom International N.V. (Netherlands),
expiring 05/15/08(i) 250 12,563
- ------------------------------------------------------------------------------
TELEPHONE - 0.04%
Esat Telecom Group PLC, expiring 02/01/07(i) 470 37,835
- ------------------------------------------------------------------------------
Total Warrants (Cost $7,590) 69,342
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES - 1.18%
U.S. TREASURY NOTES - 1.18%
6.875%, 02/15/08 (Cost $1,045,625) $1,000,000 $ 1,053,450
- -----------------------------------------------------------------
REPURCHASE AGREEMENT - 1.53%(j)
Dean Witter Reynolds, Inc., 4.85%,
07/01/99 (Cost $1,369,762)(k) 1,369,762 1,369,762
- -----------------------------------------------------------------
TOTAL INVESTMENTS - 97.26% 86,933,485
- -----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.74% 2,444,967
- -----------------------------------------------------------------
NET ASSETS - 100.00% $89,378,452
=================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Principal amount is in U.S. Dollars, except as indicated by note (g).
(b) 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 06/30/99 was $2,327,856
which represents 2.60% of the Fund's net assets.
(c) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(d) Discounted bond at purchase. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(e) Defaulted security. Currently, the issuer is partially in default with
respect to interest payments.
(f) Consist of more than one class of Securities traded together as a unit. In
addition to the debt obligations listed, each unit contains warrants that
enable the holder to purchase common stock in the issuer at a
predetermined price per share of common stock.
(g) Foreign denominated security. Par value and coupon rate are denominated in
currency of country indicated.
(h) Non-income producing security.
(i) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(j) 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.
(k) Joint repurchase agreement entered into 06/30/99 with a maturing value of
$100,013,472. Collateralized by U.S. Government obligations.
Investment Abbreviations:
ADR - American Depositary Receipt
AUD - Australian Dollar
CAD - Canadian Dollars
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
DEM - German Deutsche Mark
DKK - German Deutsche Mark
Disc. - Discounted
EUR - Euro Currency
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Sec. - Secured
SEK - Swedish Krona
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-46
<PAGE> 128
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $90,239,708) $86,933,485
- ---------------------------------------------------------------------
Receivables for:
Investments sold 1,620,809
- ---------------------------------------------------------------------
Forward currency contracts 161,031
- ---------------------------------------------------------------------
Forward currency contracts closed 91,609
- ---------------------------------------------------------------------
Capital stock sold 979,208
- ---------------------------------------------------------------------
Dividends and interest 1,568,379
- ---------------------------------------------------------------------
Investment for deferred compensation plan 22,399
- ---------------------------------------------------------------------
Other assets 509
- ---------------------------------------------------------------------
Total assets 91,377,429
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,896,723
- ---------------------------------------------------------------------
Forward currency contracts closed 7,668
- ---------------------------------------------------------------------
Capital stock reacquired 5,018
- ---------------------------------------------------------------------
Deferred compensation plan 22,399
- ---------------------------------------------------------------------
Accrued advisory fees 43,428
- ---------------------------------------------------------------------
Accrued directors' fees 1,940
- ---------------------------------------------------------------------
Accrued operating expenses 21,801
- ---------------------------------------------------------------------
Total liabilities 1,998,977
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $89,378,452
- ---------------------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 8,335,306
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $ 10.72
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 3,609,242
- -------------------------------------------------------------------------------
Dividends (net of $1,894 foreign withholding tax) 50,934
- -------------------------------------------------------------------------------
Total investment income 3,660,176
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 275,191
- -------------------------------------------------------------------------------
Administrative services fees 25,752
- -------------------------------------------------------------------------------
Custodian fees 21,199
- -------------------------------------------------------------------------------
Directors' fees and expenses 4,228
- -------------------------------------------------------------------------------
Other 28,887
- -------------------------------------------------------------------------------
Total expenses 355,257
- -------------------------------------------------------------------------------
Less: Expenses paid directly (598)
- -------------------------------------------------------------------------------
Net expenses 354,659
- -------------------------------------------------------------------------------
Net investment income 3,305,517
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (2,114,642)
- -------------------------------------------------------------------------------
Foreign currencies (32,829)
- -------------------------------------------------------------------------------
Forward currency contracts 474,201
- -------------------------------------------------------------------------------
(1,673,270)
- -------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (3,392,196)
- -------------------------------------------------------------------------------
Foreign currencies (13,695)
- -------------------------------------------------------------------------------
Forward currency contracts 24,953
- -------------------------------------------------------------------------------
(3,380,938)
- -------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign currencies and
forward currency contracts (5,054,208)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,748,691)
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-47
<PAGE> 129
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,305,517 $ 6,761,255
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment
securities, foreign currencies and forward
currency contracts (1,673,270) (884,777)
- -----------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities, foreign
currencies and forward currency contracts (3,380,938) (2,586,149)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (1,748,691) 3,290,329
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment
income - (4,724,444)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized
gains - (1,507,363)
- -----------------------------------------------------------------------------
Net increase (decrease) from capital stock
transactions (5,318,210) 10,068,179
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (7,066,901) 7,126,701
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 96,445,353 89,318,652
- -----------------------------------------------------------------------------
End of year $89,378,452 $96,445,353
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $85,405,215 $90,723,425
- -----------------------------------------------------------------------------
Undistributed net investment income 9,110,667 5,805,150
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
forward currency contracts (1,984,869) (311,599)
- -----------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities, foreign currencies and
forward currency contracts (3,152,561) 228,377
- -----------------------------------------------------------------------------
$89,378,452 $96,445,353
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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. Equity securities which are listed
or traded on an exchange or the NASDAQ National Market System 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 closing bid price
on that day. 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 prices obtained from an
electronic quotation reporting system, if such prices are available, or
from established market makers. Securities for which market quotations are
either not readily
AIM V.I. DIVERSIFIED INCOME FUND
FS-48
<PAGE> 130
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. 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. 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. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Such
distributions are declared and paid annually.
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 $299,947 as of December 31,
1998, which expires, if not previously utilized, through the year 2006. The
Fund cannot distribute capital gains to shareholders until the tax loss
carryforwards have been utilized.
D. 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. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
E. 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.
Outstanding forward currency contracts at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ---------------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
08/10/99 AUD 350,000 $ 234,626 $ 231,470 $ 3,156
08/04/99 CAD 8,000,000 5,482,945 5,432,000 50,945
08/04/99 CAD 1,000,000 686,518 679,000 7,518
10/08/99 EUR 1,300,000 1,359,384 1,350,216 9,168
08/31/99 GBP 2,000,000 3,194,000 3,153,906 40,094
10/06/99 GBP 1,400,000 2,218,664 2,208,755 9,909
08/26/99 NZD 800,000 438,080 424,027 14,053
08/26/99 NZD 300,000 160,305 159,010 1,295
07/22/99 SEK 10,000,000 1,204,602 1,179,709 24,893
----------- ----------- --------
$14,979,124 $14,818,093 $161,031
=========== =========== ========
</TABLE>
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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $25,752 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,946 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 $598 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $598 during the six months ended
June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did
AIM V.I. DIVERSIFIED INCOME FUND
FS-49
<PAGE> 131
not borrow under the line of credit agreement. The funds which are party to
the line of credit are charged a commitment fee of 0.09% on the unused balance
of the committed line. The commitment fee is allocated among the funds based
on their respective average net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended
June 30, 1999 was $35,860,638 and $36,892,301, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 1,228,417
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,534,640)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(3,306,223)
==========================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30,
1999 and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 1,370,512 $14,814,183 2,291,048 $ 26,553,679
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions - - 569,635 6,231,807
- -----------------------------------------------------------------------------
Reacquired (1,854,175) (20,132,393) (1,956,150) (22,717,307)
- -----------------------------------------------------------------------------
(483,663) $(5,318,210) 904,533 $ 10,068,179
=============================================================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the year ended January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------- JANUARY 31,
1999 1998 1997 1996 1995 1995
-------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
- -------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.43 0.75 0.73 0.73 0.69 0.76
- -------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) (0.65) (0.35) 0.24 0.28 0.94 (1.42)
- -------------------------------------------------------------------------------------------
Total from investment
operations (0.22) 0.40 0.97 1.01 1.63 (0.66)
- -------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income - (0.57) (0.01) (0.68) (0.75) (0.68)
- -------------------------------------------------------------------------------------------
Distributions from net
realized capital
gains - (0.18) -- -- -- --
- -------------------------------------------------------------------------------------------
Total distributions - (0.75) (0.01) (0.68) (0.75) (0.68)
- -------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.72 $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12
===========================================================================================
Total return(a) (2.01)% 3.58% 9.39% 10.19% 18.11% (6.35)%
===========================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $89,378 $96,445 $89,319 $63,624 $44,630 $25,271
===========================================================================================
Ratio of expenses to
average net assets 0.77%(b) 0.77% 0.80% 0.86% 0.88%(c) 0.91%(d)
===========================================================================================
Ratio of net investment
income to average net
assets 7.21%(b) 6.99% 6.90% 7.09% 7.65%(c) 8.07%(d)
===========================================================================================
Portfolio turnover rate 40% 50% 52% 76% 72% 100%
===========================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $92,490,410.
(c) Annualized.
(d) After fee waivers and/or expense reimbursement. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or
expense reimbursements were 1.03% and 7.95%, respectively.
AIM V.I. DIVERSIFIED INCOME FUND
FS-50
<PAGE> 132
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 51.31%
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.32%
United GlobalCom, Inc. - Class A(a) 2,900 $ 196,112
- -------------------------------------------------------------------
Univision Communications, Inc.(a) 6,100 402,600
- -------------------------------------------------------------------
598,712
- -------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 4.61%
ANTEC Corp.(a) 4,000 128,250
- -------------------------------------------------------------------
Copper Mountain Networks, Inc.(a) 1,100 84,975
- -------------------------------------------------------------------
Juniper Networks, Inc.(a) 800 119,200
- -------------------------------------------------------------------
Lucent Technologies, Inc. 9,700 654,144
- -------------------------------------------------------------------
NorthPoint Communications Group, Inc.(a) 4,900 178,850
- -------------------------------------------------------------------
Tellabs, Inc.(a) 4,200 283,762
- -------------------------------------------------------------------
1,449,181
- -------------------------------------------------------------------
COMPUTERS (NETWORKING) - 2.18%
Cisco Systems, Inc.(a) 2,000 129,000
- -------------------------------------------------------------------
Redback Networks, Inc.(a) 3,500 439,469
- -------------------------------------------------------------------
Rhythms NetConnections, Inc.(a) 2,000 116,750
- -------------------------------------------------------------------
685,219
- -------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 0.41%
Clarent Corp. 3,700 55,500
- -------------------------------------------------------------------
Covad Communications Group, Inc.(a) 1,350 71,972
- -------------------------------------------------------------------
127,472
- -------------------------------------------------------------------
ELECTRIC COMPANIES - 12.41%
Allegheny Energy, Inc. 7,300 234,056
- -------------------------------------------------------------------
BEC Energy 3,400 140,250
- -------------------------------------------------------------------
Carolina Power & Light Co. 4,400 188,375
- -------------------------------------------------------------------
DQE, Inc. 7,000 280,875
- -------------------------------------------------------------------
Edison International 13,000 347,750
- -------------------------------------------------------------------
Energy East Corp. 10,400 270,400
- -------------------------------------------------------------------
FirstEnergy Corp. 4,500 139,500
- -------------------------------------------------------------------
FPL Group, Inc. 5,600 305,900
- -------------------------------------------------------------------
IPALCO Enterprises, Inc. 4,000 84,750
- -------------------------------------------------------------------
New Century Energies, Inc. 4,500 174,656
- -------------------------------------------------------------------
NiSource, Inc. 9,200 237,475
- -------------------------------------------------------------------
Pinnacle West Capital Corp. 7,400 297,850
- -------------------------------------------------------------------
Public Service Co. of New Mexico 6,800 135,150
- -------------------------------------------------------------------
Sierra Pacific Resources 3,700 134,587
- -------------------------------------------------------------------
Southern Co. 11,600 307,400
- -------------------------------------------------------------------
Teco Energy, Inc. 12,300 279,825
- -------------------------------------------------------------------
Texas Utilities Co. 5,240 216,150
- -------------------------------------------------------------------
Unicom Corp. 3,400 131,112
- -------------------------------------------------------------------
3,906,061
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (INSTRUMENTATION) - 0.91%
Quanta Services, Inc.(a) 6,500 $ 286,000
- -------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.60%
Superior TeleCom, Inc. 7,556 188,900
- -------------------------------------------------------------------------
NATURAL GAS - 3.68%
Enron Corp. 2,800 228,900
- -------------------------------------------------------------------------
Public Service Co. of
North Carolina, Inc. 3,200 93,600
- -------------------------------------------------------------------------
Williams Companies, Inc. (The) 19,600 834,225
- -------------------------------------------------------------------------
1,156,725
- -------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.29%
AES Corp.(a) 3,300 191,812
- -------------------------------------------------------------------------
MidAmerican Energy Holdings Co.(a) 6,200 214,675
- -------------------------------------------------------------------------
406,487
- -------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.25%
Alexandria Real Estate Equities, Inc. 4,700 146,875
- -------------------------------------------------------------------------
Boston Properties, Inc. 4,300 154,263
- -------------------------------------------------------------------------
Crescent Real Estate Equities, Co. 2,300 54,625
- -------------------------------------------------------------------------
Golf Trust of America, Inc. 1,600 39,100
- -------------------------------------------------------------------------
394,863
- -------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.20%
Convergys Corp.(a) 14,800 284,900
- -------------------------------------------------------------------------
Metzler Group, Inc.(a) 3,400 93,925
- -------------------------------------------------------------------------
378,825
- -------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.44%
Phone.com, Inc.(a) 2,500 140,000
- -------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 6.06%
AT&T Corp. 5,400 301,388
- -------------------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 1,800 145,800
- -------------------------------------------------------------------------
IXC Communications, Inc.(a) 6,000 235,875
- -------------------------------------------------------------------------
MCI WorldCom, Inc.(a) 9,987 861,379
- -------------------------------------------------------------------------
WinStar Communications, Inc.(a) 7,436 362,505
- -------------------------------------------------------------------------
1,906,947
- -------------------------------------------------------------------------
TELEPHONE - 13.93%
Ameritech Corp. 11,400 837,900
- -------------------------------------------------------------------------
Bell Atlantic Corp. 4,600 300,725
- -------------------------------------------------------------------------
BellSouth Corp. 6,800 318,750
- -------------------------------------------------------------------------
CenturyTel, Inc. 11,400 453,150
- -------------------------------------------------------------------------
Cincinnati Bell, Inc. 15,000 374,063
- -------------------------------------------------------------------------
GTE Corp. 3,200 242,400
- -------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-51
<PAGE> 133
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE - (continued)
McLeodUSA, Inc. - Class A(a) 3,600 $ 198,000
- -------------------------------------------------------------------------------
Nextlink Communications, Inc. - Class A(a) 1,900 141,313
- -------------------------------------------------------------------------------
Qwest Communications International, Inc.(a) 14,400 476,100
- -------------------------------------------------------------------------------
SBC Communications, Inc. 14,000 812,000
- -------------------------------------------------------------------------------
Time Warner Telecom, Inc.(a) 7,900 229,100
- -------------------------------------------------------------------------------
4,383,501
- -------------------------------------------------------------------------------
WATER UTILITIES - 0.44%
Azurix Corp.(a) 6,900 138,000
- -------------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $9,126,533) 16,146,893
- -------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 18.18%
AUSTRALIA - 0.26%
Telstra Corp. Ltd. (Telephone) 14,380 82,293
- -------------------------------------------------------------------------------
AUSTRIA - 0.45%
Oesterreichische Elektrizitaetswirtschafts A.G. -
Class A (Electric Companies) 970 141,155
- -------------------------------------------------------------------------------
BELGIUM - 0.41%
Electrabel S.A. (Electric Companies) 400 129,031
- -------------------------------------------------------------------------------
BERMUDA - 0.66%
Global Crossing Ltd. (Telecommunications - Long
Distance)(a) 4,885 208,224
- -------------------------------------------------------------------------------
CANADA - 1.40%
AT&T Canada, Inc. (Telephone)(a) 2,700 172,969
- -------------------------------------------------------------------------------
BCT.Telus Communications, Inc. (Telephone) 4,955 119,048
- -------------------------------------------------------------------------------
BCT.Telus Communications, Inc. - Class A (Telephone) 1,652 39,066
- -------------------------------------------------------------------------------
Westcoast Energy, Inc. (Natural Gas) 5,500 108,625
- -------------------------------------------------------------------------------
439,708
- -------------------------------------------------------------------------------
DENMARK - 0.49%
Tele Danmark A.S. - ADR (Telephone) 6,000 154,500
- -------------------------------------------------------------------------------
ESTONIA - 0.11%
AS Eesti Telekom - GDR (Telecommunications-
Cellular/Wireless) (Acquired 02/11/99;
Cost $30,811)(b) 1,670 33,150
- -------------------------------------------------------------------------------
FINLAND - 1.54%
Fortum Corp. (Electric Companies) 6,300 30,451
- -------------------------------------------------------------------------------
Nokia Oyj A.B. - Class A - ADR
(Communications Equipment) 4,400 402,875
- -------------------------------------------------------------------------------
Sonera Group Oyj (Telecommunications -
Cellular/Wireless) 2,300 50,252
- -------------------------------------------------------------------------------
483,578
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - 1.30%
France Telecom S.A. - ADR (Communications Equipment) 3,500 $ 269,500
- -------------------------------------------------------------------------------
Suez Lyonnaise des Eaux (Manufacturing -
Diversified) 500 90,126
- -------------------------------------------------------------------------------
Vivendi (Consumer Services) 600 48,572
- -------------------------------------------------------------------------------
408,198
- -------------------------------------------------------------------------------
GERMANY - 0.73%
RWE A.G. (Electric Companies) 2,425 112,189
- -------------------------------------------------------------------------------
Viag A.G. (Manufacturing - Diversified) 250 118,004
- -------------------------------------------------------------------------------
230,193
- -------------------------------------------------------------------------------
GREECE - 0.09%
Panafon Hellenic Telecom S.A. - GDR
(Telecommunications - Cellular/Wireless)
(Acquired 11/20/98; Cost $21,696)(a)(b) 1,200 29,100
- -------------------------------------------------------------------------------
HUNGARY - 0.27%
Magyar Tavkozlesi Rt - ADR
(Telecommunications - Long Distance) 3,100 85,250
- -------------------------------------------------------------------------------
ITALY - 0.77%
AEM S.p.A. (Electric Companies) (Acquired 07/17/98;
Cost $52,035)(b) 55,000 98,062
- -------------------------------------------------------------------------------
Societa Nordelettrica S.p.A. (Electric Companies) 49,000 143,923
- -------------------------------------------------------------------------------
241,985
- -------------------------------------------------------------------------------
JAPAN - 0.59%
Nippon Telegraph & Telephone Corp.
(Telecommunications - Long Distance) 90 104,919
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. - ADR (Telecommu-
nications - Long Distance) 1,300 81,413
- -------------------------------------------------------------------------------
186,332
- -------------------------------------------------------------------------------
NETHERLANDS - 1.71%
Equant N.V. (Computers - Networking)(a) 300 27,641
- -------------------------------------------------------------------------------
Equant N.V. - ADR (Computers - Networking)(a) 1,000 94,124
- -------------------------------------------------------------------------------
Koninklijke KPN N.V. (Telecommunications - Long Dis-
tance) 6 281
- -------------------------------------------------------------------------------
Libertel N.V. (Telecommunications -
Cellular/Wireless)(a) 7,800 152,734
- -------------------------------------------------------------------------------
TNT Post Group N.V. (Air Freight) 287 6,847
- -------------------------------------------------------------------------------
TNT Post Group N.V. - ADR (Air Freight) 3,045 73,080
- -------------------------------------------------------------------------------
United Pan-Europe Communications N.V. (Broadcasting-
Television, Radio & Cable)(a) 3,400 184,313
- -------------------------------------------------------------------------------
539,020
- -------------------------------------------------------------------------------
NEW ZEALAND - 0.19%
Contact Energy Ltd. (Electric Companies)(a) 37,000 59,944
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-52
<PAGE> 134
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PORTUGAL - 0.62%
Electricidade de Portugal, S.A. (Electric Companies) 2,900 $ 52,183
- -------------------------------------------------------------------------------
Electricidade de Portugal, S.A. - ADR (Electric Com-
panies) 4,000 143,500
- --------------------------------------------------------------------------------
195,683
- --------------------------------------------------------------------------------
SOUTH KOREA - 0.55%
Korea Telecom Corp. - ADR (Telephone)(a) 4,312 172,480
- --------------------------------------------------------------------------------
SPAIN - 1.53%
Autopistas Concesionaria Espanola S.A.
(Services - Commercial & Consumer) 3,900 45,620
- --------------------------------------------------------------------------------
Autopistas, Concesionaria Espanola S.A.
Bonus Rts, expiring 07/12/99 3,900 2,252
- --------------------------------------------------------------------------------
Endesa S.A. (Electric Companies) 3,100 66,070
- --------------------------------------------------------------------------------
Telefonica S.A. - ADR (Telephone)(a) 2,497 367,365
- --------------------------------------------------------------------------------
481,307
- --------------------------------------------------------------------------------
SWITZERLAND - 0.60%
Swisscom A.G. (Telephone) 500 188,042
- --------------------------------------------------------------------------------
UNITED KINGDOM - 3.91%
Hyder PLC (Water Utilities) 4,519 53,779
- --------------------------------------------------------------------------------
National Grid Group PLC (Electric Companies) 10,313 71,770
- --------------------------------------------------------------------------------
Orange PLC (Telephone)(a) 6,500 95,284
- --------------------------------------------------------------------------------
PowerGen PLC (Electric Companies) 31,485 339,457
- --------------------------------------------------------------------------------
PowerGen PLC - ADR (Electric Companies) 3,800 162,925
- --------------------------------------------------------------------------------
Scottish Power PLC (Electric Companies) 15,950 137,774
- --------------------------------------------------------------------------------
United Utilities PLC (Water Utilities) 15,459 187,871
- --------------------------------------------------------------------------------
Yorkshire Water PLC (Water Utilities) 26,174 181,942
- --------------------------------------------------------------------------------
1,230,802
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $4,143,158) 5,719,975
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 2.31%
COMPUTERS (SOFTWARE & SERVICES) - 0.92%
PSINet, Inc., $3.375 Conv. Pfd. 6,000 289,500
- --------------------------------------------------------------------------------
NATURAL GAS - 1.06%
El Paso Energy Cap Trust, Inc. - $2.375
Conv. Pfd. 6,700 331,650
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.16%
WinStar Communications, Inc. - $3.50 Conv. Pfd. 900 50,400
- --------------------------------------------------------------------------------
TELEPHONE - 0.17%
NEXTLINK Communications - $3.25 Conv. Pfd. (Acquired
03/26/98; Cost $30,000)(b) 600 54,675
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Cost $727,923) 726,225
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. DOLLAR DENOMINATED CONVERTIBLE
BONDS & NOTES - 2.06%
COMPUTERS (HARDWARE) - 1.02%
Candescent Technology Corp., Sr. Conv. Sub. Deb.,
7.00%, 05/01/03(b) (Acquired 04/17/98; Cost
$396,154) $ 412,000 321,360
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.04%
Global Telesystems Group, Conv. Notes, 8.75%, 06/30/00 $ 80,000 $ 325,600
- --------------------------------------------------------------------------------
Total U.S. Dollar Denominated Convertible Bonds &
Notes (Cost $541,078) 646,960
- --------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 10.50%
BROADCASTING (TELEVISION, RADIO
& CABLE) - 0.78%
Comcast Cable Communications, Unsec. Unsub. Notes,
6.20%, 11/15/08 150,000 139,960
- --------------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 100,000 104,750
- --------------------------------------------------------------------------------
244,710
- --------------------------------------------------------------------------------
CONSUMER FINANCE - 0.26%
GMAC, Notes, 9.00%, 10/15/02 75,000 80,677
- --------------------------------------------------------------------------------
ELECTRIC COMPANIES - 2.79%
Cleveland Electric Illuminating Co. (The),
Sr. Sec. Series D Notes, 7.43%, 11/01/09 150,000 151,130
- --------------------------------------------------------------------------------
Commonwealth Edison Co., First Mortgage Notes, 7.50%,
07/01/13 130,000 136,670
- --------------------------------------------------------------------------------
El Paso Electric Co.,
Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 75,000 80,888
- --------------------------------------------------------------------------------
Series E. Sec. First Mortgage Bonds, 9.40%, 05/01/11 100,000 112,431
- --------------------------------------------------------------------------------
Texas - New Mexico Power, Sec.
Sr. Notes, 6.25%, 01/15/09 250,000 223,168
- --------------------------------------------------------------------------------
Western Resources, Inc.,
Sr. Unsec. Notes, 6.25%, 08/15/03 75,000 73,667
- --------------------------------------------------------------------------------
Sr. Unsec. Notes, 7.125%, 08/01/09 100,000 99,484
- --------------------------------------------------------------------------------
877,438
- --------------------------------------------------------------------------------
NATURAL GAS - 2.58%
Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 100,000 93,492
- --------------------------------------------------------------------------------
Enron Corp., Sr. Sub. Deb., 8.25%, 09/15/12 400,000 424,140
- --------------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 250,000 246,983
- --------------------------------------------------------------------------------
PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 47,103
- --------------------------------------------------------------------------------
811,718
- --------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.32%
Tennessee Gas Pipeline Co., Unsec. Bonds, 7.00%,
03/15/27 100,000 99,996
- --------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.16%
AES Corp.
Sr. Notes, 8.00%, 12/31/08 100,000 94,500
- --------------------------------------------------------------------------------
Sr. Sub. Notes, 10.25%, 07/15/06 75,000 77,250
- --------------------------------------------------------------------------------
Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 78,686
- --------------------------------------------------------------------------------
Indiana Michigan Power, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 93,396 115,105
- --------------------------------------------------------------------------------
365,541
- --------------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-53
<PAGE> 135
<TABLE>
<S> <C> <C>
PRINCIPAL MARKET
AMOUNT VALUE
TELECOMMUNICATIONS (LONG DISTANCE) - 1.23%
AT&T Corp., Sr. Notes, 7.75%, 03/01/07 $ 150,000 $ 158,997
- --------------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Notes, 6.875%,
11/15/28 250,000 228,970
- --------------------------------------------------------------------------------
387,967
- --------------------------------------------------------------------------------
TELEPHONE - 1.38%
GTE Florida, Inc., Unsec. Deb., 6.86%, 02/01/28 250,000 238,400
- --------------------------------------------------------------------------------
SBC Communications, Inc., Deb., 7.375/%, 07/15/43 200,000 196,212
- --------------------------------------------------------------------------------
434,612
- --------------------------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $3,454,799) 3,302,659
- --------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS &
NOTES - 1.74%(c)
FRANCE - 0.33%
France Telecom (Telephone), Conv. Bonds, 2.00%,
01/01/04 FRF 603,520 105,008
- --------------------------------------------------------------------------------
UNITED KINGDOM - 1.41%
National Grid Co. PLC (Electric Companies), Conv.
Bonds, 4.25%, 02/17/08 GBP 240,000 444,030
- --------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible Bonds
& Notes
(Cost $504,278) 549,038
- --------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 2.06%(c)
CANADA - 2.06%
Bell Canada (Telecommunications-Cellular/Wireless),
Series EW Deb., 8.80%, 08/17/05 CAD 50,000 38,815
- --------------------------------------------------------------------------------
Unsec. Deb., 10.875%, 10/11/04 50,000 40,674
- --------------------------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas-Exploration &
Production), Deb., 11.00%, 10/31/00 100,000 72,718
- --------------------------------------------------------------------------------
Clearnet Communications, Inc. (Telephone), Unsec. Sr.
Disc. Notes, 5.303%, 02/15/09(d) 300,000 111,978
- --------------------------------------------------------------------------------
Ontario Hydro (Electric Companies), Sr. Unsec. Gtd.
Notes, 9.00%, 06/24/02 200,000 147,936
- --------------------------------------------------------------------------------
Telegobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 100,000 73,613
- --------------------------------------------------------------------------------
TransCanada Pipelines (Natural Gas),
Series Q Deb., 10.625%, 10/20/09 125,000 110,674
- --------------------------------------------------------------------------------
Unsec. Notes 8.55%, 02/01/06 70,000 52,878
- --------------------------------------------------------------------------------
649,286
- --------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Non-Convertible
Bonds & Notes
(Cost $676,147) 649,286
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 0.97%
U.S. TREASURY BONDS - 0.48%
7.625%, 02/15/25 130,000 152,997
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY NOTES - 0.49%
6.625%, 06/30/01 $ 150,000 $ 153,045
- --------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $292,052) 306,042
- --------------------------------------------------------------------------------
Total Investments Excluding Repurchase Agreements (Cost
$19,465,968) 28,047,078
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 10.55%(e)
Dean Witter Reynolds, Inc., 4.85%, 07/01/99 (Cost
$3,318,890)(f) 3,318,890 3,318,890
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.68% 31,365,968
================================================================================
OTHER ASSETS LESS LIABILITIES - 0.32% 101,134
================================================================================
NET ASSETS - 100.00% $31,467,102
================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) 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 06/30/99 was $536,347 which
represented 1.70% of the Fund's net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency indicated.
(d) Step bond issued at a discount. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(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 agreement entered into 06/30/99 with a maturing value of
$100,013,472. Collaterized by U.S. Government agency obligations.
INVESTMENT ABBREVIATIONS:
ADR - American Depositary Receipt
CAD - Canadian Dollars
Conv. - Convertible
Deb. - Debentures
FRF - French Franc
GBP - British Pound Sterling
GDR - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Rts. - Rights
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-54
<PAGE> 136
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreement, at market
value (cost $19,465,968) $28,047,078
- ---------------------------------------------------------------------
Repurchase agreement (cost $3,318,890) 3,318,890
- ---------------------------------------------------------------------
Foreign currencies, at value (cost $2,497) 2,468
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 13,801
- ---------------------------------------------------------------------
Dividends and interest 151,883
- ---------------------------------------------------------------------
Investments sold 77,241
- ---------------------------------------------------------------------
Investment for deferred compensation plan 18,795
- ---------------------------------------------------------------------
Total assets 31,630,156
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 114,946
- ---------------------------------------------------------------------
Capital stock reacquired 736
- ---------------------------------------------------------------------
Deferred compensation plan 18,795
- ---------------------------------------------------------------------
Accrued advisory fees 16,492
- ---------------------------------------------------------------------
Accrued directors' fees 2,300
- ---------------------------------------------------------------------
Accrued operating expenses 9,776
- ---------------------------------------------------------------------
Total liabilities 163,054
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $31,467,102
=====================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 1,693,285
=====================================================================
Net asset value, offering and redemption price per share $18.58
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $10,360 foreign withholding tax) $ 227,227
- ---------------------------------------------------------------------
Interest 239,546
- ---------------------------------------------------------------------
Total investment income 466,773
- ---------------------------------------------------------------------
EXPENSES:
Advisory fees 93,074
- ---------------------------------------------------------------------
Administrative services fees 25,132
- ---------------------------------------------------------------------
Custodian fees 13,139
- ---------------------------------------------------------------------
Directors' fees and expenses 4,392
- ---------------------------------------------------------------------
Professional fees 16,778
- ---------------------------------------------------------------------
Other 5,014
- ---------------------------------------------------------------------
Total expenses 157,529
- ---------------------------------------------------------------------
Less: Expenses paid indirectly (149)
- ---------------------------------------------------------------------
Net expenses 157,380
- ---------------------------------------------------------------------
Net investment income 309,393
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities 1,031,157
- ---------------------------------------------------------------------
Foreign currencies (15,492)
- ---------------------------------------------------------------------
1,015,665
- ---------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 678,940
- ---------------------------------------------------------------------
Foreign currencies (329)
- ---------------------------------------------------------------------
678,611
- ---------------------------------------------------------------------
Net gain on investment securities and foreign currencies 1,694,276
- ---------------------------------------------------------------------
Net increase in net assets resulting from operations $2,003,669
=====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-55
<PAGE> 137
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 309,393 $ 610,580
- -------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures and option contracts 1,015,665 (59,962)
- -------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 678,611 3,278,654
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,003,669 3,829,272
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income -- (450,038)
- -------------------------------------------------------------------------------
Distributions from net realized gains -- (187,121)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 1,329,805 2,862,654
- -------------------------------------------------------------------------------
Net increase in net assets 3,333,474 6,054,767
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 28,133,628 22,078,861
- -------------------------------------------------------------------------------
End of year $31,467,102 $28,133,628
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $21,028,498 $19,698,693
- -------------------------------------------------------------------------------
Undistributed net investment income 917,531 608,138
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies, futures
and option contracts 940,214 (75,451)
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and option contracts 8,580,859 7,902,248
- -------------------------------------------------------------------------------
$31,467,102 $28,133,628
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 closing bid price on that day. 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 closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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
AIM V.I. GLOBAL UTILITIES FUND
FS-56
<PAGE> 138
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. Realized gains or losses from securities transactions are recorded
on the identified cost basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Such distributions are
declared and paid annually.
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 had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $50,716 as of December 31, 1998, which expires,
if not previously utilized, through the year 2006. The Fund cannot
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized.
D. 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. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
E. 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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $25,132 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,878 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 $149 under an expense offset
arrangement. The effect of this arrangement resulted in a reduction of the
Fund's total expenses of $149 during the six months ended June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
AIM V.I. GLOBAL UTILITIES FUND
FS-57
<PAGE> 139
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended
June 30, 1999 was $5,558,483 and $4,925,822, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $9,101,958
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (520,858)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $8,581,100
=========================================================================
</TABLE>
Cost of investments for tax purposes is $22,784,868.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30,
1999, and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1999 1998
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Sold 284,859 $ 5,094,149 516,028 $8,375,181
- -----------------------------------------------------------------------
Issued as reinvestment of
distributions -- -- 37,858 637,159
- -----------------------------------------------------------------------
Reacquired (211,751) (3,764,344) (380,439) (6,149,686)
- -----------------------------------------------------------------------
73,108 $ 1,329,805 173,447 $2,862,654
=======================================================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the period May 2, 1994 (date operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------ JANUARY 31,
1999 1998 1997 1996 1995 1995
-------- ------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.36 $ 15.26 $ 12.55 $11.64 $9.69 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.17 0.35 0.32 0.40 0.29 0.27
- -------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 1.05 2.15 2.40 0.99 1.98 (0.33)
- -------------------------------------------------------------------------------------------------
Total from investment
operations 1.22 2.50 2.72 1.39 2.27 (0.06)
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.28) -- (0.41) (0.31) (0.25)
- -------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.12) (0.01) (0.07) (0.01) --
- -------------------------------------------------------------------------------------------------
Total distributions -- (0.40) (0.01) (0.48) (0.32) (0.25)
- -------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 18.58 $ 17.36 $ 15.26 $12.55 $11.64 $ 9.69
=================================================================================================
Total return(a) 7.03% 16.49% 21.63% 12.07% 23.73% (0.56)%
=================================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $31,467 $28,134 $22,079 $13,576 $8,394 $2,958
=================================================================================================
Ratio of expenses to
average net assets 1.10%(b) 1.11% 1.28% 1.40%(c) 1.47%(c)(d) 1.31%(d)(e)
=================================================================================================
Ratio of net investment
income to average net
assets 2.16%(b) 2.46% 2.81% 3.56%(c) 3.76%(c)(d) 4.39%(d)(e)
=================================================================================================
Portfolio turnover rate 19% 32% 28% 47% 58% 69%
=================================================================================================
</TABLE>
(a) Totals returns are not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $28,875,556.
(c) 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% for 1996 and 2.44% (annualized)
and 2.79% (annualized) for 1995, respectively.
(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 2.80% (annualized) and 2.90% (annualized),
respectively.
AIM V.I. GLOBAL UTILITIES FUND
FS-58
<PAGE> 140
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 66.71%
FEDERAL FARM CREDIT BANK - 3.42%
Medium term notes
5.96%, 07/14/03 $ 200,000 $ 198,264
- ---------------------------------------------------------------------------
5.80%, 06/17/05 1,000,000 976,500
- ---------------------------------------------------------------------------
6.22%, 06/17/08 1,000,000 967,270
- ---------------------------------------------------------------------------
2,142,034
- ---------------------------------------------------------------------------
FEDERAL HOME LOAN BANK - 3.76%
Debentures
8.375%, 10/25/99 150,000 151,402
- ---------------------------------------------------------------------------
6.00%, 06/27/00 250,000 251,322
- ---------------------------------------------------------------------------
5.97%, 12/11/00 1,000,000 1,005,390
- ---------------------------------------------------------------------------
7.31%, 07/06/01 500,000 514,630
- ---------------------------------------------------------------------------
8.17%, 12/16/04 400,000 434,696
- ---------------------------------------------------------------------------
2,357,440
- ---------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") - 15.53%
Debentures
6.13%, 08/19/99 150,000 150,230
- ---------------------------------------------------------------------------
6.45%, 04/29/09 1,000,000 968,140
- ---------------------------------------------------------------------------
Pass through certificates
6.00%, 11/01/08 to 08/01/10 634,467 616,023
- ---------------------------------------------------------------------------
6.50%, 12/01/08 to 08/01/28 4,281,855 4,168,791
- ---------------------------------------------------------------------------
7.00%, 11/01/10 to 01/01/26 1,077,769 1,083,565
- ---------------------------------------------------------------------------
10.50%, 08/01/19 133,744 146,449
- ---------------------------------------------------------------------------
8.50%, 09/01/20 to 12/01/26 2,478,522 2,607,400
- ---------------------------------------------------------------------------
9,740,598
- ---------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") -
24.45%
Debentures
8.25%, 12/18/00 500,000 518,540
- ---------------------------------------------------------------------------
7.50%, 02/11/02 1,350,000 1,398,695
- ---------------------------------------------------------------------------
7.55%, 04/22/02 400,000 415,920
- ---------------------------------------------------------------------------
8.50%, 02/01/05 500,000 508,495
- ---------------------------------------------------------------------------
5.75%, 06/15/05 500,000 488,240
- ---------------------------------------------------------------------------
Medium term notes
7.375%, 03/28/05 300,000 315,618
- ---------------------------------------------------------------------------
Pass through certificates
7.50%, 11/01/09 to 07/01/27 1,854,019 1,884,348
- ---------------------------------------------------------------------------
6.50%, 10/01/10 to 06/01/23 1,339,149 1,321,331
- ---------------------------------------------------------------------------
7.00%, 07/01/11 to 01/01/28 3,901,856 3,902,272
- ---------------------------------------------------------------------------
6.00%, 10/01/13 to 12/01/13 2,905,216 2,806,235
- ---------------------------------------------------------------------------
8.50%, 09/01/24 to 02/01/25 1,239,484 1,296,508
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") -
CONTINUED
STRIPS(a)
7.37%, 10/09/19 $1,800,000 $ 480,888
- ---------------------------------------------------------------------------
15,337,090
- ---------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") -
15.37%
Pass through certificates
9.50%, 08/15/03 to 09/15/16 48,748 52,836
- ---------------------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 108,246 115,790
- ---------------------------------------------------------------------------
11.00%, 10/15/15 25,893 28,668
- ---------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 22,036 24,177
- ---------------------------------------------------------------------------
10.00%, 06/15/19 758,368 826,621
- ---------------------------------------------------------------------------
6.50%, 12/15/23 389,627 378,059
- ---------------------------------------------------------------------------
8.00%, 07/15/24 to 07/15/26 2,674,834 2,759,791
- ---------------------------------------------------------------------------
7.50%, 05/15/27 to 08/15/28 2,129,593 2,155,684
- ---------------------------------------------------------------------------
7.00%, 04/15/28 to 06/15/28 3,332,751 3,296,754
- ---------------------------------------------------------------------------
9,638,380
- ---------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.49%
Debentures
7.30%, 01/31/02 300,000 309,078
- ---------------------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 0.48%
Debentures
5.55%, 12/15/99 150,000 150,146
6.50%, 08/01/02 150,000 151,926
- ---------------------------------------------------------------------------
302,072
- ---------------------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY - 3.21%
Debentures
6.375%, 06/15/05 2,000,000 2,014,400
- ---------------------------------------------------------------------------
Total U.S. Government Agency Securities (Cost
$42,220,968) 41,841,092
- ---------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 17.54%
U.S. TREASURY BONDS & NOTES - 16.16%
6.125%, 12/31/01 500,000 506,010
- ---------------------------------------------------------------------------
6.00%, 07/31/02 300,000 303,138
- ---------------------------------------------------------------------------
5.25%, 08/15/03 3,500,000 3,439,100
- ---------------------------------------------------------------------------
4.75%, 02/15/04 3,000,000 2,883,990
- ---------------------------------------------------------------------------
5.50%, 02/15/08 1,000,000 973,220
- ---------------------------------------------------------------------------
6.875%, 08/15/25 500,000 541,110
- ---------------------------------------------------------------------------
6.125%, 11/15/27 1,500,000 1,488,120
- ---------------------------------------------------------------------------
10,134,688
- ---------------------------------------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-59
<PAGE> 141
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY STRIPS(a) - 1.38%
5.378%, 05/15/06 $ 750,000 $ 499,717
- ---------------------------------------------------------------------------------
6.80%, 11/15/18 1,250,000 367,838
- ---------------------------------------------------------------------------------
867,555
- ---------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $11,373,618) 11,002,243
- ---------------------------------------------------------------------------------
Total Investments Excluding, Repurchase Agreement (Cost
$53,594,586) 52,843,335
- ---------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 14.98%(b)
CIBC Oppenheimer, 5.00%, 07/01/99(c)
(Cost $9,393,793) 9,393,793 9,393,793
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.23% 62,237,128
- ---------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES--0.77% 484,344
- ---------------------------------------------------------------------------------
NET ASSETS - 100.00% $62,721,472
=================================================================================
</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 is at least 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 06/30/99 with a maturing value of
$50,006,945. Collateralized by U.S. Government obligations.
Abbreviation:
STRIPS - Separately Traded Registered Interest and Principal Security
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-60
<PAGE> 142
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreement, at market
value (cost $53,594,586) $ 52,843,335
- ----------------------------------------------------------------------
Repurchase agreement (cost $9,393,793) 9,393,793
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 75,519
- ----------------------------------------------------------------------
Interest 494,448
- ----------------------------------------------------------------------
Paydowns 6,232
- ----------------------------------------------------------------------
Investment for deferred compensation plan 21,978
- ----------------------------------------------------------------------
Other assets 545
- ----------------------------------------------------------------------
Total assets 62,835,850
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 26,992
- ----------------------------------------------------------------------
Deferred compensation plan 21,978
- ----------------------------------------------------------------------
Accrued advisory fees 25,063
- ----------------------------------------------------------------------
Accrued administrative services fees 10,690
- ----------------------------------------------------------------------
Accrued directors' fees and expenses 3,700
- ----------------------------------------------------------------------
Accrued operating expenses 25,955
- ----------------------------------------------------------------------
Total liabilities 114,378
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 62,721,472
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 5,730,208
======================================================================
Net asset value, offering and redemption price per share $10.95
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 2,067,019
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 148,812
- -----------------------------------------------------------------------------
Administrative services fees 40,450
- -----------------------------------------------------------------------------
Custodian fees 10,579
- -----------------------------------------------------------------------------
Directors' fees and expenses 6,062
- -----------------------------------------------------------------------------
Interest expense 12,190
- -----------------------------------------------------------------------------
Professional fees 17,827
- -----------------------------------------------------------------------------
Other 10,199
- -----------------------------------------------------------------------------
Total expenses 246,119
- -----------------------------------------------------------------------------
Net investment income 1,820,900
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (1,110,342)
- -----------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,934,302)
- -----------------------------------------------------------------------------
Net gain (loss) on investment securities (3,044,644)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,223,744)
=============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-61
<PAGE> 143
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,820,900 $ 2,530,613
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (1,110,342) 241,993
- ------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (1,934,302) 445,919
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (1,223,744) 3,218,525
- ------------------------------------------------------------------------------
Dividends from net investment income -- (1,611,964)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 5,760,535 22,778,324
- ------------------------------------------------------------------------------
Net increase in net assets 4,536,791 24,384,885
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 58,184,681 33,799,796
- ------------------------------------------------------------------------------
End of year $62,721,472 $58,184,681
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $60,518,530 $54,757,995
- ------------------------------------------------------------------------------
Undistributed net investment income 4,309,645 2,488,745
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,355,452) (245,110)
- ------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (751,251) 1,183,051
- ------------------------------------------------------------------------------
$62,721,472 $58,184,681
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 United States 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. The 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
AIM V.I. GOVERNMENT SECURITIES FUND
FS-62
<PAGE> 144
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 reinvested 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 security sold.
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 in 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.
Interest income is recorded as earned from settlement date and is recorded
on the accrual basis. Realized gains or losses from securities transactions
are recorded on the identified cost basis. Distributions to shareholders are
recorded on the ex-dividend date. Such distributions are declared and paid
annually.
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 $180,497 as of December 31,
1998, 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.
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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $22,486 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,908 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 - BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the
Fund, with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. Proceeds from reverse repurchase agreements are
treated as borrowings. The agreements are collateralized by the underlying
securities and are carried at the amount at which the securities will
subsequently be repurchased as specified in the agreements. The maximum amount
outstanding during the six months ended June 30, 1999 was $3,221,250 while
borrowings averaged $1,010,663 per day with a weighted average interest rate
of 2.40%. No borrowings existed at June 30, 1999.
The Fund will limit its borrowings from banks, reverse repurchase agreements
and dollar roll transactions to an aggregate of 33 1/3% of its total assets at
the time of investment. The Fund will not purchase additional securities when
any borrowings from banks exceed 5% of the Fund's total assets.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended
June 30, 1999 was $13,351,944 and $13,474,325, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 258,523
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,046,025)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $ (787,502)
==========================================================================
</TABLE>
Cost of investments for tax purposes is $63,024,630.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-63
<PAGE> 145
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30,
1999 and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,015,202 $ 22,281,052 3,062,093 $ 34,224,621
- ------------------------------------------------------------------------------
Issued as reinvestment of
dividends -- -- 144,183 1,611,964
- ------------------------------------------------------------------------------
Reacquired (1,490,564) (16,520,517) (1,168,506) (13,058,261)
- ------------------------------------------------------------------------------
524,638 $ 5,760,535 2,037,770 $ 22,778,324
==============================================================================
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the year ended January 31, 1995.
<TABLE>
<CAPTION>
JANUARY
JUNE 30, DECEMBER 31, 31,
-------- ---------------------------------- -------
1999(a) 1998(a) 1997 1996 1995 1995
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
- ------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.34 0.63 0.59 0.58 0.54 0.53
- ------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) (0.57) 0.20 0.22 (0.35) 0.74 (0.88)
- ------------------------------------------------------------------------------------------
Total from investment
operations (0.23) 0.83 0.81 0.23 1.28 (0.35)
- ------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.32) (0.01) (0.53) (0.50) (0.50)
- ------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.95 $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39
==========================================================================================
Total return(b) (2.06)% 7.73% 8.16% 2.29% 13.84% (3.42)%
==========================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $62,721 $58,185 $33,800 $24,527 $19,545 $12,887
==========================================================================================
Ratio of expenses
(exclusive of interest
expense) to average net
assets 0.79%(c) 0.76% 0.87% 0.91% 1.19%(d) 0.95%(e)
==========================================================================================
Ratio of net investment
income to average net
assets 6.12%(c) 5.70% 5.85% 5.80% 5.78%(d) 5.51%(f)
==========================================================================================
Ratio of interest expense
to average net assets 0.04% N/A N/A N/A N/A N/A
==========================================================================================
Portfolio turnover rate 25% 78% 66% 32% 41% 29%
==========================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $60,017,920.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.10% for January 1995.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 5.35% for January 1995.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-64
<PAGE> 146
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 88.78%
BANKS (REGIONAL) - 0.16%
North Fork Bancorporation, Inc. 35,200 $ 750,200
- -------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.34%
AT&T Corp.-Liberty Media Group-Class A(a) 120,200 4,417,350
- -------------------------------------------------------------------
Cablevision Systems Corp.-Class A(a) 9,900 693,000
- -------------------------------------------------------------------
Clear Channel Communications, Inc.(a) 89,925 6,199,205
- -------------------------------------------------------------------
Comcast Corp.-Class A 153,800 5,911,687
- -------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 99,000 3,644,437
- -------------------------------------------------------------------
Infinity Broadcasting Corp.-Class A(a) 157,600 4,688,600
- -------------------------------------------------------------------
25,554,279
- -------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 5.82%
General Instrument Corp.(a) 72,000 3,060,000
- -------------------------------------------------------------------
Lucent Technologies, Inc. 197,804 13,339,390
- -------------------------------------------------------------------
Motorola, Inc. 55,000 5,211,250
- -------------------------------------------------------------------
QUALCOMM, Inc.(a) 22,200 3,185,700
- -------------------------------------------------------------------
Tellabs, Inc.(a) 45,000 3,040,312
- -------------------------------------------------------------------
27,836,652
- -------------------------------------------------------------------
COMPUTERS (HARDWARE) - 4.09%
International Business Machines Corp. 98,000 12,666,500
- -------------------------------------------------------------------
Sun Microsystems, Inc.(a)(b) 100,000 6,887,500
- -------------------------------------------------------------------
19,554,000
- -------------------------------------------------------------------
COMPUTERS (NETWORKING) - 2.07%
Cisco Systems, Inc.(a)(b) 153,300 9,887,850
- -------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 1.28%
EMC Corp.(a)(b) 44,000 2,420,000
- -------------------------------------------------------------------
Lexmark International Group, Inc.(a) 56,000 3,699,500
- -------------------------------------------------------------------
6,119,500
- -------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 10.52%
America Online, Inc.(b) 135,000 14,917,500
- -------------------------------------------------------------------
Citrix Systems, Inc.(a) 64,400 3,638,600
- -------------------------------------------------------------------
Compuware Corp.(a) 102,500 3,260,781
- -------------------------------------------------------------------
Microsoft Corp.(a) 105,800 9,541,837
- -------------------------------------------------------------------
Novell, Inc.(a) 5,500 145,750
- -------------------------------------------------------------------
Unisys Corp.(a) 305,000 11,875,937
- -------------------------------------------------------------------
Veritas Software Corp.(a) 6,100 579,119
- -------------------------------------------------------------------
Yahoo!, Inc.(a) 37,000 6,373,250
- -------------------------------------------------------------------
50,332,774
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER FINANCE - 0.55%
Capital One Financial Corp. 36,000 $ 2,004,750
- -------------------------------------------------------------------
Providian Financial Corp. 6,700 626,450
- -------------------------------------------------------------------
2,631,200
- -------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.04%
AmeriSource Health Corp.-Class A(a) 7,800 198,900
- -------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.46%
General Electric Co. 50,000 5,650,000
- -------------------------------------------------------------------
Sanmina Corp.(a)(b) 51,600 3,915,150
- -------------------------------------------------------------------
Symbol Technologies, Inc. 60,450 2,229,094
- -------------------------------------------------------------------
11,794,244
- -------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 3.72%
Analog Devices, Inc.(a) 60,000 3,011,250
- -------------------------------------------------------------------
Intel Corp.(b)(c) 36,000 2,142,000
- -------------------------------------------------------------------
LSI Logic Corp.(a) 20,900 964,012
- -------------------------------------------------------------------
Texas Instruments, Inc. 40,000 5,800,000
- -------------------------------------------------------------------
Xilinx, Inc.(a) 103,000 5,896,750
- -------------------------------------------------------------------
17,814,012
- -------------------------------------------------------------------
ENTERTAINMENT - 1.80%
Time Warner, Inc. 117,000 8,599,500
- -------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 3.78%
American Express Co. 15,000 1,951,875
- -------------------------------------------------------------------
Fannie Mae 91,500 6,256,312
- -------------------------------------------------------------------
Freddie Mac 170,000 9,860,000
- -------------------------------------------------------------------
18,068,187
- -------------------------------------------------------------------
FOOTWEAR - 0.46%
Nike, Inc.-Class B 35,000 2,215,937
- -------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 6.64%
Abbott Laboratories 98,600 4,486,300
- -------------------------------------------------------------------
Bristol-Myers Squibb Co. 125,000 8,804,687
- -------------------------------------------------------------------
Johnson & Johnson 68,500 6,713,000
- -------------------------------------------------------------------
Warner-Lambert Co. 170,000 11,793,750
- -------------------------------------------------------------------
31,797,737
- -------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) -
2.99%
Lilly (Eli) & Co. 62,000 4,440,750
- -------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 143,000 8,124,187
- -------------------------------------------------------------------
Schering-Plough Corp. 32,500 1,722,500
- -------------------------------------------------------------------
14,287,437
- -------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-65
<PAGE> 147
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.29%
Bausch & Lomb, Inc. 46,400 $ 3,549,600
- ---------------------------------------------------------------------------
Becton, Dickinson & Co. 79,900 2,397,000
- ---------------------------------------------------------------------------
Boston Scientific Corp.(a) 60,000 2,636,250
- ---------------------------------------------------------------------------
Guidant Corp. 300,000 15,431,250
- ---------------------------------------------------------------------------
Medtronic, Inc. 78,026 6,076,275
- ---------------------------------------------------------------------------
30,090,375
- ---------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 1.40%
American International Group, Inc. 57,360 6,714,705
- ---------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.63%
Knight/Trimark Group, Inc.-Class A(a) 50,000 3,015,625
- ---------------------------------------------------------------------------
LODGING-HOTELS - 0.88%
Carnival Corp. 87,200 4,229,200
- ---------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 4.41%
Tyco International Ltd. 175,000 16,581,250
- ---------------------------------------------------------------------------
United Technologies Corp. 63,000 4,516,313
- ---------------------------------------------------------------------------
21,097,563
- ---------------------------------------------------------------------------
NATURAL GAS - 0.51%
Enron Corp. 30,000 2,452,500
- ---------------------------------------------------------------------------
RAILROADS - 0.03%
Kansas City Southern Industries, Inc. 2,300 146,769
- ---------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 3.26%
Home Depot, Inc. (The) 97,000 6,250,438
- ---------------------------------------------------------------------------
Lowe's Companies, Inc. 165,000 9,353,438
- ---------------------------------------------------------------------------
15,603,876
- ---------------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.67%
Best Buy Co., Inc.(a) 68,000 4,590,000
- ---------------------------------------------------------------------------
Tandy Corp. 70,000 3,421,250
- ---------------------------------------------------------------------------
8,011,250
- ---------------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.26%
Dollar Tree Stores, Inc.(a) 28,800 1,267,200
- ---------------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.41%
Kroger Co.(a) 200,200 5,593,088
- ---------------------------------------------------------------------------
Safeway, Inc.(a) 23,600 1,168,200
- ---------------------------------------------------------------------------
6,761,288
- ---------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 2.21%
Dayton Hudson Corp. 70,000 4,550,000
- ---------------------------------------------------------------------------
Wal-Mart Stores, Inc. 125,000 6,031,250
- ---------------------------------------------------------------------------
10,581,250
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY) - 2.41%
Office Depot, Inc.(a) 232,750 $ 5,135,047
- ---------------------------------------------------------------------------
Staples, Inc.(a) 161,000 4,980,938
- ---------------------------------------------------------------------------
Tiffany & Co. 14,600 1,408,900
- ---------------------------------------------------------------------------
11,524,885
- ---------------------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 1.32%
Gap, Inc. (The) 54,000 2,720,250
- ---------------------------------------------------------------------------
Intimate Brands, Inc. 75,895 3,595,526
- ---------------------------------------------------------------------------
6,315,776
- ---------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 2.10%
Outdoor Systems, Inc.(a) 275,000 10,037,500
- ---------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 2.47%
Affiliated Computer Services, Inc.-Class A(a) 29,100 1,473,188
- ---------------------------------------------------------------------------
Ceridian Corp.(a) 69,400 2,268,513
- ---------------------------------------------------------------------------
CSG Systems International, Inc.(a) 67,900 1,778,131
- ---------------------------------------------------------------------------
First Data Corp. 100,000 4,893,750
- ---------------------------------------------------------------------------
Fiserv, Inc.(a) 45,225 1,416,108
- ---------------------------------------------------------------------------
11,829,690
- ---------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 4.73%
MCI WorldCom, Inc.(a)(b) 262,243 22,618,459
- ---------------------------------------------------------------------------
TEXTILES (APPAREL) - 1.07%
Tommy Hilfiger Corp.(a) 70,000 5,145,000
- ---------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $285,708,730) 424,885,320
- ---------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 4.65%
CANADA - 1.45%
Nortel Networks Corp. (Communications Equipment) 80,000 6,945,000
- ---------------------------------------------------------------------------
FINLAND - 1.69%
Nokia Oyj A.B.-Class A (Communications Equipment) 13,600 1,191,374
- ---------------------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Communications
Equipment) 75,000 6,867,187
- ---------------------------------------------------------------------------
8,058,561
- ---------------------------------------------------------------------------
NETHERLANDS - 1.51%
Koninklijke (Royal) Philips Electronics N.V.-ADR
(Electrical Equipment) 26,680 2,691,345
- ---------------------------------------------------------------------------
Koninklijke (Royal) Phillips Electronics N.V.-
(Electrical Equipment) 46,000 4,534,537
- ---------------------------------------------------------------------------
7,225,882
- ---------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $15,507,956) 22,229,443
- ---------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-66
<PAGE> 148
<TABLE>
<CAPTION>
OPTIONS PURCHASED - 0.00%
NUMBER OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE MARKET VALUE
<S> <C> <C> <C> <C>
ELECTRONICS (SEMICONDUCTORS) -
0.00%
Intel Corp. (Cost $37,080) 360 $52.50 Jul-99 $ 12,375
- --------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
TIME DEPOSIT - 4.67%
CIBC Oppenheimer Corp., 5.50%,
07/01/99 (Cost $22,363,210) $22,363,210 22,363,210
- ---------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.72%(d)
Greenwich Capital Markets, Inc., 5.00%, 07/01/99
(Cost $13,000,037)(e) 13,000,037 13,000,037
- ---------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.82% 482,490,385
===========================================================================
LIABILITIES LESS OTHER ASSETS - (0.82%) (3,903,545)
===========================================================================
NET ASSETS - 100.00% $478,586,840
===========================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) A portion of this security is subject to call options.
(c) A portion of this security is subject to put options.
(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 agreements entered into 06/30/99 with a maturing value of
$100,013,889. Collaterialized by U.S. Government obligations.
Investment Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-67
<PAGE> 149
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments at market value (cost $336,617,013) $482,490,385
- ----------------------------------------------------------------------
Cash 375,509
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 1,052,941
- ----------------------------------------------------------------------
Investments sold 1,028,734
- ----------------------------------------------------------------------
Dividends and interest 124,730
- ----------------------------------------------------------------------
Investment for deferred compensation plan 23,806
- ----------------------------------------------------------------------
Other assets 2,757
- ----------------------------------------------------------------------
Total assets 485,098,862
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 22,080
- ----------------------------------------------------------------------
Investments purchased 816,068
- ----------------------------------------------------------------------
Deferred compensation plan 23,806
- ----------------------------------------------------------------------
Options written (Premiums received $4,998,568) 5,344,875
- ----------------------------------------------------------------------
Accrued advisory fees 231,912
- ----------------------------------------------------------------------
Accrued administrative services fees 8,675
- ----------------------------------------------------------------------
Accrued directors' fees 2,350
- ----------------------------------------------------------------------
Accrued operating expenses 62,256
- ----------------------------------------------------------------------
Total liabilities 6,512,022
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $478,586,840
======================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 17,139,556
======================================================================
Net asset value, offering and redemption price per share $27.92
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $22,717 foreign withholding tax) $ 923,851
- -------------------------------------------------------------------------
Interest 619,632
- -------------------------------------------------------------------------
Total investment income 1,543,483
- -------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,301,868
- -------------------------------------------------------------------------
Administrative services fees 46,972
- -------------------------------------------------------------------------
Custodian fees 29,321
- -------------------------------------------------------------------------
Directors' fees and expenses 3,039
- -------------------------------------------------------------------------
Other 53,727
- -------------------------------------------------------------------------
Total expenses 1,434,927
- -------------------------------------------------------------------------
Less: Expenses paid indirectly (1,229)
- -------------------------------------------------------------------------
Net expenses 1,433,698
- -------------------------------------------------------------------------
Net investment income 109,785
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities 25,571,787
- -------------------------------------------------------------------------
Foreign currencies (94,199)
- -------------------------------------------------------------------------
Options contracts (687,809)
- -------------------------------------------------------------------------
24,789,779
- -------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 25,471,680
- -------------------------------------------------------------------------
Foreign currencies (6,813)
- -------------------------------------------------------------------------
Options contracts (47,752)
- -------------------------------------------------------------------------
25,417,115
- -------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and
options contracts 50,206,894
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations $50,316,679
=========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-68
<PAGE> 150
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-----------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 109,785 $ 1,230,060
- -------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and options contracts 24,789,779 22,257,031
- -------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, futures and
options contracts 25,417,115 68,057,550
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 50,316,679 91,544,641
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income -- (1,180,373)
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (22,129,920)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 56,355,410 44,828,633
- -------------------------------------------------------------------------------
Net increase in net assets 106,672,089 113,062,981
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 371,914,751 258,851,770
- -------------------------------------------------------------------------------
End of year $478,586,840 $371,914,751
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $285,154,071 $228,798,661
- -------------------------------------------------------------------------------
Undistributed net investment income 1,399,293 1,289,508
- -------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
options contracts 46,508,913 21,719,134
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and options contracts 145,524,563 120,107,448
- -------------------------------------------------------------------------------
$478,586,840 $371,914,751
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 closing bid price on that day. 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
closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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
AIM V.I. GROWTH FUND
FS-69
<PAGE> 151
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. Such distributions are
declared and paid annually.
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 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. 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.
F. 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.
G. 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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
H. 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.
AIM V.I. GROWTH FUND
FS-70
<PAGE> 152
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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $23,029 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$2,252 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 $1,229 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $1,229 during the six months ended
June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the six months ended June 30, 1999 was
$279,182,690 and $221,208,463, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $146,386,829
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,143,479)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $145,243,350
===========================================================================
</TABLE>
Cost of investments for tax purposes is $337,247,035.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold 3,733,983 $ 98,563,168 2,345,258 $52,301,342
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions -- -- 1,005,621 23,310,293
- -----------------------------------------------------------------------------
Reacquired (1,591,689) (42,207,758) (1,407,943) (30,783,002)
- -----------------------------------------------------------------------------
2,142,294 $ 56,355,410 1,942,936 $44,828,633
=============================================================================
</TABLE>
NOTE 8 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the six months ended June 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------
<S> <C> <C>
Beginning of period 1,197 $ 739,850
- -------------------------------------------
Written 6,900 6,352,045
- -------------------------------------------
Closed (1,730) (1,353,477)
- -------------------------------------------
Exercised (1,040) (605,070)
- -------------------------------------------
Expired (157) (134,780)
- -------------------------------------------
End of period 5,170 $ 4,998,568
===========================================
</TABLE>
Open call options held at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1999 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ---------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Online Inc. Oct. 1999 $105 540 $1,128,703 $1,036,125 $ 92,578
- ------------------------------------------------------------------------------------------
American Online Inc. Jan. 2000 120 810 1,346,525 1,549,125 (202,600)
- ------------------------------------------------------------------------------------------
Cisco Systems, Inc. Oct. 1999 60 900 639,878 821,250 (181,372)
- ------------------------------------------------------------------------------------------
EMC Corp. Oct. 1999 60 440 224,177 206,250 17,927
- ------------------------------------------------------------------------------------------
Intel Corp. Oct. 1999 60 360 156,055 204,750 (48,695)
- ------------------------------------------------------------------------------------------
MCI Worldcom, Inc. Sept. 1999 90 1,100 710,576 556,875 153,701
- ------------------------------------------------------------------------------------------
Sanmina Corp. Oct. 1999 80 300 231,292 232,500 (1,208)
- ------------------------------------------------------------------------------------------
Sun Microsystems, Inc. Oct. 1999 65 720 561,362 738,000 (176,638)
- ------------------------------------------------------------------------------------------
5,170 $4,998,568 $5,344,875 $(346,307)
==========================================================================================
</TABLE>
AIM V.I. GROWTH FUND
FS-71
<PAGE> 153
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the
Fund during the six months ended June 30, 1999, each of the years in the
three-year period ended December 31, 1998, the eleven months ended
December 31, 1995 and the year ended January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
-------------------------------------- -----------
JUNE 30,
1999 1998 1997 1996 1995 1995
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
- ---------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income -- 0.08 0.08 0.07 0.09 0.06
- ---------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 3.12 6.57 4.27 2.52 3.65 (0.88)
- ---------------------------------------------------------------------------------------------
Total from investment
operations 3.12 6.65 4.35 2.59 3.74 (0.82)
- ---------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.09) (0.09) (0.06) (0.01) (0.06)
- ---------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (1.59) (0.68) (0.72) -- --
- ---------------------------------------------------------------------------------------------
Total distributions -- (1.68) (0.77) (0.78) (0.01) (0.06)
- ---------------------------------------------------------------------------------------------
Net asset value, end of
period $ 27.92 $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71
=============================================================================================
Total return(a) 12.58% 34.12% 26.87% 18.09% 34.89% (7.11)%
=============================================================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s omitted) $478,587 $371,915 $258,852 $178,638 $102,600 $45,497
=============================================================================================
Ratio of expenses to
average net assets 0.69%(b) 0.72% 0.73% 0.78% 0.84%(c) 0.95%
=============================================================================================
Ratio of net investment
income to average net
assets 0.05%(b) 0.41% 0.54% 0.79% 0.95%(c) 0.71%
=============================================================================================
Portfolio turnover rate 56% 133% 132% 143% 125% 179%
=============================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $416,718,726.
(c) Annualized.
AIM V.I. GROWTH FUND
FS-72
<PAGE> 154
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 89.49%
AUTOMOBILES - 0.96%
Ford Motor Co. 300,000 $ 16,931,250
- -----------------------------------------------------------------------
BANKS (MONEY CENTER) - 3.26%
Chase Manhattan Corp. (The) 665,000 57,605,625
- -----------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.98%
AT&T Corp. - Liberty Media Group-Class A(a) 250,000 9,187,500
- -----------------------------------------------------------------------
Broadcast.com, Inc.(a) 49,500 6,611,344
- -----------------------------------------------------------------------
Comcast Corp. - Class A 500,000 19,218,750
- -----------------------------------------------------------------------
35,017,594
- -----------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 1.17%
Monsanto Co. 525,000 20,704,687
- -----------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 5.51%
Corning, Inc. 175,000 12,271,875
- -----------------------------------------------------------------------
Lucent Technologies, Inc. 440,000 29,672,500
- -----------------------------------------------------------------------
Motorola, Inc. 200,000 18,950,000
- -----------------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Finland) 210,000 19,228,125
- -----------------------------------------------------------------------
QUALCOMM, Inc.(a) 120,000 17,220,000
- -----------------------------------------------------------------------
97,342,500
- -----------------------------------------------------------------------
COMPUTERS (HARDWARE) - 5.39%
Dell Computer Corp.(a) 375,000 13,875,000
- -----------------------------------------------------------------------
International Business Machines Corp. 400,000 51,700,000
- -----------------------------------------------------------------------
Sun Microsystems, Inc.(a) 430,000 29,616,250
- -----------------------------------------------------------------------
95,191,250
- -----------------------------------------------------------------------
COMPUTERS (NETWORKING) - 2.26%
Cisco Systems, Inc.(a) 620,000 39,990,000
- -----------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 1.54%
EMC Corp.(a) 350,000 19,250,016
- -----------------------------------------------------------------------
Lexmark International Group, Inc.(a) 120,000 7,927,500
- -----------------------------------------------------------------------
27,177,516
- -----------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 8.18%
America Online, Inc. 200,000 22,100,000
- -----------------------------------------------------------------------
Microsoft Corp.(a) 870,000 78,463,125
- -----------------------------------------------------------------------
Novell, Inc.(a) 1,290,000 34,185,000
- -----------------------------------------------------------------------
Unisys Corp.(a) 250,000 9,734,375
- -----------------------------------------------------------------------
144,482,500
- -----------------------------------------------------------------------
CONSUMER FINANCE - 1.06%
Providian Financial Corp. 200,000 18,700,000
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD & HEALTH) - 0.55%
Cardinal Health, Inc. 150,000 $ 9,618,750
- -----------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.43%
General Electric Co. 380,000 42,940,000
- -----------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 1.27%
Linear Technology Corp. 140,000 9,415,000
- -----------------------------------------------------------------------------
Texas Instruments, Inc. 90,000 13,050,000
- -----------------------------------------------------------------------------
22,465,000
- -----------------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 1.25%
Applied Materials, Inc.(a) 125,000 9,234,375
- -----------------------------------------------------------------------------
Teradyne, Inc.(a) 180,000 12,915,000
- -----------------------------------------------------------------------------
22,149,375
- -----------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 5.39%
American Express Co. 240,000 31,230,000
- -----------------------------------------------------------------------------
Citigroup, Inc. 352,500 16,743,750
- -----------------------------------------------------------------------------
Fannie Mae 325,000 22,221,875
- -----------------------------------------------------------------------------
Freddie Mac 430,000 24,940,000
- -----------------------------------------------------------------------------
95,135,625
- -----------------------------------------------------------------------------
FOOTWEAR - 0.54%
Nike, Inc. - Class B 150,000 9,496,875
- -----------------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 5.46%
American Home Products Corp. 240,000 13,800,000
- -----------------------------------------------------------------------------
Bristol-Myers Squibb Co. 500,000 35,218,750
- -----------------------------------------------------------------------------
Johnson & Johnson 130,000 12,740,000
- -----------------------------------------------------------------------------
Warner-Lambert Co. 500,000 34,687,500
- -----------------------------------------------------------------------------
96,446,250
- -----------------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.13%
Lilly (Eli) & Co. 155,000 11,101,875
- -----------------------------------------------------------------------------
Pfizer, Inc. 300,000 32,925,000
- -----------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 230,000 13,066,875
- -----------------------------------------------------------------------------
Schering-Plough Corp. 300,000 15,900,000
- -----------------------------------------------------------------------------
72,993,750
- -----------------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.39%
Columbia/HCA Healthcare Corp. 300,000 6,843,750
- -----------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.56%
Guidant Corp. 500,000 25,718,750
- -----------------------------------------------------------------------------
Medtronic, Inc. 250,000 19,468,750
- -----------------------------------------------------------------------------
45,187,500
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-73
<PAGE> 155
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES) - 0.32%
Omnicare, Inc. 451,700 $ 5,702,712
- -----------------------------------------------------------------------
HOUSEHOLD FURNISHING & APPLIANCES - 0.40%
Maytag Corp. 100,000 6,968,750
- -----------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.45%
Colgate-Palmolive Co. 80,000 7,900,000
- -----------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 2.92%
American International Group, Inc. 440,000 51,507,500
- -----------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 5.12%
Goldman Sachs Group, Inc. (The) 120,000 8,670,000
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 130,000 10,391,875
- -----------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 160,000 16,400,000
- -----------------------------------------------------------------------
Schwab (Charles) Corp. 500,000 54,937,500
- -----------------------------------------------------------------------
90,399,375
- -----------------------------------------------------------------------
LODGING-HOTELS - 0.82%
Carnival Corp. 300,000 14,550,000
- -----------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 6.10%
Tyco International Ltd. 1,000,000 94,750,000
- -----------------------------------------------------------------------
United Technologies Corp. 180,000 12,903,750
- -----------------------------------------------------------------------
107,653,750
- -----------------------------------------------------------------------
NATURAL GAS - 0.60%
Enron Corp. 130,000 10,627,500
- -----------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.96%
Halliburton Co. 200,000 9,050,000
- -----------------------------------------------------------------------
Schlumberger Ltd. 125,000 7,960,938
- -----------------------------------------------------------------------
17,010,938
- -----------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 1.21%
Mobil Corp. 215,000 21,285,000
- -----------------------------------------------------------------------
RAILROADS - 0.54%
Kansas City Southern Industries, Inc. 150,000 9,571,875
- -----------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.68%
Home Depot, Inc. (The) 50,000 3,221,875
- -----------------------------------------------------------------------
Lowe's Companies, Inc. 155,000 8,786,563
- -----------------------------------------------------------------------
12,008,438
- -----------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.21%
Kroger Co.(a) 500,000 13,968,750
- -----------------------------------------------------------------------
Safeway, Inc.(a) 150,000 7,425,000
- -----------------------------------------------------------------------
21,393,750
- -----------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 4.45%
Costco Companies, Inc.(a) 100,000 8,006,250
- -----------------------------------------------------------------------
Dayton Hudson Corp. 530,000 34,450,000
- -----------------------------------------------------------------------
Wal-Mart Stores, Inc. 750,000 36,187,500
- -----------------------------------------------------------------------
78,643,750
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY) - 0.57%
Amazon.com, Inc.(a) 80,000 $ 10,010,000
- -----------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.82%
Abercrombie & Fitch Co.-Class A(a) 300,000 14,400,000
- -----------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.29%
Concord EFS, Inc.(a) 193,300 8,179,006
- -----------------------------------------------------------------------------
First Data Corp. 300,000 14,681,250
- -----------------------------------------------------------------------------
22,860,256
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 3.89%
AT&T Corp. 150,000 8,371,875
- -----------------------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 100,000 8,100,000
- -----------------------------------------------------------------------------
MCI WorldCom, Inc.(a) 605,000 52,181,250
- -----------------------------------------------------------------------------
68,653,125
- -----------------------------------------------------------------------------
TELEPHONE - 0.49%
SBC Communications, Inc. 150,000 8,700,000
- -----------------------------------------------------------------------------
TOBACCO - 1.37%
Philip Morris Companies, Inc. 600,000 24,112,500
- -----------------------------------------------------------------------------
Total Common Stocks (Cost $1,159,408,793) 1,580,379,016
- -----------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 2.62%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.85%
MediaOne Group, Inc.-$2.25 Conv. Pfd. 100,000 14,981,250
- -----------------------------------------------------------------------------
ENTERTAINMENT - 1.56%
Houston Industries, Inc.-$3.22 Conv. Pfd. 230,600 27,499,050
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.21%
Global Telesystems Group, Inc., -$3.625 Conv.
Pfd. (Acquired 06/11/99; Cost $3,742,815)(b) 58,000 3,828,000
- -----------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost
$33,793,293) 46,308,300
- -----------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE BONDS & NOTES - 2.78%
COMPUTERS (HARDWARE) - 0.26%
Candescent Technology Corp., Conv. Sr. Sub. Deb.,
7.00%, 05/01/03 (Acquired 04/17/98; Cost
$5,875,401)(b) $ 6,000,000 4,680,000
- -----------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 0.60%
Veritas Software Corp., Conv. Unsec. Notes,
5.25%, 11/01/04 4,500,000 10,549,688
- -----------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.48%
Home Depot, Inc., Conv. Sub. Notes, 3.25%,
10/01/01 3,000,000 8,392,500
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-74
<PAGE> 156
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.44%
Global Telesystems Group,
Conv. Sr. Sub. Deb., 8.75%, 06/30/00 $ 500,000 $ 2,035,000
- --------------------------------------------------------------------------
Sr. Sec. Sub. Conv. Notes, 8.75%, 06/30/00
(Acquired 02/05/98; Cost $1,950,812)(b) 1,500,000 6,105,000
- --------------------------------------------------------------------------
Conv. Sr. Sub. Deb., 5.75%, 07/01/10 11,000,000 17,325,000
- --------------------------------------------------------------------------
25,465,000
- --------------------------------------------------------------------------
Total Convertible Bonds & Notes
(Cost $31,116,876) 49,087,188
- --------------------------------------------------------------------------
TIME DEPOSIT - 4.53%
CIBC Oppenheimer Corp., 5.50%, 07/01/99 (Cost
$80,000,000) 80,000,000 80,000,000
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.40%(c)
Chase Securities Inc., 5.00%, 07/01/99
(Cost $24,718,696)(d) 24,718,696 24,718,696
- --------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.82% 1,780,493,200
- --------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.82%) (14,532,689)
- --------------------------------------------------------------------------
NET ASSETS - 100.00% $1,765,960,511
==========================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) 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 06/30/99 was $14,613,000
which represented 0.83% of the Fund's net assets.
(c) 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.
(d) Joint repurchase agreements entered into 06/30/99 with a maturing value of
$200,027,778. Collateralized by U.S. Government obligations.
Investment Abbreviations:
ADR- American Depositary Receipt
Conv.- Convertible
Deb.- Debentures
Pfd.- Preferred
Sec.- Secured
Sr.- Senior
Sub.- Subordinated
Unsec.- Unsecured
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-75
<PAGE> 157
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $1,329,037,658) $1,780,493,200
- ------------------------------------------------------------------------
Receivables for:
Capital stock sold 1,149,282
- ------------------------------------------------------------------------
Dividends and interest 1,381,249
- ------------------------------------------------------------------------
Investment for deferred compensation plan 22,564
- ------------------------------------------------------------------------
Other assets 13,616
========================================================================
Total assets 1,783,059,911
========================================================================
LIABILITIES:
Payables for:
Investments purchased 15,382,671
- ------------------------------------------------------------------------
Capital stock reacquired 544,962
- ------------------------------------------------------------------------
Deferred compensation plan 22,564
- ------------------------------------------------------------------------
Accrued advisory fees 820,149
- ------------------------------------------------------------------------
Accrued director's fees 13,181
- ------------------------------------------------------------------------
Accrued administrative services fees 222,713
- ------------------------------------------------------------------------
Accrued operating expenses 93,160
- ------------------------------------------------------------------------
Total liabilities 17,099,400
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,765,960,511
========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ------------------------------------------------------------------------
Outstanding 64,889,801
========================================================================
Net asset value, offering and redemption price per share $27.21
========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $16,291 foreign withholding tax) $ 5,928,208
- ------------------------------------------------------------------------------
Interest 2,546,431
==============================================================================
Total investment income 8,474,639
==============================================================================
EXPENSES:
Advisory fees 4,462,314
- ------------------------------------------------------------------------------
Administrative services fees 588,532
- ------------------------------------------------------------------------------
Custodian fees 76,249
- ------------------------------------------------------------------------------
Directors' fees and expenses 7,866
- ------------------------------------------------------------------------------
Other 363,148
==============================================================================
Total expenses 5,498,109
==============================================================================
Less: Expenses paid indirectly (2,450)
- ------------------------------------------------------------------------------
Net expenses 5,495,659
==============================================================================
Net investment income 2,978,980
==============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 62,660,690
- ------------------------------------------------------------------------------
Foreign currencies 915
- ------------------------------------------------------------------------------
Option contracts (368,390)
- ------------------------------------------------------------------------------
62,293,215
- ------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 138,812,320
- ------------------------------------------------------------------------------
Foreign currencies (7,963)
- ------------------------------------------------------------------------------
Option contracts 1,110,542
==============================================================================
139,914,899
==============================================================================
Net gain from investment securities, foreign currencies, and
option contracts 202,208,114
==============================================================================
Net increase in net assets resulting from operations $205,187,094
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-76
<PAGE> 158
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,978,980 $ 12,149,523
- -------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and option
contracts 62,293,215 5,086,770
- -------------------------------------------------------------------------------
Change in net unrealized appreciation of
investment securities, foreign currencies,
futures and option contracts 139,914,899 224,324,487
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 205,187,094 241,560,780
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment
income -- (4,873,870)
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (12,029,125)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 298,714,648 398,288,439
- -------------------------------------------------------------------------------
Net increase in net assets 503,901,742 622,946,224
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,262,058,769 639,112,545
- -------------------------------------------------------------------------------
End of year $1,765,960,511 $1,262,058,769
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,234,705,540 $ 935,990,892
- -------------------------------------------------------------------------------
Undistributed net investment income 14,976,348 11,997,368
- -------------------------------------------------------------------------------
Undistributed net realized gain on sales from
investment securities, foreign currencies,
futures and option contracts 64,825,596 2,532,381
- -------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 451,453,027 311,538,128
- -------------------------------------------------------------------------------
$1,765,960,511 $1,262,058,769
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 closing bid price on that day. 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
closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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 AND INCOME FUND
FS-77
<PAGE> 159
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. Realized gains or losses from securities transactions are recorded
on the identified cost basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Such distributions are
declared and paid annually.
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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' underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The options' 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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six
AIM V.I. GROWTH AND INCOME FUND
FS-78
<PAGE> 160
months ended June 30, 1999, AIM was paid $31,750 for accounting and
administrative services rendered by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$3,238 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 $2,450 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $2,450 during the six months ended
June 30, 1999.
NOTE 4 - BANK BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed-
upon price and date. Proceeds from reverse repurchase agreements are treated
as borrowings. The agreements are collateralized by the underlying securities
and are carried at the amount at which the securities will subsequently be
repurchased as specified in the agreements.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 5 - 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 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended June
30, 1999 was $1,106,698,112 and $874,927,098, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $456,638,797
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,303,482)
===========================================================================
Net unrealized appreciation of investment securities $447,335,315
===========================================================================
</TABLE>
Cost of investments for tax purposes is $1,333,157,885.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during six months ended June 30, 1999 and
the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------------- ------------------------
Shares Amount Shares Amount
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 12,959,806 $329,487,675 19,890,074 $409,625,526
- -----------------------------------------------------------------------------
Issued as reinvestment
of distributions -- -- 751,578 16,902,995
- -----------------------------------------------------------------------------
Reacquired (1,201,029) (30,773,027) (1,379,171) (28,240,082)
=============================================================================
11,758,777 $298,714,648 19,262,481 $398,288,439
=============================================================================
</TABLE>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION
CONTRACTS
------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------
<S> <C> <C>
Beginning of year 2,667 $617,471
- --------------------------------------
Written 850 465,834
- --------------------------------------
Closed (2,417) (921,610)
- --------------------------------------
Exercised (1,100) (161,695)
======================================
End of year -- $ --
======================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-79
<PAGE> 161
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the period May 2, 1994 (date operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------------------- January 31,
1999(a) 1998 1997 1996 1995 1995
---------- ---------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98 $10.00
- ------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.26(a) 0.13 0.16 0.14 0.11
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 3.41 4.95 3.74 2.36 3.11 (0.02)
======================================================================================================
Total from investment
operations 3.46 5.21 3.87 2.52 3.25 0.09
======================================================================================================
Less distributions:
Dividends from net
investment income -- (0.09) (0.01) (0.14) (0.14) (0.11)
- ------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.24) (0.02) (0.03) (0.41) --
======================================================================================================
Total distributions -- (0.33) (0.03) (0.17) (0.55) (0.11)
======================================================================================================
Net asset value, end of
period $ 27.21 $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98
======================================================================================================
Total return(b) 14.57% 27.68% 25.72% 19.95% 32.65% 0.90%
======================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $1,765,961 $1,262,059 $639,113 $209,332 $38,567 $7,380
======================================================================================================
Ratio of expenses to
average net assets 0.75%(c) 0.65% 0.69% 0.78% 0.78%(d) 1.07%(d)(e)
======================================================================================================
Ratio of net investment
income to average net
assets 0.41%(c) 1.34% 1.15% 2.05% 1.92%(d) 1.95%(d)(e)
======================================================================================================
Portfolio turnover rate 61% 140% 135% 148% 145% 96%
======================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $1,478,931,561.
(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.
AIM V.I. GROWTH AND INCOME FUND
FS-80
<PAGE> 162
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES - 92.51%
AEROSPACE/DEFENSE - 2.80%
Precision Partners, Inc., Sr. Sub. Mortgage Notes,
12.00%, 03/15/09(a) (Acquired 05/13/99;
Cost $498,125) $500,000 $ 477,500
- -------------------------------------------------------------------------------
BUILDING MATERIALS - 0.42%
Imperial Home Decor Group, Series B Sr. Unsec. Gtd. Sub.
Notes, 11.00%, 03/15/08 100,000 72,500
- -------------------------------------------------------------------------------
CHEMICAL (SPECIALTY) - 2.07%
ZSC Specialty Chemicals PLC (United Kingdom), Sr. Notes,
11.00%, 07/01/09(a) (Acquired 06/24/99; Cost $350,000) 350,000 353,500
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.69%
GST Telecom, Sr. Disc. Notes, 10.50%, 05/01/08(a)(b)
(Acquired 04/28/99; Cost $309,068) 500,000 288,750
- -------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 3.20%
Convergent Communications, Series B Sr. Unsec. Notes,
13.00%, 04/01/08(c) 250,000 228,750
- -------------------------------------------------------------------------------
Exodus Communications, Sr. Unsec. Notes, 11.25%,
07/01/08 300,000 317,250
- -------------------------------------------------------------------------------
546,000
- -------------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.01%
Metal Management, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.00%, 05/15/08 425,000 344,250
- -------------------------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES) - 2.90%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%,
06/01/08 550,000 495,000
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 0.46%
BPC Holding Corp., Series B Sr. Sec. Notes, 12.50%,
06/15/06 80,000 78,400
- -------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 3.32%
Ono Finance PLC (United Kingdom), Notes, 13.00%,
05/01/09(c) 550,000 567,875
- -------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 3.08%
Resort at Summerlin/RAS Co., Sr. Unsec. Sub. PIK Notes,
13.00%, 12/15/07 118,000 107,970
- -------------------------------------------------------------------------------
Venetian Casino Resort LLC, Gtd. Mortgage Notes, 12.25%,
11/15/04 425,000 418,625
- -------------------------------------------------------------------------------
526,595
- -------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 2.45%
Biovail Corp., Sr. Notes, 10.875%, 11/15/05 400,000 418,000
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.64%
Alaris Medical, Inc., Sr. Disc. Notes, 11.125%,
08/01/08(b) $200,000 $ 109,500
- -------------------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 2.39%
Team Health, Inc., Sr. Sub. Notes, 12.00%, 03/15/09(a)
(Acquired 03/05/99-03/16/99; Cost $400,000) 400,000 408,000
- -------------------------------------------------------------------------------
HOUSEHOLD FURN. & APPLIANCES - 2.06%
Falcon Products, Inc., Sr. Sub. Notes, 11.375%,
06/15/09(a) (Acquired 06/14/99; Cost $350,000) 350,000 351,750
- -------------------------------------------------------------------------------
HOUSEWARES - 2.49%
Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 440,000 424,600
- -------------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 2.41%
Marvel Enterprises, Inc., Sr. Notes, 12.00%, 06/15/09(a)
(Acquired 02/17/99; Cost $395,000) 395,000 411,788
- -------------------------------------------------------------------------------
LODGING-HOTELS - 5.63%
American Skiing Co., Series B Sr. Sub. Notes, 12.00%,
07/15/06 300,000 232,500
- -------------------------------------------------------------------------------
Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes, 12.50%,
03/15/07 90,000 79,650
- -------------------------------------------------------------------------------
Majestic Star Casino LLC, Sec. Bonds, 10.875%,
07/01/06(a) (Acquired 06/15/99; Cost $491,300) 500,000 497,500
- -------------------------------------------------------------------------------
Stena Line A.B. (Sweden), Sr. Unsec. Yankee Notes,
10.625%, 06/01/08 200,000 151,500
- -------------------------------------------------------------------------------
961,150
- -------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 2.09%
Comstock Resources, Inc., Sr. Notes, 11.25%, 05/01/07(a)
(Acquired 04/26/99; Cost $348,184) 350,000 357,000
- -------------------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 2.62%
Polariod Corp., Sr. Unsec. Notes, 11.50%, 02/15/06 420,000 447,300
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 3.06%
Vista Eyecare, Inc., Series B Sr. Unsec. Gtd. Notes,
12.75%, 10/15/05 525,000 522,375
- -------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.09%
Avis Rent A Car, Inc., Sr. Sub. Notes, 11.00%,
05/01/09(a) (Acquired 06/25/99; Cost $350,000) 350,000 357,000
- -------------------------------------------------------------------------------
SHIPPING - 0.63%
Millenium Seacarriers, First Priority Ship Mortgage
Notes, 12.00%, 07/15/05(c) 100,000 52,500
- -------------------------------------------------------------------------------
Pegasus Shipping Hellas Co. (Bermuda), Series A Sr. Sec.
Gtd. Mortgage Notes, 11.875%, 11/15/04 100,000 55,500
- -------------------------------------------------------------------------------
108,000
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. HIGH YIELD FUND
FS-81
<PAGE> 163
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 14.33%
Clearnet Communications, Inc. (Canada), Sr. Disc. Yankee
Notes, 10.125%, 05/01/09(b) $550,000 $ 314,875
- --------------------------------------------------------------------------------
Dobson Communications Corp., Sr. Notes, 11.75%, 04/15/07 200,000 210,500
- --------------------------------------------------------------------------------
GST Equipment Funding, Sr. Sec. Notes, 13.25%, 05/01/07 400,000 425,000
- --------------------------------------------------------------------------------
Jazztel PLC (United Kingdom), Sr. Notes, 14.00%,
04/01/09(a)(c) (Acquired 03/31/99; Cost $450,000) 450,000 443,250
- --------------------------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr. Notes, 13.50%,
05/15/09(a) (Acquired 05/19/99; Cost $500,000) 500,000 502,500
- --------------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec. Notes, 12.00%,
11/01/08 225,000 256,500
- --------------------------------------------------------------------------------
Spectrasite Holdings, Inc., Sr. Disc. Notes,
11.25%, 04/15/09(a)(b) (Acquired 04/13/99; Cost $40,559) 70,000 40,250
- --------------------------------------------------------------------------------
12.00%, 07/15/08(a)(b) (Acquired 06/23/98-02/24/99; Cost
$253,665) 400,000 254,000
- --------------------------------------------------------------------------------
2,446,875
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 9.50%
DTI Holdings, Inc., Unsec. Sr. Disc. Notes, 12.50%,
03/01/08(b)(c) 500,000 187,500
- --------------------------------------------------------------------------------
Econophone, Inc.,
Sr. Unsec. Notes, 13.50%, 07/15/07 300,000 320,250
- --------------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.00%, 02/15/08(b) 50,000 27,000
- --------------------------------------------------------------------------------
Long Distance Direct, Inc., Sr. Notes, 12.25%,
04/15/08(c) 140,000 91,350
- --------------------------------------------------------------------------------
Tele1 Europe A.B. (Netherlands), Sr. Notes, 13.00%,
05/15/09 650,000 682,500
- --------------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%,
05/01/08(c) 300,000 313,500
- --------------------------------------------------------------------------------
1,622,100
- --------------------------------------------------------------------------------
TELEPHONE - 8.57%
Firstworld Communications, Sr. Unsec. Disc. Notes,
13.00%, 04/15/08(b)(c) 350,000 187,250
- --------------------------------------------------------------------------------
Logix Communications, Sr. Unsec. Notes, 12.25%, 06/15/08 550,000 501,875
- --------------------------------------------------------------------------------
Nextlink Communications, Inc., Sr. Disc. Unsec. Notes,
12.25%, 06/01/09(b) 500,000 295,000
- --------------------------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec. Notes, 15.00%, 07/01/08 460,000 479,550
- --------------------------------------------------------------------------------
1,463,675
- --------------------------------------------------------------------------------
TEXTILES (APPAREL) - 7.22%
Panolam Industry International, Sr. Sub. Notes, 11.50%,
02/15/09(a) (Acquired 02/15/99; Cost $420,000) 420,000 430,500
- --------------------------------------------------------------------------------
St. John Knits International, Inc., Sr. Unsec. Sub.
Notes, 12.50%, 07/01/09(a) (Acquired 06/30/99; Cost
$345,156) 350,000 345,156
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
Supreme International Corp., Sr. Sub. Unsec. Gtd.
Notes, 12.25%, 04/01/06(a) (Acquired 03/31/99; Cost
$444,834) $450,000 $ 456,750
- ---------------------------------------------------------------------------
1,232,406
- ---------------------------------------------------------------------------
TRUCKS & PARTS - 2.38%
HDA Parts System, Inc., Sr. Sub. Notes, 12.00%,
08/01/05(a) (Acquired 07/28/98-03/17/99; Cost
$391,274) 400,000 406,000
- ---------------------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $15,838,107) 15,797,889
- ---------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
WARRANTS--0.26%
COMPUTERS (NETWORKING) - 0.00%
Convergent Communications, expiring 04/01/08(d) 1,000 10
- ---------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.00%
Resort At Summerlin/RAS Co., expiring 12/15/07(d) 100 1
- ---------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel, Inc., expiring 04/15/03(d) 60 1
- ---------------------------------------------------------------------------
SHIPPING - 0.00%
Millenium Seacarriers, expiring 07/15/03(d) 100 125
- ---------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.07%
Jazztel PLC (United Kingdom), expiring 04/01/09(d) 2,250 11,812
- ---------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.09%
DTI Holdings, Inc., expiring 03/01/08(d) 2,500 300
- ---------------------------------------------------------------------------
Long Distance Direct, Inc., expiring 04/13/08(d) 140 350
- ---------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), expiring
05/15/08(d) 300 15,075
- ---------------------------------------------------------------------------
15,725
- ---------------------------------------------------------------------------
TELEPHONE - 0.10%
Firstworld Communications, expiring 04/15/08(d) 350 17,500
- ---------------------------------------------------------------------------
Total Warrants (Cost $3,701) 45,174
- ---------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT - 5.14%(e)
Dean Witter Reynolds, Inc., 4.85%, 07/01/99(f)
(Cost $877,929) $877,929 877,929
===========================================================================
TOTAL INVESTMENTS - 97.91% 16,720,992
===========================================================================
OTHER ASSETS LESS LIABILITIES - 2.09% 356,072
===========================================================================
NET ASSETS - 100.00% $17,077,064
===========================================================================
</TABLE>
AIM V.I. HIGH YIELD FUND
FS-82
<PAGE> 164
NOTES TO SCHEDULE OF INVESTMENTS:
(a) 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
market value of these securities at 06/30/99 was $6,381,194 which
represented 37.37% of the Fund's net assets.
(b) Step bond issued at a discount. Interest rate shown represents the coupon
rate at which the bond will accrue at a specified future date.
(c) Consists of more than one class of securities traded together as a unit. In
addition to the debt obligations listed, each unit contains warrants that
enable the holder to purchase common stock in the issuer at a predetermined
price per share of common stock.
(d) Non-income producing security.
(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 is at least 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 agreement entered into 6/30/99 with a maturing value of
$100,013,472. Collateralized by U.S. Government obligations.
Investment Abbreviations:
Deb.- Debentures
Disc.- Discounted
Gtd.- Guaranteed
PIK- Payment in Kind
Sec.- Secured
Sr.- Senior
Sub.- Subordinated
Unsec.- Unsecured
See Notes to Financial Statements.
AIM V.I. HIGH YIELD FUND
FS-83
<PAGE> 165
STATEMENT OF ASSETS AND LIABILITIES
June 30 , 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $16,719,737) $ 16,720,992
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 74,172
- ----------------------------------------------------------------------
Interest 376,233
- ----------------------------------------------------------------------
Investments sold 267,287
- ----------------------------------------------------------------------
Investment for deferred compensation plan 4,116
- ----------------------------------------------------------------------
Other assets 3,403
- ----------------------------------------------------------------------
Total assets 17,446,203
- ----------------------------------------------------------------------
LIABILITIES:
Payables For:
Investments purchased 345,156
- ----------------------------------------------------------------------
Deferred compensation plan 4,116
- ----------------------------------------------------------------------
Accrued advisory fees 7,935
- ----------------------------------------------------------------------
Accrued operating expenses 11,932
- ----------------------------------------------------------------------
Total liabilities 369,139
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 17,077,064
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 1,819,998
======================================================================
Net asset value, offering and redemption price per share $ 9.38
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $700,543
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 37,529
- --------------------------------------------------------------------------
Administrative services fees 22,784
- --------------------------------------------------------------------------
Custodian fees 11,055
- --------------------------------------------------------------------------
Directors' fees and expenses 2,222
- --------------------------------------------------------------------------
Professional fees 12,033
- --------------------------------------------------------------------------
Other 4,305
- --------------------------------------------------------------------------
Total expenses 89,928
- --------------------------------------------------------------------------
Less: Expenses paid indirectly (1,036)
- --------------------------------------------------------------------------
Fees waived by advisor (22,557)
- --------------------------------------------------------------------------
Net expenses 66,335
- --------------------------------------------------------------------------
Net investment income 634,208
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (328,379)
- --------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities 327,005
- --------------------------------------------------------------------------
Net gain (loss) from investment securities (1,374)
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $632,834
==========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. HIGH YIELD FUND
FS-84
<PAGE> 166
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the period May 1, 1998 (date
operations commenced) through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $634,208 $ 323,361
- ----------------------------------------------------------------------------
Net realized gain (loss) from investment
securities (328,379) (367,230)
- ----------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities 327,005 (325,750)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 632,834 (369,619)
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment
income -- (330,305)
- ----------------------------------------------------------------------------
Net increase from capital stock transactions 8,477,929 8,666,225
- ----------------------------------------------------------------------------
Net increase in net assets 9,110,763 7,966,301
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 7,966,301 --
- ----------------------------------------------------------------------------
End of period $17,077,064 $7,966,301
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $17,139,995 $8,662,066
- ----------------------------------------------------------------------------
Undistributed net investment income 631,423 (2,785)
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (695,609) (367,230)
- ----------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities 1,255 (325,750)
- ----------------------------------------------------------------------------
$17,077,064 $7,966,301
============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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. High Yield Fund (the "Fund"). The Fund's investment objective
is to achieve a high level of current income 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). These 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. The Fund commenced
operations on May 1, 1998. 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 securities (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
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. Equity
securities which are listed or traded on an exchange or the NASDAQ National
Market System are valued at the last sales price on the exchange where
principally traded or, lacking any sales on a particular day, at the
closing bid price on that day. 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 prices otained from an electronic quotation reporting system, if such
prices are available, or from established market makers. 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.
AIM V.I. HIGH YIELD FUND
FS-85
<PAGE> 167
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. Such distributions are
declared and paid annually.
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 had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $247,108 as of December 31, 1998, which expires,
if not previously utilized, through the year 2006. The Fund cannot
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized.
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 0.625% of
the first $200 million of the Fund's average daily net assets, plus 0.55% of
the Fund's average daily net assets of the next $300 million, plus 0.50% of
the Fund's average daily net assets of the next $500 million, plus 0.45% of
the Fund's average daily net assets in excess of $1 billion. During the six
months ended June 30, 1999, AIM waived fees of $22,557.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $18,730 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,860 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 $1,036 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $1,036 during the six months ended
June 30, 1999.
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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the six months ended June 30, 1999 was
$15,809,115 and $7,391,443, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $458,871
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (457,616)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $1,255
=======================================================================
Investments have the same cost for tax and financial statements.
</TABLE>
AIM V.I. HIGH YIELD FUND
FS-86
<PAGE> 168
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the period May 1, 1998 (date operations commenced) through December 31,
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold 1,140,490 $10,500,348 910,186 $8,767,632
- -----------------------------------------------------------------------
Issued as reinvestment of
dividends -- -- 37,577 330,305
- -----------------------------------------------------------------------
Reacquired (222,167) (2,022,419) (46,088) (431,712)
=======================================================================
918,323 $ 8,477,929 901,675 $8,666,225
=======================================================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999 and period May 1, 1998 (date
operations commenced) through December 31, 1998.
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
-------- ------
<S> <C> <C>
Net asset value, beginning of period $ 8.84 $10.00
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.35 0.39
- -----------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 (1.15)
- -----------------------------------------------------------------------------
Total from investment operations 0.54 (0.76)
- -----------------------------------------------------------------------------
Less dividends from net investment income -- (0.40)
- -----------------------------------------------------------------------------
Net asset value, end of period $ 9.38 $ 8.84
=============================================================================
Total return(a) 6.11% (7.61)%
=============================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $17,077 $7,966
=============================================================================
Ratio of expenses to average net assets(b) 1.12%(c) 1.13%(d)
=============================================================================
Ratio of net investment income to average net
assets(e) 10.56%(c) 9.75%(d)
=============================================================================
Portfolio turnover rate 65% 39%
=============================================================================
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized
for periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.50% (annualized) and 2.50% (annualized) for 1999-1998.
(c) Ratios are annualized and based on average net assets of $12,108,624.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 10.19% (annualized) and 8.36% (annualized) for 1999-
1998.
AIM V.I. HIGH YIELD FUND
FS-87
<PAGE> 169
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 88.75%
ARGENTINA - 0.36%
Telefonica de Argentina S.A.-ADR (Telephone) 29,300 $ 919,286
- -------------------------------------------------------------------------------
AUSTRALIA - 1.11%
AMP Ltd. (Insurance-Life/Health) 120,800 1,318,883
- -------------------------------------------------------------------------------
Brambles Industries Ltd. (Air Freight) 34,000 894,533
- -------------------------------------------------------------------------------
Cable & Wireless Optus, Ltd. (Telephone)(a) 268,000 609,435
- -------------------------------------------------------------------------------
2,822,851
- -------------------------------------------------------------------------------
BELGIUM - 0.54%
UCB S.A. (Manufacturing-Diversified) 32,000 1,368,637
- -------------------------------------------------------------------------------
BRAZIL - 0.69%
Embratel Participacoes S.A. - ADR (Telephone) 14,100 195,637
- -------------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Petrobras, Pfd. (Oil & Gas-
Exploration & Production) 7,013 1,085,337
- -------------------------------------------------------------------------------
Tele Centro Sul Participacoes S.A. - ADR (Telephone) 2,821 156,514
- -------------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-ADR (Telephone)(a) 14,100 881
- -------------------------------------------------------------------------------
Telesp Participacoes S.A.-ADR (Telephone) 14,100 322,537
- -------------------------------------------------------------------------------
1,760,906
- -------------------------------------------------------------------------------
CANADA - 6.21%
ATI Technologies, Inc. (Computers-Hardware) 78,100 1,264,123
- -------------------------------------------------------------------------------
BCE, Inc. (Telephone) 57,300 2,790,143
- -------------------------------------------------------------------------------
Bombardier Inc. (Aerospace/Defense) 42,600 650,492
- -------------------------------------------------------------------------------
CGI Group, Inc. (Services-Computer Systems)(a) 31,000 652,189
- -------------------------------------------------------------------------------
Imasco Ltd. (Manufacturing-Diversified) 28,600 770,560
- -------------------------------------------------------------------------------
JDS Fitel, Inc. (Manufacturing-Specialized)(a) 16,400 1,374,550
- -------------------------------------------------------------------------------
Loblaw Co. Ltd. (Retail-Specialty) 24,000 608,347
- -------------------------------------------------------------------------------
Nortel Networks Corp. (Communications Equipment) 47,617 4,133,751
- -------------------------------------------------------------------------------
Rogers Communications, Inc. (Telecommunications-
Cellular/Wireless)(a) 61,000 979,063
- -------------------------------------------------------------------------------
Shaw Communications, Inc. (Broadcasting-Television,
Radio & Cable) 33,600 1,329,406
- -------------------------------------------------------------------------------
Toronto-Dominion Bank (Banks-Regional) 28,100 1,272,939
- -------------------------------------------------------------------------------
15,825,563
- -------------------------------------------------------------------------------
FINLAND - 3.05%
Nokia Oyj A.B.-Class A (Communications Equipment) 72,400 6,342,312
- -------------------------------------------------------------------------------
Sonera Group Oyj (Telecommunications-
Cellular/Wireless) 65,250 1,425,629
- -------------------------------------------------------------------------------
7,767,941
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - 12.01%
Accor S.A. (Lodging-Hotels) 8,500 $ 2,133,084
- -------------------------------------------------------------------------------
Alstom (Engineering & Construction)(a) 40,000 1,257,332
- -------------------------------------------------------------------------------
Altran Technologies, S.A. (Services-Commercial &
Consumer) 5,300 1,398,318
- -------------------------------------------------------------------------------
Axa (Insurance-Multi-Line) 20,300 2,474,976
- -------------------------------------------------------------------------------
Banque Nationale de Paris (Banks-Major Regional) 39,300 3,272,608
- -------------------------------------------------------------------------------
Cap Gemini Sogeti S.A. (Computers-Software &
Services) 13,000 2,041,825
- -------------------------------------------------------------------------------
Carrefour S.A. (Retail-Food Chains) 22,800 3,348,419
- -------------------------------------------------------------------------------
Danone (Foods) 4,600 1,185,190
- -------------------------------------------------------------------------------
Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 10,400 1,525,206
- -------------------------------------------------------------------------------
Pinault-Printemps-Redoute S.A. (Retail-General
Merchandise) 17,800 3,052,555
- -------------------------------------------------------------------------------
Promodes (Retail-Food Chains) 3,650 2,394,316
- -------------------------------------------------------------------------------
Societe Television Francaise 1 (Broadcasting-
Television, Radio & Cable) 6,600 1,537,243
- -------------------------------------------------------------------------------
Total Fina S.A.-Class B (Oil & Gas-Refining &
Marketing) 19,000 2,449,633
- -------------------------------------------------------------------------------
Vivendi (Consumer Services) 31,200 2,525,753
- -------------------------------------------------------------------------------
30,596,458
- -------------------------------------------------------------------------------
GERMANY - 3.84%
DaimlerChrsyler A.G. (Automobiles) 36,564 3,165,317
- -------------------------------------------------------------------------------
EM.TV & Merchandising A.G. (Broadcasting-Television,
Radio & Cable) 650 914,400
- -------------------------------------------------------------------------------
Mannesmann A.G. (Machinery-Diversified) 33,500 4,995,782
- -------------------------------------------------------------------------------
Porsche A.G., Pfd. (Automobiles) 300 704,930
- -------------------------------------------------------------------------------
9,780,429
- -------------------------------------------------------------------------------
HONG KONG - 3.47%
China Telecom Ltd. (Telecommunications-
Cellular/Wireless)(a) 840,000 2,333,153
- -------------------------------------------------------------------------------
Cosco Pacific Ltd. (Financial-Diversified) 2,788,000 2,299,797
- -------------------------------------------------------------------------------
Dao Heng Bank Group Ltd. (Banks-Regional)(a) 338,000 1,516,047
- -------------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail-Food Chains) 254,000 2,299,835
- -------------------------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 460,000 382,414
- -------------------------------------------------------------------------------
8,831,246
- -------------------------------------------------------------------------------
INDONESIA - 0.69%
Gulf Indonesia Resources Ltd. (Oil-International
Integrated) 152,300 1,751,450
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-88
<PAGE> 170
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
IRELAND - 2.06%
Allied Irish Banks PLC (Banks-Regional) 176,500 $ 2,336,948
- ----------------------------------------------------------------------------
Bank of Ireland (Banks-Major Regional) 104,100 1,756,523
- ----------------------------------------------------------------------------
CRH PLC (Construction-Cement & Aggregates) 65,000 1,151,433
- ----------------------------------------------------------------------------
5,244,904
- ----------------------------------------------------------------------------
ITALY - 2.15%
Banca Popolare di Brescia (Banks-Regional) 79,000 3,382,893
- ----------------------------------------------------------------------------
Credito Italiano S.p.A. (Banks-Major Regional) 229,400 1,007,148
- ----------------------------------------------------------------------------
San Paolo-IMI S.p.A. (Banks-Major Regional) 79,460 1,080,967
- ----------------------------------------------------------------------------
5,471,008
- ----------------------------------------------------------------------------
JAPAN - 15.26%
Advantest Corp. (Electronics-Instrumentation) 21,400 2,353,204
- ----------------------------------------------------------------------------
Aiwa Co., Ltd. (Electronics Component
Distributors)(a) 37,000 1,223,646
- ----------------------------------------------------------------------------
Alps Electric Co., Ltd. (Electronics-Component
Distributors)(a) 103,000 2,414,262
- ----------------------------------------------------------------------------
Hirose Electric Co. Ltd. (Electronics-Component
Distributors) 19,000 1,973,047
- ----------------------------------------------------------------------------
Hoya Corp.(Manufacturing-Specialized) 23,000 1,298,801
- ----------------------------------------------------------------------------
Ibiden Co., Ltd. (Electronics-Component
Distributors)(a) 72,000 1,190,575
- ----------------------------------------------------------------------------
Kirin Brewery Co., Ltd. (Beverages-Alcoholic) 189,000 2,265,812
- ----------------------------------------------------------------------------
Matsushita Communication Industrial Co., Ltd.
(Telephone) 32,000 2,288,549
- ----------------------------------------------------------------------------
Murata Manufacturing Co., Ltd. (Electronics-
Component Distributors) 33,000 2,171,807
- ----------------------------------------------------------------------------
NEC Corp. (Computers-Hardware) 181,000 2,252,212
- ----------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp.
(Telecommunications-Long Distance) 1,970 2,296,569
- ----------------------------------------------------------------------------
NTT Data Corp. (Computers-Software & Services) 1,780 1,415,759
- ----------------------------------------------------------------------------
NTT Mobile Communications Network, Inc.
(Telecommunications-Cellular/Wireless) 1,600 2,169,492
- ----------------------------------------------------------------------------
Okuma Corp. (Hardware & Tools) 286,000 1,328,913
- ----------------------------------------------------------------------------
Ricoh Corp. Ltd. (Office Equipment & Supplies)(a) 158,000 2,176,337
- ----------------------------------------------------------------------------
Rohm Co. (Electronics-Component Distributors) 7,000 1,096,734
- ----------------------------------------------------------------------------
Sharp Corp. (Electrical Equipment)(a) 84,000 993,138
- ----------------------------------------------------------------------------
Sony Corp. (Electronics-Component Distributors) 25,300 2,729,764
- ----------------------------------------------------------------------------
Takeda Chemical Industries (Health Care-Drugs-
Generic & Other) 53,000 2,458,289
- ----------------------------------------------------------------------------
Tokyo Electron Ltd. (Electronics-Semiconductors) 20,000 1,357,586
- ----------------------------------------------------------------------------
Ushio, Inc. (Electronics-Component Distributors) 111,000 1,422,489
- ----------------------------------------------------------------------------
38,876,985
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEXICO - 3.99%
Cifra S.A. de C.V. (Retail-General Merchandise)(a) 772,000 $ 1,412,265
- -------------------------------------------------------------------------------
Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 70,000 1,356,250
- -------------------------------------------------------------------------------
Fomento Economico Mexicano, S.A. de C.V.-ADR
(Beverages-Non-Alcoholic) 59,020 2,353,422
- -------------------------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series C (Beverages-
Alcoholic) 387,000 1,103,370
- -------------------------------------------------------------------------------
Grupo Televisa S.A.-GDR (Entertainment)(a) 47,500 2,128,594
- -------------------------------------------------------------------------------
Kimberly-Clark de Mexico, S.A. de C.V.-Class A
(Paper & Forest Products) 171,000 703,211
- -------------------------------------------------------------------------------
Telefonos de Mexico S.A.-ADR (Telephone) 13,700 1,107,131
- -------------------------------------------------------------------------------
10,164,243
- -------------------------------------------------------------------------------
NETHERLANDS - 5.17%
AEGON N.V. (Insurance Brokers) 6,800 493,018
- -------------------------------------------------------------------------------
Equant N.V. (Computers-Networking)(a) 16,000 1,474,170
- -------------------------------------------------------------------------------
Getronics N.V. (Computers-Software & Services) 42,500 1,633,759
- -------------------------------------------------------------------------------
Koninklijke Ahold N.V. (Retail-Food Chains) 85,000 2,925,873
- -------------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Household Furniture & Appliances) 14,260 1,405,706
- -------------------------------------------------------------------------------
Libertel N.V.(Telecommunications-
Cellular/Wireless)(a) 52,000 1,018,233
- -------------------------------------------------------------------------------
Verenigde Nederlandse Uitgeversbedrijven Verenigd
Bezit (Publishing) 56,800 2,268,351
- -------------------------------------------------------------------------------
Wolters Kluwer N.V. (Specialty Printing) 49,400 1,965,189
- -------------------------------------------------------------------------------
13,184,299
- -------------------------------------------------------------------------------
NORWAY - 0.17%
Merkantildata A.S.A (Services-Commercial & Consumer) 44,000 424,325
- -------------------------------------------------------------------------------
PHILIPPINES - 0.53%
Philippine Long Distance Telephone Co. (Telephone) 24,260 739,595
- -------------------------------------------------------------------------------
Philippine Long Distance Telephone Co.-ADR
(Telephone) 20,600 620,575
- -------------------------------------------------------------------------------
1,360,170
- -------------------------------------------------------------------------------
PORTUGAL - 0.29%
Jeronimo Martins & Filho, S.A. (Retail-General
Merchandise) 22,500 742,728
- -------------------------------------------------------------------------------
SINGAPORE - 1.39%
Development Bank of Singapore Ltd. (Banks-Major
Regional) 106,000 1,295,417
- -------------------------------------------------------------------------------
Keppel Corp. Ltd. (Engineering & Construction) 331,000 1,127,967
- -------------------------------------------------------------------------------
Singapore Press Holdings Ltd. (Publishing-
Newspapers) 66,000 1,124,559
- -------------------------------------------------------------------------------
3,547,943
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-89
<PAGE> 171
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SOUTH KOREA - 1.73%
Korea Electric Power Corp.-ADR (Electric Companies) 58,900 $ 1,207,450
- -------------------------------------------------------------------------------
Korea Telecom Corp.-ADR (Telephone)(a) 42,000 1,680,000
- -------------------------------------------------------------------------------
Pohang Iron & Steel Co. Ltd. -ADR (Iron & Steel) 45,500 1,529,937
- -------------------------------------------------------------------------------
4,417,387
- -------------------------------------------------------------------------------
SPAIN - 2.12%
Banco Popular Espanol S.A. (Banks-Major Regional) 17,500 1,257,976
- -------------------------------------------------------------------------------
Corp. Financiera Reunida, S.A. (Investment
Management)(a) 49,400 632,323
- -------------------------------------------------------------------------------
Endesa S.A. (Electric Companies) 49,200 1,048,590
- -------------------------------------------------------------------------------
Telefonica S.A. (Telephone) 51,200 2,464,733
- -------------------------------------------------------------------------------
5,403,622
- -------------------------------------------------------------------------------
SWEDEN - 3.44%
Electrolux A.B. (Household Furniture & Appliances) 113,000 2,369,629
- -------------------------------------------------------------------------------
Hennes & Mauritz A.B. (Retail-Specialty-Apparel) 125,976 3,116,657
- -------------------------------------------------------------------------------
NetCom A.B. (Telecommunications-
Cellular/Wireless)(a) 36,000 1,212,971
- -------------------------------------------------------------------------------
Svenska Handelsbanken A.B. (Banks-Major Regional) 119,500 1,435,985
- -------------------------------------------------------------------------------
WM-Data A.B.-Class B (Computers-Software & Services) 16,500 629,812
- -------------------------------------------------------------------------------
8,765,054
- -------------------------------------------------------------------------------
SWITZERLAND - 4.16%
ABB A.G. (Electrical Equipment) 1,600 2,365,799
- -------------------------------------------------------------------------------
Adecco S.A. (Services-Commercial & Consumer) 2,600 1,392,350
- -------------------------------------------------------------------------------
Compagnie Financiere Richemont A.G. (Tobacco)(a) 685 1,316,715
- -------------------------------------------------------------------------------
Julius Baer Holding A.G. (Banks-Major Regional) 230 655,031
- -------------------------------------------------------------------------------
UBS A.G. (Bank-Major Regional) 7,107 2,119,992
- -------------------------------------------------------------------------------
Zurich Allied A.G. (Insurance-Multi-Line) 4,850 2,756,284
- -------------------------------------------------------------------------------
10,606,171
- -------------------------------------------------------------------------------
THAILAND - 0.69%
Siam Commercial Bank (Banks-Regional), Conv. Pfd. 846,000 1,204,475
- -------------------------------------------------------------------------------
Siam Commercial Bank (Banks-Regional), Wts. expiring
05/10/12(a) 846,000 544,881
- -------------------------------------------------------------------------------
1,749,356
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - 13.63%
Airtours PLC (Services-Commercial & Consumer) 82,450 $ 655,008
- -------------------------------------------------------------------------------
Barclays PLC (Banks-Major Regional) 125,000 3,637,197
- -------------------------------------------------------------------------------
British Sky Broadcasting Group PLC (Broadcasting-
Television, Radio & Cable) 250,000 2,319,058
- -------------------------------------------------------------------------------
British Telecommunications PLC (Communications
Equipment) 144,730 2,425,029
- -------------------------------------------------------------------------------
Compass Group PLC (Services-Commercial & Consumer) 156,000 1,546,680
- -------------------------------------------------------------------------------
Dixons Group PLC (Retail-Specialty) 94,000 1,755,785
- -------------------------------------------------------------------------------
General Electric Co. PLC (Manufacturing-Diversified) 262,600 2,678,083
- -------------------------------------------------------------------------------
Granada Group PLC (Leisure Time-Products) 83,500 1,549,131
- -------------------------------------------------------------------------------
Hays PLC (Services-Commercial & Consumer) 278,800 2,937,780
- -------------------------------------------------------------------------------
Invensys PLC (Electronics-Component-Distributors)(a) 200,000 946,538
- -------------------------------------------------------------------------------
Logica PLC (Computer Software & Services) 92,500 972,507
- -------------------------------------------------------------------------------
Misys PLC (Services-Commercial & Consumer) 189,500 1,621,938
- -------------------------------------------------------------------------------
Orange PLC (Telephone)(a) 172,000 2,521,369
- -------------------------------------------------------------------------------
Provident Financial PLC (Consumer Finance) 89,543 1,244,168
- -------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 78,644 1,607,795
- -------------------------------------------------------------------------------
Shell Transport & Trading Co. (Oil-International
Integrated)(a) 159,000 1,192,342
- -------------------------------------------------------------------------------
Stagecoach Holdings PLC (Shipping) 145,000 519,394
- -------------------------------------------------------------------------------
Vodafone Airtouch PLC (Telecommunications-
Cellular/Wireless) 130,000 2,561,406
- -------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/Marketing) 240,000 2,029,580
- -------------------------------------------------------------------------------
34,720,788
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$176,596,674) 226,103,750
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-90
<PAGE> 172
<TABLE>
<S> <C> <C>
PRINCIPAL MARKET
AMOUNT VALUE
FOREIGN CONVERTIBLE BONDS
& NOTES - 0.46%(b)
HONG KONG - 0.09%
Cosco Treasury Co. Ltd. (Shipping), Conv. Gtd. Bonds,
1.00%, 03/13/03 $ 246,000 $ 223,764
- --------------------------------------------------------------------------------
UNITED KINGDOM - 0.37%
Airtours PLC (Services-Commercial & Consumer), Conv.
Sub. Notes
5.75%, 01/05/04(b) GBP 71,000 136,115
- --------------------------------------------------------------------------------
5.75%, 01/05/04 (Acquired 12/09/98;
Cost $706,386)(b)(c) GBP 427,000 818,608
- --------------------------------------------------------------------------------
954,723
- --------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible Bonds
& Notes
(Cost $1,004,923) 1,178,487
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 6.00%(d)
Greenwich Capital Markets, Inc., 5.00%, 07/01/99
(Cost $15,279,556) 15,279,556 15,279,556
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 95.21% 242,561,793
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 4.79% 12,200,329
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $ 254,762,122
================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Foreign denominated security. Par value and coupon are denominated in
currency indicated.
(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 these securities has been determined in
accordance with procedures established by the Board of Directors. The
market value at 06/30/99 represented 0.32% of the Fund's net assets.
(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 06/30/99 with a maturing value of
$100,013,889. Collaterized by U.S. Government agency obligations.
Investment Abbreviations:
Conv. - Convertible
GBP - British Pound Sterling
Gtd. - Guaranteed
Pfd. - Preferred
Sub. - Subordinated
Wts. - Warrants
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-91
<PAGE> 173
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $192,881,153) $242,561,793
- ----------------------------------------------------------------------
Foreign currencies, at value (cost $3,683,106) 3,662,179
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 552,339
- ----------------------------------------------------------------------
Investments sold 9,617,179
- ----------------------------------------------------------------------
Dividends and interest 687,449
- ----------------------------------------------------------------------
Investment for deferred compensation plan 23,434
- ----------------------------------------------------------------------
Other assets 1,891
- ----------------------------------------------------------------------
Total assets 257,106,264
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 108,321
- ----------------------------------------------------------------------
Investments purchased 2,012,321
- ----------------------------------------------------------------------
Deferred compensation plan 23,434
- ----------------------------------------------------------------------
Accrued advisory fees 153,586
- ----------------------------------------------------------------------
Accrued directors' fees 2,071
- ----------------------------------------------------------------------
Accrued operating expenses 44,409
- ----------------------------------------------------------------------
Total liabilities 2,344,142
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $254,762,122
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 12,430,719
======================================================================
Net asset value, offering and redemption price per share $ 20.49
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $224,168 foreign withholding tax) $ 1,686,138
- ----------------------------------------------------------------------------
Interest 352,033
- ----------------------------------------------------------------------------
Total investment income 2,038,171
- ----------------------------------------------------------------------------
EXPENSES:
Advisory fees 895,775
- ----------------------------------------------------------------------------
Administrative services fees 37,240
- ----------------------------------------------------------------------------
Custodian fees 119,929
- ----------------------------------------------------------------------------
Directors' fees and expenses 4,732
- ----------------------------------------------------------------------------
Other 42,157
- ----------------------------------------------------------------------------
Total expenses 1,099,833
- ----------------------------------------------------------------------------
Net investment income 938,338
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 16,439,375
- ----------------------------------------------------------------------------
Foreign currencies (37,086)
- ----------------------------------------------------------------------------
16,402,289
- ----------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (6,437,619)
- ----------------------------------------------------------------------------
Foreign currencies (130,169)
- ----------------------------------------------------------------------------
(6,567,788)
- ----------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 9,834,501
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $10,772,839
============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-92
<PAGE> 174
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 938,338 $ 1,852,329
- -----------------------------------------------------------------------------
Net realized gain from investment securities and
foreign currencies 16,402,289 13,261,554
- -----------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities and
foreign currencies (6,567,788) 15,969,669
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 10,772,839 31,083,552
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment
income -- (1,910,166)
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 3,674,971 118,341
- -----------------------------------------------------------------------------
Net increase in net assets 14,447,810 29,291,727
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 240,314,312 211,022,585
- -----------------------------------------------------------------------------
End of year $254,762,122 $240,314,312
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $174,074,005 $170,399,034
- -----------------------------------------------------------------------------
Undistributed net investment income 2,872,698 1,934,360
- -----------------------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 28,228,091 11,825,802
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 49,587,328 56,155,116
- -----------------------------------------------------------------------------
$254,762,122 $240,314,312
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 closing bid price on that day. 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
closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. 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
AIM V.I. INTERNATIONAL EQUITY FUND
FS-93
<PAGE> 175
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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. Such distributions are
declared and paid annually.
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.
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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $33,156 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,642 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 directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-94
<PAGE> 176
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended June
30, 1999 was $123,451,148 and $127,292,161, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $53,414,192
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,989,832)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $49,424,360
==========================================================================
</TABLE>
Cost of investments for tax purposes is $193,137,434.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30, 1999
and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,154,168 $ 42,787,625 2,410,075 $ 46,643,002
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions -- -- 101,067 1,910,166
- ------------------------------------------------------------------------------
Reacquired (1,973,022) (39,112,654) (2,581,125) (48,434,827)
- ------------------------------------------------------------------------------
181,146 $ 3,674,971 (69,983) $ 118,341
- ------------------------------------------------------------------------------
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999 and each of the years in the three-
year period ended December 31, 1998, the eleven months ended December 31,
1995, and the year ended January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------- JANUARY 31,
1999 1998 1997 1996 1995 1995
-------- -------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
- ----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.07 0.15 0.10 0.07 0.07 0.06
- ----------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.80 2.50 1.03 2.67 2.58 (1.49)
- ----------------------------------------------------------------------------------------------
Total from investment
operations 0.87 2.65 1.13 2.74 2.65 (1.43)
- ----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.16) (0.08) (0.04) (0.02) (0.03)
- ----------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- (0.28) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions -- (0.16) (0.36) (0.04) (0.02) (0.03)
- ----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 20.49 $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03
==============================================================================================
Total return(a) 4.43% 15.49% 6.94% 20.05% 24.04% (11.48)%
==============================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $254,762 $240,314 $211,023 $165,738 $82,257 $55,019
==============================================================================================
Ratio of expenses to
average net assets 0.92%(b) 0.91% 0.93% 0.96% 1.15%(c) 1.27%(d)
==============================================================================================
Ratio of net investment
income (loss) to
average net assets 0.79%(b) 0.80% 0.68% 0.78% 0.75%(c) 0.60%(e)
==============================================================================================
Portfolio turnover rate 65% 76% 57% 59% 67% 64%
==============================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $240,852,908.
(c) Annualized.
(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 1.28% and 0.59%.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-95
<PAGE> 177
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
COMMERCIAL PAPER - 40.56%(a)
ASSET-BACKED SECURITIES - COMMERCIAL LOANS/LEASES -
1.31%
Centric Capital Corp.
4.81%, 10/04/99 $ 1,000 $ 987,307
- ----------------------------------------------------------------------------
ASSET-BACKED SECURITIES - MULTI-PURPOSE - 22.14%
Bavaria TRR Corp.
5.12%, 07/27/99 2,000 1,992,604
- ----------------------------------------------------------------------------
Clipper Receivables Corp.
4.96%, 08/09/99 3,000 2,983,880
- ----------------------------------------------------------------------------
Edison Asset Securitization, LLC
4.85%, 07/30/99 2,000 1,992,186
- ----------------------------------------------------------------------------
4.81%, 09/09/99 1,155 1,144,198
- ----------------------------------------------------------------------------
Enterprise Funding Corp.
5.08%, 07/28/99 1,246 1,241,253
- ----------------------------------------------------------------------------
Falcon Asset Securitization Corp.
4.81%, 09/20/99 1,500 1,483,766
- ----------------------------------------------------------------------------
Park Avenue Receivables Corp.
5.05%, 08/12/99 2,916 2,898,820
- ----------------------------------------------------------------------------
Quincy Capital Corp.
4.93%, 08/03/99 3,000 2,986,443
- ----------------------------------------------------------------------------
16,723,150
- ----------------------------------------------------------------------------
ASSET-BACKED SECURITIES - TRADE RECEIVABLES - 3.97%
Asset Securitization Cooperative Corp.
5.10%, 03/10/00 3,000 2,998,622
- ----------------------------------------------------------------------------
BANKS - DOMESTIC - 1.31%
First Chicago Financial Corp.
4.85%, 09/13/99 1,000 990,031
- ----------------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 2.62%
Henkel Corp.
4.84%, 09/08/99 2,000 1,981,447
- ----------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.62%
Siemens Capital Corp.
4.78%, 09/30/99 2,000 1,975,834
- ----------------------------------------------------------------------------
FINANCE - MULTIPLE INDUSTRY - 2.62%
General Electric Capital Corp.
4.81%, 09/07/99 2,000 1,981,829
- ----------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 3.97%
Credit Suisse First Boston, Inc.
4.82%, 07/08/99 3,000 2,997,188
- ----------------------------------------------------------------------------
Total Commercial Paper 30,635,408
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
MASTER NOTE AGREEMENTS - 11.92%(b)
Citicorp Securities, Inc.
6.25%, 07/26/99(c) $ 3,000 $ 3,000,000
- ----------------------------------------------------------------------------
Merrill Lynch Mortgage Capital Inc.
6.28%, 08/16/99(d) 3,000 3,000,000
- ----------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co.
6.10%, 11/22/99(e) 3,000 3,000,000
- ----------------------------------------------------------------------------
Total Master Note Agreements 9,000,000
- ----------------------------------------------------------------------------
Total Investments, excluding Repurchase Agreements 39,635,408
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 48.30%(f)
Bear, Stearns & Co., Inc.,
5.00%(g) 3,000 3,000,000
- ----------------------------------------------------------------------------
CIBC Oppenheimer Corp.
4.95%, 07/01/99(h) 18,000 18,000,000
- ----------------------------------------------------------------------------
Dean Witter Reynolds Inc.
4.85%, 07/01/99(i) 15,483 15,482,598
- ----------------------------------------------------------------------------
Total Repurchase Agreements 36,482,598
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.78% 76,118,006(j)
- ----------------------------------------------------------------------------
OTHER LIABILITIES LESS ASSETS - (0.78%) (592,443)
- ----------------------------------------------------------------------------
NET ASSETS - 100.00% $75,525,563
- ----------------------------------------------------------------------------
</TABLE>
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) 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.
(c) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon 3 business days notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown
is the rate in effect on 06/30/99.
(d) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon one business day notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown
is the rate in effect on 06/30/99.
(e) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon 3 days notice to the issuer. Interest rates
on master notes are redetermined periodically. Rate shown is the rate in
effect on 06/30/99.
(f) 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 is at least 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.
(g) Open repurchase agreement entered into 10/05/98. Either party may
terminate the agreement upon demand. Interest rates, par and collateral
are redetermined daily. Collateralized by U.S. Government obligations,
with an aggregate market value at 6/30/99 of $355,207,230.
(h) Joint repurchase agreement entered into 06/30/99 with a maturing value of
$300,041,250. Collateralized by U.S. Government and Treasury obligations.
(i) Joint repurchase agreement entered into 06/30/99 with a maturing value of
$100,013,472. Collateralized by U.S. Government and Treasury obligations.
(j) Also represents cost for federal income tax purposes.
AIM V.I. MONEY MARKET FUND
FS-96
<PAGE> 178
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value (cost
$39,635,408) $ 39,635,408
- --------------------------------------------------------------------------
Repurchase agreements (cost $36,482,598) 36,482,598
- --------------------------------------------------------------------------
Receivables for:
Capital stock sold 281,279
- --------------------------------------------------------------------------
Interest receivable 49,973
- --------------------------------------------------------------------------
Investment for deferred compensation plan 22,508
- --------------------------------------------------------------------------
Other assets 282
- --------------------------------------------------------------------------
Total assets 76,472,048
- --------------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 867,634
- --------------------------------------------------------------------------
Deferred compensation plan 22,508
- --------------------------------------------------------------------------
Accrued advisory fees 26,282
- --------------------------------------------------------------------------
Accrued directors' fees 2,640
- --------------------------------------------------------------------------
Accrued operating expenses 27,421
- --------------------------------------------------------------------------
Total liabilities 946,485
- --------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 75,525,563
==========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- --------------------------------------------------------------------------
Outstanding 75,525,506
==========================================================================
Net asset value, offering and redemption price per share $ 1.00
==========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $1,787,611
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 145,126
- --------------------------------------------------------------------------
Administrative services fees 23,409
- --------------------------------------------------------------------------
Custodian fees 12,436
- --------------------------------------------------------------------------
Directors' fees and expenses 4,471
- --------------------------------------------------------------------------
Other 24,891
- --------------------------------------------------------------------------
Total expenses 210,333
- --------------------------------------------------------------------------
Net investment income 1,577,278
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,577,278
==========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-97
<PAGE> 179
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,577,278 $ 3,115,776
- ---------------------------------------------------------------------------
Net increase in net assets resulting from
operations 1,577,278 3,115,776
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,577,278) (3,115,776)
- ---------------------------------------------------------------------------
Net increase from capital stock transactions 11,435,240 5,455,702
- ---------------------------------------------------------------------------
Net increase in net assets 11,435,240 5,455,702
- ---------------------------------------------------------------------------
NET ASSETS:
Beginning of year 64,090,323 58,634,621
- ---------------------------------------------------------------------------
End of year $75,525,563 $64,090,323
- ---------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $75,525,506 $64,090,266
- ---------------------------------------------------------------------------
Undistributed net realized gain from investment
securities 57 57
- ---------------------------------------------------------------------------
$75,525,563 $64,090,323
- ---------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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.
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.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six
AIM V.I. MONEY MARKET FUND
FS-98
<PAGE> 180
months ended June 30, 1999, AIM was paid $23,409 for accounting and
administrative services rendered by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$1,923 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 directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30,
1999 and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sold 56,765,797 $56,765,797 100,181,770 $100,181,770
- -------------------------------------------------------------------------------
Issued as reinvestment of
dividends 1,577,278 1,577,278 3,115,776 3,115,776
- -------------------------------------------------------------------------------
Reacquired (46,907,835) (46,907,835) (97,841,844) (97,841,844)
- -------------------------------------------------------------------------------
11,435,240 $11,435,240 5,455,702 $ 5,455,702
===============================================================================
</TABLE>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the year ended January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------- JANUARY 31,
1999 1998 1997 1996 1995 1995
-------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.02 0.05 0.05 0.05 0.05 0.04
- ------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.02) (0.05) (0.05) (0.05) (0.05) (0.04)
- ------------------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================================
Total return 2.18% 5.06% 5.14% 4.97% 5.22% 3.98%
==========================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $75,526 $64,090 $58,635 $63,529 $65,506 $31,017
==========================================================================================
Ratio of expenses to
average net assets 0.58%(a) 0.58% 0.59% 0.55% 0.53%(b) 0.63%(c)
==========================================================================================
Ratio of net investment
income to average net
assets 4.35%(a) 4.94% 5.01% 4.84% 5.40%(b) 4.14%(c)
==========================================================================================
</TABLE>
(a) Ratios are annualized and based on average daily net assets of
$73,164,059.
(b) Annualized.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average daily net assets prior to fee waivers
and/or expense reimbursements were 0.70% and 4.07%, respectively.
AIM V.I. MONEY MARKET FUND
FS-99
<PAGE> 181
SCHEDULE OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 83.78%
AUTOMOBILES - 1.01%
Ford Motor Co. 317,100 $ 17,896,331
- ------------------------------------------------------------------
BANKS (MONEY CENTER) - 2.33%
Chase Manhattan Corp. (The) 475,000 41,146,875
- ------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.28%
Cablevision Systems Corp. - Class A(a) 45,000 3,150,000
- ------------------------------------------------------------------
Comcast Corp. - Class A 700,000 26,906,250
- ------------------------------------------------------------------
Cox Communications, Inc.(a)(b) 806,000 29,670,875
- ------------------------------------------------------------------
MediaOne Group, Inc.(a) 451,000 33,543,125
- ------------------------------------------------------------------
93,270,250
- ------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 1.09%
Monsanto Co. 490,000 19,324,375
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.45%
Comverse Technology, Inc.(a) 80,000 6,040,000
- ------------------------------------------------------------------
Lucent Technologies, Inc. 130,000 8,766,875
- ------------------------------------------------------------------
Motorola, Inc. 114,900 10,886,775
- ------------------------------------------------------------------
25,693,650
- ------------------------------------------------------------------
COMPUTERS (HARDWARE) - 5.17%
Dell Computer Corp.(a) 110,000 4,070,000
- ------------------------------------------------------------------
Gateway, Inc.(a) 325,000 19,175,000
- ------------------------------------------------------------------
International Business Machines Corp. 360,000 46,530,000
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a)(b) 312,000 21,489,000
- ------------------------------------------------------------------
91,264,000
- ------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.11%
Cisco Systems, Inc.(a)(b) 30,000 1,935,000
- ------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.85%
EMC Corp.(a)(b) 80,000 4,400,000
- ------------------------------------------------------------------
Lexmark International Group, Inc.(a) 162,000 10,702,125
- ------------------------------------------------------------------
15,102,125
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 6.12%
BMC Software, Inc.(a) 500,000 27,000,000
- ------------------------------------------------------------------
Microsoft Corp.(a) 462,000 41,666,625
- ------------------------------------------------------------------
Unisys Corp.(a) 1,012,400 39,420,325
- ------------------------------------------------------------------
108,086,950
- ------------------------------------------------------------------
CONSUMER FINANCE - 0.47%
Providian Financial Corp. 88,000 8,228,000
- ------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.36%
Cardinal Health, Inc. 99,925 6,407,691
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT - 2.01%
General Electric Co. 265,000 $ 29,945,000
- ------------------------------------------------------------------
Solectron Corp.(a) 84,500 5,635,094
- ------------------------------------------------------------------
35,580,094
- ------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.10%
Waters Corp.(a) 31,800 1,689,375
- ------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.16%
Texas Instruments, Inc. 19,400 2,813,000
- ------------------------------------------------------------------
ENTERTAINMENT - 2.17%
Time Warner, Inc. 521,200 38,308,200
- ------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.13%
Teradyne, Inc.(a) 32,400 2,324,700
- ------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 4.91%
American Express Co. 115,000 14,964,375
- ------------------------------------------------------------------
Associates First Capital Corp. - Class A 560,000 24,815,000
- ------------------------------------------------------------------
Citigroup, Inc. 147,750 7,018,125
- ------------------------------------------------------------------
Fannie Mae 248,000 16,957,000
- ------------------------------------------------------------------
Freddie Mac 395,000 22,910,000
- ------------------------------------------------------------------
86,664,500
- ------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 3.46%
Bristol-Myers Squibb Co. 450,000 31,696,875
- ------------------------------------------------------------------
Warner-Lambert Co. 426,000 29,553,750
- ------------------------------------------------------------------
61,250,625
- ------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 3.77%
Merck & Co., Inc. 90,000 6,660,000
- ------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 1,055,000 59,937,188
- ------------------------------------------------------------------
66,597,188
- ------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.61%
Guidant Corp.(b) 1,084,700 55,794,256
- ------------------------------------------------------------------
Medtronic, Inc. 103,000 8,021,125
- ------------------------------------------------------------------
63,815,381
- ------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.58%
Colgate-Palmolive Co. 284,000 28,045,000
- ------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 3.59%
American International Group, Inc.(b) 490,000 57,360,625
- ------------------------------------------------------------------
Hartford Financial Services Group, Inc.
(The) 103,900 6,058,669
- ------------------------------------------------------------------
63,419,294
- ------------------------------------------------------------------
INSURANCE (PROPERTY - CASUALTY) - 0.49%
Progressive Corp. 36,000 5,220,000
- ------------------------------------------------------------------
XL Capital Ltd. 60,000 3,390,000
- ------------------------------------------------------------------
8,610,000
- ------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-100
<PAGE> 182
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INVESTMENT BANKING/BROKERAGE - 0.74%
Morgan Stanley, Dean Witter, Discover & Co. 127,000 $ 13,017,500
- ----------------------------------------------------------------------
LODGING - HOTELS - 1.44%
Carnival Corp. 525,000 25,462,500
- ----------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 2.94%
Tyco International Ltd. 539,300 51,098,675
- ----------------------------------------------------------------------
United Technologies Corp. 11,900 853,081
- ----------------------------------------------------------------------
51,951,756
- ----------------------------------------------------------------------
PERSONAL CARE - 1.73%
Avon Products, Inc. 552,000 30,636,000
- ----------------------------------------------------------------------
PUBLISHING - 0.27%
Dow Jones & Co., Inc. 90,000 4,775,625
- ----------------------------------------------------------------------
RESTAURANTS - 1.85%
McDonald's Corp. 490,000 20,243,125
- ----------------------------------------------------------------------
Tricon Global Restaurants, Inc.(a) 230,000 12,448,750
- ----------------------------------------------------------------------
32,691,875
- ----------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 1.51%
Lowe's Companies, Inc. 470,000 26,643,125
- ----------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 2.90%
Best Buy Co., Inc.(a) 760,000 51,300,000
- ----------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 3.45%
Albertson's, Inc. 21,700 1,118,906
- ----------------------------------------------------------------------
Kroger Co.(a) 1,070,000 29,893,125
- ----------------------------------------------------------------------
Safeway, Inc.(a) 605,000 29,947,500
- ----------------------------------------------------------------------
60,959,531
- ----------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 4.95%
Costco Companies, Inc.(a) 234,000 18,734,625
- ----------------------------------------------------------------------
Dayton Hudson Corp. 773,900 50,303,500
- ----------------------------------------------------------------------
Wal-Mart Stores, Inc. 380,000 18,335,000
- ----------------------------------------------------------------------
87,373,125
- ----------------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 0.02%
Gap, Inc. (The) 7,200 362,700
- ----------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.79%
Omnicom Group, Inc. 395,000 31,600,000
- ----------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 0.39%
SunGard Data Systems, Inc.(a) 200,000 6,900,000
- ----------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.51%
Equifax, Inc. 73,900 2,637,306
- ----------------------------------------------------------------------
First Data Corp. 490,500 24,003,844
- ----------------------------------------------------------------------
26,641,150
- ----------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.66%
Nextel Communications, Inc. - Class A(a) 584,300 29,324,556
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 5.57%
AT & T Corp.(b) 307,000 $ 17,134,438
- ----------------------------------------------------------------------------
MCI WorldCom, Inc.(a)(b) 942,413 81,283,121
- ----------------------------------------------------------------------------
98,417,559
- ----------------------------------------------------------------------------
WASTE MANAGEMENT - 0.84%
Waste Management, Inc. 275,000 14,781,250
- ----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $1,084,486,897) 1,480,310,856
- ----------------------------------------------------------------------------
FOREIGN STOCKS - 5.60%
FINLAND - 4.47%
Nokia Oyj A.B. - Class A (Communications
Equipment) 2,000 175,202
- ----------------------------------------------------------------------------
Nokia Oyj A.B.-ADR (Communications Equipment) 860,000 78,743,750
- ----------------------------------------------------------------------------
78,918,952
- ----------------------------------------------------------------------------
UNITED KINGDOM - 1.13%
Vodafone Airtouch PLC-ADR (Telecommunications -
Cellular/Wireless) 80,000 15,760,000
- ----------------------------------------------------------------------------
WPP Group PLC (Services - Advertising/Marketing) 491,400 4,155,600
- ----------------------------------------------------------------------------
19,915,600
- ----------------------------------------------------------------------------
Total Foreign Stocks
(Cost $45,499,184) 98,834,552
- ----------------------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TIME DEPOSITS - 9.34%
CIBC Oppenheimer Corp.
5.50%, 07/01/99 $85,000,000 $ 85,000,000
- ----------------------------------------------------------------------------
SBC Warburg Dillon Read, Inc.,
5.75%, 07/01/99 80,000,000 80,000,000
- ----------------------------------------------------------------------------
Total Time Deposits
(Cost $165,000,000) 165,000,000
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.28%
BankOne Capital Markets, Inc.,
5.10%, 07/01/99 (Cost $22,632,014) 22,632,014 22,632,014
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.00% 1,766,777,422
- ----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.00% 44,196
- ----------------------------------------------------------------------------
NET ASSETS - 100.00% $1,766,821,618
============================================================================
</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) 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 is at least 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.
(d) Joint repurchase agreement entered into 06/30/99 with a maturing value of
$125,017,708. Collateralized by U.S. Government obligations.
Investment Abbreviations:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-101
<PAGE> 183
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $1,317,618,095) $1,766,777,422
- ------------------------------------------------------------------------
Receivables for:
Investments sold 12,102,819
- ------------------------------------------------------------------------
Capital stock sold 2,640,126
- ------------------------------------------------------------------------
Dividends and interest 450,940
- ------------------------------------------------------------------------
Forward currency contracts 2,031,444
- ------------------------------------------------------------------------
Forward currency contracts closed 83,807
- ------------------------------------------------------------------------
Investment for deferred compensation plan 27,330
- ------------------------------------------------------------------------
Other assets 11,196
- ------------------------------------------------------------------------
Total assets 1,784,125,084
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 14,603,161
- ------------------------------------------------------------------------
Fund shares reacquired 151,081
- ------------------------------------------------------------------------
Deferred compensation 27,330
- ------------------------------------------------------------------------
Options written (Premiums received $2,213,895) 1,379,594
- ------------------------------------------------------------------------
Accrued advisory fees 829,758
- ------------------------------------------------------------------------
Accrued directors' fees 3,500
- ------------------------------------------------------------------------
Accrued operating expenses 309,042
- ------------------------------------------------------------------------
Total liabilities 17,303,466
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,766,821,618
========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ------------------------------------------------------------------------
Outstanding 58,819,385
- ------------------------------------------------------------------------
Net asset value, offering and redemption price per share $30.04
========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $71,503 foreign withholding tax) $ 3,783,138
- -------------------------------------------------------------------------------
Interest 3,926,143
- -------------------------------------------------------------------------------
Total investment income 7,709,281
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 4,377,401
- -------------------------------------------------------------------------------
Administrative services fees 710,092
- -------------------------------------------------------------------------------
Custodian fees 85,853
- -------------------------------------------------------------------------------
Directors' fees and expenses 8,494
- -------------------------------------------------------------------------------
Other 70,563
- -------------------------------------------------------------------------------
Total expenses 5,252,403
- -------------------------------------------------------------------------------
Net investment income 2,456,878
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FORWARD CURRENCY CONTRACTS AND OPTION
CONTRACTS:
Net realized gain from:
Investment securities 70,778,592
- -------------------------------------------------------------------------------
Foreign currencies 25,406
- -------------------------------------------------------------------------------
Forward currency contracts 4,108,353
- -------------------------------------------------------------------------------
Option contracts 888
- -------------------------------------------------------------------------------
74,913,239
- -------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 118,075,061
- -------------------------------------------------------------------------------
Foreign currencies (1,292)
- -------------------------------------------------------------------------------
Forward currency contracts 1,706,836
- -------------------------------------------------------------------------------
Option contracts 826,782
- -------------------------------------------------------------------------------
120,607,387
- -------------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, forward
currency contracts and option contracts 195,520,626
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $197,977,504
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-102
<PAGE> 184
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,456,878 $ 6,184,686
- -------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, forward currency
contracts, futures and option contracts 74,913,239 30,475,488
- -------------------------------------------------------------------------------
Change in net unrealized appreciation of
investment securities, foreign currencies,
forward currency contracts, futures and option
contracts 120,607,387 230,113,292
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 197,977,504 266,773,466
- -------------------------------------------------------------------------------
Distributions to shareholders from net
investment income -- (5,622,957)
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (49,732,413)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 347,460,569 319,123,956
- -------------------------------------------------------------------------------
Net increase in net assets 545,438,073 530,542,052
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,221,383,545 690,841,493
- -------------------------------------------------------------------------------
End of year $1,766,821,618 $1,221,383,545
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,202,963,289 $ 855,502,720
- -------------------------------------------------------------------------------
Undistributed net investment income 8,648,047 6,191,169
- -------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 103,187,240 28,274,001
- -------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 452,023,042 331,415,655
- -------------------------------------------------------------------------------
$1,766,821,618 $1,221,383,545
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-103
<PAGE> 185
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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 sixteen 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 the Fund's investment advisor to be undervalued relative
to the investment advisor's appraisal of 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 closing bid price on that day. 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 closing bid price. 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 based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last 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 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. 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. Such distributions are
declared and paid annually.
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. 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.
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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
AIM V.I. VALUE FUND
FS-104
<PAGE> 186
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 forward currency
contracts at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
SETTLEMENT CONTRACT TO
CURRENCY ---------------------- UNREALIZED
DATE DELIVER RECEIVE VALUE APPRECIATION
---------- ------- --------------------------------
<S> <C> <C> <C> <C>
7/19/99 EUR 7,000,000 $ 7,460,170 $ 7,224,486 $235,684
7/20/99 EUR 33,850,000 36,238,808 34,938,165 1,300,643
7/21/99 EUR 6,000,000 6,369,120 6,193,344 175,776
7/22/99 EUR 8,500,000 9,011,330 8,774,561 236,769
7/20/99 GBP 1,000,000 1,613,800 1,576,440 37,360
8/17/99 GBP 1,100,000 1,779,651 1,734,439 45,212
-------------------------------------------------------------
$62,472,879 $60,441,435 $2,031,444
=============================================================
</TABLE>
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.
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 pay certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the six months ended June 30,
1999, AIM was paid $41,414 for accounting and administrative services rendered
by AIM.
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 six months ended June 30, 1999, the Fund incurred legal fees of
$12,358 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 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended June 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
AIM V.I. VALUE FUND
FS-105
<PAGE> 187
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the six months ended June 30, 1999 was
$629,720,326 and $340,754,303, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $459,463,096
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,453,490)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $445,009,606
===========================================================================
</TABLE>
Cost of investments for tax purposes is $1,321,767,816.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the six months ended June 30,
1999 and the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 15,084,473 $427,699,890 13,690,852 $321,377,374
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions -- -- 2,225,788 55,355,370
- ------------------------------------------------------------------------------
Reacquired (2,800,711) (80,239,321) (2,542,811) (57,608,788)
- ------------------------------------------------------------------------------
12,283,762 $347,460,569 13,373,829 $319,123,956
==============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call option contracts written during the six months ended
June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION
CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------------
<S> <C> <C>
Beginning of period 200 $ 83,771
- -----------------------------------------------------------------------------
Written 4,200 2,705,005
- -----------------------------------------------------------------------------
Exercised (849) (573,993)
- -----------------------------------------------------------------------------
Expired (1) (888)
- -----------------------------------------------------------------------------
End of period 3,550 $2,213,895
- -----------------------------------------------------------------------------
</TABLE>
Open call option contracts written at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS JUNE 30, 1999 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ----- --------------------- -------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
American International
Group, Inc. Aug. 99 $ 130 250 $ 194,953 $ 35,935 $ 159,018
- -------------------------------------------------------------------------------------------
AT&T Corp. Oct. 99 60 365 167,712 104,938 62,774
- -------------------------------------------------------------------------------------------
Cisco Systems, Inc. Oct. 99 55 300 250,804 376,875 (126,071)
- -------------------------------------------------------------------------------------------
Cox Communications, Inc. Sep. 99 45 880 493,224 77,000 416,224
- -------------------------------------------------------------------------------------------
EMC Corp. Jul. 99 57.50 200 122,096 28,750 93,346
- -------------------------------------------------------------------------------------------
Guidant Corp. Jul. 99 75 180 103,524 2,250 101,274
- -------------------------------------------------------------------------------------------
MCI WorldCom, Inc. Sep. 99 90 109.5 689,093 554,344 134,749
- -------------------------------------------------------------------------------------------
Sun Microsystems, Inc. Jul. 99 62.50 280 192,489 199,500 (7,011)
- -------------------------------------------------------------------------------------------
$2,213,895 $1,379,592 $ 834,303
===========================================================================================
</TABLE>
AIM V.I. VALUE FUND
FS-106
<PAGE> 188
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during six months ended June 30, 1999, each of the years in the three-year
period ended December 31, 1998, the eleven months ended December 31, 1995 and
the year ended January 31, 1995.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------- ---------------------------------------- JANUARY 31,
1999(A) 1998 1997 1996 1995 1995
---------- ---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
- -------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.09 0.08 0.30 0.11 0.10
- -------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 3.74 6.59 4.05 2.09 4.18 (0.35)
- -------------------------------------------------------------------------------------------------
Total from investment
operations 3.79 6.68 4.13 2.39 4.29 (0.25)
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.13) (0.19) (0.10) (0.01) (0.09)
- -------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (1.13) (0.59) (0.92) -- --
- -------------------------------------------------------------------------------------------------
Total distributions -- (1.26) (0.78) (1.02) (0.01) (0.09)
- -------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 30.04 $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83
- -------------------------------------------------------------------------------------------------
Total return(b) 14.44% 32.41% 23.69% 15.02% 36.25% (2.03)%
- -------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $1,766,822 $1,221,384 $690,841 $369,735 $257,212 $109,257
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.73%(c) 0.66% 0.70% 0.73% 0.75%(d) 0.82%
- -------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 0.34%(c) 0.68% 1.05% 2.00% 1.11%(d) 1.17%
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 26% 100% 127% 129% 145% 143%
=================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $1,450,392,564.
(d) Annualized.
AIM V.I. VALUE FUND
FS-107
<PAGE> 189
ANNUAL REPORT
FINANCIALS
DATED DECEMBER 31, 1998
FS
<PAGE> 190
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. Aggressive Growth Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 1, 1998 (commencement
of operations) through December 31, 1998. 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 audit.
We conducted our audit 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, 1998 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 audit provides 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. Aggressive Growth Fund, as of December 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for
the period May 1, 1998 (commencement of operations) through December 31, 1998
in conformity with generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
--------------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. AGGRESSIVE GROWTH FUND
FS-108
<PAGE> 191
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 82.28%
AEROSPACE/DEFENSE - 0.36%
AAR Corp. 500 $ 11,938
- -----------------------------------------------------------------
Aviation Sales Co.(a) 100 4,063
- -----------------------------------------------------------------
16,001
- -----------------------------------------------------------------
AIR FREIGHT - 0.19%
Expeditors International of Washington, Inc. 200 8,400
- -----------------------------------------------------------------
AIRLINES - 0.61%
ASA Holdings, Inc. 100 3,050
- -----------------------------------------------------------------
Atlantic Coast Airlines Holdings(a) 500 12,500
- -----------------------------------------------------------------
Ryanair Holdings PLC-ADR (Ireland)(a) 300 11,325
- -----------------------------------------------------------------
26,875
- -----------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.64%
Danaher Corp. 200 10,862
- -----------------------------------------------------------------
Gentex Corp.(a) 500 10,000
- -----------------------------------------------------------------
Tower Automotive, Inc.(a) 300 7,482
- -----------------------------------------------------------------
28,344
- -----------------------------------------------------------------
BANKS (REGIONAL) - 2.09%
Bank United Corp. - Class A 200 7,850
- -----------------------------------------------------------------
Centennial Bancorp(a) 300 5,625
- -----------------------------------------------------------------
Centura Banks, Inc. 100 7,438
- -----------------------------------------------------------------
Community First Bankshares, Inc. 600 12,638
- -----------------------------------------------------------------
First Republic Bank(a) 300 7,518
- -----------------------------------------------------------------
First Washington Bancorp, Inc. 200 4,800
- -----------------------------------------------------------------
Provident Bankshares Corp. 200 4,975
- -----------------------------------------------------------------
Silicon Valley Bancshares(a) 200 3,406
- -----------------------------------------------------------------
Southwest Bancorp. of Texas, Inc.(a) 500 8,938
- -----------------------------------------------------------------
Sterling Bancshares, Inc. 300 4,462
- -----------------------------------------------------------------
Trustmark Corp. 200 4,525
- -----------------------------------------------------------------
Westamerica Bancorp. 200 7,350
- -----------------------------------------------------------------
Zions Bancorp. 200 12,475
- -----------------------------------------------------------------
92,000
- -----------------------------------------------------------------
BIOTECHNOLOGY - 0.78%
Curative Health Services, Inc.(a) 200 6,700
- -----------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 700 18,834
- -----------------------------------------------------------------
PathoGenesis Corp.(a) 100 5,800
- -----------------------------------------------------------------
Pharmaceutical Product Development, Inc.(a) 100 3,006
- -----------------------------------------------------------------
34,340
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.26%
Chancellor Media Corp.(a) 200 $ 9,575
- ---------------------------------------------------------------------
Heftel Broadcasting Corp.(a) 800 39,400
- ---------------------------------------------------------------------
Jacor Communications, Inc.(a) 100 6,437
- ---------------------------------------------------------------------
55,412
- ---------------------------------------------------------------------
BUILDING MATERIALS - 0.13%
NCI Building Systems, Inc.(a) 200 5,625
- ---------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.33%
OM Group, Inc. 400 14,600
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.12%
Brightpoint, Inc.(a) 2,200 30,250
- ---------------------------------------------------------------------
Comverse Technology, Inc.(a) 500 35,500
- ---------------------------------------------------------------------
Dycom Industries, Inc.(a) 200 11,425
- ---------------------------------------------------------------------
REMEC, Inc.(a) 400 7,200
- ---------------------------------------------------------------------
Tekelec(a) 300 4,968
- ---------------------------------------------------------------------
VideoServer, Inc.(a) 200 3,675
- ---------------------------------------------------------------------
93,018
- ---------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.82%
Brooktrout Technology, Inc.(a) 200 3,425
- ---------------------------------------------------------------------
IDX Systems Corp.(a) 100 4,400
- ---------------------------------------------------------------------
Micron Electronics, Inc.(a) 800 13,850
- ---------------------------------------------------------------------
National Instruments Corp.(a) 200 6,825
- ---------------------------------------------------------------------
Visual Networks, Inc.(a) 200 7,500
- ---------------------------------------------------------------------
36,000
- ---------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.85%
Broadcom Corp.(a) 200 24,150
- ---------------------------------------------------------------------
International Network Services(a) 200 13,300
- ---------------------------------------------------------------------
37,450
- ---------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.27%
Cybex Computer Products Corp.(a) 300 8,812
- ---------------------------------------------------------------------
Jabil Circuit, Inc.(a) 200 14,925
- ---------------------------------------------------------------------
Network Appliance, Inc.(a) 800 36,000
- ---------------------------------------------------------------------
QLogic Corp.(a) 100 13,087
- ---------------------------------------------------------------------
SMART Modular Technologies, Inc.(a) 600 16,650
- ---------------------------------------------------------------------
Xircom, Inc.(a) 300 10,200
- ---------------------------------------------------------------------
99,674
- ---------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-109
<PAGE> 192
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES) - 11.96%
American Management Systems, Inc.(a) 200 $ 8,000
- -----------------------------------------------------------------------
Aspect Development, Inc.(a) 200 8,863
- -----------------------------------------------------------------------
Avant! Corp.(a) 400 6,400
- -----------------------------------------------------------------------
AVT Corp.(a) 400 11,600
- -----------------------------------------------------------------------
AXENT Technologies, Inc.(a) 400 12,225
- -----------------------------------------------------------------------
Business Objects S.A.-ADR (France)(a) 300 9,750
- -----------------------------------------------------------------------
Check Point Software Technologies Ltd.(a) (Israel) 400 18,325
- -----------------------------------------------------------------------
Citrix Systems, Inc.(a) 400 38,825
- -----------------------------------------------------------------------
Computer Management Sciences, Inc.(a) 500 8,688
- -----------------------------------------------------------------------
Concord Communications, Inc.(a) 200 11,350
- -----------------------------------------------------------------------
Concord EFS, Inc.(a) 900 38,137
- -----------------------------------------------------------------------
Documentum, Inc.(a) 200 10,687
- -----------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 500 20,093
- -----------------------------------------------------------------------
Engineering Animation, Inc.(a) 500 27,000
- -----------------------------------------------------------------------
Gemstar International Group Ltd.(a) 200 11,450
- -----------------------------------------------------------------------
HNC Software, Inc.(a) 300 12,132
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 390 7,020
- -----------------------------------------------------------------------
Jack Henry & Associates 100 4,975
- -----------------------------------------------------------------------
Kronos, Inc.(a) 100 4,432
- -----------------------------------------------------------------------
Legato Systems, Inc.(a) 300 19,782
- -----------------------------------------------------------------------
Lycos, Inc.(a) 500 27,781
- -----------------------------------------------------------------------
Macromedia, Inc.(a) 200 6,738
- -----------------------------------------------------------------------
Medical Manager Corp.(a) 600 18,825
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 200 12,650
- -----------------------------------------------------------------------
Mobius Management Systems, Inc.(a) 100 1,487
- -----------------------------------------------------------------------
PC Connection, Inc.(a) 400 7,050
- -----------------------------------------------------------------------
QRS Corp.(a) 100 4,800
- -----------------------------------------------------------------------
QuadraMed Corp.(a) 300 6,150
- -----------------------------------------------------------------------
Rational Software Corp.(a) 900 23,850
- -----------------------------------------------------------------------
Sapient Corp.(a) 100 5,600
- -----------------------------------------------------------------------
ScanSource, Inc.(a) 100 2,150
- -----------------------------------------------------------------------
Secure Computing Corp.(a) 400 7,625
- -----------------------------------------------------------------------
Sterling Software, Inc. (a) 200 5,412
- -----------------------------------------------------------------------
Technisource, Inc.(a) 100 987
- -----------------------------------------------------------------------
Transaction Systems Architects, Inc. - Class A(a) 200 10,000
- -----------------------------------------------------------------------
USWeb Corp.(a) 700 18,463
- -----------------------------------------------------------------------
Veritas Software Corp.(a) 650 38,959
- -----------------------------------------------------------------------
Visio Corp.(a) 500 18,282
- -----------------------------------------------------------------------
Whittman-Hart, Inc.(a) 200 5,525
- -----------------------------------------------------------------------
Wind River Systems(a) 300 14,100
- -----------------------------------------------------------------------
526,168
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.75%
Action Performance Companies, Inc.(a) 300 $ 10,613
- ------------------------------------------------------------------
Blyth Industries, Inc.(a) 500 15,625
- ------------------------------------------------------------------
Department 56, Inc.(a) 100 3,756
- ------------------------------------------------------------------
Fossil, Inc.(a) 100 2,875
- ------------------------------------------------------------------
32,869
- ------------------------------------------------------------------
CONSUMER FINANCE - 0.37%
AmeriCredit Corp.(a) 700 9,668
- ------------------------------------------------------------------
Doral Financial Corp. 300 6,637
- ------------------------------------------------------------------
16,305
- ------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.40%
Patterson Dental Co.(a) 400 17,400
- ------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.60%
AFC Cable Systems, Inc.(a) 300 10,088
- ------------------------------------------------------------------
Hadco Corp.(a) 100 3,500
- ------------------------------------------------------------------
Oak Industries, Inc.(a) 200 7,000
- ------------------------------------------------------------------
Sanmina Corp.(a) 400 25,000
- ------------------------------------------------------------------
Sawtek, Inc.(a) 100 1,750
- ------------------------------------------------------------------
SLI, Inc.(a) 200 5,550
- ------------------------------------------------------------------
Symbol Technologies, Inc. 600 38,363
- ------------------------------------------------------------------
Uniphase Corp.(a) 300 20,812
- ------------------------------------------------------------------
Watsco, Inc. 150 2,513
- ------------------------------------------------------------------
114,576
- ------------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.10%
Anicom, Inc.(a) 500 4,594
- ------------------------------------------------------------------
ELECTRONICS (DEFENSE) - 0.21%
Aeroflex, Inc.(a) 600 9,075
- ------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.60%
Waters Corp.(a) 300 26,175
- ------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 6.32%
Apex PC Solutions, Inc.(a) 100 2,887
- ------------------------------------------------------------------
Applied Micro Circuits Corp.(a) 400 13,587
- ------------------------------------------------------------------
Artisan Components, Inc.(a) 500 2,657
- ------------------------------------------------------------------
Burr-Brown Corp.(a) 100 2,343
- ------------------------------------------------------------------
Dallas Semiconductor Corp. 200 8,150
- ------------------------------------------------------------------
Flextronics International Ltd.(a) 700 59,938
- ------------------------------------------------------------------
Level One Communications, Inc.(a) 600 21,300
- ------------------------------------------------------------------
Micrel, Inc.(a) 200 11,000
- ------------------------------------------------------------------
Microchip Technology, Inc.(a) 800 29,600
- ------------------------------------------------------------------
PMC-Sierra, Inc.(a) 300 18,938
- ------------------------------------------------------------------
Semtech Corp.(a) 300 10,763
- ------------------------------------------------------------------
Sipex Corp.(a) 1,000 35,125
- ------------------------------------------------------------------
TranSwitch Corp.(a) 500 19,468
- ------------------------------------------------------------------
Unitrode Corp.(a) 600 10,500
- ------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 700 31,938
- ------------------------------------------------------------------
278,194
- ------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-110
<PAGE> 193
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ENTERTAINMENT - 0.81%
Cinar Films Inc.-Class B(a) (Canada) 100 $ 2,538
- ------------------------------------------------------------------
SFX Entertainment, Inc.-Class A(a) 600 32,925
- ------------------------------------------------------------------
35,463
- ------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTORS) - 0.45%
Asyst Technologies, Inc.(a) 300 6,112
- ------------------------------------------------------------------
Etec Systems, Inc.(a) 100 4,000
- ------------------------------------------------------------------
Novellus Systems, Inc.(a) 200 9,900
- ------------------------------------------------------------------
20,012
- ------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.04%
Insignia Financial Group, Inc.(a) 200 2,425
- ------------------------------------------------------------------
NCO Group, Inc.(a) 300 13,500
- ------------------------------------------------------------------
SEI Investments Co. 300 29,812
- ------------------------------------------------------------------
45,737
- ------------------------------------------------------------------
FOODS - 1.04%
American Italian Pasta Co.-Class A(a) 200 5,275
- ------------------------------------------------------------------
Earthgrains Co. (The) 200 6,187
- ------------------------------------------------------------------
Fresh Del Monte Produce, Inc.(a) 200 4,337
- ------------------------------------------------------------------
Hain Food Group, Inc. (The)(a) 600 15,000
- ------------------------------------------------------------------
International Home Foods, Inc.(a) 200 3,375
- ------------------------------------------------------------------
Pilgrim's Pride Corp.-Class B 100 1,994
- ------------------------------------------------------------------
United Natural Foods, Inc.(a) 400 9,650
- ------------------------------------------------------------------
45,818
- ------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.64%
Alpharma, Inc.-Class A 600 21,188
- ------------------------------------------------------------------
Biovail Corporation International(a) (Canada) 200 7,563
- ------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 600 35,775
- ------------------------------------------------------------------
Parexel International Corp.(a) 300 7,500
- ------------------------------------------------------------------
72,026
- ------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.28%
Health Management Associates, Inc.-Class A(a) 1,000 21,625
- ------------------------------------------------------------------
New American Healthcare Corp.(a) 300 3,356
- ------------------------------------------------------------------
Province Healthcare Co.(a) 300 10,763
- ------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 400 20,750
- ------------------------------------------------------------------
56,494
- ------------------------------------------------------------------
HEALTH CARE (LONG-TERM CARE) - 0.33%
Assisted Living Concepts, Inc.(a) 700 9,189
- ------------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 100 5,187
- ------------------------------------------------------------------
14,376
- ------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.46%
Express Scripts, Inc.-Class A(a) 300 20,138
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.98%
Haemonetics Corp.(a) 100 $ 2,275
- ---------------------------------------------------------------------
Henry Schein, Inc.(a) 900 40,275
- ---------------------------------------------------------------------
Hologic, Inc.(a) 700 8,487
- ---------------------------------------------------------------------
MiniMed, Inc.(a) 200 20,950
- ---------------------------------------------------------------------
Osteotech, Inc.(a) 300 13,950
- ---------------------------------------------------------------------
PSS World Medical, Inc.(a) 300 6,900
- ---------------------------------------------------------------------
ResMed, Inc.(a) 200 9,075
- ---------------------------------------------------------------------
Serologicals Corp.(a) 300 9,000
- ---------------------------------------------------------------------
Sybron International Corp.(a) 900 24,469
- ---------------------------------------------------------------------
VISX, Inc.(a) 400 34,975
- ---------------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 150 4,800
- ---------------------------------------------------------------------
175,156
- ---------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 3.27%
Advance Paradigm, Inc.(a) 200 7,000
- ---------------------------------------------------------------------
Covance, Inc.(a) 200 5,825
- ---------------------------------------------------------------------
First Consulting Group, Inc.(a) 200 4,100
- ---------------------------------------------------------------------
Hooper Holmes, Inc. 400 11,600
- ---------------------------------------------------------------------
Lincare Holdings, Inc.(a) 100 4,056
- ---------------------------------------------------------------------
NCS HealthCare, Inc.-Class A (a) 700 16,625
- ---------------------------------------------------------------------
Ocular Sciences, Inc.(a) 400 10,700
- ---------------------------------------------------------------------
Omnicare, Inc. 600 20,850
- ---------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 800 15,550
- ---------------------------------------------------------------------
Renal Care Group, Inc.(a) 300 8,644
- ---------------------------------------------------------------------
Res-Care, Inc.(a) 200 4,938
- ---------------------------------------------------------------------
Superior Consultant Holdings Corp.(a) 300 13,050
- ---------------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 300 8,868
- ---------------------------------------------------------------------
Veterinary Centers of America, Inc.(a) 600 11,963
- ---------------------------------------------------------------------
143,769
- ---------------------------------------------------------------------
HOMEBUILDING - 0.17%
American Homestar Corp.(a) 500 7,500
- ---------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.02%
International Comfort Products Corp. (Canada)(a) 100 800
- ---------------------------------------------------------------------
HOUSEWARES - 0.30%
Helen of Troy Ltd.(a) 900 13,218
- ---------------------------------------------------------------------
INSURANCE (LIFE & HEALTH) - 0.12%
Penn Treaty American Corp.(a) 200 5,388
- ---------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.07%
Century Business Services, Inc.(a) 200 2,875
- ---------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.58%
CMAC Investment Corp. 200 9,187
- ---------------------------------------------------------------------
Fidelity National Financial, Inc. 110 3,355
- ---------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 200 9,563
- ---------------------------------------------------------------------
HCC Insurance Holdings, Inc. 200 3,525
- ---------------------------------------------------------------------
25,630
- ---------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-111
<PAGE> 194
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INVESTMENT MANAGEMENT - 0.52%
Eaton Vance Corp. 300 $ 6,262
- -----------------------------------------------------------------
Knight/Trimark Group, Inc.-Class A(a) 700 16,756
- -----------------------------------------------------------------
23,018
- -----------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.16%
International Speedway Corp.-Class A 100 4,050
- -----------------------------------------------------------------
Speedway Motorsports, Inc. 100 2,850
- -----------------------------------------------------------------
6,900
- -----------------------------------------------------------------
LODGING-HOTELS - 0.17%
Royal Caribbean Cruises Ltd. (Norway) 200 7,400
- -----------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.26%
Applied Power, Inc.-Class A 300 11,325
- -----------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.29%
Matthews International Corp.-Class A 200 6,300
- -----------------------------------------------------------------
Spartech Corp. 300 6,600
- -----------------------------------------------------------------
12,900
- -----------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.31%
JLG Industries, Inc. 500 7,812
- -----------------------------------------------------------------
Zebra Technologies Corp.(a) 200 5,750
- -----------------------------------------------------------------
13,562
- -----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.87%
Daisytek International Corp.(a) 900 17,100
- -----------------------------------------------------------------
Herman Miller, Inc. 500 13,437
- -----------------------------------------------------------------
United Stationers, Inc.(a) 300 7,800
- -----------------------------------------------------------------
38,337
- -----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.38%
Cal Dive International, Inc.(a) 200 4,150
- -----------------------------------------------------------------
Core Laboratories N.V.(a) (Netherlands) 500 9,563
- -----------------------------------------------------------------
Global Industries Ltd.(a) 500 3,062
- -----------------------------------------------------------------
16,775
- -----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.43%
Cabot Oil & Gas Corp.-Class A 300 4,500
- -----------------------------------------------------------------
Evergreen Resources, Inc.(a) 500 8,875
- -----------------------------------------------------------------
Stone Energy Corp.(a) 200 5,750
- -----------------------------------------------------------------
19,125
- -----------------------------------------------------------------
PERSONAL CARE - 0.44%
Steiner Leisure Ltd.(a) 600 19,200
- -----------------------------------------------------------------
PUBLISHING - 0.33%
IDG Books Worldwide, Inc.-Class A(a) 400 6,900
- -----------------------------------------------------------------
Meredith Corp. 200 7,575
- -----------------------------------------------------------------
14,475
- -----------------------------------------------------------------
RAILROADS - 0.37%
MotivePower Industries, Inc.(a) 500 16,093
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS - 1.14%
Buffets, Inc.(a) 200 $ 2,387
- -------------------------------------------------------------
CEC Entertainment, Inc.(a) 700 19,425
- -------------------------------------------------------------
Papa John's International, Inc.(a) 300 13,238
- -------------------------------------------------------------
Sonic Corp.(a) 600 14,925
- -------------------------------------------------------------
49,975
- -------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.94%
Best Buy Co., Inc.(a) 100 6,138
- -------------------------------------------------------------
CDW Computer Centers, Inc.(a) 700 67,156
- -------------------------------------------------------------
Tech Data Corp.(a) 300 12,075
- -------------------------------------------------------------
85,369
- -------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.30%
Burlington Coat Factory Warehouse Corp. 500 8,157
- -------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 450 19,659
- -------------------------------------------------------------
Family Dollar Stores, Inc. 500 11,000
- -------------------------------------------------------------
99 Cents Only Stores(a) 375 18,421
- -------------------------------------------------------------
57,237
- -------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.14%
Wild Oats Markets, Inc.(a) 200 6,300
- -------------------------------------------------------------
RETAIL (HOME SHOPPING) - 0.17%
DM Management Co.(a) 400 7,600
- -------------------------------------------------------------
RETAIL (SPECIALTY) - 2.81%
Casey's General Stores, Inc. 200 2,607
- -------------------------------------------------------------
Cost Plus, Inc.(a) 200 6,275
- -------------------------------------------------------------
CSK Auto Corp.(a) 400 10,675
- -------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 400 9,700
- -------------------------------------------------------------
Linens 'N Things, Inc.(a) 500 19,813
- -------------------------------------------------------------
Michaels Stores, Inc.(a) 500 9,046
- -------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 300 14,175
- -------------------------------------------------------------
PETsMART, Inc.(a) 400 4,400
- -------------------------------------------------------------
Rent-Way, Inc.(a) 300 7,294
- -------------------------------------------------------------
Renters Choice, Inc.(a) 600 19,050
- -------------------------------------------------------------
Trans World Entertainment Corp.(a) 650 12,390
- -------------------------------------------------------------
Williams-Sonoma, Inc.(a) 200 8,062
- -------------------------------------------------------------
123,487
- -------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 2.86%
Abercrombie & Fitch Co.-Class A(a) 338 23,913
- -------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 400 26,650
- -------------------------------------------------------------
AnnTaylor Stores Corp.(a) 400 15,775
- -------------------------------------------------------------
Buckle, Inc. (The)(a) 850 20,400
- -------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 1,100 11,035
- -------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 650 20,637
- -------------------------------------------------------------
Pacific Sunwear of California(a) 450 7,369
- -------------------------------------------------------------
125,779
- -------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-112
<PAGE> 195
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING) - 1.18%
Abacus Direct Corp.(a) 100 $ 4,550
- ----------------------------------------------------------------
Acxiom Corp.(a) 500 15,500
- ----------------------------------------------------------------
ADVO, Inc.(a) 100 2,637
- ----------------------------------------------------------------
Market Facts, Inc.(a) 500 13,000
- ----------------------------------------------------------------
Metris Companies, Inc. 100 5,032
- ----------------------------------------------------------------
Professional Detailing, Inc.(a) 100 2,825
- ----------------------------------------------------------------
TMP Worldwide, Inc.(a) 200 8,400
- ----------------------------------------------------------------
51,944
- ----------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.60%
Bright Horizons Family Solutions, Inc.(a) 300 8,100
- ----------------------------------------------------------------
Championship Auto Racing Teams, Inc.(a) 100 2,963
- ----------------------------------------------------------------
ChoicePoint, Inc.(a) 100 6,450
- ----------------------------------------------------------------
G & K Services, Inc.-Class A 300 15,975
- ----------------------------------------------------------------
Iron Mountain, Inc.(a) 200 7,213
- ----------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A(a) 400 9,050
- ----------------------------------------------------------------
Regis Corp. 400 16,000
- ----------------------------------------------------------------
Ritchie Bros. Auctioneers, Inc.(a) (Canada) 200 5,388
- ----------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 900 20,025
- ----------------------------------------------------------------
Strayer Education, Inc. 400 14,100
- ----------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 300 9,150
- ----------------------------------------------------------------
114,414
- ----------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 2.71%
Analysts International Corp. 200 3,850
- ----------------------------------------------------------------
Ciber, Inc.(a) 200 5,587
- ----------------------------------------------------------------
Computer Task Group, Inc. 600 16,275
- ----------------------------------------------------------------
Insight Enterprises, Inc.(a) 1,000 50,875
- ----------------------------------------------------------------
Keane, Inc.(a) 200 7,988
- ----------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 100 2,743
- ----------------------------------------------------------------
SunGard Data Systems, Inc.(a) 800 31,750
- ----------------------------------------------------------------
119,068
- ----------------------------------------------------------------
SERVICES (DATA PROCESSING) - 3.77%
Affiliated Computer Services, Inc.(a) 700 31,500
- ----------------------------------------------------------------
Computer Horizons Corp.(a) 200 5,325
- ----------------------------------------------------------------
CSG Systems International, Inc.(a) 700 55,300
- ----------------------------------------------------------------
FactSet Research Systems, Inc.(a) 200 12,350
- ----------------------------------------------------------------
Lason Holdings, Inc.(a) 100 5,818
- ----------------------------------------------------------------
MedQuist, Inc.(a) 400 15,800
- ----------------------------------------------------------------
National Computer Systems, Inc. 500 18,500
- ----------------------------------------------------------------
NOVA Corp.(a) 614 21,298
- ----------------------------------------------------------------
165,891
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (EMPLOYMENT) - 1.05%
On Assignment, Inc.(a) 100 $ 3,450
- --------------------------------------------------------------------------
RCM Technologies, Inc.(a) 200 5,300
- --------------------------------------------------------------------------
Robert Half International, Inc.(a) 300 13,408
- --------------------------------------------------------------------------
Romac International, Inc.(a) 700 15,575
- --------------------------------------------------------------------------
Select Appointments Holdings PLC-ADR
(United Kingdom) 400 8,600
- --------------------------------------------------------------------------
46,333
- --------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.40%
Cornell Corrections, Inc.(a) 500 9,500
- --------------------------------------------------------------------------
Tetra Tech, Inc.(a) 300 8,118
- --------------------------------------------------------------------------
17,618
- --------------------------------------------------------------------------
SPECIALTY PRINTING - 0.83%
Consolidated Graphics, Inc.(a) 300 20,268
- --------------------------------------------------------------------------
Valassis Communications, Inc.(a) 200 10,325
- --------------------------------------------------------------------------
World Color Press, Inc.(a) 200 6,088
- --------------------------------------------------------------------------
36,681
- --------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.29%
Amdocs Ltd.(a) 400 6,850
- --------------------------------------------------------------------------
International Telecommunication Data Systems, Inc.(a) 400 5,900
- --------------------------------------------------------------------------
12,750
- --------------------------------------------------------------------------
TELEPHONE - 0.34%
GeoTel Communications Corp.(a) 400 14,900
- --------------------------------------------------------------------------
Textiles (Apparel) - 0.82%
Quicksilver, Inc.(a) 1,000 30,000
- --------------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 100 6,000
- --------------------------------------------------------------------------
36,000
- --------------------------------------------------------------------------
TEXTILES (HOME FURNISHINGS) - 0.48%
Mohawk Industries, Inc.(a) 500 21,032
- --------------------------------------------------------------------------
Truckers - 0.25%
Swift Transportation Co., Inc.(a) 400 11,213
- --------------------------------------------------------------------------
Trucks & Parts - 0.32%
Wabash National Corp. 700 14,218
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 1.03%
Allied Waste Industries, Inc.(a) 1,360 32,130
- --------------------------------------------------------------------------
KTI, Inc.(a) 600 12,975
- --------------------------------------------------------------------------
45,105
- --------------------------------------------------------------------------
Total Common Stocks (Cost $2,946,310) 3,619,519
- --------------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-113
<PAGE> 196
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S TREASURY BILLS(b) - 8.10%
4.439%, 03/25/99 (Cost $356,307) $360,000(c) $ 356,307
- --------------------------------------------------------------------------------
Total Investments, excluding repurchase agreement
(Cost $3,302,617) 3,975,826
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT(d) - 10.43%
SBC Warburg Dillon Read, Inc., 4.75%
01/04/99(e) (Cost $459,028) 459,028 459,028
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.81% 4,434,854
- --------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.81)% (35,751)
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $4,399,103
================================================================================
</TABLE>
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover
margin requirements for open future contracts. See Note 7.
(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 is at least 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 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Investment Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. AGGRESSIVE GROWTH FUND
FS-114
<PAGE> 197
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market
value (cost $3,302,617) $ 3,975,826
- ---------------------------------------------------------------------
Repurchase agreements (cost $459,028) 459,028
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 3,114
- ---------------------------------------------------------------------
Investments sold 19,772
- ---------------------------------------------------------------------
Dividends and interest 259
- ---------------------------------------------------------------------
Variation margin 3,875
- ---------------------------------------------------------------------
Reimbursement from advisor 45,009
- ---------------------------------------------------------------------
Investment for deferred compensation plan 2,778
- ---------------------------------------------------------------------
Total assets 4,509,661
- ---------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 100,750
- ---------------------------------------------------------------------
Deferred compensation plan 2,778
- ---------------------------------------------------------------------
Accrued operating expenses 7,030
- ---------------------------------------------------------------------
Total liabilities 110,558
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $ 4,399,103
=====================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 446,621
=====================================================================
Net asset value, offering and redemption price per share $9.85
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 33,438
- ---------------------------------------------------------------------
Dividends 1,129
- ---------------------------------------------------------------------
Total investment income 34,567
- ---------------------------------------------------------------------
EXPENSES:
Advisory fees 13,054
- ---------------------------------------------------------------------
Administrative services fees 26,658
- ---------------------------------------------------------------------
Custodian fees 18,571
- ---------------------------------------------------------------------
Directors' fees and expenses 6,301
- ---------------------------------------------------------------------
Legal fees 7,771
- ---------------------------------------------------------------------
Other 3,066
- ---------------------------------------------------------------------
Total expenses 75,421
- ---------------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (56,454)
- ---------------------------------------------------------------------
Expenses paid indirectly (65)
- ---------------------------------------------------------------------
Net expenses 18,902
- ---------------------------------------------------------------------
Net investment income 15,665
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (182,452)
- ---------------------------------------------------------------------
Futures contracts (213,085)
- ---------------------------------------------------------------------
(395,537)
- ---------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 673,210
- ---------------------------------------------------------------------
Futures contracts 15,300
- ---------------------------------------------------------------------
688,510
- ---------------------------------------------------------------------
Net gain from investment securities and futures contracts 292,973
- ---------------------------------------------------------------------
Net increase in net assets resulting from operations $ 308,638
=====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. AGGRESSIVE GROWTH FUND
FS-115
<PAGE> 198
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<CAPTION>
1998
----------
<S> <C>
OPERATIONS:
Net investment income $ 15,665
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and futures
contracts (395,537)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and futures
contracts 688,510
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 308,638
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (22,273)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 4,112,738
- ------------------------------------------------------------------------------
Net increase in net assets 4,399,103
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------------
End of period $4,399,103
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,108,916
- ------------------------------------------------------------------------------
Undistributed net investment income (2,786)
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities
and futures contracts (395,537)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities and futures
contracts 688,510
- ------------------------------------------------------------------------------
$4,399,103
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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. Aggressive Growth Fund (the "Fund"). The Fund's investment
objective is to achieve long-term growth of capital. The Fund commenced
operations on May 1, 1998. 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. 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
AIM V.I. AGGRESSIVE GROWTH FUND
FS-116
<PAGE> 199
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, 1998
additional paid-in capital was decreased by $3,822, undistributed net
investment income was increased by $3,822 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. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $354,222, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
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 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.
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 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. During the
period May 1, 1998 (date operations commenced) through December 31, 1998, AIM
waived expenses of $11,445 and reimbursed expenses of $45,009.
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 and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $26,658
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 period May 1, 1998 (date operations commenced) through December
31, 1998, the Fund incurred legal fees of $1,697 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 $65 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $65 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
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 period May 1, 1998 (date operations
commenced) through December 31, 1998 was $3,584,305 and $455,412,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $759,923
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (95,945)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $663,978
=======================================================================
</TABLE>
Cost of investments for tax purposes is $3,770,876.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------- ----------
<S> <C> <C>
Sold 464,162 $4,261,686
- ---------------------------------------------------------
Issued as reinvestment of dividends 2,421 22,273
- ---------------------------------------------------------
Reacquired (19,962) (171,221)
- ---------------------------------------------------------
446,621 $4,112,738
=========================================================
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
FS-117
<PAGE> 200
NOTE 7- FUTURES CONTRACTS
On December 31, 1998, $20,000 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>
No. of Month/ Unrealized
Contracts Commitment Appreciation
Contract --------- ---------- ------------
<S> <C> <C> <C>
Russell 2000 Index 1 Mar 99/Buy $15,300
================================================================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04
- ----------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.14)
- ----------------------------------------------------------------------
Total from investment operations (0.10)
- ----------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05)
- ----------------------------------------------------------------------
Net asset value, end of period $ 9.85
================================================================= ======
Total return(a) (0.94)%
================================================================= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $4,399
================================================================= ======
Ratio of expenses to average net assets(b) 1.16%(c)
================================================================= ======
Ratio of net investment income to average net assets(d) 0.96%(c)
================================================================= ======
Portfolio turnover rate 30%
================================================================= ======
</TABLE>
(a) Total return is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
4.62% (annualized).
(c) Ratios are annualized and based on average net assets of $2,430,925.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement was (2.50)% (annualized).
AIM V.I. AGGRESSIVE GROWTH FUND
FS-118
<PAGE> 201
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. Balanced Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 1, 1998 (commencement
of operations) through December 31, 1998. 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 audit.
We conducted our audit 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, 1998 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 audit provides 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. Balanced Fund, as of December 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the period May 1,
1998 (commencement of operations) through December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
--------------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. BALANCED FUND
FS-119
<PAGE> 202
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC BONDS & NOTES - 22.68%
BANKS (MONEY CENTER) - 0.74%
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 $ 70,000 $ 76,815
- -------------------------------------------------------------------------------
BANKS (REGIONAL) - 0.71%
HSBC Americas Inc., Unsec. Sub. Notes, 7.00%, 11/01/06 70,000 73,016
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.45%
Comcast Cable Communications, Unsec. Unsub. Notes,
6.20%, 11/15/08 100,000 101,998
- -------------------------------------------------------------------------------
CSC Holdings Inc., Series B Sr. Unsec. Deb., 7.625%,
07/15/18 50,000 51,196
- -------------------------------------------------------------------------------
USA Networks, Inc., Sr. Notes, 6.75%, 11/15/05(a)
(Acquired 11/30/98; Cost $100,274) 100,000 100,266
- -------------------------------------------------------------------------------
253,460
- -------------------------------------------------------------------------------
CHEMICALS - 1.18%
Airgas Inc., Medium Term Notes, 7.14%, 03/08/04 50,000 51,056
- -------------------------------------------------------------------------------
Solutia Inc., Sr. Unsec. Deb., 6.72%, 10/15/37 70,000 71,120
- -------------------------------------------------------------------------------
122,176
- -------------------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 0.49%
Monsanto Co., Deb., 6.50%, 12/01/18(a)
(Acquired 12/04/98; Cost $49,791) 50,000 50,349
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.34%
Comverse Technology Inc., Conv. Unsec. Sub. Deb.,
4.50%, 07/01/05 28,000 35,420
- -------------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.29%
Candescent Technology Corp., Conv. Sr. Sub. Deb.,
7.00%, 05/01/03(a)
(Acquired 11/06/98-11/09/98; Cost $28,326) 33,000 29,700
- -------------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 0.33%
Network Associates Inc., Conv. Unsec. Sub. Deb., 3.44%,
02/13/18(b) 55,000 33,825
- -------------------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.70%
American Greetings, Unsec. Notes, 6.10%, 08/01/28 70,000 72,414
- -------------------------------------------------------------------------------
CONSUMER FINANCE - 2.55%
Beneficial Corp.-Series H, Medium Term Notes, 6.94%,
12/15/06 250,000 263,978
- -------------------------------------------------------------------------------
ELECTRIC COMPANIES - 0.77%
Commonwealth Edison Co., First Mortgage Notes, 7.50%,
07/01/13 70,000 79,153
- -------------------------------------------------------------------------------
ENTERTAINMENT - 0.76%
Time Warner, Inc., Unsec. Deb., 6.85%, 01/15/26 75,000 78,903
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED) - 2.88%
Associates Corp of North America, Series B Sr. Deb.,
6.95%, 11/01/18 $ 50,000 $ 53,213
- -------------------------------------------------------------------------------
Private Export Funding, Sec. Deb., 8.35%, 01/31/01 230,000 244,858
- -------------------------------------------------------------------------------
298,071
- -------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.38%
Elan Finance Corp., Conv. Gtd. Sub. Notes, 3.25%,
12/14/18(a)(b)
(Acquired 12/08/98; Cost $36,766) 70,000 39,375
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.49%
Beckman Coulter, Sr. Unsec. Gtd. Notes, 7.45%, 03/04/08 50,000 50,865
- -------------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.50%
Merrill Lynch & Co., Unsec. Notes, 6.875%, 11/15/18 50,000 51,659
- -------------------------------------------------------------------------------
NATURAL GAS - 2.72%
Enron Corp., Notes, 6.75%, 08/01/09 70,000 72,784
- -------------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 100,000 105,515
- -------------------------------------------------------------------------------
National Fuel Gas Co., Series D, Medium Term Notes,
6.303%, 05/27/08 100,000 103,332
- -------------------------------------------------------------------------------
281,631
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.24%
R & B Falcon Corp., Sr. Notes, 9.50%, 12/15/08(a)
(Acquired 12/17/98; Cost $25,000) 25,000 25,125
- -------------------------------------------------------------------------------
RAILROADS - 1.45%
CSX Corp.-Series C, Medium Term Notes, 6.80%, 12/01/28 150,000 149,625
- -------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.08%
Affiliated Computer Services, Conv. Sub. Notes, 4.00%,
03/15/05 7,000 8,544
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.89%
Global Telesystems Group, Conv. Sr. Sub. Deb., 5.75%,
07/01/10 15,000 16,931
- -------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 70,000 74,445
- -------------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Notes, 6.875%,
11/15/28 100,000 104,216
- -------------------------------------------------------------------------------
195,592
- -------------------------------------------------------------------------------
TELEPHONE - 0.74%
SBC Communications Inc., Deb., 7.375%, 07/15/43 70,000 76,385
- -------------------------------------------------------------------------------
Total Domestic Bonds & Notes
(Cost $2,305,968) 2,346,081
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-120
<PAGE> 203
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 28.92%
BANKS (MONEY CENTER) - 0.56%
BankAmerica Corp. 300 $ 18,038
- --------------------------------------------------------------
Chase Manhattan Corp. (The) 500 34,031
- --------------------------------------------------------------
First Union Corp. 100 6,081
- --------------------------------------------------------------
58,150
- --------------------------------------------------------------
BANKS (REGIONAL) - 0.25%
Bank United Corp.-Class A 300 11,775
- --------------------------------------------------------------
Southwest Bancorp. of Texas, Inc.(c) 800 14,300
- --------------------------------------------------------------
26,075
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.21%
Coca-Cola Co. (The) 200 13,375
- --------------------------------------------------------------
PepsiCo, Inc. 200 8,188
- --------------------------------------------------------------
21,563
- --------------------------------------------------------------
BIOTECHNOLOGY - 0.48%
Biogen, Inc.(c) 300 24,900
- --------------------------------------------------------------
Genzyme Corp.(c) 500 24,875
- --------------------------------------------------------------
49,775
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.72%
CBS Corp.(c) 800 26,200
- --------------------------------------------------------------
Heftel Broadcasting Corp.(c) 400 19,700
- --------------------------------------------------------------
Univision Communications, Inc.(c) 800 28,950
- --------------------------------------------------------------
74,850
- --------------------------------------------------------------
BUILDING MATERIALS - 0.12%
Group Maintenance America Corp.(c) 1,000 12,125
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.89%
ADC Telecommunications, Inc.(c) 300 10,425
- --------------------------------------------------------------
ANTEC Corp.(c) 1,100 22,138
- --------------------------------------------------------------
Brightpoint, Inc.(c) 600 8,250
- --------------------------------------------------------------
Lucent Technologies, Inc. 400 44,000
- --------------------------------------------------------------
Tellabs, Inc.(c) 100 6,856
- --------------------------------------------------------------
91,669
- --------------------------------------------------------------
COMPUTERS (HARDWARE) - 1.09%
Compaq Computer Corp. 800 33,550
- --------------------------------------------------------------
Dell Computer Corp.(c) 600 43,913
- --------------------------------------------------------------
International Business Machines Corp. 100 18,475
- --------------------------------------------------------------
Sun Microsystems, Inc.(c) 200 17,125
- --------------------------------------------------------------
113,063
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING) - 0.83%
Ascend Communications, Inc.(c) 600 $ 39,450
- ---------------------------------------------------------------------
Cisco Systems, Inc.(c) 500 46,406
- ---------------------------------------------------------------------
85,856
- ---------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.41%
EMC Corp.(c) 500 42,500
- ---------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 2.28%
America Online, Inc. 600 96,000
- ---------------------------------------------------------------------
Computer Associates International, Inc. 100 4,263
- ---------------------------------------------------------------------
Engineering Animation, Inc.(c) 300 16,200
- ---------------------------------------------------------------------
HBO & Co. 900 25,819
- ---------------------------------------------------------------------
ISS Group, Inc.(c) 300 16,500
- ---------------------------------------------------------------------
Microsoft Corp.(c) 100 13,869
- ---------------------------------------------------------------------
Platinum Technology, Inc.(c) 400 7,650
- ---------------------------------------------------------------------
Sterling Commerce, Inc.(c) 300 13,500
- ---------------------------------------------------------------------
USWeb Corp.(c) 1,600 42,200
- ---------------------------------------------------------------------
236,001
- ---------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.09%
Blyth Industries, Inc.(c) 300 9,375
- ---------------------------------------------------------------------
CONSUMER FINANCE - 0.23%
SLM Holding Corp. 500 24,000
- ---------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.26%
Cardinal Health, Inc. 350 26,556
- ---------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.39%
General Electric Co. 400 40,825
- ---------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.13%
Quanta Services, Inc.(c) 600 13,238
- ---------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.23%
Intel Corp. 200 23,713
- ---------------------------------------------------------------------
ENTERTAINMENT - 0.20%
Walt Disney Co. (The) 700 21,000
- ---------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.08%
Applied Materials, Inc.(c) 200 8,538
- ---------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.78%
American Express Co. 200 20,450
- ---------------------------------------------------------------------
CIT Group, Inc. (The) 300 9,544
- ---------------------------------------------------------------------
Citigroup, Inc. 500 24,750
- ---------------------------------------------------------------------
Fannie Mae 700 51,769
- ---------------------------------------------------------------------
FINOVA Group, Inc. 200 10,788
- ---------------------------------------------------------------------
Freddie Mac 400 25,775
- ---------------------------------------------------------------------
Heller Financial, Inc. 500 14,688
- ---------------------------------------------------------------------
Medallion Financial Corp. 800 11,450
- ---------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 200 14,200
- ---------------------------------------------------------------------
183,414
- ---------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-121
<PAGE> 204
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOODS - 0.57%
Keebler Foods Co.(c) 700 $ 26,338
- -------------------------------------------------------------------
Ralston-Ralston Purina Group 1,000 32,375
- -------------------------------------------------------------------
58,713
- -------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 1.18%
Abbott Laboratories 200 9,800
- -------------------------------------------------------------------
American Home Products Corp. 400 22,525
- -------------------------------------------------------------------
Bristol-Myers Squibb Co. 200 26,763
- -------------------------------------------------------------------
Johnson & Johnson 300 25,163
- -------------------------------------------------------------------
Warner-Lambert Co. 500 37,594
- -------------------------------------------------------------------
121,845
- -------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.40%
Barr Laboratories, Inc.(c) 300 14,400
- -------------------------------------------------------------------
Forest Laboratories, Inc.(c) 500 26,594
- -------------------------------------------------------------------
40,994
- -------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 1.03%
Lilly (Eli) & Co. 400 35,550
- -------------------------------------------------------------------
Merck & Co., Inc. 200 29,538
- -------------------------------------------------------------------
Pfizer, Inc. 200 25,088
- -------------------------------------------------------------------
Schering-Plough Corp. 300 16,575
- -------------------------------------------------------------------
106,751
- -------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.10%
Province Healthcare Co.(c) 300 10,763
- -------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.49%
Assisted Living Concepts, Inc.(c) 700 9,188
- -------------------------------------------------------------------
Sunrise Assisted Living, Inc.(c) 800 41,500
- -------------------------------------------------------------------
50,688
- -------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.55%
Arterial Vascular Engineering, Inc.(c) 400 21,000
- -------------------------------------------------------------------
Baxter International, Inc. 300 19,294
- -------------------------------------------------------------------
Becton, Dickinson & Co. 600 25,613
- -------------------------------------------------------------------
Guidant Corp. 200 22,050
- -------------------------------------------------------------------
Medtronic, Inc. 500 37,125
- -------------------------------------------------------------------
VISX, Inc.(c) 400 34,975
- -------------------------------------------------------------------
160,057
- -------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.43%
MAXIMUS, Inc.(c) 400 14,800
- -------------------------------------------------------------------
Omnicare, Inc. 400 13,900
- -------------------------------------------------------------------
Quintiles Transnational Corp.(c) 300 16,013
- -------------------------------------------------------------------
44,713
- -------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.12%
Ethan Allen Interiors, Inc. 300 12,300
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.27%
Colgate-Palmolive Co. 100 $ 9,288
- -------------------------------------------------------------------
Procter & Gamble Co. (The) 200 18,263
- -------------------------------------------------------------------
27,551
- -------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.41%
Equitable Companies, Inc. 300 17,363
- -------------------------------------------------------------------
Nationwide Financial Services, Inc.-Class A 300 15,506
- -------------------------------------------------------------------
ReliaStar Financial Corp. 200 9,225
- -------------------------------------------------------------------
42,094
- -------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.40%
CIGNA Corp. 200 15,463
- -------------------------------------------------------------------
Lincoln National Corp. 200 16,363
- -------------------------------------------------------------------
MONY Group, Inc.(c) 300 9,394
- -------------------------------------------------------------------
41,220
- -------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.43%
Everest Reinsurance Holdings, Inc. 400 15,575
- -------------------------------------------------------------------
Progressive Corp. 100 16,938
- -------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A 400 12,400
- -------------------------------------------------------------------
44,913
- -------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.19%
Merrill Lynch & Co., Inc. 300 20,025
- -------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.12%
Federated Investors, Inc.-Class B 700 12,688
- -------------------------------------------------------------------
LAND DEVELOPMENT - 0.08%
Silverleaf Resorts, Inc. 900 8,381
- -------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.10%
Coach USA, Inc.(c) 300 10,406
- -------------------------------------------------------------------
LODGING-HOTELS - 0.23%
Carnival Corp.-Class A 500 24,000
- -------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.22%
Tyco International Ltd. 300 22,631
- -------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.64%
Superior TeleCom, Inc. 1,000 47,250
- -------------------------------------------------------------------
USEC, Inc. 1,400 19,425
- -------------------------------------------------------------------
66,675
- -------------------------------------------------------------------
METAL FABRICATORS - 0.08%
Metals USA(c) 800 7,800
- -------------------------------------------------------------------
NATURAL GAS - 0.41%
Enron Corp. 300 17,119
- -------------------------------------------------------------------
Williams Companies, Inc. (The) 800 24,950
- -------------------------------------------------------------------
42,069
- -------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.14%
Halliburton Co. 500 14,813
- -------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-122
<PAGE> 205
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION) - 0.18%
Conoco Inc. - Class A(c) 900 $ 18,789
- --------------------------------------------------------------------
OIL (INTERNATIONAL INTERGRATED) - 0.14%
Exxon Corp. 200 14,626
- --------------------------------------------------------------------
PERSONAL CARE - 0.45%
Avon Products, Inc. 400 17,700
- --------------------------------------------------------------------
Gillette Co. 600 28,989
- --------------------------------------------------------------------
46,689
- --------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.30%
AES Corp.(c) 500 23,689
- --------------------------------------------------------------------
CalEnergy Co., Inc.(c) 200 6,939
- --------------------------------------------------------------------
30,628
- --------------------------------------------------------------------
PUBLISHING - 0.07%
Meredith Corp. 200 7,576
- --------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 0.49%
Alexandria Real Estate Equities, Inc. 700 21,657
- --------------------------------------------------------------------
Boston Properties, Inc. 300 9,150
- --------------------------------------------------------------------
Crescent Real Estate Equities, Co. 400 9,200
- --------------------------------------------------------------------
Golf Trust of America, Inc. 400 11,100
- --------------------------------------------------------------------
51,107
- --------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.47%
American Stores Co. 500 18,470
- --------------------------------------------------------------------
Safeway, Inc.(c) 500 30,470
- --------------------------------------------------------------------
48,940
- --------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.37%
Dayton Hudson Corp. 700 37,975
- --------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.37%
Linens 'N Things, Inc.(c) 700 27,738
- --------------------------------------------------------------------
Musicland Stores Corp.(c) 700 10,456
- --------------------------------------------------------------------
38,194
- --------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.22%
Washington Mutual, Inc. 600 22,913
- --------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.33%
Outdoor Systems, Inc.(c) 800 24,000
- --------------------------------------------------------------------
Young & Rubicam, Inc.(c) 300 9,713
- --------------------------------------------------------------------
33,713
- --------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.18%
Apollo Group, Inc.(c) 1,000 33,875
- --------------------------------------------------------------------
Avis Rent A Car, Inc.(c) 600 14,513
- --------------------------------------------------------------------
Comfort Systems USA, Inc.(c) 500 8,938
- --------------------------------------------------------------------
Hertz Corp. - Class A 400 18,250
- --------------------------------------------------------------------
INSpire Insurance Solutions, Inc.(c) 500 9,188
- --------------------------------------------------------------------
Metzler Group, Inc.(c) 500 24,344
- --------------------------------------------------------------------
Service Corp. International 200 7,613
- --------------------------------------------------------------------
SM&A Corp.(c) 300 5,700
- --------------------------------------------------------------------
122,421
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING) - 0.37%
Ceridian Corp.(c) 300 $ 20,944
- -----------------------------------------------------------------------------
DST Systems, Inc.(c) 300 17,119
- -----------------------------------------------------------------------------
38,063
- -----------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.31%
Administaff, Inc.(c) 300 7,500
- -----------------------------------------------------------------------------
Data Processing Resources Corp.(c) 600 17,550
- -----------------------------------------------------------------------------
Metamor Worldwide, Inc.(c) 300 7,500
- -----------------------------------------------------------------------------
32,550
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.22%
AT&T Corp. 300 22,575
- -----------------------------------------------------------------------------
IXC Communications, Inc.(c) 600 20,175
- -----------------------------------------------------------------------------
MCI WorldCom, Inc.(c) 500 35,875
- -----------------------------------------------------------------------------
Pacific Gateway Exchange, Inc.(c) 500 24,031
- -----------------------------------------------------------------------------
WinStar Communications, Inc.(c) 600 23,400
- -----------------------------------------------------------------------------
126,056
- -----------------------------------------------------------------------------
TELEPHONE - 0.88%
Bell Atlantic Corp. 300 17,044
- -----------------------------------------------------------------------------
McLeodUSA Inc. - Class A(c) 500 15,625
- -----------------------------------------------------------------------------
Qwest Communications International, Inc.(c) 900 45,000
- -----------------------------------------------------------------------------
US West, Inc. 200 12,925
- -----------------------------------------------------------------------------
90,594
- -----------------------------------------------------------------------------
TOBACCO - 0.26%
Philip Morris Companies, Inc. 500 26,750
- -----------------------------------------------------------------------------
WASTE MANAGEMENT - 0.49%
Allied Waste Industries, Inc.(c) 1,000 23,625
- -----------------------------------------------------------------------------
Denali, Inc.(c) 1,000 14,000
- -----------------------------------------------------------------------------
Republic Services, Inc.(c) 700 12,906
- -----------------------------------------------------------------------------
50,531
- -----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $2,528,522) 2,992,491
- -----------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.10%
CHEMICALS (DIVERSIFIED) - 0.47%
Monsanto Co., $2.60 Conv. Pfd. 1,000 49,000
- -----------------------------------------------------------------------------
HOMEBUILDING - 0.14%
Fleetwood Capital Trust, $3.00 Conv. Gtd. Pfd. 300 14,063
- -----------------------------------------------------------------------------
NATURAL GAS - 0.11%
KN Energy, Inc., $3.548 Conv. Pfd. 300 11,269
- -----------------------------------------------------------------------------
PERSONAL CARE - 0.15%
Estee Lauder Co., $3.805 Conv. Pfd. 200 15,500
- -----------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.23%
United Rentals Trust I, $3.25 Conv. Pfd.(a) (Acquired
12/10/98; Cost $19,375) 500 24,063
- -----------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks (Cost
$100,198) 113,895
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-123
<PAGE> 206
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS - 0.27%
Global Telesystems Group (Telecommunications - Long
Distance) Sr. Sub. Notes, 8.75%, 06/30/00 (Cost
$21,506) 10,000 $ 27,550
- ----------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN BONDS & NOTES - 2.56%
CANADA - 0.95%
Laidlaw, Inc. (Services - Commercial & Consumer), Yankee
Unsec. Deb., 6.70%, 05/01/08 100,000 97,797
- ----------------------------------------------------------------------------------
NORWAY - 0.91%
Petroleum Geo-Services A.S.A., (Oil & Gas-Drilling &
Equipment), Sr. Unsec. Yankee Notes, 7.125%,
03/30/28 100,000 94,393
- ----------------------------------------------------------------------------------
UNITED KINGDOM - 0.70%
Terra Nova Ins Holdings (Insurance - Property - Casual-
ty), Sr. Unsec. Gtd. Notes, 7.20%, 8/15/07 70,000 72,279
- ----------------------------------------------------------------------------------
Total U.S. Dollar Denominated Foreign Bonds & Notes -
(Cost $263,664) 264,469
- ----------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED BONDS & NOTES(d) - 1.70%
DUTCH GUILDERS - 0.37%
Koninklijke Ahold NV (Retail - Food Chains), Conv. Sub.
Notes, 3.00%, 09/30/03 NLG 60,000 38,335
- ----------------------------------------------------------------------------------
FRENCH FRANCS - 0.34%
France Telecom (Telephone), Conv. Bonds, 2.00%,
01/01/04 FRF 183,680 34,956
- ----------------------------------------------------------------------------------
NEW ZEALAND DOLLARS - 0.99%
International Bank for Reconstruction & Development
(Banks - Money Center), Sr. Unsec. Unsub. Notes, 5.50%,
04/15/04 NZD 200,000 102,794
- ----------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost
$173,980) 176,085
- ----------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITYINTERESTS - 1.81%
BERMUDA - 0.26%
Global Crossing Ltd. (Telecommunications - Long
Distance)(c) 600 27,075
- ----------------------------------------------------------------------------------
CANADA - 0.33%
Cadillac Fairview Corp. (Land Development)(c) 600 11,213
- ----------------------------------------------------------------------------------
Teleglobe, Inc. (Services - Commercial & Consumer) 600 21,600
- ----------------------------------------------------------------------------------
32,813
- ----------------------------------------------------------------------------------
CAYMAN ISLANDS - 0.20%
Scottish Annuity Life & Holdings, Ltd. (Insurance -
Life/Health) 1,500 20,625
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINLAND - 0.47%
Fortum Corp. (Electric Companies)(c) 2,100 $ 12,773
- --------------------------------------------------------------------------------
Nokia Oyj A.B. - Class A - ADR (Communications
Equipment) 300 36,131
- --------------------------------------------------------------------------------
48,904
- --------------------------------------------------------------------------------
FRANCE - 0.15%
France Telecom S.A. - ADR (Communications Equipment) 200 15,788
- --------------------------------------------------------------------------------
GERMANY - 0.17%
DaimlerChrysler AG (Automobiles) 187 17,964
- --------------------------------------------------------------------------------
NETHERLANDS - 0.13%
Equant N.V. (Computers - Networking)(c) 200 13,563
- --------------------------------------------------------------------------------
UNITED KINGDOM - 0.10%
ESG Re Limited (Insurance - Life/Health) 500 10,125
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$156,229) 186,857
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 6.42%
Fannie Mae
6.18%, 03/15/01 $ 300,000 308,001
- --------------------------------------------------------------------------------
6.50%, 11/01/28 353,499 355,818
- --------------------------------------------------------------------------------
Total U.S. Government Agency Securities (Cost
$659,478) 663,819
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 20.02%
Bills, 4.439%, 03/25/99(e) 1,428,000 1,413,349
- --------------------------------------------------------------------------------
Notes, 15.75%, 11/15/01 25,000 32,357
- --------------------------------------------------------------------------------
Notes, 5.75%, 04/30/03(f) 600,000 624,774
- --------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $2,050,826) 2,070,480
- --------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement)
(Cost $8,260,371) 8,841,727
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 13.11%(g)
SBC Warburg Dillon Read Inc., 4.75%,
01/04/99(h) (Cost $1,356,240) 1,356,240 1,356,240
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.59% 10,197,967
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.41% 145,369
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $10,343,336
- --------------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
FS-124
<PAGE> 207
(a) 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 12/31/98 was $268,878 which
represented 2.60% of the Fund's net assets.
(b) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original discount.
(c) Non-income producing security.
(d) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(e) 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 Portfolio.
(f) A portion of the principal balance was pledged as collateral to cover
margin requirements for open future contracts. See Note 7.
(g) 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 is at least 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.
(h) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Investment abbreviations
ADR -- American Depositary Receipts
Conv. -- Convertible
Deb. -- Debentures
FRF -- French Francs
Gtd. -- Guaranteed
NLG -- Dutch Guilder
NZD -- New Zealand Dollar
Pfd. -- Preferred
Sec. -- Secured
Sr. -- Senior
Sub. -- Subordinated
Unsec. -- Unsecured
Unsub. -- Unsubordinated
See Notes to Financial Statements.
AIM V.I. BALANCED FUND
FS-125
<PAGE> 208
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreement, at market value (cost
$8,260,371) $ 8,841,727
- -------------------------------------------------------------------------------
Repurchase Agreement (cost $1,356,240) 1,356,240
- -------------------------------------------------------------------------------
Receivables for:
Investments sold 8,875
- -------------------------------------------------------------------------------
Reimbursement from advisor 26,753
- -------------------------------------------------------------------------------
Capital stock sold 73,907
- -------------------------------------------------------------------------------
Dividends and interest 61,043
- -------------------------------------------------------------------------------
Variation margin 5,950
- -------------------------------------------------------------------------------
Investment for deferred compensation plan 2,779
- -------------------------------------------------------------------------------
Total assets 10,377,274
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 24,717
- -------------------------------------------------------------------------------
Deferred compensation plan 2,779
- -------------------------------------------------------------------------------
Accrued directors' fees 100
- -------------------------------------------------------------------------------
Accrued operating expenses 6,342
- -------------------------------------------------------------------------------
Total liabilities 33,938
- -------------------------------------------------------------------------------
Net assets applicable to shares outstanding $10,343,336
- -------------------------------------------------------------------------------
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- -------------------------------------------------------------------------------
Outstanding 928,627
- -------------------------------------------------------------------------------
Net asset value, offering and redemption price per share $11.14
- -------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 3,473
- --------------------------------------------------------------------------
Interest 135,187
- --------------------------------------------------------------------------
Total investment income 138,660
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 21,238
- --------------------------------------------------------------------------
Administrative services fees 26,649
- --------------------------------------------------------------------------
Custodian fees 12,932
- --------------------------------------------------------------------------
Directors' fees and expenses 6,407
- --------------------------------------------------------------------------
Legal fees 8,287
- --------------------------------------------------------------------------
Other 4,734
- --------------------------------------------------------------------------
Total expenses 80,247
- --------------------------------------------------------------------------
Less: Expenses paid indirectly (39)
- --------------------------------------------------------------------------
Fees waived and expenses reimbursed by advisor (46,739)
- --------------------------------------------------------------------------
Net expenses 33,469
- --------------------------------------------------------------------------
Net investment income 105,191
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 11,031
- --------------------------------------------------------------------------
Foreign currencies 1,960
- --------------------------------------------------------------------------
Futures contracts 122,291
- --------------------------------------------------------------------------
Option contracts 213
- --------------------------------------------------------------------------
135,495
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 581,356
- --------------------------------------------------------------------------
Foreign currencies (443)
- --------------------------------------------------------------------------
Futures contracts 119,775
- --------------------------------------------------------------------------
700,688
- --------------------------------------------------------------------------
Net gain from investment securities and futures contracts 836,183
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $941,374
- --------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
AIM V.I. BALANCED FUND
FS-126
<PAGE> 209
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 105,191
- ---------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 135,495
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities, foreign
currencies and futures contracts 700,688
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations 941,374
- ---------------------------------------------------------------------------
Dividends from net investment income (115,294)
- ---------------------------------------------------------------------------
Distributions from net realized gains (20,295)
- ---------------------------------------------------------------------------
Net increase from capital stock transactions 9,537,551
- ---------------------------------------------------------------------------
Net increase in net assets 10,343,336
- ---------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ---------------------------------------------------------------------------
End of period $10,343,336
===========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 9,536,421
- ---------------------------------------------------------------------------
Undistributed net investment income (2,790)
- ---------------------------------------------------------------------------
Undistributed net realized gain from investment securities,
foreign currencies, futures and options contracts 109,017
- ---------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 700,688
- ---------------------------------------------------------------------------
$10,343,336
===========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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. Balanced Fund (the "Fund"). The Fund's investment objective is
to achieve as high a total return to investors as possible, consistent with
preservation of capital. The Fund commenced operations on May 1, 1998.
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 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. BALANCED FUND
FS-127
<PAGE> 210
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, 1998
additional paid-in capital was decreased by $1,130, undistributed net
investment income was increased by $7,313 and undistributed net realized
gains was decreased by $6,183 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 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. 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.
F. 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.
G. Bond Premiums - It is the policy of the Fund not to amortize market
premiums on bonds for financial reporting purposes.
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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.
AIM V.I. BALANCED FUND
FS-128
<PAGE> 211
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 $150 million of the Fund's average daily net assets, plus 0.50% of the
Fund's average daily net assets in excess of $150 million. During the period May
1, 1998 (date operations commenced) through December 31, 1998, AIM waived fees
and reimbursed expenses of $46,739.
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 and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $26,649 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, 1998, the Fund incurred legal fees of
$1,697 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 $39 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $39 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
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 period May 1, 1998 (date operations
commenced) through December 31, 1998 was $7,087,066 and $251,369,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $611,897
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (30,541)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $581,356
=======================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 954,695 $9,785,741
- -------------------------------------------------------------
Issued as reinvestment of distributions 12,578 135,589
- -------------------------------------------------------------
Reacquired (38,646) (383,779)
- -------------------------------------------------------------
928,627 $9,537,551
=============================================================
</TABLE>
NOTE 7 - OPEN FUTURES CONTRACTS
On December 31, 1998, $109,000 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>
NUMBER OF UNREALIZED
CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION
--------- -----------------------------------
<S> <C> <C> <C>
S&P 500 Index 7 March 99/Buy $119,775
======================================================
</TABLE>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- --
- ------------------------------------------------
Written 1 122
- ------------------------------------------------
Closed (1) (122)
- ------------------------------------------------
Exercised -- --
- ------------------------------------------------
Expired -- --
- ------------------------------------------------
End of period -- --
================================================
</TABLE>
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------- -------
Income from investment operations:
Net investment income 0.12
- -------------------------------------------------------- -------
Net gains on securities (both realized and unrealized) 1.18
- -------------------------------------------------------- -------
Total from investment operations 1.30
- -------------------------------------------------------- -------
Less Distributions:
Dividends from net investment income (0.14)
- -------------------------------------------------------- -------
Distributions from net realized gains (0.02)
- -------------------------------------------------------- -------
Total Distributions (0.16)
- -------------------------------------------------------- -------
Net asset value, end of period $ 11.14
======================================================== =======
Total return(a) 13.02%
======================================================== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $10,343
======================================================== =======
Ratio of expenses to average net assets(b) 1.18%(c)
======================================================== =======
Ratio of net investment income to average net assets(d) 3.71%(c)
======================================================== =======
Portfolio turnover rate 9%
======================================================== =======
</TABLE>
(a) Total return is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.83% (annualized).
(c) Ratios are annualized and based on average net assets of $4,218,617.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursement was 2.07% (annualized).
AIM V.I. BALANCED FUND
FS-129
<PAGE> 212
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, 1998, 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 three 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, 1998 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, 1998, 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 three 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 3, 1999
AIM V.I. CAPITAL APPRECIATION FUND
FS-130
<PAGE> 213
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 87.72%
AEROSPACE/DEFENSE - 0.42%
AAR Corp. 50,000 $ 1,193,750
- -------------------------------------------------------------
BE Aerospace, Inc.(a) 20,000 420,000
- -------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 20,500 1,091,625
- -------------------------------------------------------------
2,705,375
- -------------------------------------------------------------
AIRLINES - 0.23%
Southwest Airlines Co. 65,500 1,469,656
- -------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.44%
Danaher Corp. 52,300 2,840,544
- -------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.31%
Northern Trust Corp. 23,000 2,008,188
- -------------------------------------------------------------
BANKS (REGIONAL) - 2.63%
AmSouth Bancorporation 30,000 1,368,750
- -------------------------------------------------------------
First Tennessee National Corp. 50,000 1,903,125
- -------------------------------------------------------------
Firstar Corp. 65,000 6,061,250
- -------------------------------------------------------------
Golden State Bancorp, Inc.(a) 53,000 881,125
- -------------------------------------------------------------
Hibernia Corp.-Class A 85,000 1,476,875
- -------------------------------------------------------------
North Fork Bancorporation, Inc. 110,000 2,633,125
- -------------------------------------------------------------
TCF Financial Corp. 40,000 967,500
- -------------------------------------------------------------
Zions Bancorp. 27,500 1,715,313
- -------------------------------------------------------------
17,007,063
- -------------------------------------------------------------
BIOTECHNOLOGY - 0.72%
Biogen, Inc.(a) 44,200 3,668,600
- -------------------------------------------------------------
Curative Health Services, Inc.(a) 29,700 994,950
- -------------------------------------------------------------
4,663,550
- -------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO, &
CABLE) - 2.34%
Chancellor Media Corp.(a) 62,272 2,981,272
- -------------------------------------------------------------
Comcast Corp.-Class A 42,400 2,488,350
- -------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 21,500 1,486,187
- -------------------------------------------------------------
Heftel Broadcasting Corp.(a) 22,100 1,088,425
- -------------------------------------------------------------
Liberty Media Group(a) 60,000 2,763,750
- -------------------------------------------------------------
Univision Communications, Inc.(a) 65,500 2,370,281
- -------------------------------------------------------------
USA Networks, Inc.(a) 59,600 1,974,250
- -------------------------------------------------------------
15,152,515
- -------------------------------------------------------------
BUILDING MATERIALS - 0.19%
Masco Corp. 41,800 1,201,750
- -------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.44%
ADC Telecommunications, Inc.(a) 17,200 597,700
- -------------------------------------------------------------
Andrew Corp.(a) 75,000 1,237,500
- -------------------------------------------------------------
Comverse Technology, Inc.(a) 41,100 2,918,100
- -------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 19,000 676,875
- -------------------------------------------------------------
General Instrument Corp.(a) 66,000 2,239,875
- -------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Finland) 56,300 6,780,631
- -------------------------------------------------------------
QUALCOMM, Inc.(a) 26,000 1,347,125
- -------------------------------------------------------------
15,797,806
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE) - 1.67%
Apple Computer, Inc.(a) 23,000 $ 941,562
- ---------------------------------------------------------------------------
Comdisco, Inc. 165,200 2,787,750
- ---------------------------------------------------------------------------
Dell Computer Corp.(a) 40,600 2,971,413
- ---------------------------------------------------------------------------
Gateway 2000, Inc.(a) 22,100 1,131,244
- ---------------------------------------------------------------------------
IDX Systems Corp.(a) 19,000 836,000
- ---------------------------------------------------------------------------
Micron Electronics, Inc.(a) 23,400 405,112
- ---------------------------------------------------------------------------
NCR Corp.(a) 42,000 1,753,500
- ---------------------------------------------------------------------------
10,826,581
- ---------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 2.99%
Ascend Communications, Inc.(a) 128,300 8,435,725
- ---------------------------------------------------------------------------
Cisco Systems, Inc.(a) 16,625 1,543,008
- ---------------------------------------------------------------------------
Newbridge Networks Corp. (Canada)(a) 50,000 1,518,750
- ---------------------------------------------------------------------------
3Com Corp.(a) 175,000 7,842,187
- ---------------------------------------------------------------------------
19,339,670
- ---------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.45%
Adaptec, Inc.(a) 52,300 918,519
- ---------------------------------------------------------------------------
EMC Corp.(a) 103,000 8,755,000
- ---------------------------------------------------------------------------
Lexmark International Group, Inc.(a) 40,200 4,040,100
- ---------------------------------------------------------------------------
Seagate Technology, Inc.(a) 71,200 2,153,800
- ---------------------------------------------------------------------------
15,867,419
- ---------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 9.99%
America Online, Inc. 32,500 5,200,000
- ---------------------------------------------------------------------------
Aspect Development, Inc.(a) 40,000 1,772,500
- ---------------------------------------------------------------------------
BMC Software, Inc.(a) 167,000 7,441,938
- ---------------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 105,800 3,147,550
- ---------------------------------------------------------------------------
Check Point Software Technologies Ltd. (Israel)(a) 22,200 1,017,037
- ---------------------------------------------------------------------------
Citrix Systems, Inc.(a) 55,700 5,406,381
- ---------------------------------------------------------------------------
Compuware Corp.(a) 113,300 8,851,562
- ---------------------------------------------------------------------------
Concord EFS, Inc.(a) 194,800 8,254,649
- ---------------------------------------------------------------------------
Electronic Arts, Inc.(a) 21,000 1,178,625
- ---------------------------------------------------------------------------
Informix Corp.(a) 35,600 351,550
- ---------------------------------------------------------------------------
Intuit, Inc.(a) 27,000 1,957,500
- ---------------------------------------------------------------------------
Learning Company, Inc. (The)(a) 45,000 1,167,188
- ---------------------------------------------------------------------------
Microsoft Corp.(a) 11,100 1,539,431
- ---------------------------------------------------------------------------
Network Associates, Inc.(a) 28,200 1,868,250
- ---------------------------------------------------------------------------
Novell, Inc.(a) 35,000 634,375
- ---------------------------------------------------------------------------
Parametric Technology Co.(a) 75,000 1,228,125
- ---------------------------------------------------------------------------
Sterling Commerce, Inc.(a) 56,055 2,522,475
- ---------------------------------------------------------------------------
Sterling Software, Inc.(a) 63,600 1,721,175
- ---------------------------------------------------------------------------
Synopsys, Inc.(a) 60,000 3,255,000
- ---------------------------------------------------------------------------
VERITAS Software Corp.(a) 36,100 2,163,744
- ---------------------------------------------------------------------------
Wind River Systems(a) 40,000 1,880,000
- ---------------------------------------------------------------------------
Yahoo! Inc.(a) 9,000 2,115,563
- ---------------------------------------------------------------------------
64,674,618
- ---------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-131
<PAGE> 214
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.23%
Action Performance Companies, Inc.(a) 16,000 $ 566,000
- ----------------------------------------------------------------------
Blyth Industries, Inc.(a) 30,400 950,000
- ----------------------------------------------------------------------
1,516,000
- ----------------------------------------------------------------------
CONSUMER FINANCE - 1.84%
Capital One Financial Corp. 33,600 3,864,000
- ----------------------------------------------------------------------
Countrywide Credit Industries, Inc. 23,400 1,174,388
- ----------------------------------------------------------------------
Providian Financial Corp. 66,300 4,972,500
- ----------------------------------------------------------------------
SLM Holding Corp. 40,050 1,922,400
- ----------------------------------------------------------------------
11,933,288
- ----------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 2.06%
Bergen Brunswig Corp.-Class A 75,400 2,629,575
- ----------------------------------------------------------------------
Cardinal Health, Inc. 99,630 7,559,426
- ----------------------------------------------------------------------
Patterson Dental Co.(a) 20,000 870,000
- ----------------------------------------------------------------------
SUPERVALU, INC. 26,300 736,400
- ----------------------------------------------------------------------
U.S. Foodservice(a) 31,200 1,528,800
- ----------------------------------------------------------------------
13,324,201
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.12%
American Power Conversion Corp.(a) 82,300 3,986,406
- ----------------------------------------------------------------------
Molex, Inc. 4,300 163,938
- ----------------------------------------------------------------------
Sanmina Corp.(a) 30,000 1,875,000
- ----------------------------------------------------------------------
SCI Systems, Inc.(a) 42,400 2,448,600
- ----------------------------------------------------------------------
Solectron Corp.(a) 66,700 6,198,931
- ----------------------------------------------------------------------
Symbol Technologies, Inc. 64,250 4,107,984
- ----------------------------------------------------------------------
Uniphase Corp.(a) 20,300 1,408,313
- ----------------------------------------------------------------------
20,189,172
- ----------------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.17%
Arrow Electronics, Inc.(a) 41,100 1,096,856
- ----------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.38%
Perkin-Elmer Corp. 7,500 731,719
- ----------------------------------------------------------------------
Waters Corp.(a) 20,000 1,745,000
- ----------------------------------------------------------------------
2,476,719
- ----------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 3.63%
Altera Corp.(a) 55,200 3,360,300
- ----------------------------------------------------------------------
Analog Devices, Inc.(a) 85,000 2,666,875
- ----------------------------------------------------------------------
Linear Technology Corp. 40,000 3,582,500
- ----------------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 66,400 2,900,850
- ----------------------------------------------------------------------
Microchip Technology, Inc.(a) 94,200 3,485,400
- ----------------------------------------------------------------------
Micron Technology, Inc.(a) 44,300 2,239,919
- ----------------------------------------------------------------------
National Semiconductor Corp.(a) 70,000 945,000
- ----------------------------------------------------------------------
PMC-Sierra, Inc.(a) 39,500 2,493,437
- ----------------------------------------------------------------------
Xilinx, Inc.(a) 27,800 1,810,475
- ----------------------------------------------------------------------
23,484,756
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR) - 0.26%
Applied Materials, Inc.(a) 40,000 $ 1,707,500
- ----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 0.74%
FINOVA Group, Inc. 27,500 1,483,281
- ----------------------------------------------------------------------
MGIC Investment Corp. 46,633 1,856,573
- ----------------------------------------------------------------------
Newcourt Credit Group, Inc. (Canada) 41,600 1,453,400
- ----------------------------------------------------------------------
4,793,254
- ----------------------------------------------------------------------
FOODS - 0.51%
Earthgrains Co. (The) 10,200 315,562
- ----------------------------------------------------------------------
Flowers Industries, Inc. 45,000 1,077,188
- ----------------------------------------------------------------------
Keebler Foods Co.(a) 8,900 334,863
- ----------------------------------------------------------------------
Quaker Oats Co. (The) 26,600 1,582,700
- ----------------------------------------------------------------------
3,310,313
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.49%
Alpharma, Inc.-Class A 12,750 450,234
- ----------------------------------------------------------------------
Elan Corp. PLC-ADR (Ireland)(a) 44,100 3,067,706
- ----------------------------------------------------------------------
Forest Laboratories, Inc.(a) 22,400 1,191,400
- ----------------------------------------------------------------------
Jones Medical Industries, Inc. 99,500 3,631,750
- ----------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 33,000 1,967,625
- ----------------------------------------------------------------------
Mylan Laboratories, Inc. 104,700 3,298,050
- ----------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 40,000 2,515,000
- ----------------------------------------------------------------------
16,121,765
- ----------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.13%
Health Management Associates, Inc.-Class A(a) 174,202 3,767,118
- ----------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 68,400 3,548,250
- ----------------------------------------------------------------------
7,315,368
- ----------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.14%
HCR Manor Care, Inc.(a) 30,000 881,250
- ----------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.62%
Express Scripts, Inc.-Class A(a) 43,600 2,926,650
- ----------------------------------------------------------------------
Trigon Healthcare, Inc.(a) 28,500 1,063,406
- ----------------------------------------------------------------------
3,990,056
- ----------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.75%
Bausch & Lomb, Inc. 25,000 1,500,000
- ----------------------------------------------------------------------
Becton, Dickinson & Co. 169,500 7,235,531
- ----------------------------------------------------------------------
Biomet, Inc. 86,800 3,493,700
- ----------------------------------------------------------------------
Guidant Corp. 79,100 8,720,775
- ----------------------------------------------------------------------
Henry Schein, Inc.(a) 34,985 1,565,579
- ----------------------------------------------------------------------
Safeskin Corp.(a) 14,300 344,987
- ----------------------------------------------------------------------
Sybron International Corp.(a) 51,400 1,397,438
- ----------------------------------------------------------------------
24,258,010
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-132
<PAGE> 215
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES) - 1.76%
Alza Corp.(a) 42,000 $ 2,194,500
- -------------------------------------------------------------------------
Covance, Inc.(a) 47,000 1,368,875
- -------------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 43,200 666,900
- -------------------------------------------------------------------------
Omnicare, Inc. 88,400 3,071,900
- -------------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 15,000 291,562
- -------------------------------------------------------------------------
Quintiles Transnational Corp.(a) 21,100 1,126,213
- -------------------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 90,000 2,660,625
- -------------------------------------------------------------------------
11,380,575
- -------------------------------------------------------------------------
HOMEBUILDING - 0.50%
Clayton Homes, Inc. 146,625 2,025,258
- -------------------------------------------------------------------------
Fleetwood Enterprises, Inc. 14,000 486,500
- -------------------------------------------------------------------------
Kaufman and Broad Home Corporation 24,600 707,250
- -------------------------------------------------------------------------
3,219,008
- -------------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.59%
Leggett & Platt, Inc. 70,000 1,540,000
- -------------------------------------------------------------------------
Maytag Corp. 37,000 2,303,250
- -------------------------------------------------------------------------
3,843,250
- -------------------------------------------------------------------------
HOUSEWARES - 0.09%
Helen of Troy Ltd.(a) 38,000 558,125
- -------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.25%
AFLAC, Inc. 38,900 1,711,600
- -------------------------------------------------------------------------
Provident Companies, Inc. 60,000 2,490,000
- -------------------------------------------------------------------------
ReliaStar Financial Corp. 63,000 2,905,875
- -------------------------------------------------------------------------
Torchmark Corp. 28,000 988,750
- -------------------------------------------------------------------------
8,096,225
- -------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.60%
Progressive Corp. 23,000 3,895,625
- -------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.17%
Edwards (A.G.), Inc. 25,000 931,250
- -------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 27,000 1,189,688
- -------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 97,500 5,478,281
- -------------------------------------------------------------------------
7,599,219
- -------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.69%
Federated Investors, Inc.-Class B 85,000 1,540,625
- -------------------------------------------------------------------------
T. Rowe Price Associates, Inc. 85,800 2,938,650
- -------------------------------------------------------------------------
4,479,275
- -------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.76%
Harley-Davidson, Inc. 94,000 4,453,250
- -------------------------------------------------------------------------
Speedway Motorsports, Inc.(a) 15,900 453,150
- -------------------------------------------------------------------------
4,906,400
- -------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.31%
Corning, Inc. 137,200 6,174,000
- -------------------------------------------------------------------------
Crane Co. 17,400 525,262
- -------------------------------------------------------------------------
Hillenbrand Industries, Inc. 21,500 1,222,813
- -------------------------------------------------------------------------
Pentair, Inc. 14,500 577,281
- -------------------------------------------------------------------------
8,499,356
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED) - 0.44%
Avery Dennison Corp. 23,600 $ 1,063,475
- -------------------------------------------------------------------------
Coflexip SA-ADR (France) 10,100 324,462
- -------------------------------------------------------------------------
Diebold, Inc. 40,800 1,456,050
- -------------------------------------------------------------------------
2,843,987
- -------------------------------------------------------------------------
NATURAL GAS - 0.37%
El Paso Energy Corp. 68,000 2,367,250
- -------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.12%
Herman Miller, Inc. 28,000 752,500
- -------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.54%
Baker Hughes, Inc. 85,000 1,503,438
- -------------------------------------------------------------------------
BJ Services Co.(a) 62,000 968,750
- -------------------------------------------------------------------------
Cooper Cameron Corp.(a) 60,000 1,470,000
- -------------------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 30,200 577,575
- -------------------------------------------------------------------------
Diamond Offshore Drilling, Inc. 40,000 947,500
- -------------------------------------------------------------------------
Global Industries Ltd.(a) 108,000 661,500
- -------------------------------------------------------------------------
Rowan Companies, Inc.(a) 80,000 800,000
- -------------------------------------------------------------------------
Smith International, Inc.(a) 50,000 1,259,375
- -------------------------------------------------------------------------
Transocean Offshore, Inc. 25,000 670,312
- -------------------------------------------------------------------------
Varco International, Inc.(a) 140,000 1,085,000
- -------------------------------------------------------------------------
9,943,450
- -------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.41%
Apache Corp. 67,000 1,695,938
- -------------------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 80,000 590,000
- -------------------------------------------------------------------------
Stolt Comex Seaway, S.A. (United Kingdom)(a) 40,000 270,000
- -------------------------------------------------------------------------
Stolt Comex Seaway, S.A.-ADR (United Kingdom)(a) 20,000 112,500
- -------------------------------------------------------------------------
2,668,438
- -------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.29%
AES Corp.(a) 40,000 1,895,000
- -------------------------------------------------------------------------
PRODUCTS (NON-DURABLES) - 0.46%
Clorox Co. (The) 12,600 1,471,838
- -------------------------------------------------------------------------
Dial Corp. (The) 53,000 1,530,375
- -------------------------------------------------------------------------
3,002,213
- -------------------------------------------------------------------------
PUBLISHING - 0.38%
McGraw-Hill Companies, Inc. (The) 24,000 2,445,000
- -------------------------------------------------------------------------
RAILROADS - 0.38%
Kansas City Southern Industries, Inc. 50,000 2,459,375
- -------------------------------------------------------------------------
RESTAURANTS - 1.69%
Brinker International, Inc.(a) 82,000 2,367,750
- -------------------------------------------------------------------------
Outback Steakhouse, Inc.(a) 56,000 2,233,000
- -------------------------------------------------------------------------
Papa John's International, Inc.(a) 41,900 1,848,838
- -------------------------------------------------------------------------
Starbucks Corp.(a) 39,400 2,211,325
- -------------------------------------------------------------------------
Tricon Global Restaurants, Inc.(a) 45,000 2,255,625
- -------------------------------------------------------------------------
10,916,538
- -------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-133
<PAGE> 216
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (BUILDING SUPPLIES) - 0.32%
Lowe's Companies, Inc. 40,200 $ 2,057,738
- -----------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.07%
Best Buy Co., Inc.(a) 21,000 1,288,875
- -----------------------------------------------------------------
CDW Computer Centers, Inc.(a) 38,500 3,693,594
- -----------------------------------------------------------------
Tech Data Corp.(a) 48,600 1,956,150
- -----------------------------------------------------------------
6,938,619
- -----------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.50%
Kohl's Corp.(a) 53,000 3,256,188
- -----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.04%
Dollar Tree Stores, Inc.(a) 73,475 3,209,939
- -----------------------------------------------------------------
Family Dollar Stores, Inc. 126,000 2,772,000
- -----------------------------------------------------------------
Ross Stores, Inc. 20,000 787,500
- -----------------------------------------------------------------
6,769,439
- -----------------------------------------------------------------
RETAIL (DRUG STORES) - 0.80%
Rite Aid Corp. 104,560 5,182,255
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.05%
Kroger Co.(a) 86,900 5,257,450
- -----------------------------------------------------------------
Safeway, Inc.(a) 25,400 1,547,812
- -----------------------------------------------------------------
6,805,262
- -----------------------------------------------------------------
RETAIL (SPECIALTY) - 3.25%
Amazon.com, Inc.(a) 6,500 2,088,125
- -----------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 112,000 3,822,000
- -----------------------------------------------------------------
Linens 'n Things, Inc.(a) 11,600 459,650
- -----------------------------------------------------------------
Michaels Stores, Inc.(a) 41,000 741,844
- -----------------------------------------------------------------
Office Depot, Inc.(a) 130,000 4,801,875
- -----------------------------------------------------------------
Staples, Inc.(a) 171,187 7,478,732
- -----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 40,000 1,612,500
- -----------------------------------------------------------------
21,004,726
- -----------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 1.83%
Abercrombie & Fitch Co.-Class A(a) 33,300 2,355,975
- -----------------------------------------------------------------
Gap, Inc. (The) 43,575 2,451,094
- -----------------------------------------------------------------
Intimate Brands, Inc. 46,000 1,374,250
- -----------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 83,625 2,655,093
- -----------------------------------------------------------------
TJX Companies, Inc. 103,000 2,987,000
- -----------------------------------------------------------------
11,823,412
- -----------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.89%
Astoria Financial Corp. 30,000 1,372,500
- -----------------------------------------------------------------
Dime Bancorp, Inc. 106,000 2,802,375
- -----------------------------------------------------------------
GreenPoint Financial Corp. 45,000 1,580,625
- -----------------------------------------------------------------
5,755,500
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING & MARKETING) - 2.06%
Interpublic Group of Companies, Inc. (The) 20,000 $ 1,595,000
- -------------------------------------------------------------------
Lamar Advertising Co.(a) 66,000 2,458,500
- -------------------------------------------------------------------
Omnicom Group, Inc. 103,300 5,991,400
- -------------------------------------------------------------------
Outdoor Systems, Inc.(a) 57,000 1,710,000
- -------------------------------------------------------------------
Snyder Communications, Inc.(a) 47,700 1,609,875
- -------------------------------------------------------------------
13,364,775
- -------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.87%
Apollo Group, Inc.(a) 65,500 2,218,813
- -------------------------------------------------------------------
ChoicePoint, Inc.(a) 24,500 1,580,250
- -------------------------------------------------------------------
Cintas Corp. 63,100 4,444,606
- -------------------------------------------------------------------
G & K Services, Inc.-Class A 15,000 798,750
- -------------------------------------------------------------------
IMS Health, Inc. 51,500 3,885,031
- -------------------------------------------------------------------
Service Corp. International 32,400 1,233,225
- -------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 107,500 2,391,875
- -------------------------------------------------------------------
Viad Corp. 60,000 1,822,500
- -------------------------------------------------------------------
Waddell & Reed Financial, Inc. 1,507 35,697
- -------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class B 6,489 150,869
- -------------------------------------------------------------------
18,561,616
- -------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 1.15%
CIBER, Inc.(a) 25,000 698,437
- -------------------------------------------------------------------
Keane, Inc.(a) 49,700 1,984,893
- -------------------------------------------------------------------
Policy Management Systems Corp.(a) 35,000 1,767,500
- -------------------------------------------------------------------
SunGard Data Systems, Inc.(a) 75,200 2,984,500
- -------------------------------------------------------------------
7,435,330
- -------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 3.93%
Affiliated Computer Services, Inc.(a) 30,500 1,372,500
- -------------------------------------------------------------------
Billing Concepts Corp.(a) 58,500 643,500
- -------------------------------------------------------------------
Ceridian Corp.(a) 53,700 3,748,931
- -------------------------------------------------------------------
CSG Systems International, Inc.(a) 34,900 2,757,100
- -------------------------------------------------------------------
DST Systems, Inc.(a) 30,300 1,728,994
- -------------------------------------------------------------------
Equifax, Inc. 44,100 1,507,669
- -------------------------------------------------------------------
Fiserv, Inc.(a) 103,150 5,305,778
- -------------------------------------------------------------------
National Data Corp. 48,000 2,337,000
- -------------------------------------------------------------------
NOVA Corp.(a) 57,407 1,991,306
- -------------------------------------------------------------------
Paychex, Inc. 78,975 4,062,276
- -------------------------------------------------------------------
25,455,054
- -------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.21%
Robert Half International, Inc.(a) 30,400 1,358,500
- -------------------------------------------------------------------
SPECIALTY PRINTING - 0.28%
Valassis Communications, Inc.(a) 35,000 1,806,875
- -------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.23%
Metromedia Fiber Network, Inc.(a) 44,000 1,474,000
- -------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-134
<PAGE> 217
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 0.65%
Global TeleSystems Group, Inc.(a) 75,000 $ 4,181,250
- --------------------------------------------------------------------------
TELEPHONE - 1.07%
Century Telephone Enterprises, Inc. 64,600 4,360,500
- --------------------------------------------------------------------------
Cincinnati Bell, Inc. 37,800 1,429,312
- --------------------------------------------------------------------------
NTL, Inc. (United Kingdom)(a) 20,000 1,128,750
- --------------------------------------------------------------------------
6,918,562
- --------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.30%
Jones Apparel Group, Inc.(a) 52,500 1,158,281
- --------------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 13,100 786,000
- --------------------------------------------------------------------------
1,944,281
- --------------------------------------------------------------------------
TEXTILES (HOME FURNISHINGS) - 0.25%
Shaw Industries, Inc. 67,000 1,624,750
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 1.28%
Allied Waste Industries, Inc.(a) 110,670 2,614,579
- --------------------------------------------------------------------------
Republic Services, Inc.(a) 50,000 921,875
- --------------------------------------------------------------------------
Waste Management, Inc. 101,675 4,740,597
- --------------------------------------------------------------------------
8,277,051
- --------------------------------------------------------------------------
Total Common Stocks (Cost $377,506,768) 567,719,235
- --------------------------------------------------------------------------
WARRANTS - 0.03%
Banks (Regional)
Golden State Bancorp, Litigation Wts., expiring
01/01/01 (Cost $227,318)(a) 40,000 182,500
- --------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
TIME DEPOSIT - 1.08%
Credit Communal De Belgium, 5.125%, 01/04/99
(Cost $7,000,000) $ 7,000,000 7,000,000
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT - 9.15%(b)
Goldman Sachs & Co., 4.40%, 01/04/99(c)
(Cost $59,251,734) 59,251,734 59,251,734
- --------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.98% 634,153,469
- --------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.02% 13,094,534
- --------------------------------------------------------------------------
NET ASSETS - 100.00% $647,248,003
==========================================================================
</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 insure its market value is at least 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 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Abbreviations:
ADR -- American Depositary Receipt
Wts. -- Warrants
See Notes to Financial Statements
AIM V.I. CAPITAL APPRECIATION FUND
FS-135
<PAGE> 218
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $443,985,820) $634,153,469
- ----------------------------------------------------------------------
Receivables for:
Investments sold 13,808,584
- ----------------------------------------------------------------------
Capital stock sold 677,286
- ----------------------------------------------------------------------
Dividends and interest 191,840
- ----------------------------------------------------------------------
Investment for deferred compensation plan 25,282
- ----------------------------------------------------------------------
Other assets 2,963
- ----------------------------------------------------------------------
Total assets 648,859,424
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,236,530
- ----------------------------------------------------------------------
Capital stock reacquired 13,206
- ----------------------------------------------------------------------
Deferred compensation plan 25,282
- ----------------------------------------------------------------------
Accrued advisory fees 317,257
- ----------------------------------------------------------------------
Accrued directors' fees 232
- ----------------------------------------------------------------------
Accrued administrative services fees 8,797
- ----------------------------------------------------------------------
Accrued operating expenses 10,117
- ----------------------------------------------------------------------
Total liabilities 1,611,421
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $647,248,003
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 25,689,529
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share $ 25.20
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 2,782,124
- ---------------------------------------------------------------------------
Dividends (net of $17,799 foreign withholding tax) 1,619,969
- ---------------------------------------------------------------------------
Total investment income 4,402,093
- ---------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,521,837
- ---------------------------------------------------------------------------
Administrative services fees 53,266
- ---------------------------------------------------------------------------
Custodian fees 104,218
- ---------------------------------------------------------------------------
Directors' fees and expenses 12,181
- ---------------------------------------------------------------------------
Other 88,482
- ---------------------------------------------------------------------------
Total expenses 3,779,984
- ---------------------------------------------------------------------------
Less: Expenses paid indirectly (9,472)
- ---------------------------------------------------------------------------
Net expenses 3,770,512
- ---------------------------------------------------------------------------
Net investment income 631,581
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 22,739,811
- ---------------------------------------------------------------------------
Foreign currencies 43,713
- ---------------------------------------------------------------------------
Option contracts 25,169
- ---------------------------------------------------------------------------
22,808,693
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities 78,385,559
- ---------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and
option contracts 101,194,252
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $101,825,833
===========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-136
<PAGE> 219
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 631,581 $ 914,009
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies and option contracts 22,808,693 16,155,941
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and foreign currencies 78,385,559 35,953,703
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 101,825,833 53,023,653
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (922,615) (536,874)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (16,345,246) (6,902,664)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 39,909,953 107,132,798
- ------------------------------------------------------------------------------
Net increase in net assets 124,467,925 152,716,913
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 522,780,078 370,063,165
- ------------------------------------------------------------------------------
End of year $647,248,003 $522,780,078
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $434,303,451 $394,408,721
- ------------------------------------------------------------------------------
Undistributed net investment income 700,362 876,543
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
option contracts 22,076,541 15,712,724
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and futures contracts 190,167,649 111,782,090
- ------------------------------------------------------------------------------
$647,248,003 $522,780,078
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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
AIM V.I. CAPITAL APPRECIATION FUND
FS-137
<PAGE> 220
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, 1998
additional paid-in capital was decreased by $15,223, undistributed net
investment income was increased by $114,853 and undistributed net realized
gains was decreased by $99,630 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. 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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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 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.
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.
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $53,266 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.
AIM V.I. CAPITAL APPRECIATION FUND
FS-138
<PAGE> 221
During the year ended December 31, 1998, the Fund incurred legal fees of
$4,536 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 $9,472 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $9,472 during the year ended
December 31, 1998.
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 during the year ended December 31, 1998 was
$427,487,795 and $457,350,071, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $202,819,727
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (13,557,353)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $189,262,374
===========================================================================
</TABLE>
Cost of investments for tax purposes is $444,891,095.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Sold 4,333,736 $ 99,858,597 9,656,144 $202,278,514
- -------------------------------------------------------------------------------
Issued as reinvestment of
distributions 740,474 17,267,861 357,327 7,439,538
- -------------------------------------------------------------------------------
Reacquired (3,416,071) (77,216,505) (5,025,910) (102,585,254)
- -------------------------------------------------------------------------------
1,658,139 $ 39,909,953 4,987,561 $ 107,132,798
===============================================================================
</TABLE>
NOTE 7 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- $ --
- ----------------------------------------------
Written 1,092 271,645
- ----------------------------------------------
Closed (678) (154,318)
- ----------------------------------------------
Expired (244) (21,153)
- ----------------------------------------------
Exercised (170) (96,174)
- ----------------------------------------------
End of period -- $ --
==============================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
----------------------------------------- -----------------
1998 1997 1996 1995 1995 1994
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00
- ------------------------ -------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.02 0.03 0.02 0.04 0.05 --
- ------------------------ -------- -------- -------- -------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 4.12 2.58 2.89 4.46 (0.54) 2.59
- ------------------------ -------- -------- -------- -------- ------- -------
Total from investment
operations 4.14 2.61 2.91 4.50 (0.49) 2.59
- ------------------------ -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.04) (0.02) (0.03) -- (0.04) (0.01)
- ------------------------ -------- -------- -------- -------- ------- -------
Distributions from net
realized gains (0.65) (0.27) -- -- -- --
- ------------------------ -------- -------- -------- -------- ------- -------
Total distributions (0.69) (0.29) (0.03) -- (0.04) (0.01)
- ------------------------ -------- -------- -------- -------- ------- -------
Net asset value, end of
period $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
======================== ======== ======== ======== ======== ======= =======
Total return(a) 19.30% 13.51% 17.58% 37.38% (3.91)% 25.90%
======================== ======== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $647,248 $522,642 $370,063 $212,152 $88,177 $35,354
======================== ======== ======== ======== ======== ======= =======
Ratio of expenses to
average net assets 0.67%(b) 0.68% 0.73% 0.75%(c) 0.84% 1.06%(c)
======================== ======== ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets 0.11%(b) 0.18% 0.18% 0.39%(c) 0.46% 0.07%(c)
======================== ======== ======== ======== ======== ======= =======
Portfolio turnover rate 83% 65% 59% 37% 81% 34%
======================== ======== ======== ======== ======== ======= =======
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $566,139,574.
(c) Annualized.
AIM V.I. CAPITAL APPRECIATION FUND
FS-139
<PAGE> 222
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 Development Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1998, the related statement of operations, the statement of
changes in net assets, and the financial highlights for the period May 1, 1998
(commencement of operations) through December 31, 1998. 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 audit.
We conducted our audit 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, 1998 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 audit provides 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 Development Fund, as of December 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for the
period May 1, 1998 (commencement of operations) through December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
--------------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-140
<PAGE> 223
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 87.38%
AEROSPACE/DEFENSE - 0.78%
Gulfstream Aerospace Corp.(a) 100 $ 5,325
- --------------------------------------------------------------------
Hawk Corp.(a) 200 1,675
- --------------------------------------------------------------------
Kroll-O'Gara Co. (The)(a) 400 15,775
- --------------------------------------------------------------------
TriStar Aerospace Co.(a) 300 2,100
- --------------------------------------------------------------------
24,875
- --------------------------------------------------------------------
AIRLINES - 0.43%
Atlantic Coast Airlines Holdings(a) 400 10,000
- --------------------------------------------------------------------
Midway Airlines, Corp.(a) 300 3,600
- --------------------------------------------------------------------
13,600
- --------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.69%
Keystone Automotive Industries, Inc.(a) 500 10,469
- --------------------------------------------------------------------
Stoneridge, Inc.(a) 500 11,375
- --------------------------------------------------------------------
21,844
- --------------------------------------------------------------------
BANKS (REGIONAL) - 1.27%
Banco Santandr Puerto Rico(a) 300 6,581
- --------------------------------------------------------------------
Bank United Corp.-Class A 200 7,850
- --------------------------------------------------------------------
Golden State Bancorp, Inc.(a) 600 9,975
- --------------------------------------------------------------------
Independence Community Bank Corp. 400 6,375
- --------------------------------------------------------------------
North Fork Bancorporation, Inc. 400 9,575
- --------------------------------------------------------------------
40,356
- --------------------------------------------------------------------
BEVERAGES (ALCOHOLIC) - 0.65%
Beringer Wine Estates-Class B(a) 200 8,938
- --------------------------------------------------------------------
Canandaigua Wine Co., Inc.-Class A(a) 200 11,563
- --------------------------------------------------------------------
20,501
- --------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.15%
Triarc Companies, Inc.(a) 300 4,800
- --------------------------------------------------------------------
BIOTECHNOLOGY - 0.54%
IDEXX Laboratories, Inc.(a) 300 8,072
- --------------------------------------------------------------------
Pharmaceutical Product Development, Inc.(a) 300 9,019
- --------------------------------------------------------------------
17,091
- --------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.29%
Capstar Broadcasting Corp.-Class A(a) 400 9,150
- --------------------------------------------------------------------
Chancellor Media Corp.(a) 200 9,575
- --------------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 200 8,450
- --------------------------------------------------------------------
Emmis Broadcasting Corp.-Class A(a) 300 13,013
- --------------------------------------------------------------------
Hearst-Argyle Television, Inc.(a) 100 3,300
- --------------------------------------------------------------------
Heftel Broadcasting Corp.(a) 200 9,850
- --------------------------------------------------------------------
Metro Networks, Inc.(a) 200 8,525
- --------------------------------------------------------------------
Univision Communications, Inc.(a) 300 10,856
- --------------------------------------------------------------------
72,719
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BUILDING MATERIAL - 0.27%
Pameco Corp.(a) 200 $ 2,313
- ----------------------------------------------------------
White Cap Industries, Inc.(a) 400 6,100
- ----------------------------------------------------------
8,413
- ----------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.71%
ADC Telecommunications, Inc.(a) 300 10,425
- ----------------------------------------------------------
Comverse Technology, Inc.(a) 300 21,300
- ----------------------------------------------------------
Excel Switching Corp.(a) 300 11,400
- ----------------------------------------------------------
NorthEast Optic Network, Inc.(a) 600 6,225
- ----------------------------------------------------------
Tekelec(a) 300 4,969
- ----------------------------------------------------------
54,319
- ----------------------------------------------------------
COMPUTER (HARDWARE) - 0.50%
Bell & Howell Co.(a) 300 11,344
- ----------------------------------------------------------
IDX Systems Corp.(a) 100 4,400
- ----------------------------------------------------------
15,744
- ----------------------------------------------------------
COMPUTER (NETWORKING) - 0.76%
Ascend Communications, Inc.(a) 100 6,575
- ----------------------------------------------------------
FORE Systems, Inc.(a) 700 12,819
- ----------------------------------------------------------
Fvc.com, Inc.(a) 300 4,725
- ----------------------------------------------------------
24,119
- ----------------------------------------------------------
COMPUTER (PERIPHERALS) - 0.74%
Actel Corp.(a) 200 4,000
- ----------------------------------------------------------
Quantum Corp.(a) 400 8,500
- ----------------------------------------------------------
SMART Modular Technologies, Inc.(a) 400 11,100
- ----------------------------------------------------------
23,600
- ----------------------------------------------------------
COMPUTER (SOFTWARE & SERVICES) - 8.88%
Avant! Corp.(a) 200 3,200
- ----------------------------------------------------------
Axent Technologies, Inc.(a) 200 6,113
- ----------------------------------------------------------
Best Software, Inc.(a) 550 13,063
- ----------------------------------------------------------
Cadence Design Systems, Inc.(a) 400 11,900
- ----------------------------------------------------------
Complete Business Solutions, Inc.(a) 400 13,550
- ----------------------------------------------------------
Concord Communications, Inc.(a) 100 5,675
- ----------------------------------------------------------
Concord EFS, Inc.(a) 300 12,712
- ----------------------------------------------------------
DA Consulting Group, Inc.(a) 300 6,562
- ----------------------------------------------------------
Datastream Systems, Inc.(a) 600 6,900
- ----------------------------------------------------------
Dendrite International, Inc.(a) 200 4,994
- ----------------------------------------------------------
Electronic Arts, Inc.(a) 100 5,612
- ----------------------------------------------------------
HNC Software, Inc.(a) 300 12,131
- ----------------------------------------------------------
Hyperion Solutions Corp.(a) 190 3,420
- ----------------------------------------------------------
InfoCure Corp.(a) 500 16,375
- ----------------------------------------------------------
Intuit, Inc.(a) 200 14,500
- ----------------------------------------------------------
Learning Company, Inc. (The)(a) 150 3,891
- ----------------------------------------------------------
Manhattan Associates, Inc.(a) 100 2,725
- ----------------------------------------------------------
Mastech Corp.(a) 400 11,450
- ----------------------------------------------------------
Medical Manager Corp.(a) 700 21,963
- ----------------------------------------------------------
Mercury Interactive Corp.(a) 200 12,650
- ----------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-141
<PAGE> 224
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER (SOFTWARE & SERVICES) -- (CONTINUED)
Network Associates, Inc.(a) 200 $ 13,250
- -------------------------------------------------------------------
Platinum Technology, Inc.(a) 400 7,650
- -------------------------------------------------------------------
Rational Software Corp.(a) 300 7,950
- -------------------------------------------------------------------
Sterling Commerce, Inc.(a) 300 13,500
- -------------------------------------------------------------------
Synopsys, Inc.(a) 200 10,850
- -------------------------------------------------------------------
Transaction Systems Architects, Inc.-Class A(a) 200 10,000
- -------------------------------------------------------------------
Unigraphics Solutions, Inc.(a) 300 4,350
- -------------------------------------------------------------------
USWeb Corp.(a) 400 10,550
- -------------------------------------------------------------------
Visio Corp.(a) 300 10,969
- -------------------------------------------------------------------
Walker Interactive Systems, Inc.(a) 500 3,375
- -------------------------------------------------------------------
281,830
- -------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.39%
Blyth Industries, Inc.(a) 400 12,500
- -------------------------------------------------------------------
CONSUMER FINANCE - 0.60%
American Capital Strategies, Ltd. 200 3,450
- -------------------------------------------------------------------
AmeriCredit Corp.(a) 700 9,669
- -------------------------------------------------------------------
Cash America International, Inc. 300 4,556
- -------------------------------------------------------------------
United Panam Financial Corp.(a) 300 1,256
- -------------------------------------------------------------------
18,931
- -------------------------------------------------------------------
CONTAINERS (METAL & GLASS) - 0.39%
Silgan Holdings, Inc.(a) 450 12,509
- -------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.91%
JP Foodservice, Inc.(a) 200 9,800
- -------------------------------------------------------------------
McKesson Corp. 100 7,906
- -------------------------------------------------------------------
Performance Food Group Co.(a) 400 11,250
- -------------------------------------------------------------------
28,956
- -------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.19%
AFC Cable Systems, Inc.(a) 200 6,725
- -------------------------------------------------------------------
American Power Conversion Corp.(a) 200 9,688
- -------------------------------------------------------------------
PCD, Inc.(a) 200 2,600
- -------------------------------------------------------------------
Pinnacle Systems, Inc.(a) 200 7,150
- -------------------------------------------------------------------
SCI Systems, Inc.(a) 200 11,550
- -------------------------------------------------------------------
37,713
- -------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.42%
Quanta Services, Inc.(a) 600 13,238
- -------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 1.03%
Apex PC Solutions, Inc.(a) 200 5,775
- -------------------------------------------------------------------
Microchip Technology, Inc.(a) 300 11,100
- -------------------------------------------------------------------
Sipex Corp.(a) 300 10,538
- -------------------------------------------------------------------
Unitrode Corp.(a) 300 5,250
- -------------------------------------------------------------------
32,663
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ENTERTAINMENT - 0.96%
Loews Cineplex Entertainment Corp.(a) 800 $ 8,100
- ------------------------------------------------------------------
Metro-Goldwyn-Mayer, Inc.(a) 458 6,040
- ------------------------------------------------------------------
Metromedia International Group, Inc.(a) 600 3,263
- ------------------------------------------------------------------
SFX Entertainment, Inc.-Class A(a) 200 10,975
- ------------------------------------------------------------------
The Sports Club Co., Inc.(a) 500 1,969
- ------------------------------------------------------------------
30,347
- ------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.54%
Etec Systems, Inc.(a) 200 8,000
- ------------------------------------------------------------------
Photronics, Inc.(a) 200 4,794
- ------------------------------------------------------------------
Teradyne, Inc.(a) 100 4,238
- ------------------------------------------------------------------
17,032
- ------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.02%
FirstCity Financial Corp.(a) 300 3,881
- ------------------------------------------------------------------
Hamilton Bancorp, Inc.(a) 200 5,337
- ------------------------------------------------------------------
Medallion Financial Corp. 400 5,725
- ------------------------------------------------------------------
PMI Group, Inc. (The) 100 4,938
- ------------------------------------------------------------------
Rock Financial Corp. 200 2,600
- ------------------------------------------------------------------
SEI Investments Co. 100 9,938
- ------------------------------------------------------------------
32,419
- ------------------------------------------------------------------
FOODS - 1.63%
American Italian Pasta Co.-Class A(a) 450 11,869
- ------------------------------------------------------------------
International Home Foods, Inc.(a) 600 10,125
- ------------------------------------------------------------------
Keebler Foods Co.(a) 300 11,288
- ------------------------------------------------------------------
Suiza Foods Corp.(a) 200 10,187
- ------------------------------------------------------------------
Universal Foods Corp. 300 8,231
- ------------------------------------------------------------------
51,700
- ------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.30%
Harrah's Entertainment, Inc.(a) 300 4,706
- ------------------------------------------------------------------
International Game Technology 200 4,863
- ------------------------------------------------------------------
9,569
- ------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 0.40%
Allergan, Inc. 100 6,475
- ------------------------------------------------------------------
IVAX Corp.(a) 500 6,219
- ------------------------------------------------------------------
12,694
- ------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 2.37%
Barr Laboratories, Inc.(a) 300 14,400
- ------------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 600 9,113
- ------------------------------------------------------------------
Forest Laboratories, Inc.(a) 200 10,637
- ------------------------------------------------------------------
Jones Medical Industries, Inc. 300 10,950
- ------------------------------------------------------------------
Mylan Laboratories, Inc. 400 12,600
- ------------------------------------------------------------------
Parexel International Corp.(a) 200 5,000
- ------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 200 12,575
- ------------------------------------------------------------------
75,275
- ------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-142
<PAGE> 225
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.52%
Health Management Associates, Inc.-Class A(a) 400 $ 8,650
- -----------------------------------------------------------------
New American Healthcare Corp.(a) 700 7,831
- -----------------------------------------------------------------
16,481
- -----------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.33%
Sunrise Assisted Living, Inc.(a) 200 10,375
- -----------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.64%
Alternative Living Services, Inc.(a) 200 6,850
- -----------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 200 13,425
- -----------------------------------------------------------------
20,275
- -----------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.14%
Biomet, Inc. 200 8,050
- -----------------------------------------------------------------
Coopers Companies, Inc.(a) 400 8,275
- -----------------------------------------------------------------
Cyberonics, Inc.(a) 300 4,050
- -----------------------------------------------------------------
DVI, Inc.(a) 300 5,438
- -----------------------------------------------------------------
Henry Schein, Inc.(a) 300 13,425
- -----------------------------------------------------------------
Lifecore Biomedical, Inc.(a) 400 4,100
- -----------------------------------------------------------------
Maxxim Medical, Inc.(a) 300 8,925
- -----------------------------------------------------------------
MiniMed, Inc.(a) 100 10,475
- -----------------------------------------------------------------
PSS World Medical, Inc.(a) 500 11,500
- -----------------------------------------------------------------
Serologicals Corp.(a) 300 9,000
- -----------------------------------------------------------------
Steris Corp.(a) 100 2,843
- -----------------------------------------------------------------
Sybron International Corp.(a) 500 13,594
- -----------------------------------------------------------------
99,675
- -----------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 3.40%
Advance Paradigm, Inc.(a) 400 14,000
- -----------------------------------------------------------------
Capital Senior Living Corp.(a) 300 4,181
- -----------------------------------------------------------------
Covance, Inc.(a) 200 5,825
- -----------------------------------------------------------------
First Consulting Group, Inc.(a) 500 10,250
- -----------------------------------------------------------------
MAXIMUS, Inc.(a) 400 14,800
- -----------------------------------------------------------------
Ocular Sciences, Inc.(a) 300 8,025
- -----------------------------------------------------------------
Omnicare, Inc. 200 6,950
- -----------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 600 11,663
- -----------------------------------------------------------------
PharMerica, Inc.(a) 400 2,400
- -----------------------------------------------------------------
Renal Care Group, Inc.(a) 200 5,762
- -----------------------------------------------------------------
Renex Corp.(a) 300 2,175
- -----------------------------------------------------------------
Superior Consultant Holdings Corp.(a) 200 8,700
- -----------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 600 12,975
- -----------------------------------------------------------------
107,706
- -----------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.18%
Service Experts, Inc.(a) 200 5,850
- -----------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.18%
Dial Corp. (The) 200 5,775
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEWARES - 0.35%
Central Garden and Pet Co.(a) 250 $ 3,594
- ---------------------------------------------------------------
Helen of Troy Ltd.(a) 200 2,937
- ---------------------------------------------------------------
Windmere-Durable Holdings, Inc.(a) 600 4,650
- ---------------------------------------------------------------
11,181
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.79%
Healthcare Recoveries, Inc.(a) 700 11,900
- ---------------------------------------------------------------
Nationwide Financial Services, Inc.-Class A 200 10,338
- ---------------------------------------------------------------
PAULA Financial 300 2,812
- ---------------------------------------------------------------
25,050
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.27%
Horace Mann Educators Corp. 300 8,550
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.44%
Amerin Corp.(a) 350 8,269
- ---------------------------------------------------------------
CMAC Investment Corp. 100 4,594
- ---------------------------------------------------------------
CNA Surety Corp. 500 7,875
- ---------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 200 7,788
- ---------------------------------------------------------------
Fidelity National Financial, Inc. 220 6,710
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 300 5,287
- ---------------------------------------------------------------
Reliance Group Holdings, Inc. 400 5,150
- ---------------------------------------------------------------
45,673
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.57%
EVEREN Capital Corp. 400 9,100
- ---------------------------------------------------------------
Hambrecht & Quist Group(a) 400 9,075
- ---------------------------------------------------------------
18,175
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT - 1.06%
Affiliated Managers Group, Inc.(a) 500 14,938
- ---------------------------------------------------------------
Conning Corp. 100 2,075
- ---------------------------------------------------------------
Knight/Trimark Group, Inc.-Class A(a) 700 16,756
- ---------------------------------------------------------------
33,769
- ---------------------------------------------------------------
LAND DEVELOPMENT - 0.12%
Silverleaf Resorts, Inc.(a) 400 3,725
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.79%
Family Golf Centers, Inc.(a) 400 7,900
- ---------------------------------------------------------------
GTECH Holdings Corp.(a) 200 5,125
- ---------------------------------------------------------------
International Speedway Corp.-Class A 300 12,150
- ---------------------------------------------------------------
25,175
- ---------------------------------------------------------------
LODGING-HOTELS - 0.55%
Prime Hospitality Corp.(a) 400 4,225
- ---------------------------------------------------------------
Royal Caribbean Cruises Ltd. 300 11,100
- ---------------------------------------------------------------
Vail Resorts, Inc.(a) 100 2,200
- ---------------------------------------------------------------
17,525
- ---------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-143
<PAGE> 226
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED) - 2.36%
Alpine Group, Inc. (The)(a) 300 $ 4,500
- ----------------------------------------------------------------
American Bank Note Holographics, Inc.(a) 1,000 17,500
- ----------------------------------------------------------------
Armor Holdings, Inc.(a) 200 2,288
- ----------------------------------------------------------------
First Years, Inc. (The) 700 11,068
- ----------------------------------------------------------------
Howmet International, Inc.(a) 600 9,675
- ----------------------------------------------------------------
Mettler-Toledo International, Inc.(a) 400 11,225
- ----------------------------------------------------------------
Superior TeleCom, Inc. 200 9,450
- ----------------------------------------------------------------
US Filter Corp.(a) 300 6,862
- ----------------------------------------------------------------
U.S.A. Floral Products, Inc.(a) 200 2,300
- ----------------------------------------------------------------
74,868
- ----------------------------------------------------------------
METAL FABRICATORS - 0.22%
Metals USA, Inc.(a) 700 6,825
- ----------------------------------------------------------------
NATURAL GAS - 0.11%
KN Energy, Inc. 100 3,638
- ----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.70%
Daisytek International Corp.(a) 400 7,600
- ----------------------------------------------------------------
Knoll, Inc.(a) 200 5,925
- ----------------------------------------------------------------
School Specialty, Inc.(a) 400 8,550
- ----------------------------------------------------------------
22,075
- ----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.30%
Cal Dive International, Inc.(a) 200 4,150
- ----------------------------------------------------------------
Newpark Resources, Inc.(a) 800 5,450
- ----------------------------------------------------------------
9,600
- ----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.46%
Anadarko Petroleum Corp. 300 9,263
- ----------------------------------------------------------------
Apache Corp. 300 7,594
- ----------------------------------------------------------------
Devon Energy Corp. 300 9,206
- ----------------------------------------------------------------
Newfield Exploration Co.(a) 100 2,087
- ----------------------------------------------------------------
Noble Affiliates, Inc. 200 4,925
- ----------------------------------------------------------------
Ocean Energy, Inc.(a) 200 1,262
- ----------------------------------------------------------------
Snyder Oil Corp. 500 6,656
- ----------------------------------------------------------------
Union Pacific Resources Group, Inc. 600 5,438
- ----------------------------------------------------------------
46,431
- ----------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.06%
Wausau-Mosinee Paper Corp. 100 1,768
- ----------------------------------------------------------------
PERSONAL CARE - 1.52%
Chattem, Inc.(a) 300 14,363
- ----------------------------------------------------------------
NBTY, Inc.(a) 700 4,988
- ----------------------------------------------------------------
Playtex Products, Inc.(a) 600 9,637
- ----------------------------------------------------------------
Rexall Sundown, Inc.(a) 400 5,600
- ----------------------------------------------------------------
Steiner Leisure Ltd.(a) 300 9,600
- ----------------------------------------------------------------
Twinlab Corp.(a) 300 3,937
- ----------------------------------------------------------------
48,125
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING - 0.93%
IDG Books Worldwide, Inc.-Class A(a) 700 $ 12,075
- -----------------------------------------------------------------
Petersen Companies, Inc. (The)-Class A(a) 200 6,775
- -----------------------------------------------------------------
Scholastic Corp.(a) 200 10,725
- -----------------------------------------------------------------
29,575
- -----------------------------------------------------------------
RAILROADS - 0.31%
Kansas City Southern Industries, Inc. 200 9,837
- -----------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 1.96%
AMRESCO Capital Trust, Inc. 350 3,325
- -----------------------------------------------------------------
Apartment Investment & Management Co.-Class A 200 7,438
- -----------------------------------------------------------------
CarrAmerica Realty Corp. 200 4,800
- -----------------------------------------------------------------
CCA Prison Realty Trust 300 6,150
- -----------------------------------------------------------------
Colonial Properties Trust 200 5,325
- -----------------------------------------------------------------
Corporate Office Properties Trust, Inc. 600 4,275
- -----------------------------------------------------------------
Correctional Properties Trust 400 7,225
- -----------------------------------------------------------------
Kilroy Realty Corp. 300 6,900
- -----------------------------------------------------------------
Manufactured Home Communities, Inc. 300 7,519
- -----------------------------------------------------------------
MeriStar Hospitality Corp. 200 3,712
- -----------------------------------------------------------------
Weeks Corp. 200 5,637
- -----------------------------------------------------------------
62,306
- -----------------------------------------------------------------
RESTAURANTS - 1.49%
Avado Brands, Inc. 600 4,988
- -----------------------------------------------------------------
Brinker International, Inc.(a) 500 14,438
- -----------------------------------------------------------------
CEC Entertainment, Inc.(a) 350 9,712
- -----------------------------------------------------------------
Dave & Buster's, Inc.(a) 300 6,918
- -----------------------------------------------------------------
Starbucks Corp.(a) 200 11,225
- -----------------------------------------------------------------
47,281
- -----------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 0.43%
CDW Computer Centers, Inc.(a) 100 9,593
- -----------------------------------------------------------------
Tech Data Corp.(a) 100 4,025
- -----------------------------------------------------------------
13,618
- -----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.47%
Family Dollar Stores, Inc. 600 13,200
- -----------------------------------------------------------------
K & G Men's Center, Inc.(a) 200 1,775
- -----------------------------------------------------------------
14,975
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.18%
American Stores Co. 200 7,388
- -----------------------------------------------------------------
BJ's Wholesale Club, Inc.(a) 200 9,262
- -----------------------------------------------------------------
Whole Foods Market, Inc.(a) 200 9,675
- -----------------------------------------------------------------
Wild Oats Markets, Inc.(a) 350 11,025
- -----------------------------------------------------------------
37,350
- -----------------------------------------------------------------
RETAIL (HOME SHOPPING) - 0.43%
Micro Warehouse, Inc.(a) 400 13,525
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-144
<PAGE> 227
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY) - 5.10%
Casey's General Stores, Inc. 200 $ 2,606
- ------------------------------------------------------------
CSK Auto Corp.(a) 600 16,013
- ------------------------------------------------------------
Electronics Boutique Holdings Corp.(a) 400 8,150
- ------------------------------------------------------------
Group 1 Automotive, Inc.(a) 200 5,200
- ------------------------------------------------------------
Guitar Center, Inc.(a) 300 7,388
- ------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 300 7,275
- ------------------------------------------------------------
Hot Topic, Inc.(a) 100 1,288
- ------------------------------------------------------------
Just for Feet, Inc.(a) 300 5,213
- ------------------------------------------------------------
Linens 'N Things, Inc.(a) 600 23,775
- ------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 300 4,950
- ------------------------------------------------------------
Michaels Stores, Inc.(a) 300 5,428
- ------------------------------------------------------------
Musicland Stores Corp.(a) 600 8,962
- ------------------------------------------------------------
PETsMART, Inc.(a) 400 4,400
- ------------------------------------------------------------
Pier 1 Imports, Inc.(a) 300 2,906
- ------------------------------------------------------------
Rainbow Rentals, Inc.(a) 300 2,962
- ------------------------------------------------------------
Rent-Way, Inc.(a) 376 9,151
- ------------------------------------------------------------
Renters Choice, Inc.(a) 400 12,700
- ------------------------------------------------------------
Select Comfort Corp.(a) 100 2,643
- ------------------------------------------------------------
Williams-Sonoma, Inc.(a) 400 16,125
- ------------------------------------------------------------
Zale Corp.(a) 450 14,513
- ------------------------------------------------------------
161,648
- ------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.51%
Abercrombie & Fitch Co.-Class A(a) 100 7,075
- ------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 200 6,350
- ------------------------------------------------------------
Stage Stores, Inc.(a) 300 2,812
- ------------------------------------------------------------
16,237
- ------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.27%
Allied Capital Corp. 500 8,656
- ------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 2.94%
Abacus Direct Corp.(a) 100 4,550
- ------------------------------------------------------------
Acxiom Corp.(a) 420 13,020
- ------------------------------------------------------------
Forrester Research, Inc.(a) 200 8,750
- ------------------------------------------------------------
HA-LO Industries, Inc.(a) 300 11,288
- ------------------------------------------------------------
Information Resources, Inc.(a) 200 2,037
- ------------------------------------------------------------
Lamar Advertising Co.(a) 450 16,762
- ------------------------------------------------------------
Market Facts, Inc.(a) 300 7,800
- ------------------------------------------------------------
Nielsen Media Research 333 5,994
- ------------------------------------------------------------
Snyder Communications, Inc.(a) 300 10,125
- ------------------------------------------------------------
Young & Rubicam, Inc.(a) 400 12,950
- ------------------------------------------------------------
93,276
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER) - 6.65%
ABR Information Services, Inc.(a) 500 $ 9,812
- -------------------------------------------------------------
Advantage Learning Systems, Inc.(a) 100 6,575
- -------------------------------------------------------------
Apollo Group, Inc.(a) 400 13,550
- -------------------------------------------------------------
Avis Rent A Car, Inc.(a) 300 7,256
- -------------------------------------------------------------
Bright Horizons Family Solutions, Inc.(a) 400 10,800
- -------------------------------------------------------------
Career Education Corp.(a) 100 3,000
- -------------------------------------------------------------
F.Y.I., Inc.(a) 300 9,600
- -------------------------------------------------------------
G & K Services, Inc.-Class A 100 5,325
- -------------------------------------------------------------
Galileo International, Inc. 300 13,050
- -------------------------------------------------------------
Hertz Corp.-Class A 200 9,125
- -------------------------------------------------------------
INSpire Insurance Solutions, Inc.(a) 300 5,512
- -------------------------------------------------------------
Iron Mountain, Inc.(a) 350 12,622
- -------------------------------------------------------------
LaSalle Partners, Inc.(a) 100 2,944
- -------------------------------------------------------------
MemberWorks, Inc.(a) 200 5,900
- -------------------------------------------------------------
Metzler Group, Inc.(a) 300 14,606
- -------------------------------------------------------------
Pegasus Systems, Inc.(a) 500 18,000
- -------------------------------------------------------------
Pittston Brink's Group 100 3,188
- -------------------------------------------------------------
Primark Corp.(a) 200 5,425
- -------------------------------------------------------------
Protection One, Inc. 900 7,706
- -------------------------------------------------------------
Regis Corp. 300 12,000
- -------------------------------------------------------------
Strayer Education, Inc. 100 3,525
- -------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 300 9,150
- -------------------------------------------------------------
Trammell Crow Co.(a) 100 2,800
- -------------------------------------------------------------
Travel Services International, Inc.(a) 500 15,250
- -------------------------------------------------------------
United Road Services, Inc.(a) 100 1,838
- -------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 100 2,369
- -------------------------------------------------------------
210,928
- -------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 2.56%
Cotelligent Group, Inc.(a) 300 6,394
- -------------------------------------------------------------
Insight Enterprises, Inc.(a) 250 12,719
- -------------------------------------------------------------
Keane, Inc.(a) 100 3,993
- -------------------------------------------------------------
Policy Management Systems Corp.(a) 300 15,150
- -------------------------------------------------------------
SunGard Data Systems, Inc.(a) 700 27,781
- -------------------------------------------------------------
Sykes Enterprises, Inc.(a) 500 15,250
- -------------------------------------------------------------
81,287
- -------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-145
<PAGE> 228
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING) - 3.94%
Billing Concepts Corp.(a) 300 $ 3,300
- -------------------------------------------------------------------------
BISYS Group, Inc.(a) 450 23,231
- -------------------------------------------------------------------------
Computer Horizons Corp.(a) 300 7,988
- -------------------------------------------------------------------------
CSG Systems International, Inc.(a) 300 23,700
- -------------------------------------------------------------------------
DST Systems, Inc.(a) 100 5,706
- -------------------------------------------------------------------------
Fiserv, Inc.(a) 200 10,288
- -------------------------------------------------------------------------
4Front Software International, Inc.(a) 800 8,850
- -------------------------------------------------------------------------
Lason Holdings, Inc.(a) 200 11,637
- -------------------------------------------------------------------------
MedQuist, Inc.(a) 200 7,900
- -------------------------------------------------------------------------
NOVA Corp.(a) 300 10,406
- -------------------------------------------------------------------------
Transaction Network Services, Inc.(a) 600 12,037
- -------------------------------------------------------------------------
125,043
- -------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.77%
Labor Ready, Inc.(a) 400 7,875
- -------------------------------------------------------------------------
Metamor Worldwide, Inc.(a) 400 10,000
- -------------------------------------------------------------------------
Syntel, Inc.(a) 100 1,131
- -------------------------------------------------------------------------
Vincam Group, Inc. (The)(a) 300 5,269
- -------------------------------------------------------------------------
24,275
- -------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 1.20%
Casella Waste Systems, Inc.(a) 500 18,563
- -------------------------------------------------------------------------
Corrections Corp. of America(a) 300 5,287
- -------------------------------------------------------------------------
Wackenhut Corrections Corp.(a) 300 8,587
- -------------------------------------------------------------------------
Waste Connections, Inc.(a) 300 5,513
- -------------------------------------------------------------------------
37,950
- -------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.20%
Associated Group, Inc. (The)-Class A(a) 400 17,200
- -------------------------------------------------------------------------
International Telecommunication Data Systems, Inc.(a) 500 7,375
- -------------------------------------------------------------------------
Metromedia Fiber Network, Inc.(a) 400 13,400
- -------------------------------------------------------------------------
37,975
- -------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.35%
Global TeleSystems Group, Inc.(a) 200 11,150
- -------------------------------------------------------------------------
TELEPHONE - 0.27%
ICG Communications, Inc.(a) 400 8,600
- -------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.31%
Columbia Sportswear Co.(a) 400 6,750
- -------------------------------------------------------------------------
Nautica Enterprises, Inc.(a) 200 3,000
- -------------------------------------------------------------------------
9,750
- -------------------------------------------------------------------------
WASTE MANAGEMENT - 1.24%
Catalytica, Inc.(a) 500 9,000
- -------------------------------------------------------------------------
Safety-Kleen Corp(a) 700 9,887
- -------------------------------------------------------------------------
Superior Services, Inc.(a) 400 8,025
- -------------------------------------------------------------------------
U.S. Liquids Inc.(a) 400 9,000
- -------------------------------------------------------------------------
Waste Industries, Inc.(a) 200 3,450
- -------------------------------------------------------------------------
39,362
- -------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $2,487,893) 2,772,251
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.44%
BERMUDA - 0.37%
Annuity and Life Re, Ltd. (Insurance-Life/Health) 100 $ 2,700
- ------------------------------------------------------------------------------
Global Crossing Ltd. (Telecommunications-Long Distance)(a) 200 9,025
- ------------------------------------------------------------------------------
11,725
- ------------------------------------------------------------------------------
CANADA - 0.47%
Alliance Atlantis Communications Corp.-Class B
(Entertainment)(a) 100 1,644
- ------------------------------------------------------------------------------
Celestica, Inc. (Electronics-Semiconductors)(a) 300 7,406
- ------------------------------------------------------------------------------
Four Seasons Hotels, Inc. (Lodging-Hotels) 200 5,850
- ------------------------------------------------------------------------------
14,900
- ------------------------------------------------------------------------------
CAYMAN ISLANDS - 0.43%
Sutton Group Financial Services Ltd. (Insurance-
Life/Health)(a) 1,000 13,750
- ------------------------------------------------------------------------------
IRELAND - 0.54%
Ryanair Holdings PLC-ADR (Airlines)(a) 200 7,550
- ------------------------------------------------------------------------------
Saville Systems Ireland PLC-ADR (Services-Data
Processing)(a) 500 9,500
- ------------------------------------------------------------------------------
17,050
- ------------------------------------------------------------------------------
ISRAEL - 0.88%
Check Point Software Technologies Ltd. (Computer- Software
& Services(a) 100 4,581
- ------------------------------------------------------------------------------
Galileo Technology Ltd. (Electronics-Semiconductors)(a) 700 18,900
- ------------------------------------------------------------------------------
NICE-Systems Ltd. (Communications-Equipment)(a) 200 4,325
- ------------------------------------------------------------------------------
27,806
- ------------------------------------------------------------------------------
UNITED KINGDOM - 0.75%
ESG Re Limited (Insurance-Life/Health) 100 2,025
- ------------------------------------------------------------------------------
LucasVarity PLC-ADR (Auto Parts & Equipment) 200 6,700
- ------------------------------------------------------------------------------
NTL Inc. (Telephone)(a) 200 11,287
- ------------------------------------------------------------------------------
Signet Group PLC (Retail-General Merchandise)(a) 4,000 2,044
- ------------------------------------------------------------------------------
Stolt Comex Seaway, S.A. (Oil & Gas-Exploration &
Production)(a) 250 1,687
- ------------------------------------------------------------------------------
23,743
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$98,384) 108,974
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-146
<PAGE> 229
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT(b) - 7.74%
SBC Warburg Dillion Read, Inc., 4.75%, 01/04/99(c) (Cost
$245,668) $245,668 $ 245,668
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.56% 3,126,893
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.44% 45,575
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $3,172,468
==============================================================================
</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 is at least 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 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviation:
ADR -- American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-147
<PAGE> 230
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value (cost $2,831,945) $ 3,126,893
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 26,986
- ---------------------------------------------------------------------
Dividends and interest 1,092
- ---------------------------------------------------------------------
Investments sold 8,881
- ---------------------------------------------------------------------
Reimbursement from advisor 50,307
- ---------------------------------------------------------------------
Investment for deferred compensation plan 2,777
- ---------------------------------------------------------------------
Total assets 3,216,936
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 34,293
- ---------------------------------------------------------------------
Deferred compensation plan 2,777
- ---------------------------------------------------------------------
Accrued directors' fees 410
- ---------------------------------------------------------------------
Accrued operating expenses 6,988
- ---------------------------------------------------------------------
Total liabilities 44,468
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $ 3,172,468
- ---------------------------------------------------------------------
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 344,450
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $9.21
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 19,212
- --------------------------------------------------------------------
Dividends 4,034
- --------------------------------------------------------------------
Total investment income 23,246
- --------------------------------------------------------------------
EXPENSES:
Advisory fees 9,522
- --------------------------------------------------------------------
Administrative services fees 26,658
- --------------------------------------------------------------------
Custodian fees 20,224
- --------------------------------------------------------------------
Directors' fees and expenses 6,710
- --------------------------------------------------------------------
Legal fees 7,847
- --------------------------------------------------------------------
Other 2,699
- --------------------------------------------------------------------
Total expenses 73,660
- --------------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (58,330)
- --------------------------------------------------------------------
Expenses paid indirectly (210)
- --------------------------------------------------------------------
Net expenses 15,120
- --------------------------------------------------------------------
Net investment income 8,126
- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (142,359)
- --------------------------------------------------------------------
Futures contracts (111,690)
- --------------------------------------------------------------------
Foreign currencies 28
- --------------------------------------------------------------------
(254,021)
- --------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 294,948
- --------------------------------------------------------------------
Net gain from investment securities and futures contracts 40,927
- --------------------------------------------------------------------
Net increase in net assets resulting from operations $ 49,053
====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-148
<PAGE> 231
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 8,126
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and futures
contracts (254,021)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 294,948
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 49,053
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (12,074)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 3,135,489
- ------------------------------------------------------------------------------
Net increase in net assets 3,172,468
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------------
End of period $3,172,468
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,134,630
- ------------------------------------------------------------------------------
Undistributed net investment income (3,061)
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities
and futures contracts (254,049)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 294,948
- ------------------------------------------------------------------------------
$3,172,468
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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 Development Fund (the "Fund"). The Fund's investment
objective is long-term capital appreciation. The Fund commenced operations on
May 1, 1998. 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.
Occasionally, events affecting the values of such securities and such
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-149
<PAGE> 232
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, 1998
additional paid-in capital was decreased by $859, undistributed net
investment income was increased by $887 and undistributed net realized
gains was decreased by $28 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. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $204,323, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
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 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.
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 $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. During the
period May 1, 1998 (date operations commenced) through December 31, 1998, AIM
waived advisory fees and reimbursed expenses of $58,330.
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 and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $26,658
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.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $210 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $210 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
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 period May 1, 1998 (date operations
commenced) through December 31, 1998 was $3,405,734 and $676,949,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 431,624
- ------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (160,611)
- ------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 271,013
========================================================================
Cost of investments for tax purposes is $2,855,880.
</TABLE>
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 as follows:
<TABLE>
<CAPTION>
1998
-------------------
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 403,978 $3,617,838
- -------------------------------------------------------------
Issued as reinvestment of distributions 1,426 12,074
- -------------------------------------------------------------
Reacquired (60,954) (494,423)
- -------------------------------------------------------------
344,450 $3,135,489
=============================================================
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-150
<PAGE> 233
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------------------- ------
Income from investment operations:
Net investment income 0.03(a)
- ----------------------------------------------------------------- ------
Net gains (losses) on securities (both realized and unrealized) (0.78)
- ----------------------------------------------------------------- ------
Total from investment operations (0.75)
- ----------------------------------------------------------------- ------
Less distributions:
Dividends from net investment income (0.04)
- ----------------------------------------------------------------- ------
Net asset value, end of period $ 9.21
================================================================= ======
Total return(b) (7.51)%
================================================================= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $3,172
================================================================= ======
Ratio of expenses to average net assets(c) 1.21%(d)
================================================================= ======
Ratio of net investment income to average net assets(e) 0.62%
================================================================= ======
Portfolio turnover rate 45%
================================================================= ======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns is not annualized.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
5.80% (annualized).
(d) Ratios are annualized and based on average net assets of $1,891,388.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement was (3.97)% (annualized).
AIM V.I. CAPITAL DEVELOPMENT FUND
FS-151
<PAGE> 234
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, 1998, 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 three 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, 1998, 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, 1998, 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 three 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 3, 1999
AIM V.I. DIVERSIFIED INCOME FUND
FS-152
<PAGE> 235
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 67.63%
AEROSPACE/DEFENSE - 0.35%
Pacific Aerospace & Electronics, Sr. Sub Notes,
11.25%, 08/01/05 (Acquired 07/24/98; Cost
$450,000)(b) $ 450,000 $ 339,750
- ------------------------------------------------------------------------------
AIR FREIGHT - 0.44%
Atlas Air, Inc., Sr. Notes, 10.75%, 08/01/05 400,000 422,000
- ------------------------------------------------------------------------------
AIRLINES - 2.74%
Airplanes Pass Through Trust, Series D Gtd. Sub.
Bonds, 10.875%, 03/15/19 300,000 315,189
- ------------------------------------------------------------------------------
America West Airlines, Inc., Pass Through
Certificates, 6.86%, 07/02/04 863,999 862,012
- ------------------------------------------------------------------------------
Delta Air Lines, Inc., Deb., 9.00%, 05/15/16 825,000 947,917
- ------------------------------------------------------------------------------
United Air Lines, Inc., Pass Through Certificates,
9.56%, 10/19/18 425,000 521,603
- ------------------------------------------------------------------------------
2,646,721
- ------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.41%
Advance Stores Co. Inc., Series B Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 04/15/08 390,000 397,800
- ------------------------------------------------------------------------------
AUTOMOBILES - 0.52%
General Motors Corp., Deb., 8.80%, 03/01/21 400,000 505,973
- ------------------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.60%
Regions Financial Corp., Sub. Notes,
7.75%, 09/15/24 500,000 576,015
- ------------------------------------------------------------------------------
BANKS (MONEY CENTER) - 1.73%
Deutsche Bank Financial, Unsec. Gtd. Sub. Deb., 6.70%,
12/13/06 750,000 790,343
- ------------------------------------------------------------------------------
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 800,000 877,888
- ------------------------------------------------------------------------------
1,668,231
- ------------------------------------------------------------------------------
BANKS (REGIONAL) - 1.45%
Mercantile Bancorp Inc., Unsec. Sub. Notes, 7.30%,
06/15/07 1,000,000 1,095,900
- ------------------------------------------------------------------------------
Mercantile Bank Inc., Sub. Notes,
6.375%, 01/15/04 300,000 307,056
- ------------------------------------------------------------------------------
1,402,956
- ------------------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 1.33%
Coca-Cola Enterprises, Inc., Putable Notes,
7.24%, 06/20/20(c) 5,000,000 1,282,200
- ------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.24%
Comcast Cable Communications, Notes,
8.50%, 05/01/27 500,000 627,470
- ------------------------------------------------------------------------------
CSC Holdings, Inc.,
Sr. Notes, 7.875%, 12/15/07 500,000 527,400
- ------------------------------------------------------------------------------
Sr. Unsec. Deb., 7.625%, 07/15/18 500,000 511,960
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE) -
(CONTINUED)
EchoStar DBS Corp., Sr. Sec. Gtd. Notes,
12.50%, 07/01/02 $ 430,000 $ 498,800
- -------------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc. Notes,
11.875%, 10/15/07(d) 1,000,000 462,500
- -------------------------------------------------------------------------------
TCI Communications, Inc., Sr. Notes,
8.00%, 08/01/05 850,000 958,435
- -------------------------------------------------------------------------------
USA Networks, Inc., Sr. Notes, 6.75%, 11/15/05
(Acquired 11/30/98; Cost $501,370)(b) 500,000 501,330
- -------------------------------------------------------------------------------
4,087,895
- -------------------------------------------------------------------------------
CHEMICALS - 2.41%
Airgas Inc., Medium Term Notes, 7.14%, 03/08/04 750,000 765,840
- -------------------------------------------------------------------------------
Nova Gas Transmission Ltd. (Canada), Yankee Deb.,
8.50%, 12/15/12 500,000 606,900
- -------------------------------------------------------------------------------
Solutia, Inc., Bonds, 6.72%, 10/15/37 750,000 762,000
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes,
11.75%, 08/15/06 220,000 190,300
- -------------------------------------------------------------------------------
2,325,040
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.47%
Dialog Corp. PLC (United Kingdom), Series A Sr. Sub.
Notes, 11.00%, 11/15/07 350,000 350,000
- -------------------------------------------------------------------------------
Northern Telecom (Canada), Yankee Notes,
6.00%, 09/01/03 100,000 101,482
- -------------------------------------------------------------------------------
451,482
- -------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.50%
Exodus Communications, Sr. Unsec. Notes, 11.25%,
07/01/08 480,000 484,800
- -------------------------------------------------------------------------------
CONSUMER FINANCE - 1.97%
GMAC, Notes, 9.00%, 10/15/02 750,000 836,985
- -------------------------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 1,000,000 1,064,040
- -------------------------------------------------------------------------------
1,901,025
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 0.15%
MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02 145,000 142,825
- -------------------------------------------------------------------------------
ELECTRIC COMPANIES - 3.56%
Cleveland Electric Illumination, Series D Sr. Sec.
Notes, 7.88%, 11/01/17 500,000 527,796
- -------------------------------------------------------------------------------
El Paso Electric Co.,
Series D Sec. First Mortgage Bonds,
8.90%, 02/01/06 500,000 563,250
- -------------------------------------------------------------------------------
Series E Sec. First Mortgage Bonds,
9.40%, 05/01/11 150,000 170,336
- -------------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes, 9.25%, 10/01/01 1,000,000 1,083,450
- -------------------------------------------------------------------------------
Series G Sr. Unsec. Notes, 7.75%, 10/01/08 1,000,000 1,093,100
- -------------------------------------------------------------------------------
3,437,932
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-153
<PAGE> 236
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT - 0.22%
Electronic Retailing Systems International, Inc.,
Sr. Disc. Notes, 13.25%, 02/01/04(d) $ 590,000 $ 215,350
- ------------------------------------------------------------------------------
ENTERTAINMENT - 1.42%
Ascent Entertainment Group, Sr. Sec. Disc. Notes,
11.875%, 12/15/04(d) 350,000 211,750
- ------------------------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.125%, 01/15/13 500,000 628,805
- ------------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 500,000 526,020
- ------------------------------------------------------------------------------
1,366,575
- ------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.72%
Associates Corp. of North America, Series B Sr. Deb.,
7.95%, 02/15/10 750,000 867,908
- ------------------------------------------------------------------------------
Finova Capital Corp., Unsec. Notes,
7.40%, 05/06/06 750,000 789,195
- ------------------------------------------------------------------------------
1,657,103
- ------------------------------------------------------------------------------
FOODS - 2.07%
AmeriServ Food Co., Gtd. Notes,
10.125%, 07/15/07 320,000 280,000
- ------------------------------------------------------------------------------
ConAgra Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,388,972
- ------------------------------------------------------------------------------
Del Monte Corp./Foods Co., Sr. Unsec. Sub. Notes,
12.25%, 04/15/07 290,000 330,600
- ------------------------------------------------------------------------------
1,999,572
- ------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.39%
Venetian Casino Resort LLC, Gtd. Mortgage Notes,
12.25%, 11/15/04 400,000 376,000
- ------------------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.80%
Tenet Healthcare Corp., Sr. Notes, 8.00%, 01/15/05 750,000 769,942
- ------------------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.39%
Mariner Post-Acute Network, Inc.,
Series B Sr. Unsec. Disc. Sub. Notes,
10.50%, 11/01/07(d) 380,000 165,300
- ------------------------------------------------------------------------------
Series B Sr. Unsec. Sub. Notes, 9.50%, 11/01/07 270,000 209,250
- ------------------------------------------------------------------------------
374,550
- ------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.79%
Alaris Medical Systems, Sr. Unsec. Gtd. Sub. Deb.,
9.75%, 12/01/06 300,000 306,000
- ------------------------------------------------------------------------------
Dade International Inc., Series B Sr. Sub. Notes,
11.125%, 05/01/06 80,000 89,000
- ------------------------------------------------------------------------------
Mediq Inc., Sr. Unsec. Gtd. Sub. Notes,
11.00%, 06/01/08 380,000 366,700
- ------------------------------------------------------------------------------
761,700
- ------------------------------------------------------------------------------
HOUSEWARES - 0.49%
Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 500,000 472,500
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
INSURANCE (LIFE/HEALTH) - 0.89%
Americo Life, Inc., Sr. Sub. Notes, 9.25%, 06/01/05 $ 75,000 $ 77,250
- -----------------------------------------------------------------------------
Torchmark Corp., Notes, 7.875%, 05/15/23 750,000 779,640
- -----------------------------------------------------------------------------
856,890
- -----------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.48%
Orion Capital Trust II, Gtd. Notes,
7.70%, 04/15/28 500,000 459,410
- -----------------------------------------------------------------------------
IRON & STEEL - 0.33%
Acme Metal, Inc., Sr. Unsec. Gtd. Deb.,
10.875%, 12/15/07(e) 588,000 79,380
- -----------------------------------------------------------------------------
GS Industries, Inc., Sr. Gtd. Notes,
12.00%, 09/01/04 350,000 239,750
- -----------------------------------------------------------------------------
319,130
- -----------------------------------------------------------------------------
LODGING-HOTELS - 2.21%
Booth Creek Ski Holdings, Sr. Notes,
12.50%, 03/15/07 390,000 388,050
- -----------------------------------------------------------------------------
Coast Hotels & Casinos Inc., Series B Sec. First
Mortgage Gtd. Notes, 13.00%, 12/15/02 180,000 203,400
- -----------------------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb., 7.375%, 11/15/15 750,000 638,100
- -----------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sec. First Mortgage
Notes, 9.75%, 10/01/05 550,000 517,000
- -----------------------------------------------------------------------------
Stena Line A.B. (Sweden), Sr. Yankee Notes, 10.625%,
06/01/08 430,000 389,150
- -----------------------------------------------------------------------------
2,135,700
- -----------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.34%
Elgin National Industies, Sr. Unsec. Gtd. Sub. Notes,
11.00%, 11/01/07 320,000 323,200
- -----------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.43%
MMI Products, Inc., Sr. Unsec. Sub. Notes,
11.25%, 04/15/07 380,000 412,300
- -----------------------------------------------------------------------------
METALS MINING - 0.94%
Centaur Mining & Exploration Ltd. (Australia), Sr.
Yankee Gtd. Notes, 11.00%, 12/01/07 550,000 503,250
- -----------------------------------------------------------------------------
Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%,
11/01/05 370,000 402,219
- -----------------------------------------------------------------------------
905,469
- -----------------------------------------------------------------------------
NATURAL GAS - 2.90%
Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 500,000 493,355
- -----------------------------------------------------------------------------
Enron Corp.,
Notes, 6.75%, 08/01/09 750,000 779,827
- -----------------------------------------------------------------------------
Sr. Sub. Deb., 6.75%, 07/01/05 450,000 464,558
- -----------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 525,000 527,625
- -----------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 500,000 527,575
- -----------------------------------------------------------------------------
2,792,940
- -----------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.32%
United Stationer Supply, Sr. Sub. Notes,
12.75%, 05/01/05 275,000 308,000
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-154
<PAGE> 237
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
OIL (INTERNATIONAL INTEGRATED) - 0.84%
Gulf Canada Resources, Ltd. (Canada), Sr. Yankee Unsec.
Notes, 8.35%, 08/01/06 $ 800,000 $ 805,736
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.44%
Petroleum Geo-Services A.S.A. (Norway), Sr. Yankee
Unsec. Notes, 7.125%, 03/30/28 750,000 707,948
- -------------------------------------------------------------------------------
R&B Falcon Corp.,
Sr. Notes, 9.50%, 12/15/08 (Acquired 12/17/98; Cost
$250,000)(b) 250,000 251,250
- -------------------------------------------------------------------------------
Series B Sr. Unsec. Notes, 6.95%, 04/15/08 500,000 434,285
- -------------------------------------------------------------------------------
1,393,483
- -------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.98%
Abraxas Petroleum Corp., Series D Sr. Unsec. Gtd.
Notes, 11.50%, 11/01/04 125,000 95,625
- -------------------------------------------------------------------------------
Chesapeake Energy Corp., Series B Sr. Unsec. Gtd.
Notes, 9.625%, 05/01/05 230,000 180,550
- -------------------------------------------------------------------------------
Kelley Oil & Gas Corp., Series B Sr. Gtd. Sub. Notes,
10.375%, 10/15/06 400,000 298,000
- -------------------------------------------------------------------------------
Louis Dreyfus Natural Gas, Sr. Sub. Notes,
9.25%, 06/15/04 500,000 539,585
- -------------------------------------------------------------------------------
Queen Sand Resources, Inc., Sr. Unsec. Gtd. Notes,
12.50%, 07/01/08 400,000 282,000
- -------------------------------------------------------------------------------
Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%,
06/01/07 500,000 517,020
- -------------------------------------------------------------------------------
1,912,780
- -------------------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.34%
Texas Petrochemical Corp., Sr. Unsec. Sub. Notes,
11.125%, 07/01/06 330,000 326,700
- -------------------------------------------------------------------------------
PERSONAL CARE - 1.09%
Alberto-Culver Corp., Notes, 6.375%, 06/15/28 1,000,000 1,047,880
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.85%
AES Corp., Sr. Notes, 8.00%, 12/31/08 750,000 747,532
- -------------------------------------------------------------------------------
Panda Global Energy Co. (China), Sr. Yankee Sec. Gtd.
Notes, 12.50%, 04/15/04 150,000 68,250
- -------------------------------------------------------------------------------
815,782
- -------------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 1.53%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 936,127
- -------------------------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%, 10/01/26 500,000 543,560
- -------------------------------------------------------------------------------
1,479,687
- -------------------------------------------------------------------------------
RAILROADS - 0.76%
Norfolk Southern Corp., Putable Bonds,
7.05%, 05/01/37 650,000 733,993
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 1.51%
Glenborough Properties, Series B Sr. Unsec. Notes,
7.625%, 03/15/05 800,000 766,798
- -------------------------------------------------------------------------------
Spieker Properties LP, Unsec. Deb.,
7.35%, 12/01/17 750,000 689,363
- -------------------------------------------------------------------------------
1,456,161
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE) - 0.27%
Plainwell Inc., Series B Sr. Unsec. Sub. Notes, 11.00%,
03/01/08 $ 330,000 $ 259,050
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 1.56%
CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes,
9.625%, 06/01/08 370,000 334,850
- -------------------------------------------------------------------------------
CSK Auto Inc., Sr. Gtd. Sub. Deb.,
11.00%, 11/01/06 260,000 274,300
- -------------------------------------------------------------------------------
Neff Corp., Sr. Sub. Notes, 10.25%, 06/01/08 (Acquired
12/02/98; Cost $325,103)(b) 330,000 320,100
- -------------------------------------------------------------------------------
Renters Choice, Inc., Sr. Sub. Notes, 11.00%, 08/15/08
(Acquired 08/13/98; Cost $500,000)(b) 500,000 510,000
- -------------------------------------------------------------------------------
Wilson's - The Leather Experts, Inc., Sr. Notes, 11.25%,
08/15/04 70,000 68,950
- -------------------------------------------------------------------------------
1,508,200
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.74%
Big 5 Corp., Sr. Unsec. Notes, 10.875%, 11/15/07 500,000 507,500
- -------------------------------------------------------------------------------
J Crew Operating Corp., Sr. Sub. Notes,
10.375%, 10/15/07 240,000 207,600
- -------------------------------------------------------------------------------
715,100
- -------------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.87%
Sovereign Bancorp, Inc., Sub. Notes,
8.00%, 03/15/03 800,000 841,608
- -------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.32%
MDC Communications Corp. (Canada), Sr. Yankee Unsec.
Sub. Notes, 10.50%, 12/01/06 300,000 307,500
- -------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.96%
Laidlaw, Inc. (Canada), Yankee Unsec. Deb.,
6.70%, 05/01/08 500,000 488,985
- -------------------------------------------------------------------------------
Pegasus Shipping Hellas Co. (Bermuda), Series A Sr.
Yankee Sec. Gtd. Mortgage Notes,
11.875%, 11/15/04 500,000 432,500
- -------------------------------------------------------------------------------
921,485
- -------------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.38%
MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes,
11.375%, 01/15/08 380,000 363,850
- -------------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.04%
ATC Group Services, Inc., Sr. Unsec. Gtd. Sub. Notes,
12.00%, 01/15/08(e) 450,000 42,750
- -------------------------------------------------------------------------------
SHIPPING - 0.43%
Pacific & Atlantic Holdings, Yankee First Mortgage
Notes, 11.50%, 05/30/08 530,000 410,750
- -------------------------------------------------------------------------------
SOVEREIGN DEBT - 2.66%
Province of Manitoba (Canada), Yankee Bonds, 7.75%,
07/17/16 700,000 826,322
- -------------------------------------------------------------------------------
Province of Quebec (Canada),
Series A Yankee Notes, 6.29%, 03/06/26 800,000 897,184
- -------------------------------------------------------------------------------
Yankee Notes, 5.735%, 03/02/26 750,000 845,025
- -------------------------------------------------------------------------------
2,568,531
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-155
<PAGE> 238
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.58%
Clearnet Communications Inc. (Canada), Sr. Yankee
Unsec. Disc. Notes, 14.75%, 12/15/05(d) $ 110,000 $ 95,150
- ------------------------------------------------------------------------------
Metrocall Inc., Sr. Sub. Notes, 11.00%, 09/15/08
(Acquired 12/17/98; Cost $446,868)(b) 450,000 454,500
- ------------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Notes, 12.00%,
11/01/08 (Acquired 10/28/98; Cost $552,037)(b) 560,000 616,000
- ------------------------------------------------------------------------------
PageMart Wireless, Inc., Sr. Sub. Disc. Notes, 11.25%,
02/01/08(d) 750,000 363,750
- ------------------------------------------------------------------------------
1,529,400
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 2.65%
Bell Canada (Canada), Yankee Deb.,
9.50%, 10/15/10 350,000 461,058
- ------------------------------------------------------------------------------
Centel Capital, Deb., 9.00%, 10/15/19 320,000 411,693
- ------------------------------------------------------------------------------
Esprit Telecom Group PLC (United Kingdom), Sr. Yankee
Notes, 11.50%, 12/15/07 350,000 364,000
- ------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 1,000,000 1,063,500
- ------------------------------------------------------------------------------
Versatel Telecom BV (Netherlands), Sr. Notes, 13.25%,
05/15/08 250,000 255,000
- ------------------------------------------------------------------------------
2,555,251
- ------------------------------------------------------------------------------
TELEPHONE - 2.47%
Cable & Wireless Communications PLC (United Kingdom),
Yankee Notes, 6.75%, 03/06/08 750,000 767,655
- ------------------------------------------------------------------------------
ESAT Telecom Group PLC (Ireland), Sr. Yankee Notes,
12.50%, 02/01/07(d) 470,000 312,550
- ------------------------------------------------------------------------------
NTL Inc., Sr. Notes, 11.50%, 10/01/08
(Acquired 10/26/98; Cost $440,000)(b) 440,000 481,800
- ------------------------------------------------------------------------------
SBC Communications, Inc., Deb., 7.375%, 07/15/43 750,000 818,415
- ------------------------------------------------------------------------------
2,380,420
- ------------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.74%
Fruit of the Loom, Notes, 6.50%, 11/15/03 750,000 712,620
- ------------------------------------------------------------------------------
TRUCKERS - 0.41%
Travelcenters of America, Inc., Sr. Unsec. Gtd. Sub.
Deb., 10.25%, 04/01/07 400,000 400,000
- ------------------------------------------------------------------------------
TRUCKS & PARTS - 0.12%
Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%,
11/15/06 110,000 113,850
- ------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.09%
WMX Technologies, Inc., Unsec. Notes,
7.10%, 08/01/26 1,000,000 1,047,230
- ------------------------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $65,650,575) 65,228,773
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED CONVERTIBLE
BONDS & NOTES - 0.56%
SHIPPING - 0.56%
Hutchison Delta Finance (Cayman Islands), Conv.
Unsec. Notes, 7.00%, 11/08/02
(Cost $527,500) $ 500,000 $ 537,500
- ------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS
& NOTES - 12.32%(f)
CANADA - 6.11%
Bank of Montreal (Banks - Money Center), Sub. Deb.,
7.92%, 07/31/12 CAD 850,000 643,722
- ------------------------------------------------------------------------------
Bell Mobility Cellular (Telecommunications -
Cellular/Wireless), Deb., 6.55%, 06/02/08 750,000 501,936
- ------------------------------------------------------------------------------
Canadian Oil Debco, Inc. (Oil & Gas-Exploration &
Production), Deb.,
11.00%, 10/31/00 450,000 320,000
- ------------------------------------------------------------------------------
Clearnet Communications, Inc. (Telecommunications -
Cellular/Wireless),
Sr. Disc. Notes, 11.75%, 08/13/07(d) 1,500,000 590,686
- ------------------------------------------------------------------------------
Sr. Disc. Notes, 10.40%, 05/15/08(d) 1,600,000 556,863
- ------------------------------------------------------------------------------
Microcell Telecommunications, Inc.
(Telecommunications - Cellular/Wireless), Sr.
Disc. Notes, 11.125%, 10/15/07(d) 1,000,000 361,111
- ------------------------------------------------------------------------------
NAV Canada (Services - Commercial & Consumer),
Bonds, 7.40%, 06/01/27 1,000,000 800,771
- ------------------------------------------------------------------------------
Poco Petroleums Ltd. (Oil & Gas -
Exploration & Production), Unsec. Deb., 6.60%,
09/11/07 750,000 480,863
- ------------------------------------------------------------------------------
Teleglobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 850,000 621,039
- ------------------------------------------------------------------------------
Trans-Canada Pipelines (Natural Gas),
Series Q Deb., 10.625%, 10/20/09 500,000 450,412
- ------------------------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 280,000 213,365
- ------------------------------------------------------------------------------
Westcoast Energy, Inc. (Natural Gas), Deb., 6.45%,
12/18/06 500,000 346,085
- ------------------------------------------------------------------------------
5,886,853
- ------------------------------------------------------------------------------
GERMANY - 2.83%
International Bank for Reconstruction & Development
(Banks - Money Center), Unsec. Global Bonds,
7.125%, 04/12/05(c) DEM 1,000,000 711,987
- ------------------------------------------------------------------------------
LKB Global (Financial-Diversified), Gtd. Notes,
6.00%, 01/25/06 3,000,000 2,016,627
- ------------------------------------------------------------------------------
2,728,614
- ------------------------------------------------------------------------------
NEW ZEALAND - 1.57%
International Bank for Reconstruction & Development
(Banks - Money Center),
Sr. Unsub. Notes, 7.25%, 05/27/03 NZD 2,200,000 1,211,399
- ------------------------------------------------------------------------------
Sr. Unsec. Notes, 6.77%, 08/20/07(c) 1,000,000 303,547
- ------------------------------------------------------------------------------
1,514,946
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-156
<PAGE> 239
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
UNITED KINGDOM - 1.81%
International Bank for Reconstruction &
Development (Banks - Money Center),
Sr. Unsec. Notes, 6.875%, 07/14/00 GBP 500,000 $ 846,580
- -----------------------------------------------------------------------------
Sutton Bridge Financial Ltd. (Financial -
Diversified), Gtd. Eurobonds, 8.625%, 06/30/22
(Acquired 05/29/97;
Cost $733,650)(b) 450,000 901,279
- -----------------------------------------------------------------------------
1,747,859
- -----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Non- Convertible Bonds & Notes
(Cost $12,210,409) 11,878,272
- -----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS &
NOTES - 1.09%(f)
GERMANY - 0.64%
Daimler-Benz A.G. (Automobiles), Conv. Gtd. Unsub.
Eurobonds, 4.125%, 07/05/03 DEM 570,000 619,119
- -----------------------------------------------------------------------------
UNITED KINGDOM - 0.45%
COLT Telecom Group PLC (Telephone), Conv. Notes,
2.00%, 08/06/05 GBP 700,000 435,819
- -----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible
Bonds & Notes
(Cost $833,353) 1,054,938
- -----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED GOVERNMENT
BONDS & NOTES - 10.67%(f)
BRITISH POUND STERLING - 3.22%
Federal National Mortgage Association, Sr. Unsec.
Notes, 6.875%, 06/07/02 GBP 450,000 795,215
- -----------------------------------------------------------------------------
United Kingdom Treasury,
Bonds, 8.00%, 12/07/00 400,000 702,549
- -----------------------------------------------------------------------------
Gtd. Notes, 7.00%, 11/06/01 400,000 705,209
- -----------------------------------------------------------------------------
Bonds, 7.50%, 12/07/06 450,000 899,399
- -----------------------------------------------------------------------------
3,102,372
- -----------------------------------------------------------------------------
CANADIAN DOLLARS - 2.81%
British Columbia Municipal Finance Authority,
Bonds, 7.75%, 12/01/05 CAD 500,000 374,441
- -----------------------------------------------------------------------------
Canadian Government, Bonds,
6.625%, 10/03/07 500,000 270,179
- -----------------------------------------------------------------------------
Ontario Province, Sr. Unsec. Unsub. Global Bonds,
8.00%, 03/11/03 750,000 545,666
- -----------------------------------------------------------------------------
Province of Ontario, Deb., 11.125%, 02/14/01 500,000 913,595
- -----------------------------------------------------------------------------
Province of Ontario, Unsec. Unsub. Notes, 6.25%,
12/03/08 1,000,000 517,059
- -----------------------------------------------------------------------------
Quebec (Province of), Deb., 9.375%, 01/16/23 100,000 91,871
- -----------------------------------------------------------------------------
2,712,811
- -----------------------------------------------------------------------------
GERMAN DEUTSCHE MARKS - 0.74%
Bundesrepublic Deutschland, Bonds,
6.875%, 05/12/05 DEM 1,000,000 708,431
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NEW ZEALAND DOLLARS - 1.14%
Federal National Mortgage Association, Notes,
7.25%, 06/20/02 NZD 1,250,000 $ 682,650
- ------------------------------------------------------------------------------
New Zealand Government, Bonds,
8.00%, 02/15/01 750,000 416,233
- ------------------------------------------------------------------------------
1,098,883
- ------------------------------------------------------------------------------
SWEDISH KRONAS - 2.76%
Swedish Government,
Bonds, 6.00%, 02/09/05 SEK 6,000,000 821,959
- ------------------------------------------------------------------------------
Bonds, 6.50%, 10/25/06 6,000,000 860,313
- ------------------------------------------------------------------------------
Bonds, 5.00%, 01/28/09 7,500,000 983,492
- ------------------------------------------------------------------------------
2,665,764
- ------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Government
Bonds & Notes
(Cost $10,155,523) 10,288,261
- ------------------------------------------------------------------------------
SHARES
DOMESTIC COMMON STOCK - 0.02%
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Nextel Communications, Inc. - Class A(g)
(Cost $12,000) 743 17,553
- ------------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.40%
BANKS (REGIONAL) - 0.52%
Westpac Banking Corp. STRYPES Trust - $3.135
Conv. Pfd. 16,000 505,000
- ------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.88%
Conseco Inc. - $4.278 Conv. PRIDES 8,000 844,000
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks
(Cost $990,600) 1,349,000
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 0.41%
BANKS (MAJOR REGIONAL) - 0.36%
Societe Generale (France) 2,150 348,108
- ------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00%
Knology Holdings, Inc., expiring 10/15/07
(Acquired 03/12/98; Cost $0)(b)(h) 1,000 2,250
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.00%
Electronic Retailing Systems International,
expiring 02/01/04(h) 590 2,950
- ------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.00%
MVE, Inc., expiring 02/15/02(h) 190 1,900
- ------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel, Inc., expiring 04/15/03(h) 230 2
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-157
<PAGE> 240
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PERSONAL CARE - 0.00%
IHF Capital Inc., Series I, expiring 11/14/99(h) 150 $ 75
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.01%
Clearnet Communications Inc. (Canada), expiring
09/15/05(h) 891 6,237
- -------------------------------------------------------------------------------
Loral Space & Communications Ltd., expiring 01/15/07(h) 580 6,235
- -------------------------------------------------------------------------------
12,472
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.00%
Versatel, expiring 01/15/07(h) 250 2,531
- -------------------------------------------------------------------------------
TELEPHONE - 0.04%
ESAT Holdings Ltd., expiring 02/01/07(h) 470 33,017
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interest (Cost
$279,886) 403,305
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT(a)
<S> <C> <C>
U.S. TREASURY SECURITIES - 1.42%
5.625%, 05/15/08 $ 300,000 $ 319,872
- -------------------------------------------------------------------------------
5.50%, 08/15/28 1,000,000 1,046,970
- -------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $1,378,625) 1,366,842
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.39%(i)
Goldman Sachs & Co., 4.40%, 01/04/99(j)
(Cost $2,305,989) 2,305,989 2,305,989
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.91% 94,430,433
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.09% 2,014,920
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $96,445,353
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Principal amount is in U.S. Dollars, except as indicated by note (e).
(b) 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 12/31/98 was $4,378,259
which represents 4.54% of the Fund's net assets.
(c) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(d) Step bond issued at a discount. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(e) Defaulted security. Currently, the issuer is partially in default with
respect to interest payments.
(f) Foreign denominated security. Par value and coupon rate are denominated in
currency of country indicated.
(g) Non-income producing security.
(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 is at least 102% of the Notes
to Schedule of Investments - (Continued)
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 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Abbreviations:
CAD - Canadian Dollar
Conv. - Convertible
Deb. - Debentures
DEM - German Deutsche Mark
Disc. - Discounted
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redeemable Increased Dividend Equity Security
Sec. - Secured
SEK - Swedish Krona
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-158
<PAGE> 241
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $94,344,460) $94,430,433
- ---------------------------------------------------------------------
Foreign currencies, at value (cost $142,597) 144,120
- ---------------------------------------------------------------------
Receivables for:
Forward currency contracts 206,490
- ---------------------------------------------------------------------
Capital stock sold 53,293
- ---------------------------------------------------------------------
Dividends and interest 1,847,543
- ---------------------------------------------------------------------
Investment for deferred compensation plan 22,013
- ---------------------------------------------------------------------
Other assets 452
- ---------------------------------------------------------------------
Total assets 96,704,344
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 86,236
- ---------------------------------------------------------------------
Deferred compensation plan 22,013
- ---------------------------------------------------------------------
Forward currency contracts 70,412
- ---------------------------------------------------------------------
Accrued advisory fees 49,252
- ---------------------------------------------------------------------
Accrued directors' fees 183
- ---------------------------------------------------------------------
Accrued operating expenses 30,895
- ---------------------------------------------------------------------
Total liabilities 258,991
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $96,445,353
- ---------------------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 8,818,969
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $ 10.94
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 7,419,812
- -------------------------------------------------------------------------------
Dividends 81,920
- -------------------------------------------------------------------------------
Total investment income 7,501,732
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 580,119
- -------------------------------------------------------------------------------
Administrative services fees 47,472
- -------------------------------------------------------------------------------
Custodian fees 37,018
- -------------------------------------------------------------------------------
Directors' fees and expenses 8,887
- -------------------------------------------------------------------------------
Other 67,596
- -------------------------------------------------------------------------------
Total expenses 741,092
- -------------------------------------------------------------------------------
Less: Expenses paid directly (615)
- -------------------------------------------------------------------------------
Net expenses 740,477
- -------------------------------------------------------------------------------
Net investment income 6,761,255
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,271,441)
- -------------------------------------------------------------------------------
Foreign currencies (10,161)
- -------------------------------------------------------------------------------
Forward currency contracts 396,825
- -------------------------------------------------------------------------------
(884,777)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities (2,232,376)
- -------------------------------------------------------------------------------
Foreign currencies 19,348
- -------------------------------------------------------------------------------
Forward currency contracts (373,121)
- -------------------------------------------------------------------------------
(2,586,149)
- -------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign currencies and
forward currency contracts (3,470,926)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,290,329
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-159
<PAGE> 242
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,761,255 $ 5,150,458
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment
securities, foreign currencies and forward
currency contracts (884,777) 1,075,468
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities, foreign currencies and
forward currency contracts (2,586,149) 695,704
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,290,329 6,921,630
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment
income (4,724,444) (77,788)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (1,507,363) --
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 10,068,179 18,851,039
- -----------------------------------------------------------------------------
Net increase in net assets 7,126,701 25,694,881
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 89,318,652 63,623,771
- -----------------------------------------------------------------------------
End of year $96,445,353 $89,318,652
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $90,723,425 $80,655,246
- -----------------------------------------------------------------------------
Undistributed net investment income 5,805,150 4,195,077
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
forward currency contracts (311,599) 1,653,803
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and forward currency contracts 228,377 2,814,526
- -----------------------------------------------------------------------------
$96,445,353 $89,318,652
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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-160
<PAGE> 243
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. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
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 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 forward currency contracts at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
02/04/99 CAD 5,000,000 $ 3,281,529 $ 3,267,875 $ 13,654
01/15/99 DEM 2,700,000 1,655,660 1,621,505 34,155
01/15/99 DEM 500,000 296,384 300,279 (3,895)
02/26/99 DEM 3,800,000 2,238,850 2,286,929 (48,079)
01/14/99 GBP 1,250,000 2,107,175 2,074,708 32,467
02/26/99 GBP 2,000,000 3,298,740 3,307,651 (8,911)
01/13/99 NZD 1,900,000 989,425 998,952 (9,527)
02/04/99 NZD 2,500,000 1,329,050 1,314,275 14,775
02/26/99 NZD 1,800,000 959,310 946,223 13,087
01/29/99 SEK 20,500,000 2,626,353 2,528,001 98,352
----------- ----------- --------
$18,782,476 $18,646,398 $136,078
=========== =========== ========
</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, 1998 undistributed net investment income was decreased by
$426,738 and undistributed net realized gains was increased by $426,738 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.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $299,947, which expires, if
not previously utilized, through the year 2006. The Fund cannot distribute
capital gains to shareholders until the tax loss carryforwards have been
utilized.
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $47,472 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, 1998, the Fund incurred legal fees of
$3,617 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 $615 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $615 during the year ended December
31, 1998.
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.
AIM V.I. DIVERSIFIED INCOME FUND
FS-161
<PAGE> 244
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,
1998 was $55,546,371 and $46,737,685, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 4,188,413
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,102,440)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 85,973
==========================================================================
</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, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,291,048 $ 26,553,679 2,860,755 $ 30,505,544
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 569,635 6,231,807 6,908 77,788
- ------------------------------------------------------------------------------
Reacquired (1,956,150) (22,717,307) (1,114,698) (11,732,293)
- ------------------------------------------------------------------------------
904,533 $ 10,068,179 1,752,965 $ 18,851,039
==============================================================================
</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 three-year period ended December 31, 1998, 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,
------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.75 0.73 0.73 0.69 0.76 0.54
- -----------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) (0.35) 0.24 0.28 0.94 (1.42) 0.29
- -----------------------------------------------------------------------------------------------
Total from investment
operations 0.40 0.97 1.01 1.63 (0.66) 0.83
- -----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.57) (0.01) (0.68) (0.75) (0.68) (0.35)
- -----------------------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.18) -- -- -- -- (0.02)
- -----------------------------------------------------------------------------------------------
Total distributions (0.75) (0.01) (0.68) (0.75) (0.68) (0.37)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
===============================================================================================
Total return(a) 3.58% 9.39% 10.19% 18.11% (6.35)% 8.33%
===============================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $96,445 $89,319 $63,624 $44,630 $25,271 $14,530
===============================================================================================
Ratio of expenses to
average net assets 0.77%(b) 0.80% 0.86% 0.88%(c) 0.91%(d) 1.05%(c)(d)
===============================================================================================
Ratio of net investment
income to average net
assets 6.99%(b) 6.90% 7.09% 7.65%(c) 8.07%(e) 6.78%(c)(e)
===============================================================================================
Portfolio turnover rate 50% 52% 76% 72% 100% 57%
===============================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $96,686,554.
(c) Annualized.
(d) 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.
(e) 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-162
<PAGE> 245
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,
1998, 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 three 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, 1998 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. Global Utilities Fund, as of December 31, 1998, 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 three 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 3, 1999
AIM V.I. GLOBAL UTILITIES FUND
FS-163
<PAGE> 246
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 48.82%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.54%
Univision Communications, Inc.(a) 4,200 $ 151,987
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.97%
ANTEC Corp.(a) 4,000 80,500
- ------------------------------------------------------------------
Carrier Access Corp.(a) 4,300 148,081
- ------------------------------------------------------------------
Lucent Technologies, Inc. 4,500 495,000
- ------------------------------------------------------------------
Tellabs, Inc.(a) 1,600 109,700
- ------------------------------------------------------------------
833,281
- ------------------------------------------------------------------
ELECTRIC COMPANIES - 17.65%
Allegheny Energy, Inc. 7,300 251,850
- ------------------------------------------------------------------
BEC Energy 3,400 140,038
- ------------------------------------------------------------------
Carolina Power & Light Co. 4,400 207,075
- ------------------------------------------------------------------
Cinergy Corp. 5,100 175,313
- ------------------------------------------------------------------
CMS Energy Corp. 1,600 77,500
- ------------------------------------------------------------------
DQE, Inc. 7,000 307,562
- ------------------------------------------------------------------
Edison International 12,000 334,500
- ------------------------------------------------------------------
Energy East Corp. 6,000 339,000
- ------------------------------------------------------------------
FPL Group, Inc. 5,600 345,100
- ------------------------------------------------------------------
IPALCO Enterprises, Inc. 2,000 110,625
- ------------------------------------------------------------------
New Century Energies, Inc. 4,500 219,375
- ------------------------------------------------------------------
Niagara Mohawk Power Corp.(a) 14,800 238,650
- ------------------------------------------------------------------
NIPSCO Industries, Inc. 11,600 353,075
- ------------------------------------------------------------------
Pinnacle West Capital Corp. 10,800 457,650
- ------------------------------------------------------------------
Public Service Co. of New Mexico 9,800 200,287
- ------------------------------------------------------------------
Sierra Pacific Resources 3,700 140,600
- ------------------------------------------------------------------
Southern Co. 11,600 337,125
- ------------------------------------------------------------------
Teco Energy, Inc. 12,300 346,706
- ------------------------------------------------------------------
Texas Utilities Co. 5,240 244,643
- ------------------------------------------------------------------
Unicom Corp. 3,400 131,113
- ------------------------------------------------------------------
4,957,787
- ------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.43%
Quanta Services, Inc.(a) 5,500 121,344
- ------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 1.38%
Superior TeleCom, Inc. 5,325 251,606
- ------------------------------------------------------------------
USEC, Inc. 9,800 135,975
- ------------------------------------------------------------------
387,581
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NATURAL GAS - 4.09%
Columbia Energy Group 2,700 $ 155,925
- -----------------------------------------------------------------------
Energen Corp. 2,800 54,600
- -----------------------------------------------------------------------
Enron Corp. 2,200 125,538
- -----------------------------------------------------------------------
KN Energy, Inc. 4,600 167,325
- -----------------------------------------------------------------------
Public Service Co. of North Carolina, Inc. 3,200 83,200
- -----------------------------------------------------------------------
Williams Companies, Inc. (The) 18,000 561,375
- -----------------------------------------------------------------------
1,147,963
- -----------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.07%
AES Corp.(a) 2,400 113,700
- -----------------------------------------------------------------------
CalEnergy Co., Inc.(a) 5,400 187,312
- -----------------------------------------------------------------------
301,012
- -----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.33%
Alexandria Real Estate Equities, Inc. 4,700 145,406
- -----------------------------------------------------------------------
Boston Properties, Inc. 4,300 131,150
- -----------------------------------------------------------------------
Crescent Real Estate Equities, Co. 2,300 52,900
- -----------------------------------------------------------------------
Golf Trust of America, Inc. 1,600 44,400
- -----------------------------------------------------------------------
373,856
- -----------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.24%
Metzler Group, Inc.(a) 1,400 68,162
- -----------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 5.43%
AT&T Corp. 2,640 198,660
- -----------------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 1,800 100,350
- -----------------------------------------------------------------------
IXC Communications, Inc.(a) 5,700 191,663
- -----------------------------------------------------------------------
MCI WorldCom, Inc.(a) 8,887 637,642
- -----------------------------------------------------------------------
Pacific Gateway Exchange, Inc.(a) 3,200 153,800
- -----------------------------------------------------------------------
WinStar Communications, Inc.(a) 6,275 244,725
- -----------------------------------------------------------------------
1,526,840
- -----------------------------------------------------------------------
TELEPHONE - 13.69%
Ameritech Corp. 10,400 659,100
- -----------------------------------------------------------------------
Bell Atlantic Corp. 3,600 204,525
- -----------------------------------------------------------------------
BellSouth Corp. 9,800 488,775
- -----------------------------------------------------------------------
Century Telephone Enterprises, Inc. 6,800 459,000
- -----------------------------------------------------------------------
Cincinnati Bell, Inc. 13,300 502,906
- -----------------------------------------------------------------------
GTE Corp. 3,200 215,800
- -----------------------------------------------------------------------
McLeodUSA, Inc. - Class A(a) 3,100 96,875
- -----------------------------------------------------------------------
NEXTLINK Communications, Inc. - Class A(a) 1,100 31,213
- -----------------------------------------------------------------------
Qwest Communications International, Inc.(a) 6,400 320,000
- -----------------------------------------------------------------------
SBC Communications, Inc. 13,200 707,850
- -----------------------------------------------------------------------
US West, Inc. 2,500 161,563
- -----------------------------------------------------------------------
3,847,607
- -----------------------------------------------------------------------
Total Domestic Common Stocks (Cost $8,478,351) 13,717,420
- -----------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-164
<PAGE> 247
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.50%
NATURAL GAS - 1.26%
El Paso Energy Cap Trust, Inc. - $2.375 Conv. Pfd. 6,700 $ 320,762
- ------------------------------------------------------------------------------
KN Energy, Inc. - $3.548 Conv. Pfd. 900 33,807
- ------------------------------------------------------------------------------
354,569
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.15%
WinStar Communications, Inc. - $3.50 Conv. Pfd. 900 41,400
- ------------------------------------------------------------------------------
TELEPHONE - 0.09%
NEXTLINK Communications, Inc. - $3.25 Conv. Pfd.(b)
(Acquired 03/26/98; Cost $30,000) 600 24,450
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks (Cost
$466,623) 420,419
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS - 23.44%
AUSTRALIA - 0.24%
Telstra Corp. Ltd. (Telephone) 14,380 67,182
- ------------------------------------------------------------------------------
AUSTRIA - 0.53%
Oesterreichische Elektrizitaetswirtschafts A.G. -
Class A (Electric Companies) 970 148,277
- ------------------------------------------------------------------------------
BELGIUM - 0.62%
Electrabel S.A. (Electric Companies) 400 174,820
- ------------------------------------------------------------------------------
BERMUDA - 0.45%
Global Crossing Ltd. (Telecommunications - Long
Distance)(a) 2,800 126,351
- ------------------------------------------------------------------------------
CANADA - 1.84%
MetroNet Communications Corp. - Class B
(Telecommunications)(a) 2,700 90,450
- ------------------------------------------------------------------------------
Teleglobe, Inc. (Telecommunications - Long
Distance) 3,800 136,800
- ------------------------------------------------------------------------------
TELUS Corp. (Telecommunications - Cellular &
Wireless) 8,500 180,555
- ------------------------------------------------------------------------------
Westcoast Energy Inc. (Natural Gas) 5,500 109,313
- ------------------------------------------------------------------------------
517,118
- ------------------------------------------------------------------------------
DENMARK - 0.60%
Tele Danmark A.S. - ADR (Telephone) 2,500 169,688
- ------------------------------------------------------------------------------
FINLAND - 1.14%
Fortum Corp. (Electric Companies)(a) 6,300 38,320
- ------------------------------------------------------------------------------
Nokia Oyj A.B. - Class A - ADR (Communications
Equipment) 2,000 240,875
- ------------------------------------------------------------------------------
Sonera Group Oyj (Telecommunications -
Cellular/Wireless)(a)(b)
(Acquired 11/10/98; Cost $20,144) 2,300 40,617
- ------------------------------------------------------------------------------
319,812
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - 0.98%
France Telecom S.A. - ADR (Communications Equipment) 3,500 $ 276,281
- ----------------------------------------------------------------------------
GERMANY - 1.00%
RWE A.G. (Electric Companies) 2,425 132,790
- ----------------------------------------------------------------------------
Viag A.G. (Manufacturing - Diversified) 250 146,574
- ----------------------------------------------------------------------------
279,364
- ----------------------------------------------------------------------------
GREECE - 0.11%
Panafon Hellenic Telecom S.A. - GDR
(Telecommunications - Cellular/Wireless)(a)(b)
(Acquired 11/20/98; Cost $21,696) 1,200 31,800
- ----------------------------------------------------------------------------
HUNGARY - 0.33%
Magyar Tavkozlesi - ADR (Telecommunications - Long
Distance) 3,100 92,419
- ----------------------------------------------------------------------------
ITALY - 4.40%
AEM S.p.A. (Electric Companies)(a)(b)
(Acquired 07/17/98; Cost $52,035) 55,000 131,950
- ----------------------------------------------------------------------------
Societa Nordelettrica S.p.A. (Electric Companies) 49,000 216,730
- ----------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications -
Cellular/Wireless) 38,025 280,695
- ----------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 71,277 608,099
- ----------------------------------------------------------------------------
1,237,474
- ----------------------------------------------------------------------------
JAPAN - 0.42%
Nippon Telegraph & Telephone Corp.
(Telecommunications - Long Distance) 90 69,464
- ----------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. - ADR
(Telecommunications - Long Distance) 1,300 48,750
- ----------------------------------------------------------------------------
118,214
- ----------------------------------------------------------------------------
NETHERLANDS - 0.61%
Equant N.V. (Computers - Networking)(a) 900 61,032
- ----------------------------------------------------------------------------
Koninklijke KPN N.V. (Telecommunications - Long
Distance) 3 150
- ----------------------------------------------------------------------------
Royal PTT Nederland N.V. - ADR (Telephone) 24 1,206
- ----------------------------------------------------------------------------
TNT Post Group N.V. (Air Freight) 284 9,148
- ----------------------------------------------------------------------------
TNT Post Group N.V. - ADR (Air Freight) 3,046 98,985
- ----------------------------------------------------------------------------
170,521
- ----------------------------------------------------------------------------
PORTUGAL - 2.06%
Electricidade de Portugal, S.A. (Electric Companies) 2,900 63,906
- ----------------------------------------------------------------------------
Electricidade de Portugal, S.A. - ADR (Electric
Companies) 4,000 178,250
- ----------------------------------------------------------------------------
Portugal Telecom S.A. - ADR (Telephone) 5,700 254,363
- ----------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications - Cellular/Wireless) 200 40,919
- ----------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A. - ADR
(Telecommunications - Cellular/Wireless) 200 40,884
- ----------------------------------------------------------------------------
578,322
- ----------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-165
<PAGE> 248
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SPAIN - 2.81%
Autopistas Concesionaria Espanola S.A. (Services -
Commercial & Consumer) 3,900 $ 64,784
- ------------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 21,000 392,447
- ------------------------------------------------------------------------------
Telefonica S.A. - ADR (Telephone) 2,448 331,398
- ------------------------------------------------------------------------------
788,629
- ------------------------------------------------------------------------------
SWITZERLAND - 0.75%
Swisscom A. G. (Telephone)(a) 500 209,364
- ------------------------------------------------------------------------------
UNITED KINGDOM - 4.55%
Hyder PLC (Water Utilities) 4,280 53,702
- ------------------------------------------------------------------------------
National Grid Group PLC (Electric Companies) 10,313 82,225
- ------------------------------------------------------------------------------
PowerGen PLC (Electric Companies) 31,485 413,366
- ------------------------------------------------------------------------------
PowerGen PLC - ADR (Electric Companies) 1,100 58,850
- ------------------------------------------------------------------------------
Scottish & Southern Energy PLC (Electric Companies) 9,706 109,203
- ------------------------------------------------------------------------------
Scottish Power PLC (Electric Companies) 15,950 163,682
- ------------------------------------------------------------------------------
United Utilities PLC (Water Utilities) 15,459 214,008
- ------------------------------------------------------------------------------
Yorkshire Water PLC (Water Utilities) 20,174 184,399
- ------------------------------------------------------------------------------
1,279,435
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$4,201,239) 6,585,071
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
DOMESTIC NON-CONVERTIBLE BONDS & NOTES - 9.99%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.92%
Comcast Cable Communications, Unsec. Unsub. Notes,
6.20%, 11/15/08 $ 150,000 152,997
- ------------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 100,000 105,750
- ------------------------------------------------------------------------------
258,747
- ------------------------------------------------------------------------------
CONSUMER FINANCE - 0.30%
GMAC, Notes, 9.00%, 10/15/02 75,000 83,698
- ------------------------------------------------------------------------------
ELECTRIC COMPANIES - 2.28%
Commonwealth Edison Co., First Mortgage Notes, 7.50%,
07/01/13 130,000 146,998
- ------------------------------------------------------------------------------
El Paso Electric Co., Sec. First Mortgage Bonds
Series D, 8.90%, 02/01/06 75,000 84,488
- ------------------------------------------------------------------------------
Series E, 9.40%, 05/01/11 100,000 113,557
- ------------------------------------------------------------------------------
Niagara Mohawk Power Corp., Series G Sr. Unsec. Notes,
7.75%, 10/01/08 100,000 109,310
- ------------------------------------------------------------------------------
Western Resources, Inc.
Sr. Unsec. Notes, 6.25%, 08/15/03 75,000 76,482
- ------------------------------------------------------------------------------
Sr. Notes, 7.125%, 08/15/09 100,000 108,860
- ------------------------------------------------------------------------------
639,695
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ENTERTAINMENT - 1.06%
Time Warner, Inc.
Deb., 9.125%, 01/15/13 $ 175,000 $ 220,082
- ----------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 75,000 78,903
- ----------------------------------------------------------------------------
298,985
- ----------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.38%
California Energy Co., Notes, 10.25%, 01/15/04 100,000 105,620
- ----------------------------------------------------------------------------
NATURAL GAS - 1.73%
Dynegy Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 100,000 98,671
- ----------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 75,000 75,376
- ----------------------------------------------------------------------------
KN Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 250,000 263,787
- ----------------------------------------------------------------------------
PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 49,408
- ----------------------------------------------------------------------------
487,242
- ----------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.37%
Tennessee Gas Pipeline Co., Bonds,
7.00%, 03/15/27 100,000 104,712
- ----------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.41%
AES Corp.
Sr. Sub. Notes, 10.25%, 07/15/06 75,000 81,188
- ----------------------------------------------------------------------------
Sr. Notes, 8.00%, 12/31/08 100,000 99,671
- ----------------------------------------------------------------------------
Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 86,266
- ----------------------------------------------------------------------------
Indiana Michigan Power, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 93,405 126,767
- ----------------------------------------------------------------------------
393,892
- ----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.54%
AT&T Corp., Sr. Notes, 7.75%, 03/01/07 150,000 173,046
- ----------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Notes, 6.875%,
11/15/28 250,000 260,540
- ----------------------------------------------------------------------------
433,586
- ----------------------------------------------------------------------------
Total Domestic Non-Convertible Bonds & Notes (Cost
$2,666,053) 2,806,177
- ----------------------------------------------------------------------------
DOMESTIC CONVERTIBLE BONDS - 2.12%
COMPUTERS (HARDWARE) - 1.32%
Candescent Technology Corp., Conv. Sr. Sub.(b) Deb.,
7.00%, 05/01/03 (Acquired 04/17/98-11/09/98; Cost
$396,154) 412,000 370,800
- ----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.80%
Global Telesystems Group, Sr. Sub. Notes, 8.75%,
06/30/00 80,000 225,400
- ----------------------------------------------------------------------------
Total Domestic Convertible Bonds (Cost $539,616) 596,200
- ----------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-166
<PAGE> 249
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN NON-CONVERTIBLE BONDS & NOTES - 1.91%(c)
CANADA - 1.91%
Bell Canada (Telecommunications -Cellular/Wireless)
Unsec. Deb., 10.875%, 10/11/04 CAD $ 50,000 $ 41,386
- ---------------------------------------------------------------------------
Series EW Deb., 8.80%, 08/17/05 50,000 38,846
- ---------------------------------------------------------------------------
Canadian Oil Debco Inc.
(Oil & Gas - Exploration & Production),
Deb., 11.00%, 10/31/00 100,000 71,111
- ---------------------------------------------------------------------------
Ontario Hydro (Electric Companies),
Sr. Unsec. Notes, 9.00%, 06/24/02 200,000 147,456
- ---------------------------------------------------------------------------
Teleglobe Canada, Inc. (Telephone),
Unsec. Deb., 8.35%, 06/20/03 100,000 73,064
- ---------------------------------------------------------------------------
Trans-Canada Pipelines (Natural Gas)
Unsec. Notes, 8.55%, 02/01/06 70,000 53,341
- ---------------------------------------------------------------------------
Series Q Deb., 10.625%, 10/20/09 125,000 112,603
- ---------------------------------------------------------------------------
Total Foreign Non-Convertible Bonds & Notes (Cost
$554,253) 537,807
- ---------------------------------------------------------------------------
FOREIGN CONVERTIBLE BONDS - 2.18%(c)
FRANCE - 0.41%
France Telecom (Telephone), Conv. Bonds,
2.00%, 01/01/04 FRF 603,520 114,856
- ---------------------------------------------------------------------------
UNITED KINGDOM - 1.77%
National Grid Co. PLC, (Electric Companies), Bonds,
4.25%, 02/17/08 GBP 240,000 498,569
- ---------------------------------------------------------------------------
Total Foreign Convertible Bonds (Cost $504,277) 613,425
- ---------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 1.17%
U.S. TREASURY BONDS - 0.61%
7.625%, 02/15/25 130,000 171,000
- ---------------------------------------------------------------------------
U.S. TREASURY NOTES - 0.56%
6.625%, 06/30/01 150,000 157,114
- ---------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $292,052) 328,114
- ---------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.51%(d)
Goldman, Sachs & Co., 4.40%, 01/04/99
(Cost $2,391,815)(e) 2,391,815 2,391,815
- ---------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 99.64% 27,996,448
- ---------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.36% 137,180
- ---------------------------------------------------------------------------
NET ASSETS - 100.00% $28,133,628
===========================================================================
</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 these securities at 12/31/98 was $599,617 which
represented 2.13% 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 agreements. The collateral is
marked to market daily to ensure its market value is at least 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 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 at $714,694,897.
Abbreviations:
ADR - American Depositary Receipt
CAD - Canadian Dollars
Conv. - Convertible
Deb. - Debentures
FRF - French Francs
GBP - British Pound Sterling
GDR - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-167
<PAGE> 250
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $20,094,279) $27,996,448
- ---------------------------------------------------------------------
Foreign currencies, at value (cost $421) 423
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 35,150
- ---------------------------------------------------------------------
Dividends and interest 124,164
- ---------------------------------------------------------------------
Investment for deferred compensation plan 18,328
- ---------------------------------------------------------------------
Total assets 28,174,513
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 103
- ---------------------------------------------------------------------
Deferred compensation plan 18,328
- ---------------------------------------------------------------------
Accrued advisory fees 14,982
- ---------------------------------------------------------------------
Accrued directors' fees 175
- ---------------------------------------------------------------------
Accrued operating expenses 7,297
- ---------------------------------------------------------------------
Total liabilities 40,885
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $28,133,628
- ---------------------------------------------------------------------
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 1,620,177
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $17.36
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $24,555 foreign withholding tax) $ 488,969
- ---------------------------------------------------------------------------
Interest 396,662
- ---------------------------------------------------------------------------
Total investment income 885,631
- ---------------------------------------------------------------------------
EXPENSES:
Advisory fees 161,488
- ---------------------------------------------------------------------------
Administrative services fees 46,855
- ---------------------------------------------------------------------------
Custodian fees 22,823
- ---------------------------------------------------------------------------
Directors' fees and expenses 8,926
- ---------------------------------------------------------------------------
Professional fees 20,541
- ---------------------------------------------------------------------------
Other 14,694
- ---------------------------------------------------------------------------
Total expenses 275,327
- ---------------------------------------------------------------------------
Less: Expenses paid indirectly (276)
- ---------------------------------------------------------------------------
Net expenses 275,051
- ---------------------------------------------------------------------------
Net investment income 610,580
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (179,826)
- ---------------------------------------------------------------------------
Foreign currencies 8,019
- ---------------------------------------------------------------------------
Futures contracts 110,924
- ---------------------------------------------------------------------------
Option contracts 921
- ---------------------------------------------------------------------------
(59,962)
- ---------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 3,278,067
- ---------------------------------------------------------------------------
Foreign currencies 587
- ---------------------------------------------------------------------------
3,278,654
- ---------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures
and option contracts 3,218,692
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,829,272
===========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-168
<PAGE> 251
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 610,580 $ 458,649
- --------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures and option contracts (59,962) 176,145
- --------------------------------------------------------------------------------
Net unrealized appreciation of investment securities
and foreign currencies 3,278,654 2,779,707
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,829,272 3,414,501
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (450,038) --
- --------------------------------------------------------------------------------
Distributions from net realized gains (187,121) (6,795)
- --------------------------------------------------------------------------------
Net increase from capital stock transactions 2,862,654 5,095,582
- --------------------------------------------------------------------------------
Net increase in net assets 6,054,767 8,503,288
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 22,078,861 13,575,573
- --------------------------------------------------------------------------------
End of year $28,133,628 $22,078,861
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $19,698,693 $16,836,039
- --------------------------------------------------------------------------------
Undistributed net investment income 608,138 439,576
- --------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies, futures
and option contracts (75,451) 179,652
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and option contracts 7,902,248 4,623,594
- --------------------------------------------------------------------------------
$28,133,628 $22,078,861
================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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
AIM V.I. GLOBAL UTILITIES FUND
FS-169
<PAGE> 252
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 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, 1998,
undistributed net realized gain (loss) was decreased and undistributed net
investment income was increased by $8,020 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. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $50,716, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
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. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
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 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.
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.
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' 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
AIM V.I. GLOBAL UTILITIES FUND
FS-170
<PAGE> 253
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 services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $46,855 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, 1998, the Fund incurred legal fees of
$3,476 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 $276 under an expense offset
arrangement. The effect of this arrangement resulted in a reduction of the
Fund's total expenses of $276 during the year ended December 31, 1998.
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,
1998 was $10,839,264 and $6,928,632, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $8,036,931
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (134,773)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $7,902,158
=========================================================================
</TABLE>
Cost of investments for tax purposes is $20,094,290.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sold 516,028 $8,375,181 505,614 $ 6,971,987
- -----------------------------------------------------------------------
Issued as reinvestment of
distributions 37,858 637,159 459 6,795
- -----------------------------------------------------------------------
Reacquired (380,439) (6,149,686) (140,799) (1,883,200)
- -----------------------------------------------------------------------
173,447 $2,862,654 365,274 $ 5,095,582
=======================================================================
</TABLE>
NOTE 7 - OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------
<S> <C> <C>
Beginning of period -- $ --
- ---------------------------------------
Written 14,000 921
- ---------------------------------------
Closed (14,000) (921)
- ---------------------------------------
Expired -- --
- ---------------------------------------
End of period -- $ --
=======================================
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-177
<PAGE> 254
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
1998 1997 1996 1995 1995
------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.26 $ 12.55 $11.64 $9.69 $10.00
- ---------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.35 0.32 0.40 0.29 0.27
- ---------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.15 2.40 0.99 1.98 (0.33)
- ---------------------------------------------------------------------------------------
Total from investment
operations 2.50 2.72 1.39 2.27 (0.06)
- ---------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.28) -- (0.41) (0.31) (0.25)
- ---------------------------------------------------------------------------------------
Distributions from net
realized gains (0.12) (0.01) (0.07) (0.01) --
- ---------------------------------------------------------------------------------------
Total distributions (0.40) (0.01) (0.48) (0.32) (0.25)
- ---------------------------------------------------------------------------------------
Net asset value, end of
period $ 17.36 $ 15.26 $12.55 $11.64 $ 9.69
=======================================================================================
Total return(a) 16.49% 21.63% 12.07% 23.73% (0.56)%
=======================================================================================
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $28,134 $22,079 $13,576 $8,394 $2,958
=======================================================================================
Ratio of expenses to
average net assets 1.11%(b) 1.28% 1.40%(c) 1.47%(c)(d) 1.31%(d)(e)
=======================================================================================
Ratio of net investment
income to average net
assets 2.46%(b) 2.81% 3.56%(c) 3.76%(c)(d) 4.39%(d)(e)
=======================================================================================
Portfolio turnover rate 32% 28% 47% 58% 69%
=======================================================================================
</TABLE>
(a) Totals returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $24,844,324.
(c) 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% for 1996 and 2.44% (annualized)
and 2.79% (annualized) for 1995.
(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 2.80% (annualized) and 2.90% (annualized),
respectively.
AIM V.I. GLOBAL UTILITIES FUND
FS-172
<PAGE> 255
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, 1998, 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 three 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, 1998 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. Government Securities Fund, as of December 31, 1998, 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 three 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 3, 1999
AIM V.I. GOVERNMENT SECURITIES FUND
FS-173
<PAGE> 256
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 101.99%
FEDERAL FARM CREDIT BANK - 3.88%
Medium term notes
5.96%, 07/14/03 $ 200,000 $ 206,830
- ---------------------------------------------------------------------------
5.80%, 06/17/05 1,000,000 1,030,620
- ---------------------------------------------------------------------------
6.22%, 06/17/08 1,000,000 1,020,460
- ---------------------------------------------------------------------------
2,257,910
- ---------------------------------------------------------------------------
FEDERAL HOME LOAN BANK - 4.15%
Debentures
8.375%, 10/25/99 150,000 154,281
- ---------------------------------------------------------------------------
6.00%, 06/27/00 250,000 253,985
- ---------------------------------------------------------------------------
5.97%, 12/11/00 1,000,000 1,019,900
- ---------------------------------------------------------------------------
7.31%, 07/06/01 500,000 528,280
- ---------------------------------------------------------------------------
8.17%, 12/16/04 400,000 459,712
- ---------------------------------------------------------------------------
2,416,158
- ---------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") - 20.98%
Debentures
6.13%, 08/19/99 150,000 151,287
- ---------------------------------------------------------------------------
Pass through certificates
6.00%, 11/01/08 to 08/01/10 692,788 699,280
- ---------------------------------------------------------------------------
6.50%, 12/01/08 to 01/14/29 8,612,043 8,695,795
- ---------------------------------------------------------------------------
7.00%, 11/01/10 to 01/01/26 1,316,740 1,350,198
- ---------------------------------------------------------------------------
10.50%, 08/01/19 175,967 193,618
- ---------------------------------------------------------------------------
8.50%, 08/01/24 to 12/01/26 1,064,597 1,118,576
- ---------------------------------------------------------------------------
12,208,754
- ---------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 35.73%
Debentures
4.696%, 06/02/99 500,000 499,600
- ---------------------------------------------------------------------------
8.25%, 12/18/00 500,000 531,060
- ---------------------------------------------------------------------------
7.50%, 02/01/02 1,350,000 1,445,756
- ---------------------------------------------------------------------------
7.55%, 04/22/02 400,000 430,612
- ---------------------------------------------------------------------------
8.50%, 02/01/05 500,000 516,845
- ---------------------------------------------------------------------------
5.75%, 06/15/05 500,000 513,945
- ---------------------------------------------------------------------------
Medium term notes
7.375%, 03/28/05 300,000 333,747
- ---------------------------------------------------------------------------
Pass through certificates
7.50%, 11/01/09 to 07/01/27 2,444,502 2,519,349
- ---------------------------------------------------------------------------
7.00%, 07/01/11 to 01/01/28 4,745,887 4,860,237
- ---------------------------------------------------------------------------
6.50%, 10/01/10 to 06/01/23(a)(b) 1,446,854 1,470,115
- ---------------------------------------------------------------------------
6.00%, 10/01/13 to 12/01/13 2,981,962 2,992,190
- ---------------------------------------------------------------------------
5.50%, 01/20/14(a)(b) 4,000,000 3,954,261
- ---------------------------------------------------------------------------
8.50%, 09/01/24 173,169 182,368
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - CONTINUED
STRIPS(a)
7.37%, 10/09/19 $1,800,000 $ 538,218
- ---------------------------------------------------------------------------
20,788,303
- ---------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 31.68%
Pass through certificates
9.50%, 08/15/03 to 09/15/16 52,981 57,265
- ---------------------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 121,713 130,650
- ---------------------------------------------------------------------------
11.00%, 10/15/15 26,171 29,107
- ---------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 29,476 32,460
- ---------------------------------------------------------------------------
10.00%, 06/15/19 939,580 1,027,665
- ---------------------------------------------------------------------------
6.50%, 12/15/23 417,615 424,790
- ---------------------------------------------------------------------------
8.00%, 10/15/25 to 07/15/26 2,107,426 2,198,099
- ---------------------------------------------------------------------------
7.50%, 05/15/27 to 08/15/28 2,703,267 2,791,836
- ---------------------------------------------------------------------------
7.00%, 04/15/28 to 06/15/28 3,707,135 3,799,189
- ---------------------------------------------------------------------------
6.00%, 01/21/29(a)(b) 8,000,000 7,941,015
- ---------------------------------------------------------------------------
18,432,076
- ---------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.55%
Debentures
7.30%, 01/31/02 300,000 318,633
- ---------------------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 1.39%
Debentures
4.838%, 02/22/99 500,000 499,900
- ---------------------------------------------------------------------------
5.55%, 12/15/99 150,000 151,125
- ---------------------------------------------------------------------------
6.50%, 08/01/02 150,000 157,262
- ---------------------------------------------------------------------------
808,287
- ---------------------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY - 3.63%
Debentures
6.375%, 06/15/05 2,000,000 2,114,460
- ---------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $58,447,599) 59,344,581
- ---------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 20.37%
U.S. TREASURY NOTES & BONDS - 18.75%
6.125%, 12/31/01 500,000 520,840
- ---------------------------------------------------------------------------
6.00%, 07/31/02 300,000 313,026
- ---------------------------------------------------------------------------
5.25%, 08/15/03 3,500,000 3,590,545
- ---------------------------------------------------------------------------
5.50%, 02/15/08 1,000,000 1,059,290
- ---------------------------------------------------------------------------
6.875%, 08/15/25 500,000 606,180
- ---------------------------------------------------------------------------
6.125%, 11/15/27 1,500,000 1,679,850
- ---------------------------------------------------------------------------
5.50%, 08/15/28 3,000,000 3,140,910
- ---------------------------------------------------------------------------
10,910,641
- ---------------------------------------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-174
<PAGE> 257
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
U.S. TREASURY STRIPS(c) - 1.62%
5.378%, 05/15/06 $ 750,000 $ 527,393
- -----------------------------------------------------------------------------
6.80%, 11/15/18 1,250,000 414,837
- -----------------------------------------------------------------------------
942,230
- -----------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $11,566,802) 11,852,871
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 6.74%(d)
SBC Warburg Dillion Read , Inc., 4.75%,
01/04/99(e) (Cost $3,921,882) 3,921,882 3,921,882
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS - 129.10% 75,119,334
- -----------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (29.10%) (16,934,653)
- -----------------------------------------------------------------------------
NET ASSETS - 100.00% $ 58,184,681
=============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) At 12/31/98, cost of securities purchased on a when-issued basis totaled
$15,929,375.
(b) These securities are subject to dollar roll transactions. See Note 1 of
Notes to Financial Statements.
(c) 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.
(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 is at least 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 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75%, due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviation:
STRIPS - Separately Traded Registered Interest and Principal Security
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-175
<PAGE> 258
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $73,936,283) $ 75,119,334
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 37,061
- ----------------------------------------------------------------------
Interest 482,349
- ----------------------------------------------------------------------
Investment for deferred compensation plan 21,587
- ----------------------------------------------------------------------
Other assets 6,610
- ----------------------------------------------------------------------
Total assets 75,666,941
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 15,929,375
- ----------------------------------------------------------------------
Capital stock reacquired 1,479,184
- ----------------------------------------------------------------------
Deferred compensation plan 21,587
- ----------------------------------------------------------------------
Accrued advisory fees 24,918
- ----------------------------------------------------------------------
Accrued administrative services fees 2,655
- ----------------------------------------------------------------------
Accrued operating expenses 24,541
- ----------------------------------------------------------------------
Total liabilities 17,482,260
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 58,184,681
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 5,205,570
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share $11.18
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $2,890,554
- --------------------------------------------------------------------
EXPENSES:
Advisory fees 221,956
- --------------------------------------------------------------------
Administrative services fees 43,129
- --------------------------------------------------------------------
Custodian fees 20,817
- --------------------------------------------------------------------
Directors' fees and expenses 8,172
- --------------------------------------------------------------------
Interest expense 20,591
- --------------------------------------------------------------------
Professional fees 27,641
- --------------------------------------------------------------------
Other 17,635
- --------------------------------------------------------------------
Total expenses 359,941
- --------------------------------------------------------------------
Net investment income 2,530,613
- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 241,993
- --------------------------------------------------------------------
Net unrealized appreciation of investment securities 445,919
- --------------------------------------------------------------------
Net gain on investment securities 687,912
- --------------------------------------------------------------------
Net increase in net assets resulting from operations $3,218,525
====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-176
<PAGE> 259
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,530,613 $ 1,620,458
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 241,993 (100,162)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities 445,919 728,502
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,218,525 2,248,798
- ------------------------------------------------------------------------------
Dividends from net investment income (1,611,964) (15,600)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 22,778,324 7,040,082
- ------------------------------------------------------------------------------
Net increase in net assets 24,384,885 9,273,280
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 33,799,796 24,526,516
- ------------------------------------------------------------------------------
End of year $58,184,681 $33,799,796
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $54,757,995 $31,984,676
- ------------------------------------------------------------------------------
Undistributed net investment income 2,488,745 1,585,397
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (245,110) (507,409)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,183,051 737,132
- ------------------------------------------------------------------------------
$58,184,681 $33,799,796
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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 United States 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. The 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
AIM V.I. GOVERNMENT SECURITIES FUND
FS-177
<PAGE> 260
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 reinvested 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 security sold.
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 in 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.
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, 1998, undistributed net realized gain (loss) was increased
$20,306, undistributed net investment income was decreased $15,301 and paid
in capital was decreased $5,005 as a result of permanent book/tax difference
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 $180,497, 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.
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $43,129 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, 1998, the Fund incurred legal fees of
$3,499 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 - BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the
Fund, with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. Proceeds from reverse repurchase agreements are
treated as borrowings. The agreements are collateralized by the underlying
securities and are carried at the amount at which the securities will
subsequently be repurchased as specified in the agreements. The maximum amount
outstanding during the year ended December 31, 1998 was $3,683,750 while
borrowings averaged $940,485 per day with a weighted average interest rate of
2.19%. No borrowings existed at December 31, 1998.
The Fund will limit its borrowings from banks, reverse repurchase agreements
and dollar roll transactions to an aggregate of 33 1/3% of its total assets at
the time of investment. The Fund will not purchase additional securities when
any borrowings from banks exceed 5% of the Fund's total assets.
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,
1998 was $55,684,558 and $33,064,108, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,245,286
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (126,848)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $1,118,438
========================================================================-
</TABLE>
Cost of investments for tax purposes is $74,000,896.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold 3,062,093 $34,224,621 1,272,288 $13,023,561
- ---------------------------------------------------------------------------
Issued as reinvestment of
dividends 144,183 1,611,964 1,468 15,600
- ---------------------------------------------------------------------------
Reacquired (1,168,506) (13,058,261) (591,274) (5,999,079)
- ---------------------------------------------------------------------------
2,037,770 $22,778,324 682,482 $ 7,040,082
===========================================================================
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-178
<PAGE> 261
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.63(a) 0.59 0.58 0.54 0.53 0.38
- -----------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.20 0.22 (0.35) 0.74 (0.88) 0.10
- -----------------------------------------------------------------------------------------------
Total from investment
operations 0.83 0.81 0.23 1.28 (0.35) 0.48
- -----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.32) (0.01) (0.53) (0.50) (0.50) (0.24)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
===============================================================================================
Total return(b) 7.73% 8.16% 2.29% 13.84% (3.42)% 4.78%
===============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $58,185 $33,800 $24,527 $19,545 $12,887 $10,643
===============================================================================================
Ratio of expenses
(exclusive of interest
expense) to average net
assets 0.76%(c) 0.87% 0.91% 1.19%(d) 0.95%(e) 1.00%(d)(e)
===============================================================================================
Ratio of net investment
income to average net
assets 5.70%(c) 5.85% 5.80% 5.78%(d) 5.51%(f) 4.74%(d)(f)
===============================================================================================
Portfolio turnover rate 78% 66% 32% 41% 29% 0%
===============================================================================================
Borrowings for the
period:
Amount of debt
outstanding at end of
period (000s omitted) -- -- -- -- -- --
===============================================================================================
Average amount of debt
outstanding during the
period (000s omitted)(g) $ 940 -- -- -- -- --
===============================================================================================
Average number of shares
outstanding during the
period (000s omitted)(g) 3,992 -- -- -- -- --
===============================================================================================
Average amount of debt
per share during the
period $0.2355 -- -- -- -- --
===============================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are based on average net assets of $44,391,219.
(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
1.10% and 1.80% (annualized) for January 1995 and 1994, respectively.
(f) 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.
(g) Averages computed on a daily basis.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-179
<PAGE> 262
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,
1998, 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 three 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, 1998 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 and Income Fund, as of December 31, 1998, 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 three 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 3, 1999
AIM V.I. GROWTH AND INCOME FUND
FS-180
<PAGE> 263
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 80.72%
AUTOMOBILES - 1.00%
Ford Motor Co. 215,000 $ 12,617,812
- ------------------------------------------------------------------
BANKS (MONEY CENTER) - 2.36%
BankAmerica Corp. 100,000 6,012,500
- ------------------------------------------------------------------
Chase Manhattan Corp. (The) 350,000 23,821,875
- ------------------------------------------------------------------
29,834,375
- ------------------------------------------------------------------
BROADCASTING (RADIO, TELEVISION & CABLE) - 1.32%
Comcast Corp. - Class A 175,000 10,270,313
- ------------------------------------------------------------------
Infinity Manhattan Corp. - Class A(a) 231,300 6,331,838
- ------------------------------------------------------------------
16,602,151
- ------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 1.22%
Monsanto Co. 325,000 15,437,500
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.79%
Lucent Technologies, Inc. 90,000 9,900,000
- ------------------------------------------------------------------
COMPUTERS (HARDWARE) - 3.78%
Compaq Computer Corp.(b) 170,000 7,129,375
- ------------------------------------------------------------------
Dell Computer Corp.(a) 200,000 14,637,500
- ------------------------------------------------------------------
Hewlett-Packard 110,000 7,514,375
- ------------------------------------------------------------------
International Business Machines Corp. 65,000 12,008,750
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a) 75,000 6,421,875
- ------------------------------------------------------------------
47,711,875
- ------------------------------------------------------------------
COMPUTERS (NETWORKING) - 2.00%
Ascend Communications, Inc.(a) 80,000 5,260,000
- ------------------------------------------------------------------
Cisco Systems, Inc.(a) 215,000 19,954,687
- ------------------------------------------------------------------
25,214,687
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 5.01%
BMC Software, Inc.(a) 225,000 10,026,562
- ------------------------------------------------------------------
Computer Sciences Corp.(a) 100,000 6,443,750
- ------------------------------------------------------------------
Compuware Corp.(a)(b) 60,000 4,687,500
- ------------------------------------------------------------------
HBO & Co. 200,000 5,737,500
- ------------------------------------------------------------------
Microsoft Corp.(a) 210,000 29,124,375
- ------------------------------------------------------------------
Novell, Inc.(a) 400,000 7,250,000
- ------------------------------------------------------------------
63,269,687
- ------------------------------------------------------------------
CONSUMER FINANCE - 0.97%
MBNA Corp. 219,100 5,463,824
- ------------------------------------------------------------------
Providian Financial Corp. 90,000 6,750,000
- ------------------------------------------------------------------
12,213,824
- ------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.91%
Bergen Brunswig Corp. - Class A 83,000 2,894,625
- ------------------------------------------------------------------
Cardinal Health, Inc. 112,500 8,535,937
- ------------------------------------------------------------------
11,430,562
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC COMPANIES - 1.19%
Duke Power Co. 90,000 $ 5,765,625
- --------------------------------------------------------------------------
Edison International 200,000 5,575,000
- --------------------------------------------------------------------------
FPL Group, Inc. 60,000 3,697,500
- --------------------------------------------------------------------------
15,038,125
- --------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.51%
AMP, Inc. 150,000 7,809,375
- --------------------------------------------------------------------------
General Electric Co. 310,600 31,700,613
- --------------------------------------------------------------------------
Honeywell, Inc. 60,000 4,518,750
- --------------------------------------------------------------------------
Philips Electronics N.V. - New York Shares -ADR
(Netherlands) 3,800 257,213
- --------------------------------------------------------------------------
44,285,951
- --------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.66%
Intel Corp. 70,000 8,299,375
- --------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 7.64%
American Express Co. 125,000 12,781,250
- --------------------------------------------------------------------------
Associates First Capital Corp. - Class A 150,000 6,356,250
- --------------------------------------------------------------------------
Citigroup, Inc. 375,000 18,562,500
- --------------------------------------------------------------------------
Fannie Mae 210,000 15,540,000
- --------------------------------------------------------------------------
Freddie Mac 300,000 19,331,250
- --------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 130,000 9,230,000
- --------------------------------------------------------------------------
SunAmerica, Inc. 180,000 14,602,500
- --------------------------------------------------------------------------
96,403,750
- --------------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 4.10%
Abbott Laboratories 90,000 4,410,000
- --------------------------------------------------------------------------
American Home Products Corp. 100,000 5,631,250
- --------------------------------------------------------------------------
Bristol-Myers Squibb Co. 130,000 17,395,625
- --------------------------------------------------------------------------
Johnson & Johnson 75,000 6,290,625
- --------------------------------------------------------------------------
Warner-Lambert Co. 240,000 18,045,000
- --------------------------------------------------------------------------
51,772,500
- --------------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 6.62%
Lilly (Eli) & Co. 160,000 14,220,000
- --------------------------------------------------------------------------
Merck & Co., Inc. 130,000 19,199,375
- --------------------------------------------------------------------------
Pfizer, Inc. 260,000 32,613,750
- --------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 310,000 17,553,750
- --------------------------------------------------------------------------
83,586,875
- --------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.34%
Allegiance Corp. 100,000 4,662,500
- --------------------------------------------------------------------------
Arterial Vascular Engineering, Inc.(a) 125,000 6,562,500
- --------------------------------------------------------------------------
Baxter International, Inc. 80,700 5,190,019
- --------------------------------------------------------------------------
Becton, Dickinson & Co. 120,000 5,122,500
- --------------------------------------------------------------------------
Boston Scientific Corp.(a) 266,500 7,145,531
- --------------------------------------------------------------------------
Guidant Corp. 65,000 7,166,250
- --------------------------------------------------------------------------
Medtronic, Inc. 85,000 6,311,250
- --------------------------------------------------------------------------
42,160,550
- --------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-181
<PAGE> 264
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES) - 0.76%
Omnicare, Inc. 275,000 $ 9,556,250
- ---------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.01%
Colgate-Palmolive Co. 125,000 11,609,375
- ---------------------------------------------------------------------------
Procter & Gamble Co. (The) 150,000 13,696,875
- ---------------------------------------------------------------------------
25,306,250
- ---------------------------------------------------------------------------
HOUSEWARES - 0.23%
Newell Co. 19,000 783,750
- ---------------------------------------------------------------------------
Rubbermaid, Inc. 65,000 2,043,438
- ---------------------------------------------------------------------------
2,827,188
- ---------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.77%
American International Group, Inc. 100,000 9,662,500
- ---------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.38%
Allstate Corp. (The) 125,000 4,828,125
- ---------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.74%
Merrill Lynch & Co., Inc. 140,000 9,345,000
- ---------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.35%
Franklin Resources, Inc. 140,000 4,480,000
- ---------------------------------------------------------------------------
LODGING-HOTELS - 0.90%
Carnival Corp. - Class A(b) 237,000 11,376,000
- ---------------------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.32%
Ingersoll-Rand Co. 86,300 4,050,706
- ---------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 3.08%
Corning, Inc. 150,000 6,750,000
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 340,000 25,648,750
- ---------------------------------------------------------------------------
United Technologies Corp. 59,000 6,416,250
- ---------------------------------------------------------------------------
38,815,000
- ---------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.28%
Diebold, Inc. 100,000 3,568,750
- ---------------------------------------------------------------------------
NATURAL GAS - 1.47%
El Paso Natural Gas Co. 100,000 3,481,250
- ---------------------------------------------------------------------------
Enron Corp. 150,000 8,559,375
- ---------------------------------------------------------------------------
Williams Companies, Inc. (The) 210,000 6,549,375
- ---------------------------------------------------------------------------
18,590,000
- ---------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 1.49%
Royal Dutch Petroleum Co. - New York Shares - ADR
(Netherlands) 260,000 12,447,500
- ---------------------------------------------------------------------------
Texaco, Inc. 120,000 6,345,000
- ---------------------------------------------------------------------------
18,792,500
- ---------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.88%
Baker Hughes, Inc. 375,000 6,632,812
- ---------------------------------------------------------------------------
Halliburton Co. 342,500 10,146,563
- ---------------------------------------------------------------------------
Schlumberger Ltd. 150,000 6,918,750
- ---------------------------------------------------------------------------
23,698,125
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION) - 0.71%
Conoco, Inc.(a) 430,000 $ 8,976,250
- ----------------------------------------------------------------
PERSONAL CARE - 0.35%
Avon Products, Inc. 100,000 4,425,000
- ----------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 0.84%
Xerox Corp. 90,000 10,620,000
- ----------------------------------------------------------------
PUBLISHING - 0.34%
Dow Jones & Co., Inc. 90,000 4,331,250
- ----------------------------------------------------------------
RAILROADS - 0.39%
Kansas City Southern Industries, Inc. 100,000 4,918,750
- ----------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.41%
Lowe's Companies, Inc. 100,000 5,118,750
- ----------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 1.35%
Federated Department Stores, Inc.(a) 100,000 4,356,250
- ----------------------------------------------------------------
J.C. Penney Co., Inc. 130,000 6,093,750
- ----------------------------------------------------------------
Saks, Inc.(a) 210,000 6,628,125
- ----------------------------------------------------------------
17,078,125
- ----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.35%
Family Dollar Stores, Inc. 200,000 4,400,000
- ----------------------------------------------------------------
RETAIL (DRUG STORES) - 0.53%
Walgreen Co. 115,000 6,734,688
- ----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.60%
Safeway, Inc.(a) 125,000 7,617,188
- ----------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 2.54%
Dayton Hudson Corp. 215,000 11,663,750
- ----------------------------------------------------------------
Wal-Mart Stores, Inc. 250,000 20,359,375
- ----------------------------------------------------------------
32,023,125
- ----------------------------------------------------------------
RETAIL (SPECIALTY) - 0.80%
Office Depot, Inc.(a) 171,400 6,331,088
- ----------------------------------------------------------------
Staples, Inc.(a) 85,091 3,717,411
- ----------------------------------------------------------------
10,048,499
- ----------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.37%
TJX Companies, Inc. 160,000 4,640,000
- ----------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.45%
Washington Mutual, Inc. 150,000 5,728,125
- ----------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.21%
Service Corp. International 70,000 2,664,375
- ----------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.62%
Equifax, Inc. 100,000 3,418,750
- ----------------------------------------------------------------
Fiserv, Inc.(a) 85,000 4,372,188
- ----------------------------------------------------------------
7,790,938
- ----------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-182
<PAGE> 265
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 2.27%
MCI WorldCom, Inc.(a) 400,000 $ 28,700,000
- ---------------------------------------------------------------------------
TELEPHONE - 3.65%
AT&T Corp. 63,100 4,779,825
- ---------------------------------------------------------------------------
Ameritech Corp. 135,000 8,555,625
- ---------------------------------------------------------------------------
BellSouth Corp. 280,000 13,965,000
- ---------------------------------------------------------------------------
GTE Corp. 100,000 6,743,750
- ---------------------------------------------------------------------------
SBC Communications, Inc. 225,000 12,065,625
- ---------------------------------------------------------------------------
46,109,825
- ---------------------------------------------------------------------------
TOBACCO - 2.86%
Philip Morris Companies, Inc. 675,000 36,112,500
- ---------------------------------------------------------------------------
Total Common Stocks (Cost $766,711,907) 1,018,713,381
- ---------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 6.07%
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.07%
Chancellor Media Corp., $3.00 Conv. Pfd. 75,000 7,429,687
- ---------------------------------------------------------------------------
MediaOne Group, Inc., $3.63 Conv. Pfd. 125,000 8,312,500
- ---------------------------------------------------------------------------
MediaOne Group, Inc., $2.25 Series D Conv. Pfd. 110,000 10,450,000
- ---------------------------------------------------------------------------
26,192,187
- ---------------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 0.43%
Monsanto Co., $2.60 Conv. Pfd. 110,000 5,390,000
- ---------------------------------------------------------------------------
ELECTRIC COMPANIES - 1.06%
Houston Industries, Inc. - $3.22 Conv. Pfd. 125,500 13,350,063
- ---------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.56%
McKesson Financing Trust, $2.50 Conv. Pfd. 65,000 7,076,875
- ---------------------------------------------------------------------------
HOUSEWARES - 0.19%
Newell Financial Trust, Inc., $2.625 Conv. Pfd. 47,000 2,479,250
- ---------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.42%
Conseco, Inc. - $4.278 Conv. PRIDES 50,000 5,275,000
- ---------------------------------------------------------------------------
LODGING - HOTELS - 0.52%
Royal Caribbean Cruises Ltd. - $3.63 Conv. Pfd. 56,000 6,636,000
- ---------------------------------------------------------------------------
RETAIL (DRUG STORES) - 0.48%
CVS Corp., $4.23 Conv. Pfd. 60,000 6,011,250
- ---------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.34%
Loral Space & Communications Ltd., $3.00 Conv. Pfd. 80,000 4,250,000
- ---------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks (Cost
$65,636,173) 76,660,625
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS - 10.03%
AUTO PARTS & EQUIPMENT - 0.24%
Magna International, Inc., Conv. Sub. Deb., 4.875%,
02/15/05 $3,000,000 $ 3,086,250
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.29%
Jacor Communications, Inc., Conv. Sr. LYON, 5.50%,
06/12/11(c) 4,000,000 3,590,000
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.30%
Comverse Technology, Inc., Conv. Sub. Deb. 4.50%,
07/01/05(d) (Acquired 06/25/98; Cost $3,000,000) 3,000,000 3,795,000
- -------------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.43%
Candescent Technology Corp., Conv. Sr. Sub. Deb.,
7.00%, 05/01/03(d) (Acquired 04/17/98; Cost
$5,862,772) 6,000,000 5,400,000
- -------------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 1.35%
EMC Corp., Conv. Sub. Notes, 3.25%, 03/15/02 4,500,000 16,965,000
- -------------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 3.13%
America Online, Inc., Conv. Sub. Notes, 4.00%,
11/15/02 3,500,000 21,555,625
- -------------------------------------------------------------------------------
America Online, Inc., Conv. Sub. Notes, 4.00%,
11/15/02(d) (Acquired 02/10/98; Cost $2,499,041) 2,000,000 12,317,500
- -------------------------------------------------------------------------------
Veritas Software Corp., Conv. Unsec. Sub. Notes,
5.25%, 11/01/04 3,500,000 5,656,875
- -------------------------------------------------------------------------------
39,530,000
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.57%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06 3,000,000 7,136,250
- -------------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.32%
Loews Corp., Conv. Sub. Notes, 3.125%, 09/15/07 5,000,000 4,000,000
- -------------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.63%
Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 3,000,000 7,968,750
- -------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.54%
Costco Companies, Inc. Conv. Sub. Notes, 3.50%,
08/19/17(e) 8,000,000 6,860,000
- -------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.36%
Affiliated Computer Services, Conv. Sub. Notes,
4.00%, 03/15/05 1,750,000 2,136,093
- -------------------------------------------------------------------------------
Affiliated Computer Services, Conv. Sub. Notes,
4.00%, 03/15/05(d) (Acquired 03/17/98; Cost
$2,006,875) 2,000,000 2,441,250
- -------------------------------------------------------------------------------
4,577,343
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-183
<PAGE> 266
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.25%
Global Telesystems Group, Inc., Conv. Sr. Sub.
Deb., 8.75%, 06/30/00 $ 500,000 $ 1,408,750
- --------------------------------------------------------------------------
Global Telesystems Group, Inc., Conv. Sr. Sub.
Deb., 8.75%, 06/30/00(d) (Acquired 02/05/98;
Cost $1,950,312) 1,500,000 4,226,250
- --------------------------------------------------------------------------
Global Telesystems Group, Inc., Conv. Sr. Sub.
Deb., 5.75%, 07/01/10 9,000,000 10,158,750
- --------------------------------------------------------------------------
15,793,750
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 0.62%
USA Waste Services, Inc., Conv. Sub. Notes,
4.50%, 06/01/01 5,000,000 7,843,750
- --------------------------------------------------------------------------
Total Convertible Corporate Bonds
(Cost $76,598,280) 126,546,093
- --------------------------------------------------------------------------
FOREIGN CONVERTIBLE NOTES - 0.37%
SERVICES - COMMERCIAL & CONSUMER - 0.37%
Airtours PLC, Conv. Sub. Notes, 5.75% 01/05/04(d)(e)
(Acquired 02/05/98; Cost $4,514,585) GBP 2,729,000 4,660,046
- --------------------------------------------------------------------------
Total Foreign Convertible Notes
(Cost $4,514,585) 4,660,046
- --------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 1.26%
9.125%, 05/15/99 10,000,000 10,161,400
- --------------------------------------------------------------------------
11.75%, 02/15/01 5,000,000 5,716,450
- --------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $16,353,828) 15,877,850
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT(f) - 2.81%
Goldman Sachs & Co., 4.40%, 01/04/99(g)
(Cost $35,491,011) 35,491,011 35,491,011
- --------------------------------------------------------------------------
TOTAL INVESTMENTS SECURITIES - 101.26% 1,277,949,006
- --------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (1.26)% (15,890,237)
- --------------------------------------------------------------------------
NET ASSETS - 100.00% $1,262,058,769
==========================================================================
</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 8.
(c) Zero coupon bond issued at a discount. Interest rate shown represents the
rate of original issue discount.
(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 12/31/98 was $32,840,046
which represented 2.60% of the Fund's net assets.
(e) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(f) 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 is at least 102% of the sales
price of the repurchase agreement. The investments in some repurchase 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.
(g) Joint repurchase agreements entered into 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Gtd. - Guaranteed
LYON - Liquid Yield Option Notes
Pfd. - Preferred
PRIDES - Preferred Redeemable Increased Dividend Equity Security
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-184
<PAGE> 267
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $965,305,784) $1,277,949,006
- ------------------------------------------------------------------------
Receivables for:
Investments sold 24,131,504
- ------------------------------------------------------------------------
Capital stock sold 636,098
- ------------------------------------------------------------------------
Dividends and interest 2,075,051
- ------------------------------------------------------------------------
Investment for deferred compensation plan 21,235
- ------------------------------------------------------------------------
Other assets 14,825
- ------------------------------------------------------------------------
Total assets 1,304,827,719
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 39,326,193
- ------------------------------------------------------------------------
Capital stock reacquired 1,033,605
- ------------------------------------------------------------------------
Deferred compensation plan 21,235
- ------------------------------------------------------------------------
Options written (Premiums received $617,471) 1,728,012
- ------------------------------------------------------------------------
Accrued advisory fees 612,379
- ------------------------------------------------------------------------
Accrued directors' fees 325
- ------------------------------------------------------------------------
Accrued operating expenses 47,201
- ------------------------------------------------------------------------
Total liabilities 42,768,950
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,262,058,769
========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ------------------------------------------------------------------------
Outstanding 53,131,024
========================================================================
Net asset value, offering and redemption price per share $23.75
========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $135,103 foreign withholding tax) $ 10,826,657
- ------------------------------------------------------------------------------
Interest 7,206,342
- ------------------------------------------------------------------------------
Total investment income 18,032,999
- ------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,556,833
- ------------------------------------------------------------------------------
Administrative services fees 60,729
- ------------------------------------------------------------------------------
Custodian fees 119,817
- ------------------------------------------------------------------------------
Directors' fees and expenses 15,043
- ------------------------------------------------------------------------------
Interest expense (Note 4) 58,555
- ------------------------------------------------------------------------------
Other 90,585
- ------------------------------------------------------------------------------
Total expenses 5,901,562
- ------------------------------------------------------------------------------
Less: Expenses paid indirectly (18,086)
- ------------------------------------------------------------------------------
Net expenses 5,883,476
- ------------------------------------------------------------------------------
Net investment income 12,149,523
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 7,206,698
- ------------------------------------------------------------------------------
Foreign currencies (127,792)
- ------------------------------------------------------------------------------
Futures contracts (845,486)
- ------------------------------------------------------------------------------
Option contracts (1,146,650)
- ------------------------------------------------------------------------------
5,086,770
- ------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 224,947,459
- ------------------------------------------------------------------------------
Foreign currencies 5,448
- ------------------------------------------------------------------------------
Futures contracts 277,200
- ------------------------------------------------------------------------------
Option contracts (905,620)
- ------------------------------------------------------------------------------
224,324,487
- ------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies,
futures and option contracts 229,411,257
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $241,560,780
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-185
<PAGE> 268
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 12,149,523 $ 4,767,618
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and option
contracts 5,086,770 9,736,106
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, futures and
option contracts 224,324,487 66,989,418
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 241,560,780 81,493,142
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (4,873,870) (326,695)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (12,029,125) (490,042)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 398,288,439 349,104,509
- ------------------------------------------------------------------------------
Net increase in net assets 622,946,224 429,780,914
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 639,112,545 209,331,631
- ------------------------------------------------------------------------------
End of year $1,262,058,769 $639,112,545
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 935,990,892 $537,626,187
- ------------------------------------------------------------------------------
Undistributed net investment income 11,997,368 4,850,844
- ------------------------------------------------------------------------------
Undistributed net realized gain on sales from
investment securities, foreign currencies,
futures and option contracts 2,532,381 9,421,873
- ------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 311,538,128 87,213,641
- ------------------------------------------------------------------------------
$1,262,058,769 $639,112,545
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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-186
<PAGE> 269
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, 1998, paid-in
capital was increased by $76,266, undistributed net investment income was
decreased by $129,129 and undistributed net realized gains increased by
$52,863 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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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
AIM V.I. GROWTH AND INCOME FUND
FS-187
<PAGE> 270
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $60,729 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, 1998, the Fund incurred legal fees of
$4,825 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 $18,086 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $18,086 during the year ended
December 31, 1998.
NOTE 4 - BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed-
upon price and date. Proceeds from reverse repurchase agreements are treated
as borrowings. The agreements are collateralized by the underlying securities
and are carried at the amount at which the securities will subsequently be
repurchased as specified in the agreements. The maximum amount outstanding
during the period ended December 31, 1998 was $18,886,000 while borrowings
averaged $1,028,866 per day with a weighted average interest rate of 5.60%.
NOTE 5 - 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 6 - 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,
1998 was $1,628,755,153 and $1,243,229,582, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $315,376,411
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,991,857)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $305,384,554
===========================================================================
</TABLE>
Cost of investments for tax purposes is $972,564,452.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the year ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 19,890,074 $409,625,526 20,645,975 $361,699,824
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 751,578 16,902,995 44,268 816,737
- ------------------------------------------------------------------------------
Reacquired (1,379,171) (28,240,082) (745,032) (13,412,052)
- ------------------------------------------------------------------------------
19,262,481 $398,288,439 19,945,211 $349,104,509
==============================================================================
</TABLE>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------
<S> <C> <C>
Beginning of year 3,100 $ 624,245
- -----------------------------------------
Written 47,846 11,523,972
- -----------------------------------------
Closed (37,960) (9,750,978)
- -----------------------------------------
Exercised (6,648) (1,542,256)
- -----------------------------------------
Expired (3,671) (237,512)
- -----------------------------------------
End of year 2,667 $ 617,471
=========================================
</TABLE>
Open call option contracts written at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER
31, 1998 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ----- ------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carnival Corp. Jan $40 750 $226,440 $ 585,938 $ (359,498)
- -------------------------------------------------------------------------------------
Compaq Computer Corp. Jan 37 1/2 1,450 213,143 715,937 (502,794)
- -------------------------------------------------------------------------------------
Compuware Corp. Jan 70 467 177,888 426,137 (248,249)
- -------------------------------------------------------------------------------------
2,667 $617,471 $1,728,012 $(1,110,541)
=====================================================================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-188
<PAGE> 271
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
1998 1997 1996 1995 1995
---------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 18.87 $ 15.03 $ 12.68 $ 9.98 $10.00
- ----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.26(a) 0.13 0.16 0.14 0.11
- ----------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 4.95 3.74 2.36 3.11 (0.02)
- ----------------------------------------------------------------------------------------
Total from investment
operations 5.21 3.87 2.52 3.25 0.09
- ----------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.09) (0.01) (0.14) (0.14) (0.11)
- ----------------------------------------------------------------------------------------
Distributions from net
realized gains (0.24) (0.02) (0.03) (0.41) --
- ----------------------------------------------------------------------------------------
Total distributions (0.33) (0.03) (0.17) (0.55) (0.11)
- ----------------------------------------------------------------------------------------
Net asset value, end of
period $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98
========================================================================================
Total return(b) 27.68% 25.72% 19.95% 32.65% 0.90%
========================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $1,262,059 $639,113 $209,332 $38,567 $7,380
========================================================================================
Ratio of expenses to
average net assets 0.65%(c) 0.69% 0.78% 0.78%(d) 1.07%(d)(e)
========================================================================================
Ratio of net investment
income to average net
assets 1.34%(c) 1.15% 2.05% 1.92%(d) 1.95%(d)(e)
========================================================================================
Portfolio turnover rate 140% 135% 148% 145% 96%
========================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are based on average net assets of $905,305,521.
(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.
AIM V.I. GROWTH AND INCOME FUND
FS-189
<PAGE> 272
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, 1998, 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 three 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, 1998 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. Growth Fund, as of December 31, 1998, 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 three 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 3, 1999
AIM V.I. GROWTH FUND
FS-190
<PAGE> 273
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 86.97%
BANKS (REGIONAL) - 0.40%
North Fork Bancorporation, Inc. 62,000 $ 1,484,125
- ------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.63%
PepsiCo, Inc. 57,700 2,362,094
- ------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.82%
Chancellor Media Corp.(a) 60,500 2,896,437
- ------------------------------------------------------------------
Clear Channel Communications, Inc.(a) 42,476 2,314,942
- ------------------------------------------------------------------
Comcast Corp.-Class A 66,000 3,873,375
- ------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 49,500 3,421,687
- ------------------------------------------------------------------
Infinity Broadcasting Corp.-Class A(a) 63,500 1,738,312
- ------------------------------------------------------------------
Jacor Communications, Inc.(a) 41,000 2,639,375
- ------------------------------------------------------------------
Liberty Media Group(a) 21,600 994,950
- ------------------------------------------------------------------
Tele-Communications, Inc.-Class A(a) 68,000 3,761,250
- ------------------------------------------------------------------
21,640,328
- ------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 0.52%
Monsanto Co. 40,800 1,938,000
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.70%
Lucent Technologies, Inc.(b)(c) 23,500 2,585,000
- ------------------------------------------------------------------
COMPUTERS (HARDWARE) - 5.33%
Compaq Computer Corp. 78,800 3,304,675
- ------------------------------------------------------------------
Dell Computer Corp.(a)(b) 74,000 5,415,875
- ------------------------------------------------------------------
International Business Machines Corp. 45,200 8,350,700
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a) 32,000 2,740,000
- ------------------------------------------------------------------
19,811,250
- ------------------------------------------------------------------
COMPUTERS (NETWORKING) - 3.73%
3Com Corp.(a) 77,500 3,472,969
- ------------------------------------------------------------------
Ascend Communications, Inc.(a) 63,975 4,206,356
- ------------------------------------------------------------------
Cisco Systems, Inc.(a) 66,550 6,176,672
- ------------------------------------------------------------------
13,855,997
- ------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.99%
EMC Corp.(a) 43,500 3,697,500
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 10.98%
America Online, Inc. 116,000 18,560,000
- ------------------------------------------------------------------
BMC Software, Inc.(a) 74,000 3,297,625
- ------------------------------------------------------------------
Compuware Corp.(a) 48,000 3,750,000
- ------------------------------------------------------------------
HBO & Co. 53,000 1,520,437
- ------------------------------------------------------------------
Microsoft Corp.(a) 57,300 7,946,794
- ------------------------------------------------------------------
Oracle Corp.(a) 93,000 4,010,625
- ------------------------------------------------------------------
Unisys Corp.(a) 51,000 1,756,313
- ------------------------------------------------------------------
40,841,794
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER FINANCE - 0.60%
Providian Financial Corp. 30,000 $ 2,250,000
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 2.05%
AmeriSource Health Corp.-Class A(a) 24,100 1,566,500
- --------------------------------------------------------------
Cardinal Health, Inc. 61,500 4,666,312
- --------------------------------------------------------------
McKesson Corp. 6,500 513,906
- --------------------------------------------------------------
Sysco Corp. 31,800 872,513
- --------------------------------------------------------------
7,619,231
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.58%
AMP, Inc. 20,000 1,041,250
- --------------------------------------------------------------
General Electric Co. 40,000 4,082,500
- --------------------------------------------------------------
Sanmina Corp.(a) 9,000 562,500
- --------------------------------------------------------------
SCI Systems, Inc.(a) 32,300 1,865,325
- --------------------------------------------------------------
Symbol Technologies, Inc. 31,800 2,033,213
- --------------------------------------------------------------
9,584,788
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 6.11%
Advanced Micro Devices, Inc.(a) 33,600 972,300
- --------------------------------------------------------------
Altera Corp.(a) 45,000 2,739,375
- --------------------------------------------------------------
Analog Devices, Inc.(a) 60,000 1,882,500
- --------------------------------------------------------------
Intel Corp. 66,600 7,896,262
- --------------------------------------------------------------
LSI Logic Corp.(a) 78,000 1,257,750
- --------------------------------------------------------------
Micron Technology, Inc.(a) 26,000 1,314,625
- --------------------------------------------------------------
National Semiconductor Corp.(a) 76,200 1,028,700
- --------------------------------------------------------------
Texas Instruments, Inc. 40,000 3,422,500
- --------------------------------------------------------------
Xilinx, Inc.(a) 34,000 2,214,250
- --------------------------------------------------------------
22,728,262
- --------------------------------------------------------------
ENTERTAINMENT - 1.08%
Time Warner, Inc. 64,600 4,009,238
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.51%
Applied Materials, Inc.(a) 44,000 1,878,250
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 5.93%
American Express Co. 14,000 1,431,500
- --------------------------------------------------------------
Fannie Mae 61,200 4,528,800
- --------------------------------------------------------------
Freddie Mac 97,000 6,250,437
- --------------------------------------------------------------
MBIA, Inc. 58,400 3,828,849
- --------------------------------------------------------------
MGIC Investment Corp. 44,799 1,783,560
- --------------------------------------------------------------
SunAmerica, Inc. 52,000 4,218,500
- --------------------------------------------------------------
22,041,646
- --------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-191
<PAGE> 274
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED) - 3.86%
Abbott Laboratories 52,200 $ 2,557,800
- ---------------------------------------------------------------------
American Home Products Corp. 18,000 1,013,625
- ---------------------------------------------------------------------
Bristol-Myers Squibb Co. 22,300 2,984,019
- ---------------------------------------------------------------------
Johnson & Johnson 17,000 1,425,875
- ---------------------------------------------------------------------
Warner-Lambert Co. 85,000 6,390,937
- ---------------------------------------------------------------------
14,372,256
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.31%
Mylan Laboratories, Inc. 65,600 2,066,400
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 44,900 2,823,088
- ---------------------------------------------------------------------
4,889,488
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 5.54%
Lilly (Eli) & Co. 55,600 4,941,450
- ---------------------------------------------------------------------
Merck & Co., Inc. 11,000 1,624,562
- ---------------------------------------------------------------------
Pfizer, Inc. 48,000 6,021,000
- ---------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 96,900 5,486,962
- ---------------------------------------------------------------------
Schering-Plough Corp. 46,000 2,541,500
- ---------------------------------------------------------------------
20,615,474
- ---------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.65%
Arterial Vascular Engineering, Inc.(a) 45,000 2,362,500
- ---------------------------------------------------------------------
Baxter International, Inc. 4,800 308,700
- ---------------------------------------------------------------------
Becton, Dickinson & Co. 154,000 6,573,875
- ---------------------------------------------------------------------
Biomet, Inc. 49,500 1,992,375
- ---------------------------------------------------------------------
Guidant Corp. 38,200 4,211,550
- ---------------------------------------------------------------------
Medtronic, Inc. 25,000 1,856,250
- ---------------------------------------------------------------------
17,305,250
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.58%
Procter & Gamble Co. (The) 23,500 2,145,844
- ---------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.13%
Nationwide Financial Services, Inc.-Class A 9,600 496,200
- ---------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.34%
American International Group, Inc. 12,900 1,246,463
- ---------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.33%
Paine Webber Group, Inc. 31,700 1,224,413
- ---------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.21%
Franklin Resources, Inc. 10,900 348,800
- ---------------------------------------------------------------------
T. Rowe Price Associates, Inc. 12,900 441,825
- ---------------------------------------------------------------------
790,625
- ---------------------------------------------------------------------
LODGING - HOTELS - 1.41%
Carnival Corp.-Class A 109,300 5,246,400
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (DIVERSIFIED) - 0.61%
Tyco International Ltd. 30,000 $ 2,263,125
- ------------------------------------------------------------------
NATURAL GAS - 0.66%
Enron Corp. 43,000 2,453,688
- ------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 3.01%
Home Depot, Inc. (The) 97,000 5,935,188
- ------------------------------------------------------------------
Lowe's Companies, Inc. 103,100 5,277,431
- ------------------------------------------------------------------
11,212,619
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 0.56%
Best Buy Co., Inc.(a) 34,000 2,086,750
- ------------------------------------------------------------------
RETAIL (DRUG STORES) - 0.43%
CVS Corp. 29,000 1,595,000
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.74%
Albertson's, Inc. 29,000 1,846,937
- ------------------------------------------------------------------
Kroger Co.(a) 43,000 2,601,500
- ------------------------------------------------------------------
Safeway, Inc.(a) 33,000 2,010,938
- ------------------------------------------------------------------
6,459,375
- ------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 1.57%
Costco Companies, Inc.(a)(b) 30,000 2,165,625
- ------------------------------------------------------------------
Dayton Hudson Corp. 33,000 1,790,250
- ------------------------------------------------------------------
Wal-Mart Stores, Inc. 23,000 1,873,063
- ------------------------------------------------------------------
5,828,938
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 2.68%
Office Depot, Inc.(a) 154,000 5,688,375
- ------------------------------------------------------------------
Staples, Inc.(a) 98,000 4,281,375
- ------------------------------------------------------------------
9,969,750
- ------------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 0.36%
Gap, Inc. (The) 24,050 1,352,812
- ------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.12%
Outdoor Systems, Inc.(a) 139,450 4,183,500
- ------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.22%
Service Corp. International 21,500 818,344
- ------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 0.57%
Keane, Inc.(a) 53,100 2,120,681
- ------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.24%
Ceridian Corp.(a) 26,900 1,877,956
- ------------------------------------------------------------------
Equifax, Inc. 34,400 1,176,050
- ------------------------------------------------------------------
Fiserv, Inc.(a) 30,150 1,550,841
- ------------------------------------------------------------------
4,604,847
- ------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-192
<PAGE> 275
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 4.94%
MCI WorldCom, Inc.(a) 256,243 $ 18,385,435
- -------------------------------------------------------------------------------
TOBACCO - 0.94%
Philip Morris Companies, Inc. 65,000 3,477,500
- -------------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $204,614,000) 323,472,280
- -------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.10%
FINLAND - 0.41%
Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 5,700 686,494
- -------------------------------------------------------------------------------
Nokia Oyj A.B.-Class A (Communications Equipment) 6,800 827,234
- -------------------------------------------------------------------------------
1,513,728
- -------------------------------------------------------------------------------
FRANCE - 0.27%
Renault S.A. (Automobiles) 22,500 1,010,377
- -------------------------------------------------------------------------------
IRELAND - 0.54%
Elan Corp. PLC-ADR (Health Care-Drugs-Generic &
Other)(a) 29,000 2,017,313
- -------------------------------------------------------------------------------
NETHERLANDS - 1.00%
Philips Electronics N.V. (Electrical Equipment) 19,000 1,274,625
- -------------------------------------------------------------------------------
Philips Electronics N.V.-ADR-New York Shares
(Electrical Equipment) 36,000 2,436,750
- -------------------------------------------------------------------------------
3,711,375
- -------------------------------------------------------------------------------
SWITZERLAND - 0.88%
Nestle S.A. (Foods) 1,500 3,266,093
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$10,115,291) 11,518,886
- -------------------------------------------------------------------------------
OPTIONS PURCHASED - 0.00%
NUMBER OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUTS - 0.00%
Lucent Technologies, Inc.
(Communications Equipment
(Cost $118,378) 157 $95 Jan-99 8,831
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.84%
SWITZERLAND - 0.84%
Nestle Holding Inc., Conv. Bond, 3.00%,
06/17/02 (Cost $2,941,380) $2,200,000 3,105,903
- -----------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.49%(d)
Goldman, Sachs & Co., 4.40%, 01/04/99(e) (Cost
$31,583,054) 31,583,054 31,583,054
- -----------------------------------------------------------------------
TOTAL INVESTMENTS - 99.40% 369,688,954
- -----------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.60% 2,225,797
- -----------------------------------------------------------------------
NET ASSETS - 100.00% $371,914,751
======================================================================-
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) A portion of this security is subject to call options.
(c) A portion of this security is subject to put options.
(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 is at least 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 agreements entered into 12/31/98 with a maturing value of
$700,342,222. Collaterialized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-193
<PAGE> 276
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value (cost $249,372,103) $369,688,954
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 1,229,040
- ----------------------------------------------------------------------
Investments sold 2,040,256
- ----------------------------------------------------------------------
Dividends and interest 224,599
- ----------------------------------------------------------------------
Investment for deferred compensation plan 23,264
- ----------------------------------------------------------------------
Other assets 1,985
- ----------------------------------------------------------------------
Total assets 373,208,098
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 61,353
- ----------------------------------------------------------------------
Deferred compensation plan 23,264
- ----------------------------------------------------------------------
Options written (Premiums received $739,850) 953,563
- ----------------------------------------------------------------------
Accrued advisory fees 186,515
- ----------------------------------------------------------------------
Accrued directors' fees 2,560
- ----------------------------------------------------------------------
Accrued administrative services fees 3,637
- ----------------------------------------------------------------------
Accrued operating expenses 62,455
- ----------------------------------------------------------------------
Total liabilities 1,293,347
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $371,914,751
======================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 14,997,262
======================================================================
Net asset value, offering and redemption price per share $24.80
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $48,337 foreign withholding tax) $ 1,895,594
- ------------------------------------------------------------------------------
Interest 1,514,487
- ------------------------------------------------------------------------------
Total investment income 3,410,081
- ------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,941,818
- ------------------------------------------------------------------------------
Administrative services fees 50,535
- ------------------------------------------------------------------------------
Custodian fees 98,543
- ------------------------------------------------------------------------------
Directors' fees and expenses 12,859
- ------------------------------------------------------------------------------
Other 79,110
- ------------------------------------------------------------------------------
Total expenses 2,182,865
- ------------------------------------------------------------------------------
Less: Expenses paid indirectly (2,844)
- ------------------------------------------------------------------------------
Net expenses 2,180,021
- ------------------------------------------------------------------------------
Net investment income 1,230,060
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities 22,750,448
- ------------------------------------------------------------------------------
Foreign currencies 87,369
- ------------------------------------------------------------------------------
Futures contracts 1,100,047
- ------------------------------------------------------------------------------
Options contracts (1,680,833)
- ------------------------------------------------------------------------------
22,257,031
- ------------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 67,962,858
- ------------------------------------------------------------------------------
Foreign currencies 4,310
- ------------------------------------------------------------------------------
Options contracts 90,382
- ------------------------------------------------------------------------------
68,057,550
- ------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies, futures
and options contracts 90,314,581
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $91,544,641
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-194
<PAGE> 277
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,230,060 $ 1,211,773
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and options
contracts 22,257,031 22,109,980
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, futures and
options contracts 68,057,550 28,069,985
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 91,544,641 51,391,738
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,180,373) (1,119,140)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (22,129,920) (8,443,286)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 44,828,633 38,384,566
- ------------------------------------------------------------------------------
Net increase in net assets 113,062,981 80,213,878
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 258,851,770 178,637,892
- ------------------------------------------------------------------------------
End of year $371,914,751 $258,851,770
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $228,798,661 $183,975,681
- ------------------------------------------------------------------------------
Undistributed net investment income 1,289,508 1,182,806
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
options contracts 21,719,134 21,643,385
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and options
contracts 120,107,448 52,049,898
- ------------------------------------------------------------------------------
$371,914,751 $258,851,770
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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.
AIM V.I. GROWTH FUND
FS-195
<PAGE> 278
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 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, 1998
additional paid-in capital was decreased by $5,653, undistributed net
investment income was increased by $57,015 and undistributed net realized
gains was decreased by $51,362 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 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. 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.
F. 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.
G. 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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
H. 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
AIM V.I. GROWTH FUND
FS-196
<PAGE> 279
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $50,535 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, 1998, the Fund incurred legal fees of
$4,004 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 $2,844 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $2,844 during the year ended
December 31, 1998.
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, 1998 was
$385,017,854 and $363,389,349, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $120,017,053
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,102,014)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $118,915,039
===========================================================================
</TABLE>
Cost of investments for tax purposes is $250,773,915.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,345,258 $52,301,342 2,757,339 $ 51,600,352
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 1,005,621 23,310,293 492,909 9,562,426
- -----------------------------------------------------------------------------
Reacquired (1,407,943) (30,783,002) (1,185,922) (22,778,212)
- -----------------------------------------------------------------------------
1,942,936 $44,828,633 2,064,326 $ 38,384,566
=============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------
<S> <C> <C>
Beginning of period 1,815 $ 531,904
- -------------------------------------------
Written 10,693 5,020,455
- -------------------------------------------
Closed (7,461) (3,712,050)
- -------------------------------------------
Exercised (2,378) (653,704)
- -------------------------------------------
Expired (1,472) (446,755)
- -------------------------------------------
End of period 1,197 $ 739,850
===========================================
</TABLE>
Open call options held at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1998 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ----- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Costco Companies, Inc. Jan. 99 55 300 $182,544 $528,750 $(346,206)
- --------------------------------------------------------------------------------------
Dell Computer Corp. Jan. 99 70 740 422,526 356,125 66,401
- --------------------------------------------------------------------------------------
Lucent Technologies,
Inc. Jan. 99 110 157 134,780 68,688 66,092
- --------------------------------------------------------------------------------------
1,197 $739,850 $953,563 $(213,713)
======================================================================================
</TABLE>
AIM V.I. GROWTH FUND
FS-197
<PAGE> 280
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the
Fund during each of the years in the three-year period ended December 31,
1998, 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,
----------------------------------------- -----------------
1998 1997 1996 1995 1995 1994
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00
- ------------------------ -------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.08 0.08 0.07 0.09 0.06 0.02
- ------------------------ -------- -------- -------- -------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 6.57 4.27 2.52 3.65 (0.88) 1.59
- ------------------------ -------- -------- -------- -------- ------- -------
Total from investment
operations 6.65 4.35 2.59 3.74 (0.82) 1.61
- ------------------------ -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.09) (0.09) (0.06) (0.01) (0.06) (0.02)
- ------------------------ -------- -------- -------- -------- ------- -------
Distributions from net
realized gains (1.59) (0.68) (0.72) -- -- --
- ------------------------ -------- -------- -------- -------- ------- -------
Total distributions (1.68) (0.77) (0.78) (0.01) (0.06) (0.02)
- ------------------------ -------- -------- -------- -------- ------- -------
Net asset value, end of
period $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
======================== ======== ======== ======== ======== ======= =======
Total return(a) 34.12% 26.87% 18.09% 34.89% (7.11)% 16.07%
======================== ======== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $371,915 $258,852 $178,638 $102,600 $45,497 $25,115
======================== ======== ======== ======== ======== ======= =======
Ratio of expenses to
average net assets 0.72%(b) 0.73% 0.78% 0.84%(c) 0.95% 0.85%(c)(d)
======================== ======== ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets 0.41%(b) 0.54% 0.79% 0.95%(c) 0.71% 0.51%(c)(d)
======================== ======== ======== ======== ======== ======= =======
Portfolio turnover rate 133% 132% 143% 125% 179% 99%
======================== ======== ======== ======== ======== ======= =======
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $302,803,063.
(c) Annualized.
(d) After fee waivers and/or expense reimbursement. Ratios of
expenses and net investment income (loss) to average net assets
prior to fee waivers and/or expense reimbursements were 1.50%
(annualized) and (0.14)% (annualized), respectively.
AIM V.I. GROWTH FUND
FS-198
<PAGE> 281
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. High Yield Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 1, 1998 (commencement
of operations) through December 31, 1998. 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 audit.
We conducted our audit 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, 1998 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 audit provides 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. High Yield Fund, as of December 31, 1998, the results of its operations,
the changes in its net assets, and the financial highlights for the period May
1, 1998 (commencement of operations) through December 31, 1998 in conformity
with generally accepted accounting principles.
/s/ TAIT, WELLER & BAKER
------------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. HIGH YIELD FUND
FS-199
<PAGE> 282
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES - 91.37%
AEROSPACE/DEFENSE - 1.42%
Pacific Aerospace & Electronics, Inc., Sr. Sub. Notes,
11.25%, 08/01/05(a) (Acquired 07/24/98; Cost $150,000) $150,000 $ 113,250
- -------------------------------------------------------------------------------
AIR FREIGHT - 1.99%
Atlas Air, Inc., Sr. Unsec. Notes, 10.75%, 08/01/05 150,000 158,250
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 3.26%
EchoStar DBS Corp., Sr. Sec. Gtd. Notes, 12.50%, 07/01/02 150,000 174,000
- -------------------------------------------------------------------------------
Park N View, Inc., Series B Sr. Notes, 13.00%,
05/15/08(b) 100,000 85,500
- -------------------------------------------------------------------------------
259,500
- -------------------------------------------------------------------------------
BUILDING MATERIALS - 2.37%
Congoleum Corp., Sr. Unsec. Notes, 8.625%, 08/01/08 100,000 99,000
- -------------------------------------------------------------------------------
Imperial Home Decor Group, Series B Sr. Unsec. Gtd. Sub.
Notes, 11.00%, 03/15/08 100,000 89,500
- -------------------------------------------------------------------------------
188,500
- -------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 4.35%
Convergent Communications, Series B Sr. Unsec. Notes,
13.00%, 04/01/08(c) 90,000 43,650
- -------------------------------------------------------------------------------
Exodus Communications, Sr. Unsec. Notes, 11.25%, 07/01/08 300,000 303,000
- -------------------------------------------------------------------------------
346,650
- -------------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.76%
Metal Management, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.00%, 05/15/08 100,000 60,500
- -------------------------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES) - 1.65%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%,
06/01/08 150,000 131,250
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 1.05%
BPC Holding Corp., Series B Sr. Sec. Notes, 12.50%,
06/15/06 80,000 83,600
- -------------------------------------------------------------------------------
FOODS - 0.80%
RAB Enterprise, Inc., Sr. Notes, 13.00%, 05/01/08(a)
(Acquired 05/05/98; Cost $90,900) 90,000 63,450
- -------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 12.18%
Alliance Gaming Corp., Series B Sr. Unsec. Gtd. Sub.
Notes, 10.00%, 08/01/07 100,000 90,500
- -------------------------------------------------------------------------------
Circus Circus Enterprises, Inc., Sr. Sub. Notes, 9.25%,
12/01/05 300,000 311,175
- -------------------------------------------------------------------------------
Majestic Star Casino, LLC, Sr. Sec. Notes, 12.75%,
05/15/03 150,000 156,750
- -------------------------------------------------------------------------------
Resort at Summerlin/RAS Co., Sr. Unsec. Sub. PIK Notes,
13.00%, 12/15/07 111,000 106,005
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GAMING, LOTTERY & PARIMUTUEL COMPANIES - (CONTINUED)
Venetian Casino Resort LLC, Sec. Gtd. Mortgage Notes,
12.25%, 11/15/04 $ 325,000 $ 305,500
- -------------------------------------------------------------------------------
969,930
- -------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.91%
Biovail Corp., Sr. Notes, 10.875%, 11/15/05(a) (Acquired
11/10/98 - 11/24/98; Cost $151,650) 150,000 152,250
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.34%
Alaris Medical, Inc., Sr. Disc. Notes, 11.125%,
08/01/08(a)(d) (Acquired 07/23/98; Cost $121,856) 200,000 110,000
- -------------------------------------------------------------------------------
Alliance Imaging, Sr. Sub. Notes, 9.625%, 12/15/05 200,000 199,000
- -------------------------------------------------------------------------------
Everest Healthcare Services Corp., Sr. Unsec. Gtd. Sub.
Notes, 9.75%, 05/01/08 100,000 99,500
- -------------------------------------------------------------------------------
Mediq, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 06/01/08 100,000 96,500
- -------------------------------------------------------------------------------
505,000
- -------------------------------------------------------------------------------
HOMEBUILDING - 0.24%
Schuler Homes, Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 20,000 19,500
- -------------------------------------------------------------------------------
HOUSEWARES - 4.03%
Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 340,000 321,300
- -------------------------------------------------------------------------------
LODGING-HOTELS - 7.33%
American Skiing Co., Series B Sr. Sub. Notes, 12.00%,
07/15/06 300,000 313,500
- -------------------------------------------------------------------------------
Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes, 12.50%,
03/15/07 90,000 89,550
- -------------------------------------------------------------------------------
Stena Line A.B. (Sweden), Sr. Unsec. Yankee Notes,
10.625%, 06/01/08 200,000 181,000
- -------------------------------------------------------------------------------
584,050
- -------------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 2.47%
Anthony Crane Rentals, Sr. Notes, 10.375%, 08/01/08(a)
(Acquired 07/15/98 - 07/20/98; Cost $100,375) 100,000 96,500
- -------------------------------------------------------------------------------
Generac Portable Products, Sr. Sub. Notes, 11.25%,
07/01/06(a) (Acquired 07/02/98; Cost $100,000) 100,000 100,500
- -------------------------------------------------------------------------------
197,000
- -------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 7.02%
Brand Scaffold Services, Sr. Unsec. Notes, 10.25%,
02/15/08 150,000 143,250
- -------------------------------------------------------------------------------
Derby Cycle Corp., Sr. Notes, 10.00%, 05/15/08(a)
(Acquired 05/07/98; Cost $100,000) 100,000 86,500
- -------------------------------------------------------------------------------
Globe Manufacturing Corp., Sr. Sub. Notes, 10.00%,
08/01/08(a) (Acquired 07/28/98 - 10/27/98; Cost
$179,193) 200,000 182,000
- -------------------------------------------------------------------------------
Omega Cabinets, Sr. Sub. Notes, 10.50%, 06/15/07 150,000 147,750
- -------------------------------------------------------------------------------
559,500
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. HIGH YIELD FUND
FS-200
<PAGE> 283
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION) - 0.71%
Lodestar Holdings Inc., Sr. Unsec. Gtd. Notes, 11.50%,
05/15/05 $ 70,000 $ 56,350
- ------------------------------------------------------------------------------
PUBLISHING - 1.05%
Liberty Group Publishing, Inc., Sr. Unsec. Disc. Deb.,
11.625%, 02/01/09(d) 150,000 83,250
- ------------------------------------------------------------------------------
RAILROAD - 1.01%
TFM SA de CV. (Mexico), Sr. Gtd. Yankee Notes, 10.25%,
06/15/07 95,000 80,750
- ------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 1.97%
Plainwell, Inc., Series B Sr. Unsec. Sub. Notes, 11.00%,
03/01/08 200,000 157,000
- ------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 5.00%
CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes,
9.625%, 06/01/08 95,000 85,975
- ------------------------------------------------------------------------------
National Vision Associates, Sr. Notes, 12.75%,
10/15/05(a) (Acquired 10/05/98; Cost $148,296) 150,000 159,750
- ------------------------------------------------------------------------------
Rent-A-Center, Inc., Sr. Sub. Notes, 11.00%, 08/15/08(a)
(Acquired 08/13/98; Cost $150,000) 150,000 153,000
- ------------------------------------------------------------------------------
398,725
- ------------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.12%
ATC Group Services, Inc., Sr. Unsec. Gtd. Sub. Notes,
12.00%, 01/15/08(e) 100,000 9,500
- ------------------------------------------------------------------------------
SHIPPING - 2.10%
Millenium Seacarriers, First Priority Ship Mortgage
Notes, 12.00%, 07/15/05(a)(f) (Acquired 07/20/98; Cost
$96,733) 100,000 80,500
- ------------------------------------------------------------------------------
Pegasus Shipping Hellas Co. (Bermuda), Sr. Sec. Gtd.
Mortgage Notes, 11.875%, 11/15/04 100,000 86,500
- ------------------------------------------------------------------------------
167,000
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 11.26%
Dobson Communications Corp., Sr. Notes, 11.75%, 04/15/07 200,000 203,500
- ------------------------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes, 11.00%, 09/15/08(a)
(Acquired 12/17/98; Cost $337,634) 340,000 343,400
- ------------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Notes, 12.00%,
11/01/08(a) (Acquired 10/28/98; Cost $221,801) 225,000 247,500
- ------------------------------------------------------------------------------
Spectrasite Holdings, Inc., Sr. Disc. Notes, 12.00%,
07/15/08(a)(d) (Acquired 06/23/98; Cost $117,927) 200,000 103,000
- ------------------------------------------------------------------------------
897,400
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 5.36%
Long Distance Direct, Inc., Sr. Notes, 12.25%,
04/15/08(a)(g) (Acquired 05/05/98 - 10/01/98; Cost
$131,064) 140,000 120,750
- ------------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%,
05/15/08 100,000 102,000
- ------------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%,
05/15/08(a)(h) (Acquired 11/17/98;
Cost $192,036) 200,000 204,000
- ------------------------------------------------------------------------------
426,750
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE - 2.48%
Dobson Communications Corp., Sr. Unsec. Notes, 12.25%,
06/15/08 $100,000 $ 92,750
- ------------------------------------------------------------------------------
US Xchange LLC, Sr. Unsec. Notes, 15.00%, 07/01/08 100,000 105,250
- ------------------------------------------------------------------------------
198,000
- ------------------------------------------------------------------------------
TRUCK & PARTS - 1.14%
HDA Part System, Inc., Sr. Sub. Notes, 12.00%,
08/01/05(a) (Acquired 07/28/98; Cost $100,000) 100,000 90,500
- ------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $7,595,612) 7,278,705
- ------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
PREFERRED STOCK - 1.04%
BROADCASTING (TELEVISION, RADIO, & CABLE) - 1.04%
Benedek Communications, 11.50% PIK Pfd. (Cost $100,000) 102 83,130
- ------------------------------------------------------------------------------
WARRANTS - 0.10%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.08%
Park N View, Inc., expiring 05/15/08 (United Kingdom)(i) 100 6,200
- ------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.00%
Convergent Communications, expiring 04/01/08(i) 360 4
- ------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.00%
Resort At Summerlin/RAS Co., expiring 12/15/07(i) 100 1
- ------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel, Inc., expiring 04/15/03(i) 60 1
- ------------------------------------------------------------------------------
SHIPPING - 0.01%
Millenium Seacarriers, expiring 07/15/03(i) 100 625
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.01%
Long Distance Direct, Inc., expiring 04/13/08(i) 140 350
- ------------------------------------------------------------------------------
Versatel Telecom B.V. (New Zealand), expiring
05/15/08(i) 100 1,012
- ------------------------------------------------------------------------------
1,362
- ------------------------------------------------------------------------------
Total Warrants (Cost $166) 8,193
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 4.47%(j)
SBC Warburg Dillion Read, Inc., 4.75%, 1/04/99(k) (Cost
$356,078) $356,078 356,078
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 96.98% 7,726,106
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 3.02% 240,195
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $7,966,301
================================================================================
</TABLE>
AIM V.I. HIGH YIELD FUND
FS-201
<PAGE> 284
NOTES TO SCHEDULE OF INVESTMENTS:
(a) 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 12/31/98 was $2,202,850 which
represented 27.65% of the Fund's net assets.
(b) Issued as a unit. This unit also includes 100 warrants to purchase 6.73833
shares of common stock per warrant.
(c) Issued as a unit. This unit also includes 360 warrants to purchase 10.8
shares of common stock per warrant.
(d) Step bond issued at a discount. Interest rate shown represents the coupon
rate at which the bond will accrue at a specified future date.
(e) Defaulted security. Currently, the issuer is partially in default with
respect to interest payments.
(f) Issued as a unit. This unit also includes 100 warrants to purchase 1.9
shares of common stock per warrant.
(g) Issued as a unit. This unit also includes 140 warrants to purchase 15.0874
shares of common stock per warrant.
(h) Issued as unit. This unit also includes 100 warrants to purchase 6.667
shares of common stock per warrant.
(i) Non-income producing security.
(j) 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 is at least 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
investments advisor or its affiliates.
(k) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviations:
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. HIGH YIELD FUND
FS-202
<PAGE> 285
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $8,051,856) $ 7,726,106
- ----------------------------------------------------------------------
Cash 7,980
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 15,759
- ----------------------------------------------------------------------
Dividends and interest 194,385
- ----------------------------------------------------------------------
Reimbursement from advisor 28,175
- ----------------------------------------------------------------------
Investment for deferred compensation plan 2,781
- ----------------------------------------------------------------------
Other assets 3,402
- ----------------------------------------------------------------------
Total assets 7,978,588
- ----------------------------------------------------------------------
LIABILITIES:
Payables for Capital stock reacquired 57
- ----------------------------------------------------------------------
Deferred compensation plan 2,781
- ----------------------------------------------------------------------
Accrued administrative services fees 663
- ----------------------------------------------------------------------
Accrued operating expenses 8,786
- ----------------------------------------------------------------------
Total liabilities 12,287
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 7,966,301
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 901,675
======================================================================
Net asset value, offering and redemption price per share $8.84
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 360,052
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 20,728
- -------------------------------------------------------------------------------
Administrative services fees 27,339
- -------------------------------------------------------------------------------
Custodian fees 12,190
- -------------------------------------------------------------------------------
Directors' fees and expenses 6,309
- -------------------------------------------------------------------------------
Professional fees 10,645
- -------------------------------------------------------------------------------
Other 5,661
- -------------------------------------------------------------------------------
Total expenses 82,872
- -------------------------------------------------------------------------------
Less: Expenses paid indirectly (655)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by advisor (45,526)
- -------------------------------------------------------------------------------
Net expenses 36,691
- -------------------------------------------------------------------------------
Net investment income 323,361
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (367,230)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities (325,750)
- -------------------------------------------------------------------------------
Net gain (loss) from investment securities (692,980)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(369,619)
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. HIGH YIELD FUND
FS-203
<PAGE> 286
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 323,361
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment securities (367,230)
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (325,750)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (369,619)
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (330,305)
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 8,666,225
- -----------------------------------------------------------------------------
Net increase in net assets 7,966,301
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period -
- -----------------------------------------------------------------------------
End of period $7,966,301
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $8,662,066
- -----------------------------------------------------------------------------
Undistributed net investment income (loss) (2,785)
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (367,230)
- -----------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (325,750)
- -----------------------------------------------------------------------------
$7,966,301
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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. High Yield Fund (the "Fund"). The Fund's investment objective
is to achieve a high level of current income 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). These 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. The Fund commenced
operations on May 1, 1998. 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 securities (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
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 (except convertible
bonds) are valued at the last sales price on the exchange where 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 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 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 between the closing bid and asked
prices. Securities for which market quotations either are not
AIM V.I. HIGH YIELD FUND
FS-204
<PAGE> 287
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. 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, 1998
additional paid-in capital was decreased by $4,159 and undistributed net
investment income was increased by $4,159 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. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $247,108, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
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 0.625% of
the first $200 million of the Fund's average daily net assets, plus 0.55% of
the Fund's average daily net assets of the next $300 million, plus 0.50% of
the Fund's average daily net assets of the next $500 million, plus 0.45% of
the Fund's average daily net assets in excess of $1 billion. During the period
May 1, 1998 (date operations commenced) through December 31, 1998, AIM waived
fees and reimbursed expenses of $45,526.
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 and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $27,339
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 period May 1, 1998 (date operations commenced) through December
31, 1998, the Fund incurred legal fees of $1,697 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 $655 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $655 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
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 period May 1, 1998 (date operations
commenced) through December 31, 1998 was $9,741,226 and $1,711,250,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 152,901
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (478,651)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $(325,750)
===============================================================================
</TABLE>
Investments have the same cost for tax and financial statements.
AIM V.I. HIGH YIELD FUND
FS-205
<PAGE> 288
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 910,186 $8,767,632
- ---------------------------------------------------------
Issued as reinvestment of dividends 37,577 330,305
- ---------------------------------------------------------
Reacquired (46,088) (431,712)
- ---------------------------------------------------------
901,675 $8,666,225
=========================================================
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.39
- ----------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.15)
- ----------------------------------------------------------------------
Total from investment operations (0.76)
- ----------------------------------------------------------------------
Less dividends from net investment income (0.40)
- ----------------------------------------------------------------------
Net asset value, end of period $ 8.84
================================================================= ======
Total return(a) (7.61)%
================================================================= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $7,966
================================================================= ======
Ratio of expenses to average net assets(b) 1.13%(c)
================================================================= ======
Ratio of net investment income to average net assets(d) 9.75%(c)
================================================================= ======
Portfolio turnover rate 39%
================================================================= ======
</TABLE>
(a) Total return is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.50% (annualized).
(c) Ratios are based on average net assets of $4,940,917.
(d) After fee waivers and/or expense reimbursements. Ratio of net
investment income to average net assets prior to fee waivers and/or
expense reimbursements was 8.36% (annualized).
AIM V.I. HIGH YIELD FUND
FS-206
<PAGE> 289
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, 1998, 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 three 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, 1998 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. International Equity Fund, as of December 31, 1998, 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 three 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 3, 1999
AIM V.I. INTERNATIONAL EQUITY FUND
FS-207
<PAGE> 290
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 91.58%
ARGENTINA - 1.11%
Telefonica de Argentina S.A.-ADR (Telephone) 29,300 $ 818,569
- -----------------------------------------------------------------------------
YPF Sociedad Anonima-ADR (Oil-International
Integrated) 65,900 1,841,081
- -----------------------------------------------------------------------------
2,659,650
- -----------------------------------------------------------------------------
AUSTRALIA - 0.87%
AMP Ltd. (Insurance-Life/Health)(a) 120,800 1,529,244
- -----------------------------------------------------------------------------
Cable & Wireless Optus, Ltd. (Telephone)(a) 268,000 562,851
- -----------------------------------------------------------------------------
2,092,095
- -----------------------------------------------------------------------------
BELGIUM - 3.25%
Barco N.V. (Manufacturing-Diversified) 4,000 1,123,010
- -----------------------------------------------------------------------------
Colruyt N.V. (Retail-Food Chains) 2,600 2,167,294
- -----------------------------------------------------------------------------
Delhaize-Le Lion, S.A. (Retail-Food & Drug)(a) 29,000 2,551,664
- -----------------------------------------------------------------------------
UCB S.A. (Manufacturing-Diversified) 320 1,963,531
- -----------------------------------------------------------------------------
7,805,499
- -----------------------------------------------------------------------------
BRAZIL - 0.95%
Companhia Brasileira de Distribuicao Grupo Pao de
Acucar-Pfd. (Retail-Food Chain) 57,700 894,350
- -----------------------------------------------------------------------------
Embratel Participacoes S.A. ADR (Telephone)(a) 14,100 196,519
- -----------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Petrobras-Pfd. (Oil & Gas-
Exploration & Production) 3,013 341,719
- -----------------------------------------------------------------------------
Tele Celular Sul Participacoes S.A.
(Telecommunications-Cellular/Wireless)(a) 1,410 24,587
- -----------------------------------------------------------------------------
Tele Centro Oeste Celular Participacoes S.A.
(Telecommunication-Cellular/Wireless)(a) 1 3
- -----------------------------------------------------------------------------
Tele Centro Sul Participacoes S.A. (Telephone)(a) 2,820 117,911
- -----------------------------------------------------------------------------
Tele Sudeste Celular Participacoes S.A.
(Telecommunications-Cellular/Wireless) 2,820 58,339
- -----------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-ADR (Telephone) 14,100 1,542
- -----------------------------------------------------------------------------
Telesp Celular Participacoes S.A.
(Telecommunications-Cellular/Wireless)(a) 5,640 98,700
- -----------------------------------------------------------------------------
Telesp Celular S.A. (Telecommunications-
Cellular/Wireless)(a) 5,500 241,763
- -----------------------------------------------------------------------------
Telesp Participacoes S.A.-ADR (Telephone) 14,100 311,963
- -----------------------------------------------------------------------------
2,287,396
- -----------------------------------------------------------------------------
CANADA - 5.55%
ATI Technologies, Inc. (Computers-Hardware)(a) 43,100 491,565
- -----------------------------------------------------------------------------
Bank of Montreal (Banks-Major Regional) 35,000 1,411,438
- -----------------------------------------------------------------------------
BCE Inc. (Telephone) 32,300 1,221,278
- -----------------------------------------------------------------------------
Bombardier Inc. (Aerospace/Defense) 137,600 1,978,562
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA - (CONTINUED)
Canadian National Railway Co. (Railroads) 9,000 $ 466,874
- -------------------------------------------------------------------------------
Imasco Ltd. (Manufacturing-Diversified) 95,600 2,043,216
- -------------------------------------------------------------------------------
Northern Telecom Ltd.-ADR (Communications Equipment) 10,917 547,215
- -------------------------------------------------------------------------------
Royal Bank of Canada (Banks-Major Regional) 32,500 1,626,062
- -------------------------------------------------------------------------------
Suncor Energy, Inc. (Oil-International Integrated) 38,000 1,142,483
- -------------------------------------------------------------------------------
Teleglobe, Inc. (Telecommunications) 39,500 1,419,935
- -------------------------------------------------------------------------------
Toronto-Dominion Bank (Banks-Regional) 28,100 988,092
- -------------------------------------------------------------------------------
13,336,720
- -------------------------------------------------------------------------------
CROATIA - 0.25%
Pliva DD - GDR (Health Care - Drugs-Major
Pharmaceutical) (Acquired 05/13/98-05/20/98; Cost
$604,917)(b) 36,000 597,600
- -------------------------------------------------------------------------------
FINLAND - 1.81%
Nokia Oyj A.B.-Class A (Communications Equipment) 26,200 3,187,285
- -------------------------------------------------------------------------------
Sonera Group Oyj (Telecommunications-
Cellular/Wireless) (Acquired 11/10/98;
Cost $700,547)(a)(b) 65,250 1,152,262
- -------------------------------------------------------------------------------
4,339,547
- -------------------------------------------------------------------------------
FRANCE - 16.11%
Accor S.A. (Lodging-Hotels) 5,500 1,190,625
- -------------------------------------------------------------------------------
Altran Technologies, S.A. (Services-Commercial &
Consumer) 3,900 940,549
- -------------------------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 13,000 1,883,889
- -------------------------------------------------------------------------------
Banque Nationale de Paris (Banks-Major Regional) 36,000 2,963,986
- -------------------------------------------------------------------------------
Cap Gemini Sogeti S.A. (Computer-Software & Services) 20,800 3,337,973
- -------------------------------------------------------------------------------
Danone (Foods) 8,000 2,290,008
- -------------------------------------------------------------------------------
Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 19,500 2,253,690
- -------------------------------------------------------------------------------
Essilor International S.A. (Manufacturing-
Specialized) 2,275 895,429
- -------------------------------------------------------------------------------
Etablissements Economiques du Casino Guichard-
Perrachon (Retail-Food Chains)(a) 20,400 2,124,126
- -------------------------------------------------------------------------------
Legrand S.A. (Housewares) 6,900 1,828,232
- -------------------------------------------------------------------------------
Pinault-Printemps-Redoute S.A. (Retail-General
Merchandise) 17,800 3,401,091
- -------------------------------------------------------------------------------
Promodes (Retail-Food Chains) 3,650 2,653,833
- -------------------------------------------------------------------------------
PSA Peugeot Citreon (Automobiles) 7,000 1,083,281
- -------------------------------------------------------------------------------
Renault S.A. (Automobiles) 49,000 2,200,376
- -------------------------------------------------------------------------------
Rexal S.A. (Distributors-Food & Health) 13,600 1,291,994
- -------------------------------------------------------------------------------
Rhone-Poulenc-Class A (Chemicals-Diversified) 25,100 1,291,486
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-208
<PAGE> 291
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - (CONTINUED)
Societe Generale (Banks-Major Regional) 8,550 $ 1,384,337
- -------------------------------------------------------------------------------
Societe Television Francaise 1 (Broadcasting-
Television, Radio & Cable) 6,600 1,174,881
- -------------------------------------------------------------------------------
Suez Lyonnaise des Eaux (Manufacturing-Diversified) 11,600 2,382,467
- -------------------------------------------------------------------------------
Total S.A.-Class B (Oil & Gas-Refining & Marketing) 9,500 961,982
- -------------------------------------------------------------------------------
Valeo S.A. (Auto Parts & Equipment) 15,000 1,181,859
- -------------------------------------------------------------------------------
38,716,094
- -------------------------------------------------------------------------------
GERMANY - 5.13%
Allianz A.G. (Insurance-Multi-Line) 7,600 2,786,606
- -------------------------------------------------------------------------------
Bayerische Vereinsbank A.G. (Banks-Major Regional) 27,000 2,114,438
- -------------------------------------------------------------------------------
BHF-Bank A.G. (Banks-Major Regional) 15,000 603,097
- -------------------------------------------------------------------------------
DaimlerChrysler A.G. (Automobiles) 12,964 1,279,751
- -------------------------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major Regional) 38,500 1,617,259
- -------------------------------------------------------------------------------
Karstadt A.G. (Retail-Department Stores) 6,200 3,236,918
- -------------------------------------------------------------------------------
Porsche A.G.-Pfd. (Automobiles) 300 684,109
- -------------------------------------------------------------------------------
12,322,178
- -------------------------------------------------------------------------------
HONG KONG - 1.73%
China Telecom Ltd. (Telecommunications-
Cellular/Wireless)(a) 582,000 1,006,673
- -------------------------------------------------------------------------------
Cosco Pacific Ltd. (Financial-Diversified) 2,444,000 1,017,400
- -------------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail-Food Chains) 242,000 1,710,253
- -------------------------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 460,000 412,671
- -------------------------------------------------------------------------------
4,146,997
- -------------------------------------------------------------------------------
INDONESIA - 0.34%
Gulf Indonesia Resources Ltd. (Oil-International
Integrated)(a) 127,400 828,100
- -------------------------------------------------------------------------------
IRELAND - 1.95%
Allied Irish Banks PLC (Banks-Regional) 176,500 3,144,447
- -------------------------------------------------------------------------------
Bank of Ireland (Banks-Major Regional) 70,500 1,543,049
- -------------------------------------------------------------------------------
4,687,496
- -------------------------------------------------------------------------------
ITALY - 6.24%
Assicurazioni Generali (Insurance-Multi-Line) 49,100 2,049,918
- -------------------------------------------------------------------------------
Banca Commerciale Italiana (Banks-Major Regional) 109,300 753,930
- -------------------------------------------------------------------------------
Banca di Roma (Banks-Major Regional)(a) 972,000 1,646,760
- -------------------------------------------------------------------------------
Credito Italiano S.p.A. (Banks-Major Regional) 333,400 1,975,950
- -------------------------------------------------------------------------------
Ente Nazionale Idrocarburi S.p.A. (Oil & Gas-Refining
& Marketing) 189,000 1,235,070
- -------------------------------------------------------------------------------
Olivetti S.p.A. (Telecommunications-
Cellular/Wireless)(a) 378,000 1,315,121
- -------------------------------------------------------------------------------
San Paolo-IMI S.p.A. (Banks-Major Regional) 122,160 2,158,330
- -------------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications-
Cellular/Wireless) 271,000 2,000,484
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 217,500 1,855,600
- -------------------------------------------------------------------------------
14,991,163
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
JAPAN - 7.68%
Advantest Corp. (Electronics-Instrumentation)(a) 34,700 $ 2,199,079
- -------------------------------------------------------------------------------
Alps Electric Co., Ltd. (Electronics-Component
Distributors)(a) 47,000 863,206
- -------------------------------------------------------------------------------
Hoya Corp.(Manufacturing-Specialized)(a) 17,000 827,580
- -------------------------------------------------------------------------------
Matsushita Communication Industrial Co., Ltd.
(Telephone)(a) 16,000 754,824
- -------------------------------------------------------------------------------
Murata Manufacturing Co., Ltd. (Electronics-Component
Distributors) 20,000 830,235
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. (Telephone) 1,500 1,157,727
- -------------------------------------------------------------------------------
Nippon Television Network Corp. (Broadcasting-
Television, Radio & Cable) 2,690 792,857
- -------------------------------------------------------------------------------
NTT Data Corp. (Computers-Software & Services)(a) 365 1,812,400
- -------------------------------------------------------------------------------
Okuma Corp. (Machine Tools)(a) 205,000 1,066,915
- -------------------------------------------------------------------------------
Omron Corp. (Electronics-Component Distributors)(a) 57,000 780,988
- -------------------------------------------------------------------------------
SMC Corp. (Machinery-Diversified) 5,900 471,039
- -------------------------------------------------------------------------------
Sony Corp. (Electronics-Component Distributors) 16,800 1,223,792
- -------------------------------------------------------------------------------
Takeda Chemical Industries (Health Care - Drugs-
Generic & Other) 53,000 2,040,627
- -------------------------------------------------------------------------------
TDK Corp. (Electrical Equipment) 17,000 1,554,346
- -------------------------------------------------------------------------------
Tokyo Electron Ltd. (Electronics-Semiconductors)(a) 55,000 2,088,423
- -------------------------------------------------------------------------------
18,464,038
- -------------------------------------------------------------------------------
MEXICO - 2.11%
Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 39,800 527,350
- -------------------------------------------------------------------------------
Formento Economico Mexicano, S.A. de C.V.-Class B
(Beverages-Alcoholic) 70,720 1,882,920
- -------------------------------------------------------------------------------
Grupo Financiero Banamex Accival, S.A. de C.V.
(Financial-Diversified)(a) 767,000 1,005,622
- -------------------------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series C (Beverages-
Alcoholic) 387,000 818,955
- -------------------------------------------------------------------------------
Grupo Televisa S.A.-GDR (Entertainment)(a) 33,700 831,969
- -------------------------------------------------------------------------------
5,066,816
- -------------------------------------------------------------------------------
NETHERLANDS - 6.94%
Getronics N.V. (Computers-Software & Services) 42,500 2,104,408
- -------------------------------------------------------------------------------
Heineken N.V. (Beverages-Alcoholic) 46,800 2,815,675
- -------------------------------------------------------------------------------
IHC Caland N.V. (Manufacturing-Specialized) 11,100 460,973
- -------------------------------------------------------------------------------
Koninklijke Ahold N.V. (Retail-Food Chains) 51,800 1,914,024
- -------------------------------------------------------------------------------
Koninklijke Numico N.V. (Foods) 26,000 1,238,952
- -------------------------------------------------------------------------------
Laurus N.V. (Retail-General Merchandise) 23,380 590,039
- -------------------------------------------------------------------------------
Randstad Holdings N.V. (Services-Commercial &
Consumer) 13,000 699,074
- -------------------------------------------------------------------------------
Vendex N.V. (Retail-General Merchandise) 33,400 810,904
- -------------------------------------------------------------------------------
Verenigde Nederlandse Uitgeversbedrijven Verenigd
Bezit (Publishing) 90,100 3,396,380
- -------------------------------------------------------------------------------
Wolters Kluwer N.V. (Specialty Printing)(a) 12,350 2,642,014
- -------------------------------------------------------------------------------
16,672,443
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-209
<PAGE> 292
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NORWAY - 0.18%
Merkantildata A.S.A (Services-Commercial & Consumer) 44,000 $ 434,371
- ------------------------------------------------------------------------------
PHILIPPINES - 0.30%
Philippine Long Distance Telephone Co.-ADR
(Telephone) 11,600 300,875
- ------------------------------------------------------------------------------
Philippine Long Distance Telephone Co. (Telephone) 16,660 429,935
- ------------------------------------------------------------------------------
730,810
- ------------------------------------------------------------------------------
PORTUGAL - 2.44%
Banco Comercial Portugues, S.A. (Banks-Major
Regional) 66,200 2,037,072
- ------------------------------------------------------------------------------
Electricidade de Portugal, S.A.-ADR (Electric
Companies) 13,800 614,962
- ------------------------------------------------------------------------------
Electricidade de Portugal, S.A. (Electric Companies) 25,000 550,915
- ------------------------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 35,900 1,647,469
- ------------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless) 5,000 1,022,980
- ------------------------------------------------------------------------------
5,873,398
- ------------------------------------------------------------------------------
SINGAPORE - 0.24%
Keppel Corp. Ltd. (Engineering & Construction)(a) 217,000 581,472
- ------------------------------------------------------------------------------
SPAIN - 2.96%
Corp. Financiera Reunida, S.A. (Investment
Management)(a) 49,400 742,372
- ------------------------------------------------------------------------------
Endesa S.A. (Electric Companies) 49,200 1,302,119
- ------------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 148,000 2,765,820
- ------------------------------------------------------------------------------
Telefonica de Espana (Telephone) 50,900 2,260,710
- ------------------------------------------------------------------------------
Telefonica de Espana-Rights, expiring 01/30/99
(Telephone) 50,900 45,143
- ------------------------------------------------------------------------------
7,116,164
- ------------------------------------------------------------------------------
SWEDEN - 1.09%
Hennes & Mauritz A.B.-Class B (Retail-Specialty-
Apparel) 21,494 1,752,343
- ------------------------------------------------------------------------------
WM-Data A.B. (Computers-Software & Services) 20,500 873,523
- ------------------------------------------------------------------------------
2,625,866
- ------------------------------------------------------------------------------
SWITZERLAND - 4.35%
Adecco S.A. (Services-Commercial & Consumer)(a) 2,600 1,187,154
- ------------------------------------------------------------------------------
Julius Baer Holding A.G. (Banks-Major Regional)(a) 230 764,601
- ------------------------------------------------------------------------------
Nestle S.A. (Foods) 800 1,741,917
- ------------------------------------------------------------------------------
Novartis A.G. (Health Care-Diversified) 1,380 2,713,370
- ------------------------------------------------------------------------------
UBS A.G. (Banks-Major Regional) 7,107 2,184,062
- ------------------------------------------------------------------------------
Zurich Allied A.G. (Insurance-Multi-Line)(a) 2,500 1,851,515
- ------------------------------------------------------------------------------
10,442,619
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - 18.00%
Airtours PLC (Services-Commercial & Consumer) 135,450 $ 859,898
- -------------------------------------------------------------------------------
Bodycote International PLC (Chemicals-Specialty) 40,500 553,600
- -------------------------------------------------------------------------------
British Aerospace PLC (Aerospace/Defense) 226,200 1,915,321
- -------------------------------------------------------------------------------
British Energy PLC (Electric Companies-Utilities) 219,000 2,502,198
- -------------------------------------------------------------------------------
British Petroleum Co. PLC (Oil & Gas-Refining &
Marketing) 113,800 1,697,390
- -------------------------------------------------------------------------------
Cable & Wireless PLC (Telecommunications-
Cellular/Wireless) 107,810 1,324,062
- -------------------------------------------------------------------------------
Compass Group PLC (Services-Commercial & Consumer) 156,000 1,784,980
- -------------------------------------------------------------------------------
EMAP PLC (Publishing) 93,100 1,779,313
- -------------------------------------------------------------------------------
General Electric Co. PLC (Manufacturing-Diversified) 262,600 2,367,551
- -------------------------------------------------------------------------------
GKN PLC (Manufacturing-Diversified) 100,000 1,325,365
- -------------------------------------------------------------------------------
Hays PLC (Services-Commercial & Consumer) 278,800 2,444,106
- -------------------------------------------------------------------------------
Kingfisher PLC (Retail-Department Stores) 261,000 2,821,582
- -------------------------------------------------------------------------------
Ladbroke Group PLC (Leisure Time-Products) 234,000 939,156
- -------------------------------------------------------------------------------
Logica PLC (Computer Software/Services) 92,500 803,986
- -------------------------------------------------------------------------------
Misys PLC (Services-Commercial & Consumer) 127,500 927,558
- -------------------------------------------------------------------------------
Orange PLC (Telecommunications)(a) 172,000 1,996,640
- -------------------------------------------------------------------------------
Pearson PLC (Specialty Printing) 106,300 2,107,553
- -------------------------------------------------------------------------------
Provident Financial PLC (Consumer Finance) 89,543 1,316,982
- -------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 78,644 2,053,272
- -------------------------------------------------------------------------------
Rentokil Initial PLC (Services-Commercial & Consumer) 375,000 2,823,152
- -------------------------------------------------------------------------------
Seton Scholl Healthcare PLC (Healthcare-Medical
Products & Supplies)(a) 42,000 586,318
- -------------------------------------------------------------------------------
Somerfield PLC (Retail-Food Chains) 145,000 968,720
- -------------------------------------------------------------------------------
Stagecoach Holdings PLC (Shipping) 145,000 576,534
- -------------------------------------------------------------------------------
Unilever PLC (Foods) 208,000 2,329,850
- -------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications-
Cellular/Wireless) 185,000 3,000,726
- -------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/ Marketing) 240,000 1,458,816
- -------------------------------------------------------------------------------
43,264,629
- -------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS & OTHER EQUITY INTERESTS (Cost
$163,998,293) 220,083,161
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-210
<PAGE> 293
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.43%
HONG KONG - 0.08%
Cosco Treasury Co. Ltd. (Financial -Diversified),
Conv. Gtd. Bonds, 1.00%, 03/13/03 $ 246,000 $ 178,965
- -------------------------------------------------------------------------------
UNITED KINGDOM - 0.35%
Airtours PLC (Services -
Commercial & Consumer)(c),
Conv. Sub. Notes, 5.75%, 01/05/04 GBP 498,000 850,386
- -------------------------------------------------------------------------------
TOTAL FOREIGN CONVERTIBLE BONDS (Cost $995,959) 1,029,351
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 7.46%(d)
Goldman, Sachs & Co., 4.40%, 01/04/99 (Cost
$17,938,040)(e) 17,938,040 17,938,040
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.47% 239,050,552
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.53% 1,263,760
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $240,314,312
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) Restricted securities. 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 the these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities was $1,749,862 which at 12/31/98
represented 0.73% 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 is at least 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 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Abbreviations:
ADR - American Depositary Receipt
Conv.- Convertible
Deb. - Debentures
GBP - British Pound Sterling
GDR. - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Sub. - Subordinated
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-211
<PAGE> 294
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $182,932,292) $239,050,552
- ----------------------------------------------------------------------
Foreign currencies, at value (cost $963,811) 982,733
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 50,764
- ----------------------------------------------------------------------
Investments sold 119,244
- ----------------------------------------------------------------------
Dividends and interest 450,298
- ----------------------------------------------------------------------
Investment for deferred compensation plan 23,005
- ----------------------------------------------------------------------
Other assets 687
- ----------------------------------------------------------------------
Total assets 240,677,283
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 136,066
- ----------------------------------------------------------------------
Deferred compensation plan 23,005
- ----------------------------------------------------------------------
Accrued advisory fees 148,393
- ----------------------------------------------------------------------
Accrued directors' fees 397
- ----------------------------------------------------------------------
Accrued operating expenses 55,110
- ----------------------------------------------------------------------
Total liabilities 362,971
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $240,314,312
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 12,249,573
======================================================================
Net asset value, offering and redemption price per share $19.62
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $426,044 foreign withholding tax) $ 3,026,033
- -------------------------------------------------------------------------
Interest 937,102
- -------------------------------------------------------------------------
Total investment income 3,963,135
- -------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,744,127
- -------------------------------------------------------------------------
Administrative services fees 68,587
- -------------------------------------------------------------------------
Custodian fees 220,051
- -------------------------------------------------------------------------
Directors' fees and expenses 8,867
- -------------------------------------------------------------------------
Other 70,591
- -------------------------------------------------------------------------
Total expenses 2,112,223
- -------------------------------------------------------------------------
Less: Expenses paid indirectly (1,417)
- -------------------------------------------------------------------------
Net expenses 2,110,806
- -------------------------------------------------------------------------
Net investment income 1,852,329
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 12,331,648
- -------------------------------------------------------------------------
Foreign currencies 929,906
- -------------------------------------------------------------------------
13,261,554
- -------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 15,897,320
- -------------------------------------------------------------------------
Foreign currencies 72,349
- -------------------------------------------------------------------------
15,969,669
- -------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 29,231,223
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations $31,083,552
=========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-212
<PAGE> 295
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,852,329 $ 1,372,766
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment
securities and foreign currencies 13,261,554 (743,433)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and foreign currencies 15,969,669 11,878,346
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 31,083,552 12,507,679
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,910,166) (955,397)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (3,362,028)
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 118,341 37,094,253
- -----------------------------------------------------------------------------
Net increase in net assets 29,291,727 45,284,507
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 211,022,585 165,738,078
- -----------------------------------------------------------------------------
End of year $240,314,312 $211,022,585
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $170,399,034 $170,283,064
- -----------------------------------------------------------------------------
Undistributed net investment income 1,934,360 1,134,854
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies 11,825,802 (580,780)
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 56,155,116 40,185,447
- -----------------------------------------------------------------------------
$240,314,312 $211,022,585
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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
AIM V.I. INTERNATIONAL EQUITY FUND
FS-213
<PAGE> 296
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.
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. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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.
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. On December 31, 1998,
undistributed income was increased by $857,343, undistributed net realized
gains decreased by $854,972 and paid-in-capital decreased by $2,371 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.
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $68,587 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, 1998, the Fund incurred legal fees of
$2,525 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 $1,417 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $1,417 during the year ended
December 31, 1998.
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,
1998 was $162,175,992 and $169,568,442, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $60,248,789
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,508,109)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $54,740,680
==========================================================================
</TABLE>
Cost of investments for tax purposes is $184,309,872.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,410,075 $46,643,002 2,963,552 $ 50,938,182
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 101,067 1,910,166 257,449 4,317,425
- -----------------------------------------------------------------------------
Reacquired (2,581,125) (48,434,827) (1,031,143) (18,161,354)
- -----------------------------------------------------------------------------
(69,983) $ 118,341 2,189,858 $ 37,094,253
=============================================================================
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-214
<PAGE> 297
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
---------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00
- --------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.15 0.10 0.07 0.07 0.06 --
- --------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.50 1.03 2.67 2.58 (1.49) 2.49
- --------------------------------------------------------------------------------------------------
Total from investment
operations 2.65 1.13 2.74 2.65 (1.43) 2.49
- --------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.16) (0.08) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.28) -- -- -- --
- --------------------------------------------------------------------------------------------------
Total distributions (0.16) (0.36) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
==================================================================================================
Total return(a) 15.49% 6.94% 20.05% 24.04% (11.48)% 24.90%
==================================================================================================
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $240,314 $211,023 $165,738 $82,257 $55,019 $23,533
==================================================================================================
Ratio of expenses to
average net assets 0.91%(b) 0.93% 0.96% 1.15%(c) 1.27%(d) 1.98%(c)(d)
==================================================================================================
Ratio of net investment
income (loss) to
average net assets 0.80%(b) 0.68% 0.78% 0.75%(c) 0.60%(e) (0.15)%(c)(e)
==================================================================================================
Portfolio turnover rate 76% 57% 59% 67% 64% 26%
==================================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $232,550,286
(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
1.28% and 3.06% (annualized), for January 1995 and 1994 respectively.
(e) 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.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-215
<PAGE> 298
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,
1998, 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 three 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, 1998 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, 1998, 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
three 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 3, 1999
AIM V.I. MONEY MARKET FUND
FS-216
<PAGE> 299
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
COMMERCIAL PAPER - 42.60%(a)
ASSET-BACKED SECURITIES - MULTI-PURPOSE - 22.50%
Bavaria TRR Corp.
5.20%, 03/02/99 $ 2,000 $ 1,982,667
- ---------------------------------------------------------------------
Clipper Receivables Corp.
5.75%, 01/08/99 3,000 2,996,646
- ---------------------------------------------------------------------
Edison Asset Securitization, LLC
5.30%, 01/29/99 3,000 2,987,634
- ---------------------------------------------------------------------
Falcon Asset Securitization Corp.
5.28%, 01/19/99 500 498,680
- ---------------------------------------------------------------------
Mont Blanc Capital Corp.
5.20%, 01/13/99 2,000 1,996,533
- ---------------------------------------------------------------------
Monte Rosa Capital Corp.
5.32%, 01/21/99 1,000 997,045
- ---------------------------------------------------------------------
Preferred Receivables Funding Corp.
5.25%, 03/11/99 2,000 1,979,875
- ---------------------------------------------------------------------
5.06%, 04/21/99 1,000 984,539
- ---------------------------------------------------------------------
14,423,619
- ---------------------------------------------------------------------
ASSET-BACKED SECURITIES - TRADE RECEIVABLES - 6.21%
Corporate Asset Funding Co.
5.20%, 02/17/99 1,000 993,211
- ---------------------------------------------------------------------
Delaware Funding Corp.
5.45%, 01/11/99 2,000 1,996,972
- ---------------------------------------------------------------------
5.15%, 03/11/99 1,000 990,129
- ---------------------------------------------------------------------
3,980,312
- ---------------------------------------------------------------------
BANKS - DOMESTIC - 3.10%
First Chicago Financial Corp.
5.26%, 02/19/99 2,000 1,985,681
- ---------------------------------------------------------------------
FINANCE - MULTIPLE INDUSTRY - 3.08%
General Electric Capital Corp.
5.05%, 04/06/99 2,000 1,973,347
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 4.61%
Colgate-Palmolive Co.
4.85%, 04/22/99 3,000 2,955,138
- ---------------------------------------------------------------------
INSURANCE (LIFE) - 1.56%
Hancock (John) Capital Corp.
5.35%, 01/22/99 1,000 996,879
- ---------------------------------------------------------------------
INSURANCE (OTHER) - 1.54%
Marsh & McLennan Companies, Inc.
5.10%, 03/22/99 1,000 988,667
- ---------------------------------------------------------------------
Total Commercial Paper (Cost $27,303,643) 27,303,643
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
CORPORATE NOTES - 1.56%
AUTOMOBILE - 1.56%
Ford Motor Credit Co.
5.625%, 01/15/99 (Cost $1,000,070) $ 1,000 $ 1,000,070
- ----------------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 12.48%(b)
Citicorp Securities, Inc.
5.75%, 01/25/99(c) 2,000 2,000,000
- ----------------------------------------------------------------------------
Merrill Lynch Mortgage Capital, Inc.
5.78%, 08/16/99(d) 3,000 3,000,000
- ----------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co.
5.60%, 05/24/99(e) 3,000 3,000,000
- ----------------------------------------------------------------------------
Total Master Note Agreements
(Cost $8,000,000) 8,000,000
- ----------------------------------------------------------------------------
TIME DEPOSITS - 4.68%
BANKS - FOREIGN - 4.68%
Credit Communal de Belgique
5.125%, 01/04/99 (Cost $3,000,000) 3,000 3,000,000
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 3.12%
Federal National Mortgage Association
4.696%, 06/02/99(f) (Cost $2,000,000) 2,000 2,000,000
- ----------------------------------------------------------------------------
Total Investments, excluding Repurchase Agreements 41,303,713
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 35.39%(g)
Bear, Stearns & Co., Inc.,
4.85%(h) 3,000 3,000,000
- ----------------------------------------------------------------------------
J.P. Morgan Securities, Inc.,
4.75%, 01/04/99(i) 15,000 15,000,000
- ----------------------------------------------------------------------------
SBC Warburg Dillon Read Securities, Inc.,
4.75%, 01/04/99(j) 4,677 4,676,787
- ----------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $22,676,787) 22,676,787
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.83% 63,980,500(k)
- ----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.17% 109,823
- ----------------------------------------------------------------------------
NET ASSETS - 100.00% $64,090,323
============================================================================
</TABLE>
AIM V.I. MONEY MARKET FUND
FS-217
<PAGE> 300
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) 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.
(c) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon 3 business days' notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on 12/31/98.
(d) The Portfolio 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 12/31/98.
(e) Master Note Purchase Agreement may be terminated by either party upon 3
business days' prior written notice. Interest rates on master notes are
redetermined periodically. Rate shown is the rate in effect on 12/31/98.
(f) Interest rates are redetermined weekly. Rate shown is the rate in effect on
12/31/98.
(g) 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 is at least 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.
(h) Open joint repurchase agreement entered into 12/31/98. Either party may
terminate the agreement upon demand. Interest rates are redetermined daily.
Collateralized by $354,763,000 U.S. Government obligations, 0% to 8.65% due
01/15/99 to 06/11/18 with an aggregate market value at 12/31/98 of
$360,262,932.
(i) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$500,263,889. Collateralized by $606,702,000 U.S. Government obligations,
0% to 7.55% due 01/04/99 to 10/03/22 with an aggregate market value at
12/31/98 of $510,001,764.
(j) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
(k) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-218
<PAGE> 301
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value (cost
$41,303,713) $ 41,303,713
- --------------------------------------------------------------------------
Repurchase agreements (cost $22,676,787) 22,676,787
- --------------------------------------------------------------------------
Receivables for:
Capital stock sold 78,786
- --------------------------------------------------------------------------
Interest receivable 71,601
- --------------------------------------------------------------------------
Investment for deferred compensation plan 22,139
- --------------------------------------------------------------------------
Other assets 385
- --------------------------------------------------------------------------
Total assets 64,153,411
- --------------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 80
- --------------------------------------------------------------------------
Deferred compensation plan 22,139
- --------------------------------------------------------------------------
Accrued advisory fees 21,659
- --------------------------------------------------------------------------
Accrued directors' fees 293
- --------------------------------------------------------------------------
Accrued operating expenses 18,917
- --------------------------------------------------------------------------
Total liabilities 63,088
- --------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 64,090,323
==========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- --------------------------------------------------------------------------
Outstanding 64,090,266
==========================================================================
Net asset value, offering and redemption price per share $ 1.00
==========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $3,483,093
- ----------------------------------------------------------------
EXPENSES:
Advisory fees 252,407
- ----------------------------------------------------------------
Administrative services fees 36,480
- ----------------------------------------------------------------
Custodian fees 26,470
- ----------------------------------------------------------------
Directors' fees and expenses 8,885
- ----------------------------------------------------------------
Other 43,075
- ----------------------------------------------------------------
Total expenses 367,317
- ----------------------------------------------------------------
Net investment income 3,115,776
- ----------------------------------------------------------------
Net increase in net assets resulting from operations $3,115,776
================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-219
<PAGE> 302
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,115,776 $ 3,190,054
- ---------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,115,776 3,190,054
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment
income (3,115,776) (3,190,054)
- ---------------------------------------------------------------------------
Net increase (decrease) from capital stock
transactions 5,455,702 (4,894,872)
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets 5,455,702 (4,894,872)
- ---------------------------------------------------------------------------
NET ASSETS:
Beginning of year 58,634,621 63,529,493
- ---------------------------------------------------------------------------
End of year $64,090,323 $58,634,621
===========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $64,090,266 $58,634,564
- ---------------------------------------------------------------------------
Undistributed net realized gain from investment
securities 57 57
- ---------------------------------------------------------------------------
$64,090,323 $58,634,621
===========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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.
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.
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
AIM V.I. MONEY MARKET FUND
FS-220
<PAGE> 303
accounting services and other administrative services to the Fund. During the
year ended December 31, 1998, AIM was reimbursed $36,480 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, 1998, the Fund incurred legal fees of
$3,548 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 directors' fees,
if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 4 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 100,181,770 $100,181,770 88,948,357 $ 88,948,357
- ---------------------- ----------- ------------ ----------- ------------
Issued as reinvestment
of dividends 3,115,776 3,115,776 3,190,054 3,190,054
- ---------------------- ----------- ------------ ----------- ------------
Reacquired (97,841,844) (97,841,844) (97,033,283) (97,033,283)
- ---------------------- ----------- ------------ ----------- ------------
5,455,702 $ 5,455,702 (4,894,872) $ (4,894,872)
=========== ============ =========== ============
</TABLE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.05 0.04 0.02
- ----------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.05) (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 $ 1.00
======================= ======= ======= ======= ======= ======= =======
Total return 5.06% 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a)
======================= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $64,090 $58,635 $63,529 $65,506 $31,017 $13,891
======================= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets 0.58%(b) 0.59% 0.55% 0.53%(a) 0.63%(c) 0.95%(a)(d)
======================= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets 4.94%(b) 5.01% 4.84% 5.40%(a) 4.14%(c) 2.29%(a)(d)
======================= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Annualized.
(b) Ratios are based on average daily net assets of $63,101,740.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average daily net assets prior to fee waivers
and/or expense reimbursements were 0.70% and 4.07%, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average daily net assets prior to fee waivers
and/or expense reimbursements were 1.53% (annualized) and 1.70%
(annualized), respectively.
AIM V.I. MONEY MARKET FUND
FS-221
<PAGE> 304
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, 1998, 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 three 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, 1998 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, 1998, 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 three 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 3, 1999
AIM V.I. VALUE FUND
FS-222
<PAGE> 305
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 85.50%
AIRLINES - 0.38%
Continental Airlines, Inc.(a) 136,900 $ 4,586,150
- ------------------------------------------------------------------
AUTOMOBILES - 0.21%
Ford Motor Co. 44,000 2,582,250
- ------------------------------------------------------------------
BANKS (MONEY CENTER) - 1.55%
Chase Manhattan Corp. (The) 278,000 18,921,375
- ------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.68%
Comcast Corp.-Class A 105,000 6,162,188
- ------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 400,000 27,650,000
- ------------------------------------------------------------------
MediaOne Group, Inc.(a) 497,500 23,382,500
- ------------------------------------------------------------------
57,194,688
- ------------------------------------------------------------------
BUILDING MATERIALS - 0.48%
Masco Corp. 205,000 5,893,750
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.05%
Comverse Technology, Inc.(a) 120,000 8,520,000
- ------------------------------------------------------------------
Lucent Technologies, Inc. 39,000 4,290,000
- ------------------------------------------------------------------
12,810,000
- ------------------------------------------------------------------
COMPUTERS (HARDWARE) - 3.23%
Dell Computer Corp.(a) 245,000 17,930,938
- ------------------------------------------------------------------
International Business Machines Corp. 46,000 8,498,500
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a) 152,000 13,015,001
- ------------------------------------------------------------------
39,444,439
- ------------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.64%
Cisco Systems, Inc.(a) 216,000 20,047,500
- ------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.98%
EMC Corp.(a) 104,000 8,840,000
- ------------------------------------------------------------------
Lexmark International Group, Inc.(a) 31,000 3,115,500
- ------------------------------------------------------------------
11,955,500
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 6.87%
BMC Software, Inc.(a) 365,000 16,265,313
- ------------------------------------------------------------------
Computer Sciences Corp.(a) 190,000 12,243,125
- ------------------------------------------------------------------
Microsoft Corp.(a) 188,000 26,073,251
- ------------------------------------------------------------------
Sterling Commerce, Inc.(a) 153,000 6,885,000
- ------------------------------------------------------------------
Unisys Corp.(a) 655,000 22,556,563
- ------------------------------------------------------------------
84,023,252
- ------------------------------------------------------------------
CONSUMER FINANCE - 1.05%
MBNA Corp. 122,000 3,042,375
- ------------------------------------------------------------------
Providian Financial Corp. 130,500 9,787,500
- ------------------------------------------------------------------
12,829,875
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD & HEALTH) - 0.07%
Cardinal Health, Inc. 10,650 $ 808,069
- ----------------------------------------------------------------------
ELECTRIC COMPANIES - 0.11%
Wisconsin Energy Corp. 43,600 1,370,675
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.75%
General Electric Co. 209,000 21,331,063
- ----------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.11%
Waters Corp.(a) 15,900 1,387,275
- ----------------------------------------------------------------------
ENTERTAINMENT - 3.05%
Time Warner, Inc. 600,000 37,237,500
- ----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 6.77%
Ambac Financial Group, Inc. 73,000 4,393,687
- ----------------------------------------------------------------------
American Express Co. 98,000 10,020,500
- ----------------------------------------------------------------------
American General Corp. 85,000 6,630,000
- ----------------------------------------------------------------------
Associates First Capital Corp.-Class A 370,000 15,678,750
- ----------------------------------------------------------------------
Citigroup, Inc. 93,000 4,603,500
- ----------------------------------------------------------------------
Fannie Mae 245,000 18,130,000
- ----------------------------------------------------------------------
Freddie Mac 324,000 20,877,750
- ----------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 35,000 2,485,000
- ----------------------------------------------------------------------
82,819,187
- ----------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 1.81%
Bristol-Myers Squibb Co. 142,000 19,001,376
- ----------------------------------------------------------------------
Warner-Lambert Co. 41,000 3,082,688
- ----------------------------------------------------------------------
22,084,064
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.33%
Watson Pharmaceuticals, Inc.(a) 64,200 4,036,575
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.05%
Merck & Co., Inc. 72,000 10,633,500
- ----------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 685,000 38,788,125
- ----------------------------------------------------------------------
49,421,625
- ----------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.97%
Allegiance Corp. 77,000 3,590,125
- ----------------------------------------------------------------------
Guidant Corp. 455,000 50,163,750
- ----------------------------------------------------------------------
Medtronic, Inc. 93,700 6,957,225
- ----------------------------------------------------------------------
60,711,100
- ----------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.52%
Alza Corp.(a) 122,500 6,400,625
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-223
<PAGE> 306
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.08%
Colgate-Palmolive Co. 273,000 $ 25,354,875
- ------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.32%
Provident Companies, Inc. 95,000 3,942,500
- ------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 4.34%
Ace, Ltd. 163,000 5,613,313
- ------------------------------------------------------------------------
American International Group, Inc. 430,000 41,548,750
- ------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 107,500 5,899,063
- ------------------------------------------------------------------------
53,061,126
- ------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 2.10%
Allstate Corp. (The) 179,500 6,933,187
- ------------------------------------------------------------------------
EXEL Ltd.-Class A 145,000 10,875,000
- ------------------------------------------------------------------------
Progressive Corp. 46,000 7,791,250
- ------------------------------------------------------------------------
25,599,437
- ------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.22%
Merrill Lynch & Co., Inc.(b) 40,000 2,670,000
- ------------------------------------------------------------------------
LODGING-HOTELS - 2.19%
Carnival Corp. 412,400 19,795,200
- ------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 187,500 6,937,500
- ------------------------------------------------------------------------
26,732,700
- ------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.62%
Tyco International Ltd. 262,000 19,764,624
- ------------------------------------------------------------------------
NATURAL GAS - 1.00%
El Paso Energy Corp. 85,000 2,959,062
- ------------------------------------------------------------------------
Enron Corp. 111,000 6,333,937
- ------------------------------------------------------------------------
Williams Companies, Inc. (The) 92,000 2,869,250
- ------------------------------------------------------------------------
12,162,249
- ------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 0.25%
Amoco Corp. 50,000 3,018,750
- ------------------------------------------------------------------------
PERSONAL CARE - 1.07%
Avon Products, Inc. 295,000 13,053,750
- ------------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 1.74%
Xerox Corp. 180,000 21,240,000
- ------------------------------------------------------------------------
PUBLISHING - 0.32%
Dow Jones & Co., Inc. 82,000 3,946,250
- ------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 0.26%
New York Times Co.-Class A (The) 90,000 3,121,875
- ------------------------------------------------------------------------
RAILROADS - 0.27%
Kansas City Southern Industries, Inc. 66,000 3,246,375
- ------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.83%
Lowe's Companies, Inc. 198,000 10,135,125
- ------------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.21%
Federated Department Stores, Inc.(a) 58,000 2,526,625
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (FOOD CHAINS) - 2.09%
Albertson's, Inc. 30,000 $ 1,910,624
- ------------------------------------------------------------------------------
Kroger Co.(a) 200,000 12,100,000
- ------------------------------------------------------------------------------
Safeway, Inc.(a) 188,000 11,456,249
- ------------------------------------------------------------------------------
25,466,873
- ------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 5.17%
Costco Companies, Inc.(a) 205,000 14,798,437
- ------------------------------------------------------------------------------
Dayton Hudson Corp. 432,000 23,436,000
- ------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 307,600 25,050,174
- ------------------------------------------------------------------------------
63,284,611
- ------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.61%
Omnicom Group, Inc. 340,000 19,720,000
- ------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.34%
Stewart Enterprises, Inc.-Class A 187,000 4,160,750
- ------------------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 0.63%
SunGard Data Systems, Inc.(a) 195,300 7,750,969
- ------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.36%
Ceridian Corp.(a) 25,000 1,745,313
- ------------------------------------------------------------------------------
Equifax, Inc. 78,000 2,666,625
- ------------------------------------------------------------------------------
4,411,938
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.61%
AirTouch Communications, Inc.(a) 272,000 19,617,999
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 4.86%
MCI WorldCom, Inc.(a) 827,413 59,366,882
- ------------------------------------------------------------------------------
TELEPHONE - 1.36%
BellSouth Corp. 192,000 9,576,000
- ------------------------------------------------------------------------------
SBC Communications, Inc. 131,000 7,024,875
- ------------------------------------------------------------------------------
16,600,875
- ------------------------------------------------------------------------------
TOBACCO - 1.09%
Philip Morris Companies, Inc. 248,000 13,268,000
- ------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.90%
Waste Management, Inc. 496,998 23,172,532
- ------------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $733,092,819) 1,044,294,227
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 4.67%
CANADA - 0.40%
Royal Bank of Canada (Banks-Major Regional) 97,000 4,853,170
- ------------------------------------------------------------------------------
FINLAND - 3.56%
Nokia Oyj A.B.-Class A (Communications Equipment) 1,000 121,652
- ------------------------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Communications
Equipment) 360,000 43,357,500
- ------------------------------------------------------------------------------
43,479,152
- ------------------------------------------------------------------------------
SWEDEN - 0.25%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 130,000 3,111,875
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-224
<PAGE> 307
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - 0.46%
British Petroleum Co. PLC-ADR (Oil-International
Integrated) 32,500 $ 2,912,813
- --------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/Marketing) 440,000 2,674,495
- --------------------------------------------------------------------------------
5,587,308
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $37,148,648) 57,031,505
- --------------------------------------------------------------------------------
Total Investments, excluding repurchase agreements
(Cost $770,241,467) 1,101,325,732
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS - 10.83%(c)
Goldman Sachs & Co., 4.40%, 01/04/99(d) $77,768,447 77,768,447
- --------------------------------------------------------------------------------
J.P. Morgan Securities Inc., 4.75%, 01/04/99(e) 54,514,006 54,514,006
- --------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $132,282,453) 132,282,453
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 101.00% 1,233,608,185
- --------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (1.00%) (12,224,640)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.00% $1,221,383,545
================================================================================
</TABLE>
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) 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 is at least 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.
(d) Joint repurchase agreement entered into 12/3198 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$500,263,889. Collateralized by $606,702,000 U.S. Government obligations,
0% to 7.55% due 01/04/99 to 10/03/22 with an aggregate market value at
12/31/98 of $510,001,764.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-225
<PAGE> 308
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market
value (cost $770,241,467) $1,101,325,732
- ------------------------------------------------------------------------
Repurchase Agreements (cost $132,282,453) 132,282,453
- ------------------------------------------------------------------------
Receivables for:
Investments sold 2,519,615
- ------------------------------------------------------------------------
Capital stock sold 1,390,091
- ------------------------------------------------------------------------
Dividends and interest 499,599
- ------------------------------------------------------------------------
Forward currency contracts 348,763
- ------------------------------------------------------------------------
Investment for deferred compensation plan 26,193
- ------------------------------------------------------------------------
Other assets 18,530
- ------------------------------------------------------------------------
Total assets 1,238,410,976
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 15,933,766
- ------------------------------------------------------------------------
Fund shares reacquired 238,496
- ------------------------------------------------------------------------
Forward currency contracts 24,155
- ------------------------------------------------------------------------
Deferred compensation 26,193
- ------------------------------------------------------------------------
Options written (premiums received $83,771) 76,250
- ------------------------------------------------------------------------
Accrued advisory fees 592,834
- ------------------------------------------------------------------------
Accrued directors' fees 200
- ------------------------------------------------------------------------
Accrued operating expenses 135,537
- ------------------------------------------------------------------------
Total liabilities 17,027,431
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,221,383,545
========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ------------------------------------------------------------------------
Outstanding 46,535,623
========================================================================
Net asset value, offering and redemption price per share $26.25
========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $166,301 foreign withholding tax) $ 7,033,962
- -------------------------------------------------------------------------------
Interest 5,125,076
- -------------------------------------------------------------------------------
Total investment income 12,159,038
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,570,566
- -------------------------------------------------------------------------------
Administrative services fees 191,309
- -------------------------------------------------------------------------------
Custodian fees 93,826
- -------------------------------------------------------------------------------
Directors' fees and expenses 14,121
- -------------------------------------------------------------------------------
Other 108,257
- -------------------------------------------------------------------------------
Total expenses 5,978,079
- -------------------------------------------------------------------------------
Less: Expenses paid indirectly (3,727)
- -------------------------------------------------------------------------------
Net expenses 5,974,352
- -------------------------------------------------------------------------------
Net investment income 6,184,686
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FORWARD CURRENCY CONTRACTS, FUTURES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 35,892,808
- -------------------------------------------------------------------------------
Foreign currencies 54,577
- -------------------------------------------------------------------------------
Forward currency contracts (2,231,868)
- -------------------------------------------------------------------------------
Futures contracts (2,938,668)
- -------------------------------------------------------------------------------
Option contracts (301,361)
- -------------------------------------------------------------------------------
30,475,488
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 229,992,325
- -------------------------------------------------------------------------------
Foreign currencies 10,564
- -------------------------------------------------------------------------------
Forward currency contracts 324,688
- -------------------------------------------------------------------------------
Option contracts (214,285)
- -------------------------------------------------------------------------------
230,113,292
- -------------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures
and option contracts 260,588,780
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $266,773,466
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-226
<PAGE> 309
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,184,686 $ 5,578,959
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, forward currency
contracts, futures and option contracts 30,475,488 47,871,104
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 230,113,292 51,486,076
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 266,773,466 104,936,139
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (5,622,957) (6,026,082)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (49,732,413) (18,500,854)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 319,123,956 240,697,144
- ------------------------------------------------------------------------------
Net increase in net assets 530,542,052 321,106,347
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 690,841,493 369,735,146
- ------------------------------------------------------------------------------
End of year $1,221,383,545 $690,841,493
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 855,502,720 $536,384,006
- ------------------------------------------------------------------------------
Undistributed net investment income 6,191,169 5,579,627
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 28,274,001 47,575,497
- ------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 331,415,655 101,302,363
- ------------------------------------------------------------------------------
$1,221,383,545 $690,841,493
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-227
<PAGE> 310
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 fifteen 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 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, 1998
additional paid-in capital was decreased by $5,242, undistributed net
investment income was increased by $49,813 and undistributed net realized
gains was decreased by $44,571 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. 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.
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
AIM V.I. VALUE FUND
FS-228
<PAGE> 311
currencies are translated into U.S. dollar amounts on the respective dates of
such transactions. The Fund does not separately account for that portion of
the results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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 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 forward currency contracts at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ---------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
---------- ------- ---------------------------------
<S> <C> <C> <C> <C>
1/13/99 CAD 2,200,000 $ 1,425,378 1,437,868 $(12,490)
2/10/99 CAD 2,600,000 1,696,630 1,699,368 (2,738)
2/26/99 CAD 700,000 451,715 457,574 (5,859)
1/19/99 FIM 21,000,000 4,232,653 4,124,647 108,006
1/20/99 FIM 78,500,000 15,439,796 15,419,146 20,650
1/21/99 FIM 29,000,000 5,789,467 5,696,548 92,919
1/22/99 FIM 26,000,000 5,149,996 5,107,522 42,474
1/19/99 GBP 1,200,000 2,034,264 1,990,805 43,459
1/20/99 GBP 1,000,000 1,671,000 1,658,852 12,148
2/16/99 GBP 200,000 330,720 331,024 (304)
1/19/99 SEK 14,500,000 1,816,382 1,787,275 29,107
2/16/99 SEK 4,000,000 490,883 493,647 (2,764)
--------------------------------------------------------------
$40,528,884 40,204,276 $324,608
==============================================================
</TABLE>
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.
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 and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $191,309 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, 1998, the Fund incurred legal fees of
$5,050 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 $3,727 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $3,727 during the year ended
December 31, 1998.
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, 1998 was
$1,106,685,292 and $810,337,550, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $332,234,972
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,428,239)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $326,806,733
===========================================================================
</TABLE>
Cost of investments for tax purposes is $906,801,452.
AIM V.I. VALUE FUND
FS-229
<PAGE> 312
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 13,690,852 $321,377,374 12,245,239 $244,753,656
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 2,225,788 55,355,370 1,188,320 24,526,936
- ------------------------------------------------------------------------------
Reacquired (2,542,811) (57,608,788) (1,424,104) (28,583,448)
- ------------------------------------------------------------------------------
13,373,829 $319,123,956 12,009,455 $240,697,144
==============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call option contracts written during the year ended December
31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------
<S> <C> <C>
Beginning of period 2,102 $ 941,588
- -------------------------------------------
Written 8,349 4,655,767
- -------------------------------------------
Closed (2,906) (1,495,359)
- -------------------------------------------
Exercised (4,463) (3,094,748)
- -------------------------------------------
Expired (2,882) (923,477)
- -------------------------------------------
End of period 200 $ 83,771
===========================================
</TABLE>
Open call option contracts written at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT STRIKE NUMBER OF PREMIUM DECEMBER 31, 1998 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- ----- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch & Co.,
Inc. Jan. 99 65 200 $83,771 $76,250 $7,521
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, 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,
------------------------------------------- ------------------
1998 1997 1996 1995 1995 1994
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00
- ------------------------ ---------- -------- -------- -------- -------- -------
Income from investment
operations:
Net investment income 0.09 0.08 0.30 0.11 0.10 0.02
- ------------------------ ---------- -------- -------- -------- -------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 6.59 4.05 2.09 4.18 (0.35) 2.17
- ------------------------ ---------- -------- -------- -------- -------- -------
Total from investment
operations 6.68 4.13 2.39 4.29 (0.25) 2.19
- ------------------------ ---------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net
investment income (0.13) (0.19) (0.10) (0.01) (0.09) (0.02)
- ------------------------ ---------- -------- -------- -------- -------- -------
Distributions from net
realized gains (1.13) (0.59) (0.92) -- -- --
- ------------------------ ---------- -------- -------- -------- -------- -------
Total distributions (1.26) (0.78) (1.02) (0.01) (0.09) (0.02)
- ------------------------ ---------- -------- -------- -------- -------- -------
Net asset value, end of
period $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
======================== ========== ======== ======== ======== ======== =======
Total return(a) 32.41% 23.69% 15.02% 36.25% (2.03)% 21.94%
======================== ========== ======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $1,221,384 $690,841 $369,735 $257,212 $109,257 $38,255
======================== ========== ======== ======== ======== ======== =======
Ratio of expenses to
average net assets 0.66%(b) 0.70% 0.73% 0.75%(c) 0.82% 1.00%(c)(d)
======================== ========== ======== ======== ======== ======== =======
Ratio of net investment
income to average net
assets 0.68%(b) 1.05% 2.00% 1.11%(c) 1.17% 0.51%(c)(d)
======================== ========== ======== ======== ======== ======== =======
Portfolio turnover rate 100% 127% 129% 145% 143% 87%
======================== ========== ======== ======== ======== ======== =======
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $907,594,296.
(c) Annualized.
(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 1.35% (annualized) and 0.16% (annualized),
respectively.
AIM V.I. VALUE FUND
FS-230
<PAGE> 313
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit
Number Description
------- -----------
a (1) - (a) 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.
- (b) 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.
- (c) 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.
- (d) 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.
- (e) 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.
- (f) Articles Supplementary to Articles of
Incorporation of Registrant, as filed with the
State of Maryland on February 4, 1998 was filed
electronically as an Exhibit to Post-Effective
Amendment No. 9 on February 13, 1998, and is
incorporated herein by reference.
- (g) Articles Supplementary to Articles of
Incorporation of Registrant, as filed with the
State of Maryland on September 30, 1998, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 10 on October 2, 1998, and is
incorporated herein by reference.
C-1
<PAGE> 314
- (h) Articles Supplementary to Articles of
Incorporation of Registrant, as filed with the
State of Maryland on July 8, 1999, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 13 on July 13, 1999, and is
incorporated herein by reference.
- (i) Articles Supplementary to Articles of
Incorporation of Registrant, as filed with the
State of Maryland on September 27, 1999, is hereby
filed electronically.
b (1) - (a) 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.
- (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.
(2) - 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.
c - Instruments Defining Rights of Security Holders -
None.
d (1) - 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.
(2) - (a) 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.
- (b) 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.
(3) - (a) 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.
- (b) Amendment No. 1, dated April 15, 1998, to
Master Investment Advisory Agreement, dated
February 28, 1997, between Registrant and A I M
Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998 and incorporated herein by
reference.
C-2
<PAGE> 315
- (c) Amendment No. 2, dated December 14, 1998, to
Master Investment Advisory Agreement, dated
February 28, 1997, between Registrant and A I M
Advisors, Inc. was filed electronically as an
Exhibit to Registrant's Post-Effective Amendment
No. 11 on February 18, 1999, and is hereby
incorporated by reference.
- (d) Amendment No. 3, dated September 24, 1999, to
Master Investment Advisory Agreement, dated
February 28, 1997, between Registrant and A I M
Advisors, Inc. is hereby filed electronically.
- (e) Form of Amendment No. 4 to Master Investment
Advisory Agreement, dated February 28, 1997,
between Registrant and A I M Advisors, Inc. is
hereby filed electronically.
(4) - (a) Foreign Country Selection and Mandatory
Securities Depository Responsibilities Delegation
Agreement, dated September 9, 1998, between
Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 10 on October 2, 1998, and
incorporated herein by reference.
- (b) Amendment No. 1, dated September 28, 1998, to
Foreign Country Selection and Mandatory Securities
Depository Responsibilities Delegation Agreement
between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Registrant's
Post-Effective Amendment No. 11 on February 18,
1999, and is hereby incorporated by reference.
- (c) Amendment No. 2, dated December 14, 1998, to
Foreign Country Selection and Mandatory Securities
Depository Responsibilities Delegation Agreement
between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Registrant's
Post-Effective Amendment No. 11 on February 18,
1999, and is hereby incorporated by reference.
(5) - Form of Sub-Advisory Agreement between A I M
Advisors, Inc. and H.S. Dent Advisors, Inc. is
hereby filed electronically.
e (1) - (a) 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.
- (b) 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.
C-3
<PAGE> 316
(2) - (a) 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
was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2, 1998
and incorporated herein by reference.
- (b) Amendment No. 1, dated April 15, 1998, to
Master Distribution Agreement, dated February 28,
1997, between Registrant and A I M Distributors,
Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2, 1998
and incorporated herein by reference.
- (c) Amendment No. 2, dated December 14, 1998, to
Master Distribution Agreement, dated February 28,
1997, between Registrant and A I M Distributors,
Inc. was filed electronically as an Exhibit to
Registrant's Post-Effective Amendment No. 11 on
February 18, 1999 and is hereby incorporated by
reference.
- (d) Amendment No. 3, dated September 24, 1999, to
Master Distribution Agreement, dated February 28,
1997, between Registrant and A I M Distributors,
Inc. is hereby filed electronically.
- (e) Form of Amendment No. 4 to Master Distribution
Agreement, dated February 28, 1997, between
Registrant and A I M Distributors, Inc. is hereby
filed electronically.
(3) - 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.
f (1) - 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.
(2) - 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.
(3) - 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.
(4) - 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.
C-4
<PAGE> 317
(5) - Form of Deferred Compensation Agreement was filed
electronically as an Exhibit to Post-Effective
Amendment No. 9 on February 13, 1998, and is
incorporated herein by reference.
g (1) - (a) 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.
- (b) 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) 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.
- (d) Amendment, dated September 9, 1998, 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. 10 on October 2,
1998, and is incorporated herein by reference.
h (1) - 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.
(2) - (a) 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.
- (b) 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.
(3) - 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.
C-5
<PAGE> 318
(4) - (a) Master Administrative Services Agreement, as
amended, dated May 1, 1998, between Registrant and
A I M Advisors, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
- (b) Amendment No. 1, dated December 14, 1998, to
Master Administrative Services Agreement, as
amended, dated May 1, 1998, between Registrant and
A I M Advisors, Inc. was filed electronically as
an Exhibit to Registrant's Post-Effective
Amendment No. 11 on February 18, 1999, and is
hereby incorporated by reference.
- (c) Amendment No. 2, dated September 24, 1999, to
Master Administrative Services Agreement, as
amended, dated May 1, 1998, between Registrant and
A I M Advisors, Inc. is hereby filed
electronically.
- (d) Form of Amendment No. 3 to Master
Administrative Services Agreement, as amended,
dated May 1, 1998, between Registrant and A I M
Advisors, Inc. is hereby filed electronically.
(5) - (a) 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.
- (b) 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.
(6) - 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.
(7) - (a) 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.
- (b) Amendment No. 1, dated February 3, 1997, to
Participation Agreement dated February 10, 1995,
between Registrant and Citicorp Life Insurance
Company was filed electronically as an Exhibit to
Post-
C-6
<PAGE> 319
Effective Amendment No. 9 on February 13,
1998, and is incorporated herein by reference.
(8) - (a) 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.
- (b) Amendment No. 1, dated February 3, 1997, to
Participation Agreement, dated February 10, 1995,
between Registrant and First Citicorp Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
(9) - (a) 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.
- (a)(i) Side Letter Agreement, dated December 1,
1995, among Registrant and Glenbrook Life and
Annuity Company was filed as an Exhibit to
Post-Effective Amendment No. 8, and is
incorporated herein by reference.
- (b) Amendment No. 1, dated November 7, 1997, to
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. 10 on October 2,
1998, and is incorporated herein by reference.
- (c) Amendment No. 2, dated September 2, 1997, to
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. 9 on February 13,
1998, and is incorporated herein by reference.
- (d) Amendment No. 3, dated January 26, 1998, to
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. 10 on October 2,
1998, and is incorporated herein by reference.
- (e) Amendment No. 4, dated May 1, 1998, to
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. 10 on October 2,
1998, and is incorporated herein by reference.
C-7
<PAGE> 320
- (f) Amendment No. 5, dated January 12, 1999, to
the Participation Agreement, dated December 19,
1995, between Registrant and Glenbrook Life and
Annuity Insurance Company was filed electronically
as an Exhibit to Registrant's Post-Effective
Amendment No. 11 on February 18, 1999, and is
hereby incorporated by reference.
(10) - 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.
(11) - (a) 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.
- (a)(i) Side Letter Agreement, dated September 27,
1996, between Registrant, IDS Life Insurance
Company and IDS Life Insurance Company of New York
was filed electronically as an Exhibit to
Post-Effective Amendment No. 9 on February 13,
1998, and is incorporated herein by reference.
- (b) Amendment 1, dated November 11, 1997, the
Participation Agreement, dated October 7, 1996,
between registrant and IDS Life Insurance Company
was filed electronically as an Exhibit to
Registrant's Post-Effective Amendment No. 11 on
February 18, 1999, and is hereby incorporated by
reference.
(12) - (a) 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.
(b) Amendment No. 1, dated November 11, 1997, to
the Participation Agreement, dated October 7, 1996
between registrant and IDS Life Insurance Company
of New York was filed electronically as an Exhibit
to Registrant's Post-Effective Amendment No. 11 on
February 18, 1999, and is hereby incorporated by
reference.
(13) - 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.
(14) - (a) 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.
C-8
<PAGE> 321
- (b) Amendment No. 1, dated July 1, 1997, to
Participation Agreement, dated September 21, 1996,
between Registrant and Pruco Life Insurance
Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 9 on February 13,
1998, and is incorporated herein by reference.
- (c) Amendment No. 2, dated August 1, 1998, to
Participation Agreement, dated September 21, 1996,
between Registrant and Pruco Life Insurance
Company was filed as an Exhibit to Post-Effective
Amendment No. 10 on October 2, 1998, and is
incorporated herein by reference.
(15) - (a) 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.
- (a)(i) Side Letter Agreement, dated October 1,
1996, between Registrant and Allstate Life
Insurance Company of New York was filed as Exhibit
to Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
- (b) Amendment No. 1, dated November 7, 1997, to
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. 12 on April 29, 1999,
and is incorporated herein by reference.
(16) - (a) 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.
- (a)(i) Side Letter Agreement, dated December 18,
1996, between Registrant 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.
- (b) Amendment No. 1, dated May 1, 1997, to
Participation Agreement, dated December 18, 1996,
between Registrant and Merrill Lynch Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
(17) - (a) 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.
C-9
<PAGE> 322
- (b) 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 was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
(18) - 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.
(19) - Participation Agreement, dated April 30, 1997,
between Registrant and Prudential Insurance
Company of America was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
(20) - Participation Agreement, dated October 30, 1997,
between Registrant and American Centurion Life
Assurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
(21) - (a) Participation Agreement, dated October 30,
1997, between Registrant and American Enterprise
Life Insurance Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
- (a)(i) Letter Agreement, dated October 30, 1997,
between American Enterprise Life Insurance Company
and American Centurion Life Assurance Company was
filed electronically as an Exhibit to
Post-Effective Amendment No. 9 on February 13,
1998, and is incorporated herein by reference.
(22) - Participation Agreement, dated November 20, 1997,
between Registrant and AIG Life Insurance Company
was filed electronically as an Exhibit to
Post-Effective Amendment No. 9 on February 13,
1998, and is incorporated herein by reference.
(23) - Participation Agreement, dated November 20, 1997,
between Registrant and American International Life
Assurance Company of New York was filed
electronically as an Exhibit to Post-Effective
Amendment No. 9 on February 13, 1998, and is
incorporated herein by reference.
(24) - (a) Participation Agreement, dated November 4,
1997, between Registrant and Nationwide Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
- (b) Amendment No. 1, dated June 15, 1998, to
Participation Agreement, dated November 4, 1997,
between Registrant and Nationwide Life Insurance
Company was filed electronically as an
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Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
(25) - (a) Participation Agreement, dated December 3,
1997, between Registrant and Security Life of
Denver was filed electronically as an Exhibit to
Post-Effective Amendment No. 9 on February 13,
1998, and is incorporated herein by reference.
- (b) Amendment No. 1, dated June 23, 1998, to
Participation Agreement, dated December 3, 1997,
between Registrant and Security Life of Denver was
filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
- (c) Amendment No. 2, dated May 20, 1999, to the
Participation Agreement, dated December 3, 1997,
between Registrant and Security Life of Denver
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 13 on July
13, 1999 and is incorporated herein by reference.
(26) - Participation Agreement, dated December 31, 1997,
between Registrant and Cova Financial Services
Life Insurance Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
(27) - (a) Participation Agreement, dated December 31,
1997, between Registrant and Cova Financial Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 9 on
February 13, 1998, and is incorporated herein by
reference.
- (b) Amendment No. 1, dated April 23, 1999, to the
Participation Agreement, dated December 31, 1997,
between Registrant and Cova Financial Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 13 on July
13, 1999 and is incorporated herein by reference.
(28) - (a) Participation Agreement, dated February 2,
1998, between Registrant and The Guardian
Insurance & Annuity Company was filed
electronically as an Exhibit to Post-Effective
Amendment No. 10 on October 2, 1998, and is
incorporated herein by reference.
- (b) Amendment No. 1, dated July 1, 1999, between
Registrant and The Guardian Life Insurance &
Annuity Company is hereby filed electronically.
(29) - (a) Participation Agreement, dated February 17,
1998, between Registrant and Sun Life Assurance
Company of Canada (U.S.) was filed electronically
as an Exhibit to Post-Effective Amendment No. 10
on October 2, 1998, and is incorporated herein by
reference.
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(b) Amendment No. 1, dated December 11, 1998, to
the Participation Agreement, dated February 17,
1998, between Registrant and Sun Life Assurance
Company of Canada (U.S.) was filed electronically
as an Exhibit to Registrant's Post-Effective
Amendment No. 11 on February 18, 1999, and is
hereby incorporated by reference.
(30) - Participation Agreement, dated April 1, 1998,
between Registrant and United Life & Annuity
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
(31) - (a) Participation Agreement, dated April 21, 1998,
between Registrant and Keyport Life Insurance
Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
(b) Amendment No. 1, dated December 28, 1998, to
the Participation Agreement, dated April 21, 1998,
between Registrant and Keyport Life Insurance
Company was filed electronically as an Exhibit to
Registrant's Post-Effective Amendment No. 11 on
February 18, 1999, and is hereby incorporated by
reference.
(32) - (a) Participation Agreement, dated May 1, 1998,
between Registrant and PFL Life Insurance Company
was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
- (b) Amendment No. 1, dated June 30, 1998, to
Participation Agreement, dated May 1, 1998,
between Registrant and PFL Life Insurance Company
was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
- (c) Amendment No. 2, dated November 27, 1998, to
the Participation Agreement, dated May 1, 1998,
between Registrant and PFL Life Insurance Company
was filed electronically as an Exhibit to
Registrant's Post-Effective Amendment No. 11 on
February 18, 1999 and is hereby incorporated by
reference.
(33) - Participation Agreement, dated May 1, 1998,
between Registrant and Fortis Benefits Insurance
Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
(34) - (a) Participation Agreement, dated June 1, 1998,
between Registrant and American General Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
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- (b) Amendment No. 1, dated January 1, 1999, to the
Participation Agreement, dated June 1, 1998,
between Registrant and American General Life
Insurance Company was filed as an Exhibit to
Post-Effective Amendment No. 12 on April 29, 1999,
and is incorporated herein by reference.
(35) - (a) Participation Agreement, dated June 16, 1998,
between Registrant and Lincoln National Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
(b) Amendment No. 1, dated November 20, 1998, to
the Participation Agreement, dated June 16, 1998,
between Registrant and Lincoln National Life
Insurance Company was filed electronically as an
Exhibit to Registrant's Post-Effective Amendment
No. 11 on February 18, 1999, and is hereby
incorporated by reference.
(36) - Participation Agreement, dated June 30, 1998,
between Registrant and Aetna Life Insurance and
Annuity Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
(37) - Participation Agreement, dated July 1, 1998,
between Registrant and The Union Central Life
Insurance Company was filed electronically as an
Exhibit to Registrant's Post-Effective Amendment
No. 11 on February 18, 1999, and is hereby
incorporated by reference.
(38) - Participation Agreement, dated July 1, 1998,
between Registrant and United Investors Life
Insurance Company was filed electronically as an
Exhibit to Registrant's Post-Effective Amendment
No. 11 on February 18, 1999, and is hereby
incorporated by reference.
(39) - Participation Agreement, dated July 2, 1998,
between Registrant and Hartford Life Insurance
Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
(40) - (a) Participation Agreement, dated July 13, 1998,
between Registrant and Keyport Benefit Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
- (b) Amendment No. 1, dated December 28, 1998 to
the Participation Agreement, dated July 13, 1998,
between Registrant and Keyport Benefit Life
Insurance Company was filed electronically as an
Exhibit to Registrant's Post-Effective Amendment
No. 11 on February 18, 1999 and is hereby
incorporated by reference.
(41) - Participation Agreement, dated July 27, 1998,
between Registrant and Allmerica Financial Life
Insurance and Annuity Company was filed
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<PAGE> 326
electronically as an Exhibit to Post-Effective
Amendment No. 10 on October 2, 1998, and is
incorporated herein by reference.
(42) - Participation Agreement, dated July 27, 1998,
between Registrant and First Allmerica Financial
Life Insurance Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 10 on
October 2, 1998, and is incorporated herein by
reference.
(43) - Participation Agreement, dated October 15, 1998,
between Registrant and Lincoln Life & Annuity
Insurance Company of New York was filed as an
Exhibit to Post-Effective Amendment No. 12 on
April 29, 1999, and is incorporated herein by
reference.
(44) - (a) Participation Agreement, dated November 23,
1998, between Registrant and American General
Annuity Insurance Company was filed electronically
as an Exhibit to Registrant's Post-Effective
Amendment No. 11 on February 18, 1999 and is
hereby incorporated by reference.
- (b) Amendment No. 1, dated July 1, 1999, to the
Participation Agreement, dated November 23, 1998,
between Registrant and American General Annuity
Insurance Company is hereby filed electronically.
(45) - Participation Agreement, dated December 1, 1998,
between Registrant and the Prudential Insurance
Company of America was filed electronically as an
Exhibit to Registrant's Post-Effective Amendment
No. 11 on February 18, 1999 and is hereby
incorporated by reference.
(46) - Participation Agreement, dated February 1, 1999,
between Registrant and Sage Life Assurance of
America, Inc. was filed as an Exhibit to
Post-Effective Amendment No. 12 on April 29, 1999,
and is incorporated herein by reference.
(47) - Participation Agreement, dated April 1, 1999,
between Registrant and Liberty Life Assurance
Company of Boston was filed as an Exhibit to
Post-Effective Amendment No. 12 on April 29, 1999,
and is incorporated herein by reference.
(48) - Participation Agreement, dated April 13, 1999,
between Registrant and Western-Southern Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 13 on July
13, 1999 and is incorporated herein by reference.
(49) - Participation Agreement, dated May 1, 1999,
between Registrant and Columbus Life Insurance
Company was filed electronically as an
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<PAGE> 327
Exhibit to Post-Effective Amendment No. 13 on July
13, 1999 and is incorporated herein by reference.
(50) - Participation Agreement, dated April 26, 1999,
between Registrant and First Variable Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 13 on July
13, 1999 and is incorporated herein by reference.
(51) - Participation Agreement, dated August 21, 1999,
between Registrant and Life Investors Insurance
Company of America is hereby filed electronically.
(52) - Participation Agreement, dated June 8, 1999,
between Registrant and The Principal Life
Insurance Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 13 on July
13, 1999 and is incorporated herein by reference.
(53) - Participation Agreement, dated June 8, 1999,
between Registrant and Principal Life Insurance
Company is hereby filed electronically.
(54) - Participation Agreement, dated June 14, 1999,
between Registrant and Security First Life
Insurance Company is hereby filed electronically.
(55) - Participation Agreement, dated July 1, 1999,
between Registrant and Allstate Life Insurance
Company is hereby filed electronically.
(56) - Participation Agreement, dated July 27, 1999,
between Registrant and Allianz Life Insurance
Company of North America is hereby filed
electronically.
(57) - Participation Agreement, dated July 27, 1999,
between Registrant and Preferred Life Insurance
Company of New York is hereby filed
electronically.
(58) - Participation Agreement, dated August 31, 1999,
between Registrant and John Hancock Mutual Life
Insurance Company is hereby filed electronically.
(59) - Participation Agreement, dated August 31, 1999,
between Registrant and The United States Life
Insurance Company in the City of New York is
hereby filed electronically.
(60) - 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.
i (1) - (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 and is incorporated herein by
reference.
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- (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 and is
incorporated herein by reference.
- (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 and is incorporated herein by
reference.
- (d) Opinion and Consent of Messrs. Freedman, Levy,
Kroll & Simonds regarding AIM V.I. Aggressive
Growth Fund, AIM V.I. Balanced Fund, AIM V.I.
Capital Development Fund and AIM V.I. High Yield
Fund was filed as an Exhibit to Registrant's
Post-Effective Agreement No. 9 on February 13,
1998 and is incorporated herein by reference.
- (e) Opinion and Consent of Messrs. Freedman, Levy,
Kroll & Simonds regarding AIM V.I. Global Growth
and Income Fund and AIM V.I. Telecommunications
Fund was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on October 2,
1998, and is incorporated herein by reference.
- (f) Opinion and Consent of Messrs. Freedman, Levy,
Kroll & Simonds regarding AIM V.I. Blue Chip Fund
was filed electronically as an Exhibit to
Post-Effective Amendment No. 13 on July 13, 1999
and is incorporated herein by reference.
- (g) Opinion and Consent of Messrs. Freedman, Levy,
Kroll & Simonds regarding AIM V.I. Dent
Demographic Trends Fund is hereby filed
electronically.
(2) - Consent of Messrs. Tait, Weller & Baker is hereby
filed electronically.
j - Other Opinions, Appraisals or Rulings and Consents
- None.
k - Financial Statements omitted from Item 22 - None.
l (1) - (a) 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.
- (b) 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
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<PAGE> 329
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) 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 was filed
electronically as an Exhibit to Post-Effective
Amendment No. 10 on October 2, 1998, and is
incorporated herein by reference.
- (d) Agreement Concerning Initial Capitalization of
the AIM V.I. Blue Chip Fund is hereby filed
electronically.
- (e) Form of Agreement Concerning Initial
Capitalization of the AIM V.I. Dent Demographic
Trends Fund is hereby filed electronically.
m - Registrant's Plan pursuant to Rule 12b-1 under the 1940
Act - None.
n - Multiple Class Plan (Rule 18f-3) - None.
o(1) - The AIM Management Group Code of Ethics adopted May 1,
1981 and as amended August 17, 1999 relating to A I M
Management Group Inc. and A I M Advisors, Inc. is filed
herewith.
(2) Code of Ethics of Registrant effective as of February
25, 1993 is filed herewith electronically.
Item 24. Persons Controlled by or Under Common Control with Registrant
Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant. For any person
controlled by another person, disclose the percentage of voting securities owned
by the immediately controlling person or other basis of that person's control.
For each company, also provide the state or other sovereign power under the laws
of which the company is organized.
None.
Item 25. 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 against any liability incurred in their official
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.
C-17
<PAGE> 330
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 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 $35,000,000 limit of
liability.
Item 26. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature that each investment advisor of the Registrant, and each
director, officer or partner of the advisor, is or has been engaged within the
last two fiscal years for his or her 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 caption "Fund Management--The 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 27. Principal Underwriters
(a)State the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the Registrant's
securities also acts as a principal underwriter, depositor, or investment
advisor.
AIM Advisor Funds, Inc.
AIM Equity Funds, Inc. (Retail Classes)
AIM Funds Group
AIM Growth Series
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<PAGE> 331
AIM International Funds, Inc.
AIM Investment Funds
AIM Investment Securities Funds (Retail Classes)
AIM Series Trust
AIM Special Opportunities Funds
AIM Summit Fund, Inc.
AIM Tax-Exempt Funds, Inc.
GT Global Floating Rate Fund, Inc. d/b/a AIM Floating Rate Fund
(b) Provide the information required by the following table for each
director, officer, or partner of each principal underwriter named in the
response to item 20:
<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 Executive 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
Gene L. Needles Senior Vice President None
B. J. Thompson First Vice President None
Ofelia M. Mayo Vice President, General Counsel Assistant Secretary
& Assistant Secretary
James R. Anderson Vice President None
Dawn M. Hawley Vice President & Treasurer None
</TABLE>
- --------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-19
<PAGE> 332
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------
<S> <C> <C>
Mary K. Coleman Vice President None
Mary A. Corcoran Vice President None
Melville B. Cox Vice President & Chief Compliance Officer Vice President
Sidney M. Dilgren Vice President None
Tony D. Green Vice President None
Charles N. McLaughlin Vice President None
Terri L. Ransdell Vice President None
Carol F. Relihan Vice President Senior Vice President &
Secretary
Kamala C. Sachidanandan Vice President None
Frank V. Serebrin Vice President None
Christopher T. Simutis 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
Shelia R. Brown Assistant Vice President None
Scott E. Burman Assistant Vice President None
Tisha Christopher Assistant Vice President None
Glenda Dayton Assistant Vice President None
Mary E. Gentempo Assistant Vice President None
Simon R. Hoyle Assistant Vice President None
Kathryn A. Jordon Assistant Vice President None
Kim T. McAuliffe Assistant Vice President None
</TABLE>
- --------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-20
<PAGE> 333
<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
Rebecca Starling-Klatt 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
P. Michelle Grace Assistant Secretary Assistant Secretary
Lisa A. Moss Assistant Secretary Assistant Secretary
Stephen I. Winer Assistant Secretary Assistant Secretary
</TABLE>
(c) Not Applicable
Item 28. Location of Accounts and Records
State the name and address of each person maintaining physical
possession of each account, book, or other document required to be maintained by
section 31(a) [15 U.S.C. 80a-30(a)] and the rules under that section.
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.
Item 29. Management Services
Provide a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B, disclosing the
parties to the contract and the total amount paid and by whom for the
Registrant's last three fiscal years.
Not Applicable
- --------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-21
<PAGE> 334
Item 30. Undertakings
In initial registration statements filed under the Securities Act,
provide an undertaking to file an amendment to the registration
statement with certified financial statements showing the initial
capital received before accepting subscriptions from more than 25
persons if the Registrant intends to raise its initial capital under
section 14(a)(3) [15 U.S.C. 80a-14(a)(3)].
Not Applicable
C-22
<PAGE> 335
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 27th day
of September, 1999.
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 September 27, 1999
- ----------------------------
(Charles T. Bauer)
/s/ ROBERT H. GRAHAM Director & President September 27, 1999
- ----------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ BRUCE L. CROCKETT Director September 27, 1999
- ----------------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Director September 27, 1999
- ----------------------------
(Owen Daly II)
/s/ EDWARD K. DUNN, JR. Director September 27, 1999
- ----------------------------
(Edward K. Dunn, Jr.)
/s/ JACK FIELDS Director September 27, 1999
- ----------------------------
(Jack Fields)
/s/ CARL FRISCHLING Director September 27, 1999
- ----------------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Director September 27, 1999
- ----------------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Director September 27, 1999
- ----------------------------
(Lewis F. Pennock)
/s/ LOUIS S. SKLAR Director September 27, 1999
- ----------------------------
(Louis S. Sklar)
/s/ DANA R. SUTTON Vice President & September 27, 1999
- ---------------------------- Treasurer (Principal Financial
(Dana R. Sutton) and Accounting Officer)
</TABLE>
<PAGE> 336
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No.
-------
<S> <C>
a(1)(i) Articles Supplementary to Articles of Incorporation of Registrant as filed
with the State of Maryland on September 27, 1999
d(3)(d) Amendment No. 3, dated September 24, 1999, to Master Investment Advisory
Agreement between Registrant and A I M Advisors, Inc.
d(3)(e) Form of Amendment No. 4 to Master Investment Advisory Agreement between
Registrant and A I M Advisors, Inc.
d(5) Form of Sub-Advisory Agreement between A I M Advisors, Inc. and H.S. Dent
Advisors, Inc.
e(2)(d) Amendment No. 3, dated September 24, 1999, to Master Distribution Agreement
between Registrant and A I M Distributors, Inc.
e(2)(e) Form of Amendment No. 4 to Master Distribution Agreement between Registrant
and A I M Distributors, Inc.
h(4)(c) Amendment No. 2, dated September 24, 1999, to Master Administrative Services
Agreement between Registrant and A I M Advisors, Inc.
h(4)(d) Form of Amendment No. 3 to Master Administrative Services Agreement, as
amended May 1, 1998, between Registrant and A I M Advisors, Inc.
h(28)(b) Amendment No. 1, dated July 1, 1999, to the Participation Agreement, dated
February 2, 1998, between Registrant and The Guardian Insurance & Annuity
Company, Inc.
h(44)(b) Amendment No. 1, dated July 2, 1999, to the Participation Agreement, dated
November 23, 1998, between Registrant and American General Annuity Insurance
Company
h(51) Participation Agreement, dated August 21, 1999, between Registrant and Life
Investors Insurance Company of America
h(53) Participation Agreement, dated June 8, 1999, between Registrant and
Principal Life Insurance Company
h(54) Participation Agreement, dated June 14, 1999, between Registrant and
Security First Life Insurance Company
h(55) Participation Agreement, dated July 1, 1999, between Registrant and Allstate
Life Insurance Company
</TABLE>
<PAGE> 337
<TABLE>
<S> <C>
h(56) Participation Agreement, dated July 27, 1999, between Registrant and Allianz
Life Insurance Company of North America
h(57) Participation Agreement, dated July 27, 1999, between Registrant and
Preferred Life Insurance Company of New York
h(58) Participation Agreement dated August 31, 1999, between Registrant and
John Hancock Mutual Life Insurance Company
h(59) Participation Agreement, dated August 31, 1999, between Registrant and The
United States Life Insurance Company in the City of New York
i(1)(g) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds
i(2) Consent of Messrs. Tait, Weller & Baker
l(d) Agreement Concerning Initial Capitalization of the AIM V.I. Blue Chip Fund
l(e) Form of Agreement Concerning Initial Capitalization of the AIM V.I. Dent
Demographic Trends Fund
o(1) The A I M Management Group Code of Ethics
o(2) Code of Ethics of Registrant
</TABLE>
<PAGE> 1
EXHIBIT a(1)(i)
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 two hundred fifty million (250,000,000) shares,
which are classified and allocated as follows: two hundred fifty million
(250,000,000) shares to AIM V.I. Dent Demographic Trends Fund. The shares of the
AIM V.I. Dent Demographic Trends 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 the FIFTH ARTICLE, 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 the FIRST ARTICLE hereto, the Corporation was authorized
to issue 4,250,000,000 shares of the par value of $.001 each and of the
aggregate par value of $4,250,000, of which 250,000,000 shares were initially
classified as AIM V.I. Aggressive Growth Fund shares, 250,000,000 shares were
initially classified as AIM V.I. Balanced Fund shares, 250,000,000 shares were
initially classified as AIM V.I. Blue Chip Fund shares, 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. Capital Development 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 Growth
and 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. High Yield 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. Telecommunications 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 4,500,000,000 shares of the par value
of $.001 each and of the aggregate par value of $4,500,000, 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. Blue Chip 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. Dent Demographic Trends 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 Growth and 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 shares are classified as AIM V.I.
Telecommunications 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 the AIM V.I. Dent Demographic Trends 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 September 24, 1999.
AIM VARIABLE INSURANCE FUNDS, INC.
By: /s/ ROBERT H. GRAHAM
-------------------------------
President
Witness:
/s/ P. MICHELE GRACE
- ------------------------------------
Assistant Secretary
-2-
<PAGE> 1
EXHIBIT d(3)(d)
AMENDMENT NO. 3
TO
MASTER INVESTMENT ADVISORY AGREEMENT
This amendment dated as of September 24, 1999, 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 one new
portfolio, AIM V.I. Blue Chip 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. BLUE CHIP FUND
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. GLOBAL GROWTH AND INCOME FUND
AIM V.I. TELECOMMUNICATIONS FUND
<TABLE>
<CAPTION>
NET ASSETS
- ----------
<S> <C>
Average Daily Net Assets................................................................................. 1.00%
</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>
<PAGE> 3
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>
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: September 24, 1999
-------------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
---------------------------- -------------------------------
Assistant Secretary President
[SEAL]
A I M ADVISORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
---------------------------- -------------------------------
Assistant Secretary President
[SEAL]
<PAGE> 1
EXHIBIT d(3)(e)
AMENDMENT NO. 4
TO
MASTER INVESTMENT ADVISORY AGREEMENT
This amendment dated as of ______________, 1999, amends the Master
Investment Advisory Agreement (the "Agreement"), dated February 28, 1997,
between AIM Variable Insurance Funds, Inc., a Maryland corporation, and AIM
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 one new
portfolio, AIM V.I. Dent Demographic Trends 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. BLUE CHIP FUND
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. DENT DEMOGRAPHIC TRENDS FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $2 billion............................................ 0.85%
Over $2 billion............................................. 0.80%
</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. GLOBAL GROWTH AND INCOME FUND
AIM V.I. TELECOMMUNICATIONS FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
Average Daily Net Assets.................................... 1.00%
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million......................................... .50%
Over $250 million.......................................... .45%
</TABLE>
<PAGE> 3
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>
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: , 1999
---------------------
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 d(5)
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into this _______ day of _________,
1999, by and between A I M Advisors, Inc., a Delaware corporation (the
"Adviser"), and H.S. Dent Advisors, Inc., a Delaware corporation (the
"Sub-Adviser").
RECITALS
WHEREAS, AIM V.I. Dent Demographic Trends Fund (the "Fund") is a series
of AIM Variable Insurance Funds, Inc. (the "Company"), a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act") as an open-end, diversified management investment company;
WHEREAS, the Adviser is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment adviser and engages in
the business of acting as an investment adviser;
WHEREAS, the Sub-Adviser is also registered under the Advisers Act, and
engages in the business of acting as an investment adviser;
WHEREAS, the Adviser expects to enter into an investment advisory
agreement with the Fund (the "Investment Advisory Agreement") pursuant to which
the Adviser will act as investment adviser with respect to the Fund; and
WHEREAS, the Adviser wishes to retain the Sub-Adviser for purposes of
rendering advisory services to the Adviser in connection with the Fund upon the
terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints the Sub-Adviser
to render investment research and advisory services to the Adviser with
respect to the Fund under the supervision of the Adviser, and the
Sub-Adviser hereby accepts such appointment, all subject to the terms
and conditions contained herein. The Sub-Adviser shall use its best
judgment, efforts and facilities in rendering its services as
investment adviser.
2. Advisory Services. The duties of the Sub-Adviser shall be limited to
the following:
(a) Rendering investment research and advisory services to the Adviser
with respect to the Fund, under the supervision of the Adviser and subject to
the approval and direction of the Board of Directors of the Fund;
(b) Analyzing and recommending appropriate industry and sector
allocations and weightings for the Fund's investment portfolio, in accordance
with the philosophies of Harry S.
<PAGE> 2
Dent, Jr. ("Mr. Dent") concerning industry and sector allocations based on
demographic principles. The duties of the Sub-Adviser shall not include
selection of specific securities within the recommended industry or sectors for
purchase or sale.
(c) Providing, on a monthly basis, recommendations of the appropriate
industry and sector allocations and weightings for the Fund. The Sub-Adviser, at
its sole and absolute discretion, may elect to make such recommendations more
frequently based on market conditions. The Sub-Adviser shall make Mr. Dent
available for discussions with respect to industry and sector allocations and
weightings of the Fund upon reasonable request by the Adviser.
(d) Providing written materials concerning industry and sector
allocations and weightings for the Fund to the Board of Directors of the Company
upon request by the Board.
(e) Making Mr. Dent available to speak at promotional meetings on 25
days selected by mutual agreement of the Adviser and Sub-Adviser. Mr. Dent may
agree, at his sole discretion, to appear at more than one meeting on any day
upon request by the Adviser.
(f) Making Mr. Dent available, upon request by the Adviser and subject
to Mr. Dent's availability, for telephone conference calls intended to educate
persons involved in distribution of the Fund's shares on the investment
principles of the Fund and for other educational and promotional activities not
requiring travel.
3. Control by Board of Directors. Any investment program recommended by
the Sub-Adviser pursuant to this Agreement, as well as any other
activities undertaken by the Sub-Adviser with respect to the Fund,
shall at all times be subject to any directives of the Board of
Directors of the Fund.
4. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times
conform to:
(a) all applicable provisions of the 1940 Act and Advisers Act and any
rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Fund, as the
same may be amended from time to time, under the Securities Act of 1933 and the
1940 Act;
(c) the provisions of the corporate charter and by-laws of the Fund, as
the same may be amended from time to time; and
(d) any other applicable provisions of state or federal law.
<PAGE> 3
5. Compensation. The Adviser shall pay the Sub-Adviser, as compensation
for services rendered hereunder, an amount per annum based upon the net
asset value of the Fund as follows:
<TABLE>
<CAPTION>
Assets Basis Points
------ ------------
<S> <C>
Up to $1 billion.............................................. 13
Over $1 billion to and including $2 billion.................. 10
Over $2 billion............................................... 7
</TABLE>
The Adviser will begin payment of such fees when the net asset value of
the Fund has reached $50 million, and the fee will be paid on a monthly basis
thereafter.
6. Expenses of the Fund. All of the ordinary business expenses
incurred in the operations of the Fund and the offering of its shares
shall be borne by the Fund unless specifically provided otherwise in
this Agreement. These expenses borne by the Fund include but are not
limited to brokerage commissions, taxes, legal, auditing, 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 Fund in connection with
membership in investment company organizations and the cost of printing
copies of prospectuses and statements of additional information
distributed to the Fund's shareholders.
7. Exclusivity. Sub-Adviser shall not render investment advice
or similar services directly or indirectly to any investment company
that offers or has offered its shares for sale in a public offering,
other than (i) the Fund and other investment companies that are advised
or distributed by A I M Management Group Inc. or its affiliates and
(ii) unit investment trusts identified on Exhibit A to this Agreement.
It is understood and agreed that Exhibit A may be amended from time to
time by mutual agreement of the Adviser and Sub-Adviser and that
officers or directors of the Sub-Adviser are not prohibited from
engaging in any other business activity or from rendering any other
services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other
investment advisory companies so long as such activity or service is
unrelated to the rendering of investment advice to investment companies
that offer or have offered their shares for sale in a public offering.
8. Trading Practices. The Adviser and Sub-Adviser each agree to
comply with the requirement of Rule 17j-1 under the 1940 Act and that
they shall not engage in any conduct or practice prohibited by said
Rule.
9. Term and Approval. This Agreement shall become effective if
approved by the shareholders of the Fund, and if so approved, this
Agreement shall thereafter continue in force and effect for two (2)
years and may be continued from year to year thereafter, provided that
the continuation of the Agreement is specifically approved at least
annually by the Fund's Board of Directors.
<PAGE> 4
10. Termination.
(a) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for purposes of this paragraph having the
meaning defined in Section 2(a)(4) of the 1940 Act.
(b) This Agreement may be terminated as follows:
(i) At any time, without the payment of any penalty, by the
vote of the Fund's Board of Directors or by vote of a majority of the
Fund's outstanding voting securities.
(ii) The Sub-Adviser may terminate this Agreement if the Fund
does not commence a public offering of its shares on or before December
31, 1999.
(iii) By either party in the event that certain Servicemark
License Agreement of even date herewith between Harry S. Dent, Jr. and
A I M Management Group Inc. is terminated or expires.
(iv) By either party upon the occurrence of a material breach
of the terms of the Agreement by the other party that remains uncured
for a period of 30 days after notice thereof is given by the
terminating party.
(c) The party electing to terminate the Agreement under paragraph
10(b) must provide 60 days' prior written notice to the other party and to the
Fund of such election. The notice provided for herein may be waived by either
party.
11. Liability of Sub-Adviser. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Sub-Adviser or any
of its officers, directors or employees, the Sub-Adviser shall not be
subject to liability to the Adviser for any act or omission in the
course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
security.
12. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to such address
as may be designated for the receipt of such notice, with a copy to the
Fund. Until further notice, it is agreed that the address of the Fund
and that of the Adviser shall be Eleven Greenway Plaza, Suite 100,
Houston, Texas 77046 and that of the Sub-Adviser shall be H.S. Dent
Advisors, Inc., P.O. Box 914, Moss Beach, CA 94038.
13. Questions of Interpretation; Applicable Law. Any question of
interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the
1940 Act or the Advisers Act shall be resolved by reference to such
term or provision of the 1940 Act or the Advisers Act and to
interpretations thereof, if any, by the United States Courts or in the
absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to said Acts. In addition, where the effect of a requirement
of the 1940 Act or the Advisers Act reflected in any provision of the
Agreement is revised by rule, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the
effect of such rule,
<PAGE> 5
regulation or order. Texas law shall apply to all matters of
construction or interpretation of this Agreement not addressed by the
1940 Act or Advisers Act.
14. Dispute Resolution. All claims, disputes and other matters in
question between the parties to this Agreement, arising out of or
relating to this Agreement or the breach thereof, shall be decided by
arbitration in accordance with the rules of the American Arbitration
Association then in effect unless the parties mutually agree otherwise.
(a) Any such claim, dispute, or other matter shall be submitted to one
arbitrator designated by the Adviser, provided that if the Sub-Adviser objects
to the Adviser's arbitrator, each of the Adviser and the Sub-Adviser will
designate an arbitrator who will jointly designate a third arbitrator, and the
matter shall be submitted to all three arbitrators for decision; otherwise one
arbitrator shall be used. This agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law.
(b) Notice of the demand for arbitration shall be filed in writing with
the other party to this Agreement and with the American Arbitration Association.
The demand shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.
(c) The award rendered by the arbitrators shall be final, and judgement
may be entered upon it in accordance with applicable law in any court having
jurisdiction thereof. The prevailing party in any arbitration under this
Agreement shall be awarded its reasonable attorneys fees and costs associated
with the arbitration.
(d) The location for settlement for any and all claims, controversies
or disputes arising out of or relating to this Agreement or any breach thereof
when decided by arbitration shall be in Houston, Texas.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
A I M Advisors, Inc.
Attest:
By:
- ------------------------------- ------------------------------
Assistant Secretary President
(SEAL)
Attest: H.S. Dent Advisors, Inc.
By:
- ------------------------------- ------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 7
EXHIBIT A
PERMITTED INVESTMENT COMPANY ADVISORY CLIENTS
<TABLE>
<CAPTION>
Name of Company Sponsor
--------------- -------
<S> <C>
Roaring 2000's Unit Investment Trusts Van Kampen Funds, Inc.
</TABLE>
<PAGE> 1
EXHIBIT e(2)(d)
AMENDMENT NO. 3
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. Blue Chip 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 Growth and 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. Telecommunications 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: September 24, 1999
-------------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
---------------------- ----------------------------
Assistant Secretary President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
---------------------- ----------------------------
Assistant Secretary President
<PAGE> 1
EXHIBIT e(2)(e)
AMENDMENT NO. 4
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. Blue Chip Fund
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Capital Development Fund
o AIM V.I. Dent Demographic Trends Fund
o AIM V.I. Diversification Income Fund
o AIM V.I. Global Growth and 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. Telecommunications 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: , 1999
-----------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
--------------------------- ---------------------------------
Assistant Secretary President
A I M DISTRIBUTORS, INC.
Attest: By:
--------------------------- ---------------------------------
Assistant Secretary President
<PAGE> 1
EXHIBIT h(4)(c)
AMENDMENT NO. 2
TO
MASTER ADMINISTRATIVE SERVICES AGREEMENT
This Amendment, dated as of September 24, 1999, is made to the Master
Administrative Services Agreement, (the "Agreement"), as amended, dated May 1,
1998, by and between A I M Advisors, Inc. (the "Administrator") and AIM Variable
Insurance Funds, Inc. (the "Company") to add the following Fund to the
provisions of the agreement:
AIM V. I. Blue Chip Fund
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed by their officers designated below, as of the day and year first above
written.
A I M ADVISORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- ------------------------------
Assistant Secretary President
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- ------------------------------
Assistant Secretary President
<PAGE> 1
EXHIBIT h(4)(d)
AMENDMENT NO. 3
TO
MASTER ADMINISTRATIVE SERVICES AGREEMENT
This Amendment, dated as of __________________, 1999, is made to the
Master Administrative Services Agreement, (the "Agreement"), as amended, dated
May 1, 1998, by and between A I M Advisors, Inc. (the "Administrator") and AIM
Variable Insurance Funds, Inc. (the "Company") to add the following Fund to the
provisions of the agreement:
AIM V. I. Dent Demographic Trends Fund
IN WITNESS WHEREOF, the parties hereto have caused this amendment 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
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
-------------------------- -----------------------------
Assistant Secretary President
<PAGE> 1
EXHIBIT h(28)(b)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated February 2, 1998, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, The Guardian Insurance & Annuity
Company, Inc., a Delaware life insurance company and Guardian Investor Services
Corporation, 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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUNDS AVAILABLE UNDER THE SEPARATE ACCOUNTS CONTRACTS FUNDED BY THE
POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
- --------------------------------------- ------------------------------------------- --------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Separate Account K o Park Avenue Life
AIM V.I. Value Fund
------------------------------------------- --------------------------------
Separate Account M o Park Avenue VUL
- --------------------------------------- ------------------------------------------- --------------------------------
AIM V.I. Capital Appreciation Fund Separate Account E o The Guardian Investor
AIM V.I. Global Utilities Fund Retirement Asset Manager
AIM V.I. Value Fund Variable Annuity Contract
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: July 1, 1999
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
--------------------------- -----------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
(SEAL)
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
(SEAL)
1 of 2
<PAGE> 2
THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
Attest: /s/ SHERI L. KOCEN By: /s/ JOHN M. SMITH
--------------------------- -----------------------------
Name: Sheri L. Kocen Name: John M. Smith
--------------------------- -----------------------------
Title: Counsel Title: Executuve Vice President
--------------------------- -----------------------------
(SEAL)
GUARDIAN INVESTOR SERVICES CORPORATION
Attest: /s/SHERI L. KOCEN By: /s/ JOHN M. SMITH
--------------------------- -----------------------------
Name: Sheri L. Kocen Name: John M. Smith
--------------------------- -----------------------------
Title: Counsel Title: Executive Vice President
--------------------------- -----------------------------
(SEAL)
2 of 2
<PAGE> 1
EXHIBIT h(44)(b)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated November 23, 1998, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware Corporation, American General Annuity Insurance
Company, a Texas life insurance company and A.G. Distributors, Inc. (formally
known as AGA Brokerage Services, Inc.), 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/CONTRACTS FUNDED BY THE
THE POLICIES UTILIZING SOME OR SEPARATE ACCOUNTS
ALL OF THE FUNDS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund AG Separate Account A o VA61-94
AIM V.I. Diversified Income Fund o VA61-T5-94
AIM V.I. International Equity Fund o VA63-94
AIM V.I. Value Fund o VA63-T5-94
o VA64-T5-94
o VA124-99R
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: July 2, 1999
-------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/NANCY L. MARTIN By: /s/ROBERT H. GRAHAM
----------------------------- --------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
(SEAL)
1 of 2
<PAGE> 2
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
(SEAL)
AMERICAN GENERAL ANNUITY INSURANCE
COMPANY
Attest: /s/CYNTHIA A. TOLES By: /s/JOHN E. ARANT
----------------------------- --------------------------------
Name: Cynthia A. Toles Name: John E. Arant
----------------------------- ------------------------------
Title: Secretary Title: Executive VP - Sales
----------------------------- -----------------------------
(SEAL)
A.G. DISTRIBUTORS, INC.
Attest: /S/CYNTHIA A. TOLES By: /s/BRUCE R. ABRAMS
----------------------------- --------------------------------
Name: Cynthia A. Toles Name: Bruce R. Abrams
----------------------------- ------------------------------
Title: Secretary Title: President and CEO
----------------------------- -----------------------------
(SEAL)
2 of 2
<PAGE> 1
EXHIBIT h(51)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AFSG SECURITIES CORPORATION
<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 Parties To Cooperate............................................................................4
Section 4. Legal Compliance......................................................................................4
4.1 Tax Laws........................................................................................4
4.2 Insurance and Certain Other Laws................................................................7
4.3 Securities Laws.................................................................................7
4.4 Notice of Certain Proceedings and Other Circumstances...........................................8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10
Section 5. Mixed and Shared Funding.............................................................................11
5.1 General........................................................................................11
5.2 Disinterested Directors........................................................................12
5.3 Monitoring for Material Irreconcilable Conflicts...............................................12
5.4 Conflict Remedies..............................................................................13
5.5 Notice to LIFE COMPANY.........................................................................14
5.6 Information Requested by Board of Directors....................................................14
5.7 Compliance with SEC Rules......................................................................14
5.8 Other Requirements.............................................................................14
Section 6. Termination..........................................................................................15
6.1 Events of Termination..........................................................................15
6.2 Notice Requirement for Termination.............................................................16
6.3 Funds To Remain Available......................................................................16
6.4 Survival of Warranties and Indemnifications....................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.5 Continuance of Agreement for Certain Purposes........................................................17
Section 7. Parties To Cooperate Respecting Termination..........................................................17
Section 8. Assignment...........................................................................................17
Section 9. Notices..............................................................................................17
Section 10. Voting Procedures...................................................................................18
Section 11. Foreign Tax Credits.................................................................................18
Section 12. Indemnification.....................................................................................19
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................19
12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF......................................................21
12.3 Effect of Notice...............................................................................23
12.4 Successors.....................................................................................23
Section 13. Applicable Law......................................................................................24
Section 14. Execution in Counterparts...........................................................................24
Section 15. Severability........................................................................................24
Section 16. Rights Cumulative...................................................................................24
Section 17. Headings............................................................................................24
Section 18. Confidentiality.....................................................................................24
Section 19. Trademarks and Fund Names...........................................................................25
Section 20. Parties to Cooperate................................................................................25
Section 21. Amendments..........................................................................................26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 21st day of August,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Life Investors Insurance Company of America, an Iowa life
insurance company ("LIFE 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 AFSG Securities Corporation, an affiliate of LIFE COMPANY and the principal
underwriter of the Contracts ("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 fifteen 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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY 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
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the
Funds on behalf of the Accounts to fund the Contracts; and
1
<PAGE> 5
WHEREAS, UNDERWRITER 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 LIFE COMPANY 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
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 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) LIFE COMPANY is open
for business.
2
<PAGE> 6
(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is
unable to meet the 6:00 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 LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY
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), LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 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
4
<PAGE> 8
of each Fund as a RIC. AVIF will notify LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE 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 LIFE COMPANY 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) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY 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) LIFE COMPANY 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 LIFE
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE
COMPANY 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 LIFE
COMPANY to AVIF (together with any supporting
information or analysis); subject to the
confidentiality
5
<PAGE> 9
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 LIFE COMPANY to any such person without
the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY
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 LIFE
COMPANY 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,
LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in
the name of LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY 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
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and that it will use its best efforts to maintain such treatment; LIFE COMPANY
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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 Iowa 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 Iowa 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) LIFE COMPANY 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
Iowa 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) LIFE COMPANY 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
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<PAGE> 11
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 LIFE COMPANY 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 LIFE
COMPANY. AVIF will make every reasonable effort to prevent the issuance,
8
<PAGE> 12
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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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) LIFE COMPANY 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 fifteen (15)
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 AIM as the entity to receive
such sales literature, until such time as AVIF appoints another designated
agent by giving notice to LIFE COMPANY in the manner required by Section 9
hereof.
(c) Neither LIFE COMPANY 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) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers
9
<PAGE> 13
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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, 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 LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named,
or that refers to the Contracts, at least fifteen (15) 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE
COMPANY, each Account, or the
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<PAGE> 14
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 LIFE
COMPANY for distribution; or (iii) in sales literature or other promotional
material approved by LIFE COMPANY or its affiliates, except with the express
written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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
LIFE COMPANY, 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 LIFE
COMPANY, 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 LIFE
COMPANY 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.
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<PAGE> 15
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"). LIFE COMPANY 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, LIFE COMPANY 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 LIFE
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<PAGE> 16
COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY 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 LIFE COMPANY for the purchase
and redemption of Shares of AVIF. No charge or penalty will be imposed as a
result of such withdrawal.
(d) LIFE COMPANY 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.
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<PAGE> 17
(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.
LIFE COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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 LIFE COMPANY or its affiliates by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY
cease to qualify as annuity contracts or life insurance contracts under the
Code (other than by reason of the Fund's
15
<PAGE> 19
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 LIFE COMPANY, 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.
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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 LIFE COMPANY 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 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.
17
<PAGE> 21
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
AFSG SECURITIES CORPORATION
4333 Edgewood Road NE
Cedar Rapids, IA 52499
Facsimile: (319) 297-8290
Attn: General Counsel
Financial Markets Division
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY 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 LIFE
COMPANY 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 LIFE COMPANY 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.
18
<PAGE> 22
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY
and UNDERWRITER) 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 LIFE
COMPANY or UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the
Contracts or Shares; or
19
<PAGE> 23
(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 LIFE COMPANY, 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 LIFE COMPANY or
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
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material
breach of this Agreement by LIFE COMPANY or
UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY 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 LIFE COMPANY nor 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.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless
AVIF shall have notified LIFE COMPANY and 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 LIFE COMPANY
and UNDERWRITER of any such action shall not relieve LIFE COMPANY and
UNDERWRITER 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, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense
20
<PAGE> 24
thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and
UNDERWRITER and shall bear the fees and expenses of any additional counsel
retained by it, and neither LIFE COMPANY nor UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER 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 "persons
associated with a member" as that term is defined in
Section (q) of Article I of the NASD By-Laws), in
connection with the sale or distribution of AVIF
Shares; or
21
<PAGE> 25
(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 LIFE COMPANY, 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 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 LIFE COMPANY 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 LIFE COMPANY of Shares of another investment
company or portfolio for those of any adversely affected Fund as a funding
medium for each Account that LIFE COMPANY reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) AVIF 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 LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF 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 in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
22
<PAGE> 26
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 or AIM'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, LIFE COMPANY, 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 LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY
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 LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY 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 LIFE COMPANY Protected Parties or any of their employees or
agents in connection with LIFE COMPANY's performance of its duties under this
Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the LIFE COMPANY Protected Parties'
customers, or any other information or property of the LIFE COMPANY Protected
Parties, other than such information as may be independently developed or
compiled by AVIF from information supplied to it by the LIFE COMPANY 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 LIFE COMPANY's prior written consent; or (b) as required by law
24
<PAGE> 28
or judicial process. LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY from
information supplied to it by the AVIF Protected Parties' customers who also
maintain accounts directly with LIFE COMPANY, LIFE COMPANY 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) Except as may otherwise be provided in a License Agreement among
A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which
shall be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
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.
25
<PAGE> 29
SECTION 21. 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
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
-------------------------- ----------------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
LIFE INVESTORS INSURANCE COMPANY OF
AMERICA, on behalf of itself and its
separate accounts
Attest: /s/ JOHN D. CLEAVENGER By: /s/ illegible
-------------------------- ----------------------------------------
Name: John D. Cleavenger Name: illegible
---------------------------- --------------------------------------
Title: VP-Division Gen. Counsel Title: V.P.-LIICA
--------------------------- -------------------------------------
AFSG SECURITIES CORPORATION
Attest: /s/ FRANK A. CAMP By: /s/ LARRY N. NORMAN
-------------------------- ----------------------------------------
Name: Frank A. Camp Name: Larry N. Norman
---------------------------- --------------------------------------
Title: Secretary Title: 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. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Life Investors Variable Life Account A
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Life Investors Insurance Company of America
Policy Form No. APUL0600 699
28
<PAGE> 32
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
=======================================================================================================================
LIFE COMPANY AVIF / AIM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Preparing and filing the Account's registration statement preparing and filing the Fund's registration statement
- -----------------------------------------------------------------------------------------------------------------------
text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements
- -----------------------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements
supplements (Account) (Fund)
- -----------------------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus and printing costs of Fund
Prospectus to existing policy owners with amounts
allocated to the Fund
- -----------------------------------------------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- -----------------------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners
upon request by policy owners upon request by policy owners
- -----------------------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses (Account and Fund)
and supplements (Account and Fund) to policy owners of
record as required by Federal Securities Laws and to
prospective purchasers
- -----------------------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports
distributing annual and semi-annual reports for Account (Fund)
(Fund and Account as, applicable)
- -----------------------------------------------------------------------------------------------------------------------
text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and
tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction
solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
- -----------------------------------------------------------------------------------------------------------------------
Preparation, printing and distributing sales material
and advertising relating to the Funds, insofar as such
materials relate to the Contracts and 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
=======================================================================================================================
</TABLE>
29
<PAGE> 1
EXHIBIT h(53)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
PRINCIPAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
PRINCOR FINANCIAL SERVICES CORPORATION
<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 Parties To Cooperate............................................................................4
Section 4. Legal Compliance......................................................................................4
4.1 Tax Laws........................................................................................4
4.2 Insurance and Certain Other Laws................................................................7
4.3 Securities Laws.................................................................................7
4.4 Notice of Certain Proceedings and Other Circumstances...........................................8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10
Section 5. Mixed and Shared Funding.............................................................................11
5.1 General........................................................................................11
5.2 Disinterested Directors........................................................................11
5.3 Monitoring for Material Irreconcilable Conflicts...............................................12
5.4 Conflict Remedies..............................................................................12
5.5 Notice to LIFE COMPANY.........................................................................14
5.6 Information Requested by Board of Directors....................................................14
5.7 Compliance with SEC Rules......................................................................14
5.8 Other Requirements.............................................................................14
Section 6. Termination..........................................................................................14
6.1 Events of Termination..........................................................................14
6.2 Notice Requirement for Termination.............................................................15
6.3 Funds To Remain Available......................................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C>
6.4 Survival of Warranties and Indemnifications....................................................16
6.5 Continuance of Agreement for Certain Purposes..................................................16
Section 7. Parties To Cooperate Respecting Termination..........................................................16
Section 8. Assignment...........................................................................................17
Section 9. Notices..............................................................................................17
Section 10. Voting Procedures...................................................................................18
Section 11. Foreign Tax Credits.................................................................................18
Section 12. Indemnification.....................................................................................18
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................18
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF........................................................20
12.3 Effect of Notice...............................................................................23
12.4 Successors.....................................................................................23
Section 13. Applicable Law......................................................................................23
Section 14. Execution in Counterparts...........................................................................23
Section 15. Severability........................................................................................23
Section 16. Rights Cumulative...................................................................................24
Section 17. Headings............................................................................................24
Section 18. Confidentiality.....................................................................................24
Section 19. Trademarks and Fund Names...........................................................................25
Section 20. Parties to Cooperate................................................................................25
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 8th day of June, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Principal Life Insurance Company, an Iowa life insurance
company ("LIFE 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 Princor
Financial Services Corporation, an affiliate of LIFE COMPANY and the principal
underwriter of the Contracts ("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 thirteen 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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY 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
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
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WHEREAS, UNDERWRITER 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 LIFE COMPANY 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
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 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) LIFE COMPANY is open for
business.
(b) LIFE COMPANY 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
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<PAGE> 6
receive that same Business Day's Account unit values. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable to meet the 6:00 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
LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY. Materiality and
reprocessing cost reimbursement shall be determined in accordance with standards
established by the Parties as provided in Schedule B, attached hereto and
incorporated herein.
2.2 TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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), LIFE COMPANY 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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<PAGE> 7
(b) All other Share purchases and redemptions by LIFE COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 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 LIFE COMPANY 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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<PAGE> 8
(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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE 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 LIFE COMPANY 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) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY
will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY
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 LIFE COMPANY 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 LIFE
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<PAGE> 9
COMPANY to any such person without the express
written consent of AVIF which shall not be
unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY
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 LIFE
COMPANY 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, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY 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; LIFE COMPANY 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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<PAGE> 10
(e) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 Iowa 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 508A.1 of the Iowa 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) LIFE COMPANY 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 Iowa
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) LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY. 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) LIFE COMPANY 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
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<PAGE> 12
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. LIFE COMPANY 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 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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) LIFE COMPANY 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 AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, 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 LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, 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 LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY,
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 LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
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(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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
LIFE COMPANY, 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 LIFE
COMPANY, 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 LIFE
COMPANY 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"). LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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
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<PAGE> 16
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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY 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 LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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> 18
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY 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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<PAGE> 19
(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 LIFE COMPANY, 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 LIFE COMPANY 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> 20
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 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 DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
PRINCIPAL LIFE INSURANCE COMPANY
711 High Street
Des Moines, IA 50392
Facsimile: 515-248-3011
Attn: Traci Weldon
PRINCOR FINANCIAL SERVICES CORPORATION
680 8th Street
Des Moines, IA 50392
Facsimile: 515-235-9235
Attn: Art Filean
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<PAGE> 21
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY 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. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY 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 LIFE COMPANY
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 LIFE COMPANY 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 LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which
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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 LIFE COMPANY or UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) 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 LIFE COMPANY, 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
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<PAGE> 23
(iv) arise as a result of any failure by LIFE COMPANY or
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
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material breach
of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY 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 LIFE COMPANY nor 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.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and 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 LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER 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, LIFE
COMPANY and UNDERWRITER 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 LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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)
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<PAGE> 24
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 LIFE COMPANY,
UNDERWRITER 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 "persons associated
with a member" as that term is defined in Section (q)
of Article I 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 LIFE COMPANY, 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 Contracts, or any
amendment or supplement to any of the foregoing; or
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(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 LIFE COMPANY 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 LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF 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 LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF 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 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 or AIM'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.
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(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, 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 LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY 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.
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.
23
<PAGE> 27
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 LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY 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
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY 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 LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
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. LIFE COMPANY 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 LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY 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.
24
<PAGE> 28
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among A
I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
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.
---------------------------
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.
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------- --------------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
PRINCIPAL LIFE INSURANCE COMPANY, on
behalf of itself and its separate accounts
Attest: /s/ MELISSA CREW By: /s/ STEVEN BEKER
------------------------------- --------------------------------------
Name: Melissa Crew Name: Steven Beker
------------------------------- --------------------------------------
Title: Assistant Director Title: Assistant Director - Annuity Marketing
------------------------------- --------------------------------------
PRINCOR FINANCIAL SERVICES
CORPORATION
Attest: /s/ LAYNE A. RASMUSSEN By: /s/ ARTHUR S. FILEAN
------------------------------- -------------------------------------
Name: Layne A. Rasmussen Name: Arthur S. Filean
------------------------------- -------------------------------------
Title: Controller Title: Vice President
------------------------------- -------------------------------------
</TABLE>
26
<PAGE> 30
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Principal Life Insurance Company Separate Account B
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
The Principal Variable Annuity, a flexible variable annuity
27
<PAGE> 31
SCHEDULE B
AIM'S PRICING ERROR POLICIES
Determination of Materiality
In the event that AIM discovers an error in the calculation of the
Fund's net asset value, the following policies will apply:
If the amount of the error is less than $.01 per share, it is
considered immaterial and no adjustments are made.
If the amount of the error is $.01 per share or more, then the
following thresholds are applied:
a. If the amount of the difference in the erroneous net asset value and
the correct net asset value is less than .5% of the correct net asset value, AIM
will reimburse the affected Fund to the extent of any loss resulting from the
error. No other adjustments shall be made.
b. If the amount of the difference in the erroneous net asset value and
the correct net asset value is .5% of the correct net asset value or greater,
then AIM will determine the impact of the error to theaffected Fund and shall
reimburse such Fund (and/or LIFE COMPANY, as appropriate, such as in the event
that the error was not discovered until after LIFE COMPANY processed
transactions using the erroneous net asset value) to the extent of any loss
resulting from the error. To the extent that an overstatement of net asset value
per share is detected quickly and LIFE COMPANY has not mailed redemption checks
to Participants, LIFE COMPANY and AIM agree to examine the extent of the error
to determine the feasibility of reprocessing such redemption transaction (for
purposes of reimbursing the Fund to the extent of any such overpayment).
Reprocessing Cost Reimbursement
To the extent a reprocessing of Participant transactions is required pursuant to
paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's
reprocessing costs in an amount not to exceed $3.00 per contract affected by $10
or more.
The Pricing Policies described herein may be modified by AVIF as approved by its
Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at
least five (5) days prior to any such meeting of the Board of Directors of AVIF
to consider such proposed changes.
28
<PAGE> 32
SCHEDULE C
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
====================================================================================================================
LIFE COMPANY AVIF / AIM
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
preparing and filing the Account's preparing and filing the Fund's registration
registration statement statement
- --------------------------------------------------------------------------------------------------------------------
text composition for Account prospectuses text composition for Fund prospectuses and
and supplements supplements
- --------------------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and
supplements (Account) supplements (Fund)
- --------------------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and a camera ready Fund prospectus
supplements
- --------------------------------------------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- --------------------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to mailing and distributing Fund SAIs to policy
policy owners upon request by policy owners owners upon request by policy owners
- --------------------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses (Account and
Fund) and supplements (Account and Fund) to policy
owners of record as required by Federal Securities
Laws and to prospective purchasers
- --------------------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, text composition of annual and semi-annual
and distributing annual and semi-annual reports (Fund)
reports for Account (Fund and Account as,
applicable)
- --------------------------------------------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction solicitation statements and voting instruction
owners with respect to proxies related to the solicitation materials to policy
materials to policy owners with respect to proxies related to the Fund
Account
- --------------------------------------------------------------------------------------------------------------------
preparation, printing and distributing sales
material and advertising relating to the Funds,
insofar as such materials relate to the Contracts
and 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
====================================================================================================================
</TABLE>
29
<PAGE> 1
EXHIBIT h(54)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
SECURITY FIRST LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
SECURITY FIRST FINANCIAL, 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 Parties To Cooperate............................................................................4
Section 4. Legal Compliance......................................................................................4
4.1 Tax Laws........................................................................................4
4.2 Insurance and Certain Other Laws................................................................7
4.3 Securities Laws.................................................................................7
4.4 Notice of Certain Proceedings and Other Circumstances...........................................8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10
Section 5. Mixed and Shared Funding.............................................................................11
5.1 General........................................................................................11
5.2 Disinterested Directors........................................................................11
5.3 Monitoring for Material Irreconcilable Conflicts...............................................12
5.4 Conflict Remedies..............................................................................12
5.5 Notice to LIFE COMPANY.........................................................................14
5.6 Information Requested by Board of Directors....................................................14
5.7 Compliance with SEC Rules......................................................................14
5.8 Other Requirements.............................................................................14
Section 6. Termination..........................................................................................14
6.1 Events of Termination..........................................................................14
6.2 Notice Requirement for Termination.............................................................15
6.3 Funds To Remain Available......................................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
6.4 Survival of Warranties and Indemnifications....................................................16
6.5 Continuance of Agreement for Certain Purposes..................................................16
Section 7. Parties To Cooperate Respecting Termination..........................................................16
Section 8. Assignment...........................................................................................17
Section 9. Notices..............................................................................................17
Section 10. Voting Procedures...................................................................................18
Section 11. Foreign Tax Credits.................................................................................18
Section 12. Indemnification.....................................................................................18
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................18
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF........................................................20
12.3 Effect of Notice...............................................................................23
12.4 Successors.....................................................................................23
Section 13. Applicable Law......................................................................................23
Section 14. Execution in Counterparts...........................................................................23
Section 15. Severability........................................................................................23
Section 16. Rights Cumulative...................................................................................24
Section 17. Headings............................................................................................24
Section 18. Confidentiality.....................................................................................24
Section 19. Trademarks and Fund Names...........................................................................25
Section 20. Parties to Cooperate................................................................................25
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 14th day of June, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Security First Life Insurance Company, a Delaware life
insurance company ("LIFE 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 Security First Financial, Inc., an affiliate of LIFE COMPANY and the
principal underwriter of the Contracts ("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 thirteen 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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER 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 LIFE COMPANY 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 LIFE COMPANY with the net asset value per Share for each Fund by 6:00
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
2
<PAGE> 6
open for regular trading, (ii) AVIF calculates the Fund's net asset value, and
(iii) LIFE COMPANY is open for business.
(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 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 LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY
and of redemption proceeds by AVIF, LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 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 LIFE COMPANY 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.
4
<PAGE> 8
(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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE 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 LIFE COMPANY 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) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY
will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY
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 LIFE COMPANY 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 LIFE
5
<PAGE> 9
COMPANY to any such person without the express
written consent of AVIF which shall not be
unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY
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 LIFE
COMPANY 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, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY 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; LIFE COMPANY 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.
6
<PAGE> 10
(e) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 Delaware 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 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) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY. 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) LIFE COMPANY 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
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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. LIFE COMPANY 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 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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) LIFE COMPANY 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 AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, 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 LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, 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 LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY,
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 LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
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<PAGE> 14
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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
LIFE COMPANY, 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 LIFE
COMPANY, 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 LIFE
COMPANY 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"). LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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
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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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY 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 LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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> 18
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY 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
16
<PAGE> 20
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 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 DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SECURITY FIRST LIFE INSURANCE COMPANY
SECURITY FIRST FINANCIAL, INC.
11365 West Olympic Blvd.
Los Angeles, CA 90064
Facsimile: 310-312-6392
Attn: President
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SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY 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. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY 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 LIFE COMPANY
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 LIFE COMPANY 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 LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which
18
<PAGE> 22
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 LIFE COMPANY or UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) 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 LIFE COMPANY, 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
19
<PAGE> 23
(iv) arise as a result of any failure by LIFE COMPANY or
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
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material breach
of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY 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 LIFE COMPANY nor 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.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and 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 LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER 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, LIFE
COMPANY and UNDERWRITER 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 LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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)
20
<PAGE> 24
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 LIFE COMPANY,
UNDERWRITER 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 "persons associated
with a member" as that term is defined in Section (q)
of Article I 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 LIFE COMPANY, 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 Contracts, or any
amendment or supplement to any of the foregoing; or
21
<PAGE> 25
(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 LIFE COMPANY 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 LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF 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 LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF 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 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 or AIM'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.
22
<PAGE> 26
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, 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 LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY 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.
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.
23
<PAGE> 27
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 LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY 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
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY 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 LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
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. LIFE COMPANY 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 LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY 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.
24
<PAGE> 28
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among
A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
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.
---------------------------------
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
-------------------------- ----------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
SECURITY FIRST LIFE INSURANCE
COMPANY, on behalf of itself and
its separate accounts
Attest: /s/ JAMES C. TURNER By: /s/ RICHARD C. PEARSON
-------------------------- ----------------------------
Name: James C. Turner Name: Richard C. PEARSON
Title: Asst. Secretary Title: President
SECURITY FIRST FINANCIAL, INC.
Attest: /s/ JAMES C. TURNER By: /s/ RICHARD C. PEARSON
-------------------------- ----------------------------
Name: James C. Turner Name: Richard C. Pearson
Title: Asst. Secretary Title: President
26
<PAGE> 30
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Balanced Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Security First Life Separate Account A
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
27
<PAGE> 31
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
=======================================================================================================================
LIFE COMPANY AVIF / AIM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
preparing and filing the Account's registration statement preparing and filing the Fund's registration statement
- -----------------------------------------------------------------------------------------------------------------------
text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements
- -----------------------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements
supplements (Account) (Fund)
- -----------------------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus, printing costs of Fund
Prospectuses to existing policy owners with amounts
allocated to the Fund*
- -----------------------------------------------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- -----------------------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners
upon request by policy owners upon request by policy owners
- -----------------------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses (Account and Fund)
and supplements (Account and Fund) to policy owners of
record as required by Federal Securities Laws and to
prospective purchasers
- -----------------------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports
distributing annual and semi-annual reports for Account (Fund)
(Fund and Account as, applicable)
- -----------------------------------------------------------------------------------------------------------------------
text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and
tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction
solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
- -----------------------------------------------------------------------------------------------------------------------
preparation, printing and distributing sales material
and advertising relating to the Funds, insofar as such
materials relate to the Contracts and 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
=======================================================================================================================
</TABLE>
*With respect to any AVIF material printed in combination with any non-AVIF
materials, the total costs of typesetting and printing shall be prorated as
between AIM/AVIF on the one hand and LIFE COMPANY on the other based on the
ratio of the number of pages of the combined prospectus, report, or other
document, for each Fund listed on Schedule A hereto to the total number of pages
in such combined prospectus, report, or other documents.
28
<PAGE> 1
EXHIBIT h(55)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
ALLSTATE LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
ALLSTATE LIFE FINANCIAL SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <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.........................................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 Parties To Cooperate..........................................4
Section 4. Legal Compliance................................................5
4.1 Tax Laws......................................................5
4.2 Insurance and Certain Other Laws..............................7
4.3 Securities Laws...............................................8
4.4 Notice of Certain Proceedings and Other Circumstances.........9
4.5 LIFE COMPANY or UNDERWRITER To Provide Documents;
Information About AVIF........................................9
4.6 AVIF or AIM To Provide Documents; Information About
LIFE COMPANY.................................................10
Section 5. Mixed and Shared Funding.......................................12
5.1 General......................................................12
5.2 Disinterested Directors......................................12
5.3 Monitoring for Material Irreconcilable Conflicts.............12
5.4 Conflict Remedies............................................13
5.5 Notice to LIFE COMPANY.......................................14
5.6 Information Requested by Board of Directors..................14
5.7 Compliance with SEC Rules....................................15
5.8 Other Requirements...........................................15
Section 6. Termination....................................................15
6.1 Events of Termination........................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C> <C>
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......................................................17
Section 9. Notices.........................................................18
Section 10. Voting Procedures...............................................18
Section 11. Foreign Tax Credits.............................................19
Section 12. Indemnification.................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER...............19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM...............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.......................................25
Section 20. Parties to Cooperate............................................26
Section 21. Amendments......................................................26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of July, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
Allstate Life Insurance Company, an Illinois life insurance company ("LIFE
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 Allstate Life Financial
Services, Inc., an affiliate of LIFE COMPANY and the principal underwriter of
the Contracts ("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 fifteen 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, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") and/or 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, LIFE COMPANY 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
WHEREAS, LIFE COMPANY 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
1
<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER 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");
WHEREAS, AIM is a broker-dealer registered with the SEC under the 1934
Act and a member in good standing of 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 LIFE COMPANY 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 no Shares of any Fund have been or
will be sold to the general public.
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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
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 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) LIFE COMPANY is open for
business.
(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 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 LIFE COMPANY.
(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 LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY 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. Each
order to purchase or redeem Shares shall also specify whether the order results
from purchase payments, surrenders, partial withdrawals of charges or requests
for other transactions under Policies (collectively, "Policy transactions").
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY 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 LIFE COMPANY. Materiality and
reprocessing cost reimbursement shall be determined in accordance with standards
established by the parties as provided in Schedule B, attached hereto and herein
incorporated.
2.2 TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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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2.3 APPLICABLE PRICE.
(a) Share purchase and redemption orders that result from Policy
transactions and that LIFE COMPANY 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), LIFE
COMPANY 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 LIFE COMPANY 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 LIFE COMPANY any income dividends
or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY
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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 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> 8
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
and will continue to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). AVIF
will notify LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Policy owner, annuitant or
participant under the Policies (collectively, "Participants"), that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY 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 to so comply with Section 817(h) (hereinafter respectively
referred to in this paragraph (c) as "failure" or "alleged failure"):
(i) LIFE COMPANY shall promptly notify AVIF of such assertion
or potential claim (subject to the Confidentiality
provisions of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure
or alleged failure;
(iii) LIFE COMPANY 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, provided that LIFE COMPANY shall not be
required to make any such demonstration of inadvertence
unless AVIF represents or provides an opinion of counsel,
which representation or opinion shall be reasonably
satisfactory to LIFE COMPANY, to the effect that a
reasonable basis exists for making such demonstration;
(iv) LIFE COMPANY 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
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<PAGE> 9
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 LIFE COMPANY will retain
control of the conduct of such conferences, discussions,
proceedings, contests or appeals thereof;
(v) any written materials to be submitted by LIFE COMPANY 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 LIFE COMPANY 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 may
from time to time agree, prior to the day on which such
proposed materials are to be submitted and (b) shall not
be submitted by LIFE COMPANY to any such person without
the express written consent of AVIF which shall not be
unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and
their accounting and legal advisors with such cooperation
as AVIF shall reasonably request (including, without
limitation, by providing AVIF and its accounting and legal
advisors with copies of any relevant books and records (or
portions thereof) of LIFE COMPANY that may be reasonably
requested by or on behalf of AVIF and that LIFE COMPANY is
permitted to provide in accordance with applicable law) 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) LIFE COMPANY 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 LIFE COMPANY shall not be required, after
exhausting all administrative remedies, to appeal any
adverse IRS or judicial decision unless AVIF or its
affiliates shall have provided an opinion of independent
counsel approved by LIFE COMPANY, which approval shall not
be unreasonably withheld, to the effect that a reasonable
basis exists for taking such appeal (or, in the case of an
appeal to the United States Supreme Court, that LIFE
COMPANY should be more likely than not to prevail on 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 LIFE COMPANY
fails to comply with any of the foregoing
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<PAGE> 10
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, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY represents and warrants that the Policies currently
are and at all times will be treated as annuity, endowment or life insurance
contracts under applicable provisions of the Code. LIFE COMPANY 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, provided that such notice shall be kept confidential during the
period of LIFE COMPANY's investigation of any such circumstances to the extent
permitted by applicable law.
(e) LIFE COMPANY represents and warrants that each Account is and at
all times will be 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. LIFE COMPANY 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 LIFE COMPANY.
(b) LIFE COMPANY 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 Illinois 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 245.21 of the Illinois
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.
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<PAGE> 11
(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 legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(e) UNDERWRITER 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 legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY and 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 Illinois 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 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) LIFE COMPANY will amend the
registration statement for its Contracts under the 1933 Act and for its Policies
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'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 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
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<PAGE> 12
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.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF and/or AIM will immediately notify LIFE COMPANY 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 Policies issued or to be issued
by LIFE COMPANY. 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) LIFE COMPANY and/or 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 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 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. LIFE COMPANY 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 LIFE COMPANY OR UNDERWRITER TO PROVIDE DOCUMENTS;
INFORMATION ABOUT AVIF.
(a) LIFE COMPANY and/or 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) LIFE COMPANY and/or 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 not prepared by AVIF or its affiliates,
in which AVIF or any of its affiliates is named, at least ten
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(10) 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 ten (10) 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 advisor as the
entity to receive such sales literature, until such time as AVIF appoints
another designated agent by giving notice to LIFE COMPANY in the manner required
by Section 9 hereof.
(c) Neither LIFE COMPANY 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 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) LIFE COMPANY and the UNDERWRITER shall adopt and implement
procedures reasonably designed to ensure that information concerning AVIF, AIM
and their 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 offeree) ("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 OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE
COMPANY AND THE UNDERWRITER.
(a) AVIF will provide to LIFE COMPANY 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.
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(b) AVIF will provide to LIFE COMPANY or UNDERWRITER a camera ready
copy of all AVIF prospectuses and a printed copy, to be reproduced by LIFE
COMPANY, of AVIF statements of additional information, additionally AVIF will
provide printed copies of 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 LIFE COMPANY or
UNDERWRITER in a timely manner so as to enable LIFE COMPANY, 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 LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, UNDERWRITER, or any of their respective
affiliates is named, or that refers to the Policies, at least ten (10) 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 LIFE COMPANY or its
designated agent objects to such use within ten (10) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. LIFE COMPANY 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 LIFE COMPANY,
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
published reports for the Account or the Policies that are in the public domain
and approved by LIFE COMPANY for distribution; or (iii) in sales literature or
other promotional material approved by LIFE COMPANY or its affiliates, except
with the express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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 LIFE COMPANY, UNDERWRITER nor any of their 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
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<PAGE> 15
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 LIFE
COMPANY, 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 LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, 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.
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"). LIFE COMPANY 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;
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(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, LIFE COMPANY 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 LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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.
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(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict (after consideration of all
Participants), and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF. No charge or penalty will be imposed as a result of such withdrawal.
(d) LIFE COMPANY 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. LIFE
COMPANY 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.
5.5 NOTICE TO LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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
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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 LIFE COMPANY 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 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); or
(b) at the option of AVIF or AIM upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences
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<PAGE> 19
on LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions (other than
by reason of failure of the Policies issued by LIFE COMPANY to qualify as
annuity or life insurance contracts under the Code, or the failure of any
account or Policy to meet the definition of "segregated asset account" or
"variable contract"; respectively, within the meaning of the Code) or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF or AIM if the Policies issued by LIFE COMPANY
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 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.
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
16
<PAGE> 20
(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.
Except (a) as necessary to implement Participation-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,
LIFE COMPANY shall not (i) redeem AVIF Shares attributable to the Policies (as
opposed to AVIF Shares attributable to LIFE COMPANY'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 LIFE COMPANY shall have notified AVIF of
its intention to do so and until 36 full calendar months shall have expired from
the date on which an Account first invested in any Fund.
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 LIFE COMPANY 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 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.
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SECTION 9. NOTICES
Notices and communications required or permitted 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 DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE FINANCIAL SERVICES, INC.
3100 Sanders Road, Suite J5D
Northbrook, IL 60062
Facsimile: (847) 402-4371
Attn: Michael J. Velolta, Esq.
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY 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 except with respect to matters as to which
LIFE COMPANY has the right, under Rule 6e-2 or 6e-3(T) under the 1940 Act, to
vote the Shares without regard to voting instructions from Participants. LIFE
COMPANY reserves the right to vote shares held in any Account in its own right,
to the extent permitted by law. LIFE COMPANY 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 LIFE COMPANY of any changes of interpretations or
amendments to Mixed and Shared
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<PAGE> 22
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 LIFE COMPANY 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 LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
AIM, their 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
LIFE COMPANY and UNDERWRITER) 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 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 LIFE COMPANY or UNDERWRITER by or
on behalf of AVIF or AIM 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
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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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on which
such persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER
or their respective affiliates or persons under their
control (including, without limitation, their employees
and "persons associated with a member," as that term is
defined in paragraph (q) 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, AIM or their affiliates by or on behalf
of LIFE COMPANY, 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 LIFE COMPANY or
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 LIFE COMPANY or
UNDERWRITER in this Agreement or arise out of or result
from any other material breach of this Agreement by LIFE
COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Policies issued by
LIFE COMPANY 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 LIFE COMPANY nor 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
20
<PAGE> 24
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 LIFE COMPANY nor 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 LIFE COMPANY and 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 LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
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, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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, the Account owns shares of the Fund and
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
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<PAGE> 25
information furnished to AVIF or its affiliates by or on
behalf of LIFE COMPANY, UNDERWRITER 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 Policies, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF, AIM or their affiliates
and on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of AVIF, AIM or
their affiliates or persons under their control
(including, without limitation, their employees and
"persons associated with a member" as that term is defined
in Section (q) of Article I 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
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 LIFE
COMPANY, 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 to perform the
obligations, provide the services (including but not
limited to, the provisions of correct net asset value) 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 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 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
22
<PAGE> 26
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 LIFE COMPANY or 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 LIFE COMPANY of Shares of another investment
company or portfolio for those of any adversely affected Fund as a funding
medium for each Account that LIFE COMPANY 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 LIFE COMPANY,
UNDERWRITER, 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 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 AVIF
and AIM 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 or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, 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 LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any
23
<PAGE> 27
Fund serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code; provided however,
that the limitation of liability contained in this paragraph (e) shall not apply
if the breach or failures described in subparagraphs (i), (ii) and (iii), above,
by LIFE COMPANY or any Participating Insurance Company resulted from failure of
AVIF to comply with the requirements of Subchapter M or Section 817(h) 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.
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.
24
<PAGE> 28
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 LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY 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
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY 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 LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
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. LIFE COMPANY 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 LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY 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) Except as may otherwise be provided in a License Agreement among
A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service
25
<PAGE> 29
mark or logo of AVIF, AIM or any of their respective affiliates, or any
variation of any such trademark, trade name, service mark or logo, without
AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's
or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
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.
SECTION 21. 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
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
------------------------- -------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title 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
ALLSTATE LIFE INSURANCE COMPANY, on
behalf of itself and its separate
accounts
Attest: /s/ BRENDA D. SNEED By: /s/ MICHAEL J. VELATTA
------------------------- -------------------------------
Name: Brenda D. Sneed Name: Michael J. Velatta
--------------------------- -----------------------------
Title: Asst. Secretary & Asst. Title: V.P., Secretary, & General
General Counsel Counsel
-------------------------- ----------------------------
ALLSTATE LIFE FINANCIAL SERVICES, INC.
Attest: /s/ TERRY R. YOUNG By: /s/ MICHAEL J. VELATTA
------------------------- -------------------------------
Name: Terry R. Young Name: Michael J. Velatta
--------------------------- -----------------------------
Title: General Counsel and Asst. Title: Director & Secretary
Secretary ----------------------------
--------------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Allstate Financial Advisors Separate Account I
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
o LU4518 (and state variations)
28
<PAGE> 32
SCHEDULE B
AIM'S PRICING ERROR POLICIES
Determination of Materiality
In the event that AIM discovers an error in the calculation of the Fund's net
asset value, the following policies will apply:
If the amount of the error is less than $.01 per share, it is considered
immaterial and no adjustments are made.
If the amount of the error is $.01 per share or more, then the following
thresholds are applied:
a. If the amount of the difference in the erroneous net asset
value and the correct net asset value is less than .5% of the
correct net asset value, AIM will reimburse the affected Fund
to the extent of any loss resulting from the error. No other
adjustments shall be made.
b. If the amount of the difference in the erroneous net asset
value and the correct net asset value is .5% of the correct
net asset value or greater, then AIM will determine the impact
of the error to the affected Fund and shall reimburse such
Fund (and/or LIFE COMPANY, as appropriate) to the extent of
any loss resulting from the error. To the extent that an
overstatement of net asset value per share is detected quickly
and LIFE COMPANY has not mailed redemption checks to
Participants, LIFE COMPANY and AIM agree to examine the extent
of the error to determine the feasibility of reprocessing such
redemption transaction (for purposes of reimbursing the Fund
to the extent of any such overpayment).
Reprocessing Cost Reimbursement
To the extent a reprocessing of Participant transactions is required pursuant to
paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's
reprocessing costs in an amount not to exceed $3.00 per contract affected by $10
or more.
The Pricing Policies described herein may be modified by AVIF as approved by its
Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at
least five (5) days prior to any such meeting of the Board of Directors of AVIF
to consider such proposed changes.
29
<PAGE> 33
SCHEDULE C
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
DESCRIPTION LIFE COMPANY AIM/AVIF
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Registration
Prepare and file registration Account registration statements Fund registration statements
statements(1)
Payment of fees Account fees Fund fees
- -----------------------------------------------------------------------------------------------------------
Prospectuses
Typesetting Account Prospectuses Fund Prospectuses
Printing(2) Account Prospectuses Fund Prospectuses
- -----------------------------------------------------------------------------------------------------------
SAIs
Typesetting Account SAIs Fund SAIs
Printing Account SAIs Fund SAIs
- -----------------------------------------------------------------------------------------------------------
Supplements (to
Prospectuses or SAIs)
Typesetting and Printing Account Supplements (unless changes Fund Supplements (unless changes
relate only to the Fund) relate only to the Account)
Account Supplements (for changes that
Fund Supplements (for changes that relate only to Fund)
relate only to Account)
- -------------------------------------------------------------------------------------------------------------------
Financial Reports
Typesetting
Account Reports Fund Reports
Printing(2)
Account Reports Fund Reports
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
(1) Includes all filings and costs necessary to keep registrations
current and effective; including, without limitation, filing Forms N-SAR and
Rule 24f-2 Notices as required by law.
(2) To the extent that documents prepared by LIFE COMPANY and AIM are
printed together, the printing cost shall be allocated in proportion to the
number of pages attributable to each document.
30
<PAGE> 34
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DESCRIPTION LIFE COMPANY AIM/AVIF
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Proxies(3)
Typesetting, printing and Account and Fund Proxies where Account and Fund Proxies
mailing of solicitation the matters submitted are solely where the matters submitted are solely
materials and voting Account related Fund related
instruction solicitation
materials and tabulation of
proxies to Participants
- -------------------------------------------------------------------------------------------------------------------
Other (Sales Related)
Contract owner Account related items Fund related items
communication
Distribution Policies
Administration Account (Policies)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
(3) When proxy materials are required for both Account and Fund
matters, the costs shall be split proportionately based upon those materials
related solely to the Account and those materials related solely to the Fund.
The cost with respect to joint materials shall be allocated evenly between LIFE
COMPANY and AIM.
31
<PAGE> 1
EXHIBIT h(56)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NALAC FINANCIAL PLANS, LLC
<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 Parties To Cooperate............................................................................4
Section 4. Legal Compliance......................................................................................4
4.1 Tax Laws........................................................................................4
4.2 Insurance and Certain Other Laws................................................................7
4.3 Securities Laws.................................................................................7
4.4 Notice of Certain Proceedings and Other Circumstances...........................................8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10
Section 5. Mixed and Shared Funding.............................................................................11
5.1 General........................................................................................11
5.2 Disinterested Directors........................................................................12
5.3 Monitoring for Material Irreconcilable Conflicts...............................................12
5.4 Conflict Remedies..............................................................................13
5.5 Notice to LIFE COMPANY.........................................................................14
5.6 Information Requested by Board of Directors....................................................14
5.7 Compliance with SEC Rules......................................................................14
5.8 Other Requirements.............................................................................15
Section 6. Termination..........................................................................................15
6.1 Events of Termination..........................................................................15
6.2 Notice Requirement for Termination.............................................................16
6.3 Funds To Remain Available......................................................................16
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...........................................................................................17
Section 9. Notices..............................................................................................17
Section 10. Voting Procedures...................................................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 11. Foreign Tax Credits.................................................................................19
Section 12. Indemnification.....................................................................................19
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................19
12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF......................................................21
12.3 Effect of Notice...............................................................................23
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............................................................................................24
Section 18. Confidentiality.....................................................................................24
Section 19. Trademarks and Fund Names...........................................................................25
Section 20. Parties to Cooperate................................................................................26
Section 21. Amendments..........................................................................................26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of July, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Allianz Life Insurance Company of North America, a
Minnesota life insurance company ("LIFE 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 NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and
the principal underwriter of the Contracts ("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 fifteen 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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY 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
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
1
<PAGE> 5
WHEREAS, UNDERWRITER 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 LIFE COMPANY 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
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 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) LIFE COMPANY is open for
business.
2
<PAGE> 6
(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 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 LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 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
4
<PAGE> 8
of each Fund as a RIC. AVIF will notify LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE 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 LIFE COMPANY 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) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY
will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY
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 LIFE COMPANY to AVIF (together
with any supporting information or analysis); subject
to the confidentiality
5
<PAGE> 9
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 LIFE COMPANY to any such person without
the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY
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 LIFE
COMPANY 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, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY 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
6
<PAGE> 10
and that it will use its best efforts to maintain such treatment; LIFE COMPANY
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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 Minnesota 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 Minnesota 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) LIFE COMPANY 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
Minnesota 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) LIFE COMPANY 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
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<PAGE> 11
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 LIFE COMPANY 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 LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance,
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<PAGE> 12
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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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) LIFE COMPANY 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 AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY 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) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers
9
<PAGE> 13
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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, 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 LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, 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 LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY,
each Account, or the
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<PAGE> 14
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 LIFE COMPANY for
distribution; or (iii) in sales literature or other promotional material
approved by LIFE COMPANY or its affiliates, except with the express written
permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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
LIFE COMPANY, 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 LIFE
COMPANY, 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 LIFE
COMPANY 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.
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<PAGE> 15
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"). LIFE COMPANY 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, LIFE COMPANY 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 LIFE
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<PAGE> 16
COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY 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 LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY 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.
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<PAGE> 17
(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. LIFE
COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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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<PAGE> 18
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 LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's
15
<PAGE> 19
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 LIFE COMPANY, 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.
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<PAGE> 20
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 LIFE COMPANY 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 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.
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<PAGE> 21
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
NALAC FINANCIAL PLANS, LLC
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Facsimile: (612) 337-6136
Attn: Thomas B. Clifford
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY 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. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY 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 LIFE COMPANY
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 LIFE COMPANY 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.
18
<PAGE> 22
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY
and UNDERWRITER) 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 LIFE COMPANY or UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the
Contracts or Shares; or
19
<PAGE> 23
(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 LIFE COMPANY, 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 LIFE COMPANY or
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
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material breach
of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY 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 LIFE COMPANY nor 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.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and 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 LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER 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, LIFE
COMPANY and UNDERWRITER 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 LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense
20
<PAGE> 24
thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and
UNDERWRITER and shall bear the fees and expenses of any additional counsel
retained by it, and neither LIFE COMPANY nor UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER 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 "persons associated
with a member" as that term is defined in Section (q)
of Article I of the NASD By-Laws), in connection with
the sale or distribution of AVIF Shares; or
21
<PAGE> 25
(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 LIFE COMPANY, 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 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 LIFE COMPANY 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 LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF 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 LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF 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 in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
22
<PAGE> 26
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 or AIM'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, LIFE COMPANY, 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 LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY 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
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties" customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY 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 LIFE COMPANY's prior written
consent; or (b) as required by law
24
<PAGE> 28
or judicial process. LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY from information supplied to
it by the AVIF Protected Parties' customers who also maintain accounts directly
with LIFE COMPANY, LIFE COMPANY 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) Except as may otherwise be provided in a License Agreement among
A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
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.
25
<PAGE> 29
SECTION 21. 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
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/ P. MICHELLE GRACE By: /s/ ROBERT H. GRAHAM
------------------------- -----------------------------------
Name: P. Michelle Grace Name: Robert H. Graham
Title Assistant Secretary Title: President
ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA, on behalf of itself and its
separate accounts
Attest: /s/ MICHAEL D. ENGEL By: /s/ THOMAS B. CLIFFORD
------------------------- -----------------------------------
Name: Michael D. Engel Name: Thomas B. Clifford
------------------------- -----------------------------------
Title: Senior Counsel Title: Assistant Vice President
------------------------- -----------------------------------
NALAC FINANCIAL PLANS, LLC
Attest: /s/ MICHAEL D. ENGEL By: /s/ THOMAS B. CLIFFORD
------------------------- -----------------------------------
Name: Michael D. Engel Name: Thomas B. Clifford
------------------------- -----------------------------------
Title: Senior Counsel Title: President
------------------------- -----------------------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM Variable Insurance Funds, Inc.
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Allianz Life Variable Account A
o Allianz Life Variable Account B
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Allianz Variable Account A
o Allianz Value Life
o Franklin Valuemark Life
Allianz Variable Account B
o Franklin Valuemark II
o Franklin Valuemark III
o Franklin Valuemark IV
o Valuemark Income Plus
o Franklin Valuemark Charter
28
<PAGE> 32
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
==========================================================================================================
LIFE COMPANY AVIF / AIM
==========================================================================================================
<S> <C>
Preparing and filing the Account's registration preparing and filing the Fund's registration
statement statement
==========================================================================================================
text composition for Account prospectuses and text composition for Fund prospectuses and
supplements supplements
==========================================================================================================
text alterations of prospectuses (Account) and supplements text alterations of prospectuses (Fund) and
(Account) supplements (Fund)
==========================================================================================================
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus
==========================================================================================================
text composition and printing Account SAIs text composition and printing Fund SAIs
==========================================================================================================
mailing and distributing Account SAIs to mailing and distributing Fund SAIs to policy
policy owners upon request by policy owners owners upon request by policy owners
==========================================================================================================
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities Laws
and to prospective purchasers
==========================================================================================================
text composition (Account), printing, mailing, and text composition of annual and semi-annual
distributing annual and semi-annual reports for Account reports (Fund)
(Fund and Account as, applicable)
==========================================================================================================
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction solicitation statements and voting instruction solicitation
materials to policy owners with respect to materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
==========================================================================================================
Preparation, printing and distributing sales
material and advertising relating to the Funds,
insofar as such materials relate to the Contracts
and 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
==========================================================================================================
</TABLE>
29
<PAGE> 1
EXHIBIT h(57)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NALAC FINANCIAL PLANS, LLC
<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 Parties To Cooperate............................................................................4
Section 4. Legal Compliance......................................................................................4
4.1 Tax Laws........................................................................................4
4.2 Insurance and Certain Other Laws................................................................7
4.3 Securities Laws.................................................................................7
4.4 Notice of Certain Proceedings and Other Circumstances...........................................8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10
Section 5. Mixed and Shared Funding.............................................................................11
5.1 General........................................................................................11
5.2 Disinterested Directors........................................................................12
5.3 Monitoring for Material Irreconcilable Conflicts...............................................12
5.4 Conflict Remedies..............................................................................13
5.5 Notice to LIFE COMPANY.........................................................................14
5.6 Information Requested by Board of Directors....................................................14
5.7 Compliance with SEC Rules......................................................................14
5.8 Other Requirements.............................................................................14
Section 6. Termination..........................................................................................15
6.1 Events of Termination..........................................................................15
6.2 Notice Requirement for Termination.............................................................16
6.3 Funds To Remain Available......................................................................16
6.4 Survival of Warranties and Indemnifications....................................................16
6.5 Continuance of Agreement for Certain Purposes..................................................17
Section 7. Parties To Cooperate Respecting Termination..........................................................17
Section 8. Assignment...........................................................................................17
Section 9. Notices..............................................................................................17
Section 10. Voting Procedures....................................................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 11. Foreign Tax Credits.................................................................................18
Section 12. Indemnification.....................................................................................19
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................19
12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF......................................................21
12.3 Effect of Notice...............................................................................23
12.4 Successors.....................................................................................23
Section 13. Applicable Law......................................................................................24
Section 14. Execution in Counterparts...........................................................................24
Section 15. Severability........................................................................................24
Section 16. Rights Cumulative...................................................................................24
Section 17. Headings............................................................................................24
Section 18. Confidentiality.....................................................................................24
Section 19. Trademarks and Fund Names...........................................................................25
Section 20. Parties to Cooperate................................................................................26
Section 21. Amendments..........................................................................................26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of July, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Preferred Life Insurance Company of New York, a New York
life insurance company ("LIFE 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 NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and the principal
underwriter of the Contracts ("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 fifteen 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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY 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
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
1
<PAGE> 5
WHEREAS, UNDERWRITER 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 LIFE COMPANY 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 LIFE
COMPANY with the net asset value per Share for each Fund by 6:00 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) LIFE COMPANY is open for
business.
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(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 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 LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and of
redemption proceeds by AVIF, LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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), LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached hereto
and made a part hereof, each Party will bear, or arrange for others to bear, all
expenses incident to its performance under this Agreement.
3.2 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
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<PAGE> 8
of each Fund as a RIC. AVIF will notify LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE 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 LIFE COMPANY 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) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of
Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY will retain control of the
conduct of such conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY 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 LIFE COMPANY to AVIF (together with any
supporting information or analysis); subject to the
confidentiality
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<PAGE> 9
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 LIFE COMPANY to any such person without
the express written consent of AVIF which shall not be
unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY 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
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<PAGE> 10
and that it will use its best efforts to maintain such treatment; LIFE COMPANY
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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 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) LIFE COMPANY 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) LIFE COMPANY 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
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<PAGE> 11
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 LIFE COMPANY 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 LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance,
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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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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) LIFE COMPANY 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 AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY 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) LIFE COMPANY shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers
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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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, 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 LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, 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 LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY,
each Account, or the
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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 LIFE COMPANY for
distribution; or (iii) in sales literature or other promotional material
approved by LIFE COMPANY or its affiliates, except with the express written
permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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
LIFE COMPANY, 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 LIFE
COMPANY, 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 LIFE
COMPANY 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.
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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"). LIFE COMPANY 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, LIFE COMPANY 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 LIFE
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COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with the
majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY 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 LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY 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.
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(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. LIFE
COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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
LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE
COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's
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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 LIFE COMPANY, 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.
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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 LIFE COMPANY 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 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.
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PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NALAC FINANCIAL PLANS, LLC
152 West 57th Street, 18th Floor
New York, NY 10019
Facsimile: (212) 586-7733
Attn: Eugene K. Long
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY 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. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY 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 LIFE COMPANY
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 LIFE COMPANY 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 BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY
and UNDERWRITER) 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 LIFE COMPANY or
UNDERWRITER 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 LIFE COMPANY, UNDERWRITER or their
respective affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates or persons
under their control (including, without limitation, their
employees and "persons associated with a member," as that term is
defined in paragraph (q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts or
Shares; or
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(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 LIFE COMPANY, 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 LIFE COMPANY or 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
LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or
result from any other material breach of this Agreement by LIFE
COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY 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 LIFE COMPANY nor 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.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF shall
have notified LIFE COMPANY and 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 LIFE COMPANY and UNDERWRITER of any such action
shall not relieve LIFE COMPANY and UNDERWRITER 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, LIFE COMPANY and
UNDERWRITER 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 LIFE COMPANY or
UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's
election to assume the defense
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thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and
UNDERWRITER and shall bear the fees and expenses of any additional counsel
retained by it, and neither LIFE COMPANY nor UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY, UNDERWRITER,
their respective affiliates, and each person, if any, who controls LIFE COMPANY,
UNDERWRITER 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 LIFE COMPANY, UNDERWRITER 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 "persons associated with
a member" as that term is defined in Section (q) of Article I of
the NASD By-Laws), in connection with the sale or distribution of
AVIF Shares; or
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(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 LIFE
COMPANY, 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 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 LIFE
COMPANY 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 LIFE
COMPANY of Shares of another investment company or portfolio for those of any
adversely affected Fund as a funding medium for each Account that LIFE COMPANY
reasonably deems necessary or appropriate as a result of the noncompliance.
(c) AVIF 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 LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF 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 in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the
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<PAGE> 26
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 or AIM'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, LIFE COMPANY, 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 LIFE COMPANY or UNDERWRITER
hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants; (ii)
the failure by LIFE COMPANY 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 LIFE COMPANY 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.
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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 LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY 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
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
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<PAGE> 28
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
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. LIFE COMPANY 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 LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY 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) Except as may otherwise be provided in a License Agreement among A I M
Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor
UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither AVIF,
its investment adviser, its principal underwriter, or any affiliates thereof
shall use any trademark, trade name, service mark or logo of LIFE COMPANY,
UNDERWRITER or any of their affiliates, or any variation of any such trademark,
trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior
written consent, the granting of which shall be at LIFE COMPANY's or
UNDERWRITER's sole option.
25
<PAGE> 29
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.
SECTION 21. 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
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
--------------------------- --------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK, on behalf of itself and its
separate accounts
Attest: /s/ MICHAEL D. ENGEL By: /s/ MICHAEL T. WESTERMEYER
--------------------------- --------------------------------
Name: Michael D. Engel Name: Michael T. Westermeyer
----------------------------- ------------------------------
Title: Senior Counsel Title: Secretary
---------------------------- -----------------------------
NALAC FINANCIAL PLANS, LLC
Attest: /s/ MICHAEL D. ENGEL By: /s/ THOMAS. B. CLIFFORD
--------------------------- --------------------------------
Name: Michael D. Engel Name: Thomas B. Clifford
----------------------------- ------------------------------
Title: Senior Counsel Title: President
---------------------------- -----------------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Preferred Life Variable Account C
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Franklin Valuemark II
o Franklin Valuemark IV
28
<PAGE> 32
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
===================================================================================================================
LIFE COMPANY AVIF / AIM
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Preparing and filing the Account's registration statement preparing and filing the Fund's registration statement
- -------------------------------------------------------------------------------------------------------------------
text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements
- -------------------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and supplements text alterations of prospectuses (Fund) and
(Account) supplements (Fund)
- -------------------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus
- -------------------------------------------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- -------------------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners
upon request by policy owners upon request by policy owners
- -------------------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses (Account and Fund)
and supplements (Account and Fund) to policy owners of
record as required by Federal Securities Laws and to
prospective purchasers
- -------------------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports
distributing annual and semi-annual reports for Account (Fund)
(Fund and Account as, applicable)
- -------------------------------------------------------------------------------------------------------------------
text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and
tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction
solicitation materials to policy owners with respect to solicitation materials to policy owners with respect
proxies related to the Account to proxies related to the Fund
- -------------------------------------------------------------------------------------------------------------------
Preparation, printing and distributing sales material and
advertising relating to the Funds, insofar as such
materials relate to the Contracts and 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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 1
EXHIBIT h(58)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
AND CERTAIN OF ITS AFFILIATED INSURANCE COMPANIES,
EACH ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
JOHN HANCOCK FUNDS, INC.
<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...............................................................................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 PARTIES TO COOPERATE................................................................................5
SECTION 4. LEGAL COMPLIANCE......................................................................................5
4.1 TAX LAWS............................................................................................5
4.2 INSURANCE AND CERTAIN OTHER LAWS....................................................................7
4.3 SECURITIES LAWS.....................................................................................8
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES...............................................9
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF..........................................10
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY..........................................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..................................................................................14
5.5 NOTICE TO LIFE COMPANY.............................................................................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
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......................................................18
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION..........................................................18
SECTION 8. ASSIGNMENT...........................................................................................18
SECTION 9. NOTICES..............................................................................................18
SECTION 10. VOTING PROCEDURES...................................................................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 11. FOREIGN TAX CREDITS.................................................................................20
SECTION 12. INDEMNIFICATION.....................................................................................20
12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER....................................................20
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM....................................................22
12.3 EFFECT OF NOTICE...................................................................................25
12.4 SUCCESSORS.........................................................................................25
SECTION 13. APPLICABLE LAW......................................................................................25
SECTION 14. EXECUTION IN COUNTERPARTS...........................................................................27
SECTION 15. SEVERABILITY........................................................................................26
SECTION 16. RIGHTS CUMULATIVE...................................................................................26
SECTION 17. HEADINGS............................................................................................26
SECTION 18. CONFIDENTIALITY.....................................................................................26
SECTION 19. TRADEMARKS AND NAMES.......................................................................27
SECTION 20. PARTIES TO COOPERATE................................................................................27
SECTION 21. AMENDMENTS.................................................................................28
SECTION 22. WAIVERS....................................................................................28
SECTION 23. LIFE COMPANIES.............................................................................28
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of August,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"),
John Hancock Mutual Life Insurance Company and John Hancock Variable Life
Insurance Company, both Massachusetts corporations, and Investors Partner Life
Insurance Company, a Delaware corporation, each 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 John Hancock Funds, Inc., an affiliate of such insurance
companies and the principal underwriter of the Contracts ("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 fifteen 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, LIFE COMPANY (as such term is defined in Section 23 hereof)
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, interests under which Contracts, if
required by applicable law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY 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, LIFE COMPANY 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
1
<PAGE> 5
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
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER 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"); and
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 and a member in good standing of the NASD; and
WHEREAS, AIM currently serves as the distributor for the Shares;
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 LIFE COMPANY 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.
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 LIFE COMPANY with the net asset value per Share for each Fund by 6:00
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) LIFE COMPANY
is open to receive purchase and redemption orders.
(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 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 LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY
and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders for each Account with respect to each Fund and shall transmit
one net payment per Fund per Account in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share, as well as such other compensation as is
provided in Schedule C to this Agreement. 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 LIFE COMPANY.
2.2. TIMELY PAYMENTS.
LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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), LIFE COMPANY 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 LIFE
COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1. GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
4
<PAGE> 8
3.2. 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 LIFE COMPANY 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 LIFE COMPANY 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 any other provision of this Agreement, LIFE
COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing
in connection with any governmental audit or review of LIFE COMPANY or, to LIFE
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 LIFE COMPANY
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) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY 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;
5
<PAGE> 9
(iv) LIFE COMPANY 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 LIFE COMPANY
will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY
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 LIFE COMPANY 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 LIFE COMPANY to any
such person without the express written consent of
AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY
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; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE
COMPANY fails to comply with any of the foregoing
6
<PAGE> 10
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, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY represents and warrants that the Contracts
currently are and will be annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such status; LIFE COMPANY 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 treated as such in the future.
(e) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an
insurance company duly organized, validly existing and in good standing under
the laws of its state of organization 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 insurance
laws of its state of organization 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
7
<PAGE> 11
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 legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3. SECURITIES LAWS.
(a) LIFE COMPANY 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 the
law(s) of the Life Company's state(s) of organization and domicile, (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) LIFE COMPANY 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
8
<PAGE> 12
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 or AIM will immediately notify LIFE COMPANY 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 LIFE COMPANY. AVIF and AIM 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) LIFE COMPANY or 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 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. LIFE COMPANY and UNDERWRITER 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.
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4.5. LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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 and
that is relevant to the business contemplated hereunder, contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
(b) LIFE COMPANY 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 dissemination, 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 dissemination 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 AIM as
the entity to receive such sales literature, until such time as AVIF appoints
another designated agent by giving notice to LIFE COMPANY in the manner required
by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF, AIM, or their respective 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) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF, AIM and their 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 AVIF, AIM, nor
any of their respective 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
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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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 and that is relevant to the business contemplated
hereunder, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all
AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF or AIM will provide to LIFE COMPANY or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material in which LIFE COMPANY, 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 disseminated if LIFE COMPANY or its
designated agent objects to such dissemination 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. LIFE COMPANY 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 AIM, nor any of their respective affiliates
will give any information or make any representations or statements on behalf of
or concerning LIFE COMPANY, any 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 LIFE COMPANY for distribution; or (iii) in
sales literature or other promotional material approved by LIFE COMPANY or its
affiliates, except with the express written permission of LIFE COMPANY.
(e) AIM shall adopt and implement procedures reasonably designed to
ensure that information concerning LIFE COMPANY, 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
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<PAGE> 15
Participants) ("broker only materials") is so used, and neither LIFE COMPANY,
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 LIFE
COMPANY, 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 LIFE
COMPANY 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.
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<PAGE> 16
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"). LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
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<PAGE> 17
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, LIFE COMPANY 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
LIFE COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY 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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY
conflicts with the majority of other state regulators, then LIFE COMPANY will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs LIFE COMPANY 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 LIFE COMPANY
for the purchase and redemption of Shares of AVIF. No charge or penalty will be
imposed as a result of such withdrawal.
(d) LIFE COMPANY 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.
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<PAGE> 18
(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.
LIFE COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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 ninety days' 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 or AIM upon institution of formal
proceedings against LIFE COMPANY or UNDERWRITER by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding LIFE COMPANY's or
UNDERWRITER'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 LIFE COMPANY upon institution of formal
proceedings against AVIF, AIM, or AVIF's investment adviser by the NASD, the
SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's or AIM's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE
COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify
as a RIC under Subchapter M of the Code or under successor or similar
provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so
qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply
with Section 817(h) of the Code or with successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY
cease to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's
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<PAGE> 20
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 by a Party not affiliated with the terminating party.
6.2. NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives written notice to the other Parties 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), 6.1(b), 6.1(c) or 6.1(e) hereof, such written
notice shall be given at least ninety days 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(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such
written notice shall be given as soon as reasonably possible, but in any event
within ten days 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 LIFE COMPANY, 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. This Section 6.3, however, is qualified
and limited by Sections 6.5 and 7 below.
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 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 LIFE COMPANY 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 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 DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
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<PAGE> 22
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, Massachusetts 02117
Facsimile No.: 617-572-5775
Attn: Michele G. Van Leer, Senior Vice President, JHMLICO
[or President, JHVLICO]
With a copy to:
Ronald J. Bocage
Vice President & Counsel
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Facsimile No.: 617-572-9161
INVESTORS PARTNER LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, Massachusetts 02117
Facsimile No.: 617-572-0952
Attn: Randi M. Stern, Vice President
With a copy to:
Ronald J. Bocage
Vice President & Counsel
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Facsimile No.: 617-572-9161
JOHN HANCOCK FUNDS, INC.
Notices to John Hancock Funds, Inc. will be given by giving
notice as prescribed above to each LIFE COMPANY with whose
Contracts the notice is concerned.
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<PAGE> 23
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies by AVIF
for the Shares held for such Participants. For this purpose, LIFE COMPANY'S
making its own proxy solicitation with respect to the same matter is not
considered to be a recommendation for action in connection with, or opposition
to or interference with, AVIF's solicitation, if LIFE COMPANY does not delay or
otherwise impede or interfere with AVIF's solicitation. LIFE COMPANY reserves
the right to vote shares held in any Account in its own right, to the extent
permitted by law. LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY AND UNDERWRITER.
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<PAGE> 24
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
AIM, their 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
LIFE COMPANY and UNDERWRITER) 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, holding, or acquisition of AVIF's shares or the Contracts 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 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 LIFE COMPANY or UNDERWRITER by or on
behalf of AVIF, AIM, or their respective affiliates,
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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(ee) 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
21
<PAGE> 25
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 affiliates by or on
behalf of LIFE COMPANY, 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 LIFE COMPANY or
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
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material breach
of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY 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 LIFE COMPANY nor 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 LIFE COMPANY nor 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 LIFE COMPANY and 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 LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
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, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party
under this Agreement
22
<PAGE> 26
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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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 each indemnifying party from whom
payment is to be sought under this Section 12.2) 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, holding or acquisition of AVIF's shares or the
Contracts 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 LIFE COMPANY,
UNDERWRITER 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 affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of AVIF, AIM or their affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member" as that term is defined in Section
(ee) of Article I of the NASD By-Laws), in connection
with the sale or distribution of AVIF Shares; or
23
<PAGE> 27
(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 LIFE COMPANY, 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 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 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 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 LIFE COMPANY 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 LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY 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 LIFE COMPANY,
UNDERWRITER, 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
24
<PAGE> 28
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
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 AVIF and AIM 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 or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, LIFE COMPANY, 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 LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY 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.
25
<PAGE> 29
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 and AIM acknowledge that the identities of the customers of LIFE
COMPANY or any of its affiliates (collectively, the "LIFE COMPANY 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 LIFE COMPANY Protected Parties or any of their employees or
agents in connection with LIFE COMPANY's performance of its duties under this
Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF
and AIM agree that if they come into possession of any list or compilation of
the identities of or other information about the LIFE COMPANY Protected Parties'
customers, or any other information or property of the LIFE COMPANY Protected
Parties, other than such information as may be independently developed or
compiled by AVIF or AIM from information supplied to them by the LIFE COMPANY
Protected Parties' customers who also maintain accounts directly with AVIF, AVIF
26
<PAGE> 30
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 LIFE COMPANY's prior written consent; or (b) as required by law or judicial
process. LIFE COMPANY and UNDERWRITER acknowledge 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. LIFE COMPANY and UNDERWRITER
agree that if they come 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 LIFE COMPANY
or UNDERWRITER from information supplied to them by the AVIF Protected Parties'
customers who also maintain accounts directly with LIFE COMPANY or UNDERWRITER,
LIFE COMPANY and UNDERWRITER 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 NAMES
(a) Except as may otherwise be provided in a License Agreement
among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE
COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any
trademark, trade name, service mark or logo of AVIF, AIM or any of their
respective affiliates, or any variation of any such trademark, trade name,
service mark or logo, without AVIF's or AIM's prior written consent, the
granting of which shall be at AVIF's or AIM's sole option.
(b) Neither AVIF nor AIM, nor any of their affiliates, shall use
any designation comprised in whole or in part of the names or marks "Hancock,"
"John Hancock," "Investors Partner," or "IPL" or any other trademark relating to
LIFE COMPANY without the prior written consent of LIFE COMPANY. Upon termination
of this Agreement for any reason, AVIF and AIM shall cease all use of any such
name or mark as soon as reasonably practicable.
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
27
<PAGE> 31
(including copies thereof) in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
SECTION 21. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
SECTION 22. WAIVERS
No waiver of, or failure to enforce, any provision of this Agreement by
any party shall result in any a waiver of any other violation of that or any
other provision of this Agreement.
SECTION 23. LIFE COMPANIES
John Hancock Mutual Life Insurance Company ("JHMLICO"), John Hancock
Variable Life Insurance Company ("JHVLICO") and Investors Partner Life Insurance
Company ("IPL") are hereby made parties to this Agreement in order to permit
their respective Accounts to acquire shares of AVIF on the same terms and
conditions expressed in this Agreement. With respect only to the Accounts and
Contracts of JHMLICO, the words "LIFE COMPANY" wherever used in this Agreement
mean JHMLICO. With respect only to the Accounts and Contracts of JHVLICO, the
words "LIFE COMPANY" wherever used in this Agreement mean JHVLICO. With respect
only to the Accounts and Contracts of IPL, the words "LIFE COMPANY" wherever
used in this Agreement mean IPL.
--------------------------------------
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
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
28
<PAGE> 32
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
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ ANTONIETTE RICCI By: /s/ MICHELE G. VAN LEER
--------------------------- ----------------------------
Name: Antoniette Ricci Name: Michele G. Van Leer
Title: Assistant Secretary Title: Senior Vice President
JOHN HANCOCK VARIABLE LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ J.E. ENTERKIN, JR. By: /s/ MICHELE G. VAN LEER
--------------------------- ----------------------------
Name: J.E. Enterkin, Jr. Name: Michele G. Van Leer
Title: Senior Counsel Title: President
INVESTORS PARTNER LIFE INSURANCE COMPANY,
on behalf of itself and its separate
accounts
Attest: /s/ ZENON C. TENCZA By: /s/ RANDI M. STERRN
--------------------------- ----------------------------
Name: Zenon C. Tencza Name: Randi M. Sterrn
Title: Staff Counsel Title: Vice President, Product
Development
JOHN HANCOCK FUNDS, INC.
Attest: /s/ ZENON C. TENCZA By: /s/ JOHN A. MORIN
--------------------------- ----------------------------
Name: Zenon C. Tencza Name: John A. Morin
Title: Staff Counsel Title: Vice President & Corporate
Secretary
29
<PAGE> 33
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value
AIM V.I. Growth
SEPARATE ACCOUNTS UTILIZING THE FUNDS
For John Hancock Mutual Life Insurance Company:
John Hancock Variable Annuity Account H
For John Hancock Variable Life Insurance Company:
John Hancock Variable Annuity Account JF
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
For John Hancock Mutual Life Insurance Company:
Revolution Variable Annuity
Revolution Access Variable Annuity
Revolution Extra Variable Annuity
Revolution Value Variable Annuity
For John Hancock Variable Life Insurance Company:
Revolution Variable Annuity
Revolution Access Variable Annuity
Revolution Extra Variable Annuity
Revolution Value Variable Annuity
30
<PAGE> 34
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
====================================================================================================================
LIFE COMPANY AVIF / AIM
<S> <C>
preparing and filing the Account's registration statement preparing and filing the Fund's registration statement
text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and
supplements (Account) supplements (Fund)
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus
text composition and printing Account SAIs text composition and printing Fund SAIs
mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy
upon request by policy owners owners upon request by policy owners
mailing and distributing prospectuses (Account and
Fund) and supplements (Account and Fund) to policy owners
of record as required by Federal Securities Laws and to
prospective purchasers
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports
distributing annual and semi-annual reports for Account (Fund)
(Fund and Account as, applicable)
text composition, printing, mailing, distributing, and text composition, printing, mailing, statements and voting
tabulation of proxy statements and voting instruction distributing and tabulation of proxy instruction
solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
preparation, printing and distributing sales material
and advertising relating to the Funds, insofar as such
materials relate to the Contracts and 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
====================================================================================================================
</TABLE>
31
<PAGE> 35
SCHEDULE C
AIM'S PRICING ERROR POLICIES
Determination of Materiality
In the event that AIM discovers an error in the calculation of the Fund's net
asset value, the following policies will apply:
If the amount of the error is less than $.01 per share, it is considered
immaterial and no adjustments are made.
If the amount of the error is $.01 per share, or more, then the following
thresholds are applied:
a. If the amount of the difference in the erroneous net asset
value and the correct net asset value is less than .5% of the
correct net asset value, AIM will reimburse the affected Fund
to the extent of any loss resulting from the error. No other
adjustments shall be made.
b. If the amount of the difference in the erroneous net asset
value and the correct net asset value is .5% of the correct
net asset value or greater, then AIM will determine the impact
of the Rorer to the affected Fund and shall reimburse such
Fund (and/or LIFE COMPANY, as appropriate, such as in the
event that the error was not discovered until after LIFE
COMPANY processed transactions using the erroneous net asset
value) to the extent of any loss resulting from the error. To
the extent that an overstatement of net asset value per share
is detected quickly and LIFE COMPANY has not mailed redemption
checks to Participants, LIFE COMPANY and AIM agree to examine
the extent of the error to determine the feasibility of
reprocessing such redemption transaction (for purposes of
reimbursing the Fund to the extent of any such overpayment).
Reprocessing Cost Reimbursement
To the extent a reprocessing of Participant transactions is required pursuant to
paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's
reprocessing costs in an amount not to exceed $3.00 per contract affected by $10
or more.
The Pricing Policies described herein may be modified by AVIF as approved by its
Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at
least five (5) days prior to any such meeting of the Board of Directors of AVIF
to consider such proposed changes.
32
<PAGE> 1
EXHIBIT h(59)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AGA BROKERAGE 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..................................................................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 Parties To Cooperate............................................................................4
Section 4. Legal Compliance......................................................................................5
4.1 Tax Laws........................................................................................5
4.2 Insurance and Certain Other Laws................................................................7
4.3 Securities Laws.................................................................................8
4.4 Notice of Certain Proceedings and Other Circumstances...........................................9
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10
Section 5. Mixed and Shared Funding.............................................................................12
5.1 General........................................................................................12
5.2 Disinterested Directors........................................................................12
5.3 Monitoring for Material Irreconcilable Conflicts...............................................12
5.4 Conflict Remedies..............................................................................13
5.5 Notice to LIFE COMPANY.........................................................................14
5.6 Information Requested by Board of Directors....................................................14
5.7 Compliance with SEC Rules......................................................................15
5.8 Other Requirements.............................................................................15
Section 6. Termination..........................................................................................15
6.1 Events of Termination..........................................................................15
6.2 Notice Requirement for Termination.............................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
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..........................................................................................17
Section 9. Notices.............................................................................................18
Section 10. Voting Procedures...................................................................................18
Section 11. Foreign Tax Credits.................................................................................19
Section 12. Indemnification.....................................................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER................................................19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM................................................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...................................................................................25
Section 17. Headings............................................................................................25
Section 18. Confidentiality.....................................................................................25
Section 19. Trademarks and Fund Names...........................................................................26
Section 20. Parties to Cooperate................................................................................26
Schedule A ......................................................................................................28
Schedule B.......................................................................................................29
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of August,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
The United States Life Insurance Company in the City of New York, a New York
life insurance company ("LIFE 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 American General Securities Incorporated, an affiliate of LIFE COMPANY and
the principal underwriter of the Contracts ("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 fifteen 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, LIFE COMPANY will be the issuer of certain variable annuity
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, LIFE COMPANY 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, LIFE COMPANY 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, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER 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");
WHEREAS, AIM 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 LIFE COMPANY 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.
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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
LIFE COMPANY 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) LIFE COMPANY is open for
business.
(b) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY in the event that AVIF is unable
to provide the net asset value information by 6:00 p.m. Such additional time
shall be equal to the additional time that AVIF takes to make the net asset
values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY 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) through no fault of LIFE
COMPANY, LIFE COMPANY, on behalf of the separate accounts, 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 LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF 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 LIFE COMPANY 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 LIFE COMPANY 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
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<PAGE> 7
transactions") and that LIFE COMPANY 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), LIFE
COMPANY 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,
in proper form, 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 LIFE COMPANY 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 LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY 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 LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 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> 8
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 LIFE COMPANY 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 LIFE COMPANY 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) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE 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 LIFE COMPANY 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) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY
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<PAGE> 9
will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY
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 LIFE COMPANY 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 LIFE COMPANY to any
such person without the express written consent of
AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY 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 LIFE COMPANY) 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) LIFE COMPANY 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 LIFE COMPANY
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 LIFE
COMPANY 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, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals
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<PAGE> 10
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 LIFE COMPANY 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) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
the provisions of Section 817 of the Code and the regulations thereunder and
that it will use its best efforts to maintain such treatment; LIFE COMPANY 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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 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.
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<PAGE> 11
4.3 SECURITIES LAWS.
(a) LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY. 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) LIFE COMPANY 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. LIFE COMPANY 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 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY 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) LIFE COMPANY 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 fifteen (15)
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 in writing to such use within ten (10) 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 AIM as the entity to
receive such sales literature, until such time as AVIF appoints
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<PAGE> 13
another designated agent by giving notice to LIFE COMPANY in the manner required
by Section 9 hereof.
(c) Neither LIFE COMPANY 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) LIFE COMPANY 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 LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY 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 LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, 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
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY,
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<PAGE> 14
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 LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least fifteen (15) 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 LIFE COMPANY or its designated agent
objects in writing to such use within ten (10) Business Days after receipt of
such material or such shorter period as the Parties hereto may, from time to
time, agree upon. LIFE COMPANY 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 LIFE COMPANY,
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 LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, 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
LIFE COMPANY, 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.
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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 LIFE
COMPANY, 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 LIFE
COMPANY 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"). LIFE COMPANY 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;
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<PAGE> 16
(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, LIFE COMPANY 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 LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY'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, LIFE COMPANY 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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each
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<PAGE> 17
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 LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY 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 LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY 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 LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY 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. LIFE
COMPANY 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY 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.
LIFE COMPANY 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.
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<PAGE> 18
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 LIFE COMPANY, or its affiliates by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding LIFE COMPANY'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 LIFE COMPANY 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, LIFE COMPANY 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 LIFE COMPANY, 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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY 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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<PAGE> 20
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, 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 LIFE COMPANY 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.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
c/o American General Independent Producers Division
2727-A Allen Parkway
Houston, Texas 77019
Facsimile: (713) 831-3071
Attn: Steven Glover, Esq.
A G A BROKERAGE SERVICES, INC.
2929 Allen Parkway
Houston, Texas 77019
Facsimile: (713) 831-5931
Attn: Nori L. Gabert, Esq.
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY 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. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY 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
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the
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solicitation of proxies for the Shares held for such Participants. LIFE COMPANY
reserves the right to vote shares held in any Account in its own right, to the
extent permitted by law. LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
AIM, their 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
LIFE COMPANY and UNDERWRITER) 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
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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 LIFE COMPANY or UNDERWRITER by or on
behalf of AVIF or AIM 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 LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) 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, AIM or their
affiliates by or on behalf of LIFE COMPANY,
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 LIFE COMPANY or
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
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material breach
of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY to qualify as annuity contracts or
life insurance contracts under the Code,
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<PAGE> 24
otherwise than by reason of any Fund's failure to
comply with Subchapter M or Section 817(h) of the
Code.
(b) Neither LIFE COMPANY nor 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 LIFE COMPANY nor 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 LIFE COMPANY and 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 LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
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, LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER 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 LIFE COMPANY AND UNDERWRITER 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 LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER 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, 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
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<PAGE> 25
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 LIFE COMPANY,
UNDERWRITER 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 affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of AVIF, AIM or their affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member" as that term is defined in Section (q)
of Article I 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 LIFE COMPANY, 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 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.
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<PAGE> 26
(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 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 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 LIFE COMPANY 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 LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY 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 LIFE COMPANY,
UNDERWRITER, 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 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 AVIF
and AIM 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 or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant,
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<PAGE> 27
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 LIFE COMPANY or UNDERWRITER hereunder or by any Participating
Insurance Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by LIFE COMPANY 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 LIFE COMPANY 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.
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.
24
<PAGE> 28
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 LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY 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
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY 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 LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
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. LIFE COMPANY 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 LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY 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.
25
<PAGE> 29
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among
A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY or any of its affiliates, or any variation of any such trademark, trade
name, service mark or logo, without LIFE COMPANY's prior written consent, the
granting of which shall be at LIFE COMPANY's sole option.
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
-------------------------- ---------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title 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
THE UNITED STATES LIFE INSURANCE
COMPANY IN THE CITY OF NEW YORK, on behalf
of itself and its separate accounts
Attest: /s/ JULIE A. COTTON By: /s/ DAVID DIETZ
-------------------------- ---------------------------------
Name: Julie A. Cotton Name: David Dietz
---------------------------- -------------------------------
Title: Assistant Secretary Title: President & CEO
--------------------------- ------------------------------
AGA BROKERAGE SERVICES, INC.
Attest: /s/ JULIE A. COTTON By: /s/ PAUL KOVACH
-------------------------- ---------------------------------
Name: Julie A. Cotton Name: Paul Kovach
---------------------------- -------------------------------
Title: Assistant Secretary Title: President
--------------------------- ------------------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o The United States Life Insurance Company in the City of New
York Separate Account USL VL-R
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o Platinum Investor Flexible Payment Variable Life Insurance
Policies, Form No. 97600N.
28
<PAGE> 32
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ------------------------------------------------------------
LIFE COMPANY AVIF / AIM
- ------------------------------------------------------------ ------------------------------------------------------------
<S> <C>
preparing and filing the Account's registration statement preparing and filing the Fund's registration statement
- ------------------------------------------------------------ ------------------------------------------------------------
text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements
- ------------------------------------------------------------ ------------------------------------------------------------
text alterations of prospectuses (Account) and supplements text alterations of prospectuses (Fund) and supplements
(Account) (Fund)
- ------------------------------------------------------------ ------------------------------------------------------------
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus
- ------------------------------------------------------------ ------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- ------------------------------------------------------------ ------------------------------------------------------------
mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners upon
upon request by policy owners request by policy owners
- ------------------------------------------------------------ ------------------------------------------------------------
mailing and distributing prospectuses (Account and Fund) and
supplements (Account and Fund) to policy owners of record as
required by Federal Securities Laws and to prospective
purchasers
- ------------------------------------------------------------ ------------------------------------------------------------
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports (Fund)
distributing annual and semi-annual reports for Account
(Fund and Account as, applicable)
- ------------------------------------------------------------ ------------------------------------------------------------
text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and
tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction
solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
- ------------------------------------------------------------ ------------------------------------------------------------
preparation, printing and distributing sales material and
advertising relating to the Funds, insofar as such materials
relate to the Contracts and 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
- ------------------------------------------------------------ ------------------------------------------------------------
</TABLE>
29
<PAGE> 1
EXHIBIT i(1)(g)
September 27, 1999
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. 14 under the
Securities Act of 1933 ("1933 Act") and Amendment No. 15 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 4.50 billion authorized shares of
common stock, par value $.001 per share, which includes, among others, 250
million authorized shares of the AIM V.I. Dent Demographic Trends Fund (the
"Dent Fund"), a separate series of the Fund's common stock. The Fund's
authorized shares of common stock relating to the Dent Fund 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, February 4, 1998, September 30, 1998, July 8, 1999, and September 27,
1999; the Fund's By-Laws; relevant resolutions of the Fund's Board of Directors,
dated September 24, 1999 and certified by the Fund's Assistant Secretary on
September 24, 1999, authorizing the creation of the Dent Fund and the issuance
of the Shares; 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 the same date, and the
amendments thereto filed with the SEC, including Post-Effective Amendment No. 14
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 September 23, 1999; 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.
<PAGE> 2
AIM Variable Insurance Funds, Inc.
September 27, 1999
Page 2
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 i(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm in the Statement of Additional
Information included in Post-Effective Amendment No. 14 of AIM Variable
Insurance Funds, Inc.
/s/ TAIT, WELLER & BAKER
------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
September 20, 1999
<PAGE> 1
EXHIBIT l(d)
November 15, 1999
Board of Directors
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Re: Initial Capital Investment in the New Portfolio 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 new investment portfolio of the Fund, the AIM V.I. Blue Chip
Fund. The purpose of this letter is to set out our understanding of the
conditions of and our promises and representations concerning this investment.
1. We hereby agree to purchase shares equal to $1,000,000.00 for the AIM
V.I. Blue Chip Fund.
2. We understand that the initial net asset value per share for the
portfolio named above will be $10.00.
3. 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.
4. We hereby agree to provide the Fund with at least 3 days' advance
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,
A I M ADVISORS, INC.
By: /s/ ROBERT H. GRAHAM
----------------------------------
<PAGE> 1
EXHIBIT l(e)
November 15, 1999
Board of Directors
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Re: Initial Capital Investment in the New Portfolio 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 new investment portfolio of the Fund, the AIM V.I. Dent
Demographic Trends Fund. The purpose of this letter is to set out our
understanding of the conditions of and our promises and representations
concerning this investment.
1. We hereby agree to purchase shares equal to $1,000,000.00 of the AIM
V.I. Dent Demographic Trends Fund.
2. We understand that the initial net asset value per share for the Fund
above will be $10.00.
3. 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 of the Fund.
4. We hereby agree to provide the Fund with at least 3 days' advance
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,
A I M ADVISORS, INC.
By:
----------------------------
<PAGE> 1
EXHIBIT o(1)
THE AIM MANAGEMENT GROUP
CODE OF ETHICS
(ADOPTED MAY 1, 1981)
(AS LAST AMENDED AUGUST 17, 1999)
WHEREAS, the members of the AIM Management Group are A I M Management
Group Inc. ("AIM Management") and A I M Advisors, Inc. ("AIM Advisors") and
its wholly owned and indirect subsidiaries (individually and collectively
referred to as "AIM"); and
WHEREAS, certain members of AIM provide investment advisory services to
AIM's investment companies and other clients; and
WHEREAS, certain members of AIM provide distribution services as
principal underwriters for AIM's investment company clients; and
WHEREAS, certain members of AIM provide shareholder services as the
transfer agent, dividend disbursing agent and shareholder processing agent for
AIM's investment company clients; and
WHEREAS, the investment advisory business involves decisions and
information which may have at least a temporary impact on the market price of
securities, thus creating a potential for conflicts of interest between the
persons engaged in such business and their clients; and
WHEREAS, the members of AIM have a fiduciary relationship with respect
to each portfolio under management and the interests of the client accounts and
of the shareholders of AIM's investment company clients must take precedence
over the personal interests of the employees of AIM, thus requiring a rigid
adherence to the highest standards of conduct by such employees; and
WHEREAS, every practical step must be taken to ensure that no
intentional or inadvertent action is taken by an employee of AIM which is, or
appears to be, adverse to the interests of AIM or any of its client accounts,
including the defining of standards of behavior for such employees, while at
the same time avoiding unnecessary interference with the privacy or personal
freedom of such employees; and
WHEREAS, the members of AIM originally adopted a Code of Ethics ("the
Code") on May 1, 1981, and adopted amendments thereto in January 1989, October
1989, April 1991, December 6, 1994 and December 5, 1995, December 10, 1996, and
now deem it advisable to update and revise said Code in light of new investment
company products developed by AIM and changing circumstances in the securities
markets in which AIM conducts business; and
NOW, THEREFORE, the Boards of Directors of AIM Management and AIM
Advisors hereby adopt the following revised Code pursuant to the provisions of
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act"), with the
intention that certain provisions of the Code shall become applicable to the
officers, directors and employees of AIM.
I. Applicability
A. The provisions of AIM's Code shall apply to certain officers,
directors and employees (as hereinafter designated) of AIM. Unless
otherwise indicated, the term "employee" as used herein means: (i)
all officers, directors and employees of AIM Advisors and its
wholly owned and indirect subsidiaries and (ii) officers,
directors and employees of AIM Management who
-1-
<PAGE> 2
have an active part in the management, portfolio selection,
underwriting or shareholder functions with respect to
AIM's investment company clients or provide one or more similar
services for AIM's non-investment company clients. The term
"employee" does not include directors of AIM Management who do not
maintain an office at the home office of AIM Management and who do
not regularly obtain information concerning the investment
recommendations or decisions made by AIM on behalf of client
accounts ("independent directors").
B. The Code shall also apply to any person or entity appointed as a
sub-advisor for an AIM investment company client account unless
such person or entity has adopted a code of ethics in compliance
with Section 17(j) of the 1940 Act; or, in the event that such
person or entity is domiciled outside of the United States, has
adopted employee standards of conduct that provide equivalent
protections to AIM's client accounts. In performing sub-advisory
services, such person or entity will be subject to the direction
and supervision of AIM, and subject to the policies and control of
the Boards of Directors/Trustees of the respective AIM investment
company client(s).
II. Interpretation and Enforcement
A. The Chief Executive Officer of AIM Management shall appoint a
Code of Ethics Committee ("Committee"). The Committee shall have
the responsibility for interpreting the provisions of the Code, for
adopting and implementing Procedures for the enforcement of the
provisions of the Code, and for determining whether a violation of
the provisions of the Code, or of any such related Procedures has
occurred. The Committee will appoint an officer to monitor
personal investment activity by "Covered Persons" (as defined in
the Procedures adopted hereunder), both before and after any trade
occurs and to prepare periodic and annual reports, conduct
education seminars and obtain employee certifications as deemed
appropriate. In the event of a finding that a violation has
occurred requiring significant remedial action, the Committee
shall take such action as it deems appropriate on the imposition
of sanctions or initiation of disgorgement proceedings. The
Committee shall also make recommendations and submit reports to
the Boards of Directors/Trustees of AIM's investment company
clients.
B. If a sub-advisor has adopted a code of ethics in accordance with
Section 17(j) of the 1940 Act, then pursuant to a sub-advisory
agreement with AIM, it shall be the duty of such sub-advisor to
furnish AIM with a copy of the following:
o code of ethics and related procedures of the sub-advisor,
and a statement as to its employees' compliance therewith;
o any statement or policy on insider trading adopted pursuant
to Section 204A under the 1940 Act; and the procedures
designed to prevent the misuse of material non-public
information by any person associated with such sub-advisor;
and
o such other information as may reasonably be necessary for
AIM to report to the Boards of Directors/Trustees of its
investment company client account(s) as to such
sub-advisor's adherence to the Boards' policies and controls
referenced in Section I.B. above.
III. Procedures Adopted Under the Code
From time to time, AIM's Committee shall adopt Procedures to carry out
the intent of the Code. Among other things, the Procedures require
certain new employees to complete an Asset Disclosure Form, a Brokerage
Accounts Listing Form and such other forms as deemed appropriate by the
Committee. Such Procedures are hereby incorporated into the Code and are
made a part of the Code. Therefore, a violation of the Procedures shall
be deemed a violation of the Code itself.
-2-
<PAGE> 3
IV. Compliance with Governing Laws, Regulations and Procedures
A. Each employee shall have and maintain knowledge of and shall
comply strictly with all applicable federal and state laws and all
rules and regulations of any governmental agency or
self-regulatory organization governing his/her actions as an
employee.
B. Each employee shall comply with all laws and regulations, and
AIM's prohibition against insider trading. Trading on or
communicating material non-public information, or "inside
information", of any sort, whether obtained in the course of
research activities, through a client relationship or otherwise,
is strictly prohibited.
C. Each employee shall comply with the procedures and guidelines
established by AIM to ensure compliance with applicable federal
and state laws and regulations of governmental agencies and
self-regulatory organizations. No employee shall knowingly
participate in, assist, or condone any act in violation of any
statute or regulation governing AIM or any act that would violate
any provision of this Code, or of the Procedures adopted
hereunder.
D. Each employee shall have and maintain knowledge of and shall
comply with the provisions of this Code and any Procedures adopted
hereunder.
E. Each employee having supervisory responsibility shall exercise
reasonable supervision over employees subject to his/her control,
with a view to preventing any violation by such persons of
applicable statutes or regulations, AIM's corporate procedures, or
the provisions of the Code, or the Procedures adopted hereunder.
F. Any employee obtaining evidence that an act in violation of
applicable statutes, regulations or provisions of the Code or of
any Procedures adopted hereunder has occurred shall immediately
report such evidence to the Chief Compliance Officer of AIM. Such
action by the employee will remain confidential, unless the
employee waives confidentiality or federal or state authorities
compel disclosure. Failure to report such evidence may result in
disciplinary proceedings and may include sanctions as set forth in
Section VI hereof.
V. Ethical Standards
A. Employees shall conduct themselves in a manner consistent with the
highest ethical and fiduciary standards. They shall avoid any
action, whether for personal profit or otherwise, that results in
an actual or potential conflict of interest with AIM or its client
accounts, or which may be otherwise detrimental to the interests
of the members of AIM or its client accounts.(1)
B. Employees shall act in a manner consistent with their fiduciary
obligation to clients of AIM, and shall not deprive any client
account of an investment opportunity in order to personally
benefit from that opportunity.
- --------------------------
(1) Conflicts of interest generally result from a situation in which an
individual has a personal interest in a matter that is or may be competitive
with his or her responsibilities to other persons or entities (such as AIM or
its client accounts) or where an individual has or may have competing
obligations or responsibilities to two or more persons or entities. In the case
of the relationship between a client account on the one hand, and AIM, its
officers, directors and employees, on the other hand, such conflict may result
from the purchase or sale of securities for a client account and for the
personal account of the individual involved or the account of any "affiliate"
of such individual, as such term is defined in the 1940 Act. Such conflict may
also arise from the purchase or sale for a client account of securities in
which an officer, director or employee of AIM has an economic interest.
Moreover, such conflict may arise in connection with vendor relationships in
which such employee has any direct or indirect financial interest, family
interests or other personal interest. To the extent of conflicts of interest
between AIM and a vendor, such conflicts must be resolved in a manner that is
not disadvantageous to AIM. In any such case, potential or actual conflicts
must be disclosed to AIM and the first preference and priority must be to avoid
such conflicts of interest wherever possible and, where they unavoidably occur,
to resolve them in a manner that is not disadvantageous to a client.
-3-
<PAGE> 4
C. Without the knowledge and approval of the Chief Executive Officer
of AIM Management, employees shall not engage in a
business activity or practice for compensation in competition with
the members of AIM. Each employee, who is deemed to be a "Covered
Person" as defined in the Procedures adopted hereunder, shall
obtain the written approval of AIM Management's Chief Executive
Officer to participate on a board of directors/trustees of any of
the following organizations:
o publicly traded company, partnership or trust;
o hospital or philanthropic institution;*
o local or state municipal authority;* and/or
o charitable organization.*
* These restrictions relate to organizations that have or intend
to raise proceeds in a public securities offering.
In the relatively small number of instances in which board
approval is authorized, investment personnel serving as directors
shall be isolated from those making investment decisions through
AIM's "Chinese Wall" Procedures.
D. Each employee, in making an investment recommendation or taking
any investment action, shall exercise diligence and thoroughness,
and shall have a reasonable and adequate basis for any such
recommendation or action.
E. Each employee shall not attempt to improperly influence for such
person's personal benefit any investment strategy to be followed
or investment action to be taken by the members of AIM for its
client accounts.
F. Each employee shall not improperly use for such person's personal
benefit any knowledge, whether obtained through such person's
relationship with AIM or otherwise, of any investment
recommendation made or to be made, or of any investment action
taken or to be taken by AIM for its client accounts.
G. Employees shall not disclose any non-public information relating
to a client account's portfolio or transactions or to the
investment recommendations of AIM, nor shall any employee disclose
any non-public information relating to the business or operations
of the members of AIM, unless properly authorized to do so.
H. Employees shall not accept, directly or indirectly, from a
broker/dealer or other vendor who transacts business with AIM or
its client accounts, any gifts, gratuities or other things of more
than de minimis value or significance that their acceptance might
reasonably be expected to interfere with or influence the exercise
of independent and objective judgment in carrying out such
person's duties or otherwise gives the appearance of a possible
impropriety. For this purpose, gifts, gratuities and other things
of value shall not include unsolicited entertainment so long as
such unsolicited entertainment is not so frequent or extensive as
to raise any question of impropriety.
I. Employees who are registered representatives and/or principals of
AIM shall not acquire securities for an account for which he/she
has a direct or indirect beneficial interest in an initial public
offering ("IPO") or on behalf of any person, entity or
organization that is not an AIM client. All other employees shall
not acquire securities for an account for which he/she has a
direct or indirect beneficial interest offered in an IPO or on
behalf of any person, entity or organization that is not an AIM
client account except in those circumstances where different
amounts of such offerings are specified for different investor
types (e.g., private investors and institutional investors) and
such transaction has been pre-cleared by the Compliance Office.
-4-
<PAGE> 5
J. All personal securities transactions by employees must be
conducted consistent with this Code and the Procedures adopted
hereunder, and in such a manner as to avoid any actual or
potential conflicts of interest or any abuse of such employee's
position of trust and responsibility. Unless an exemption is
available, employees who are deemed to be "Covered Persons" as
defined in the Procedures adopted hereunder, shall pre-clear all
personal securities transactions in securities in accordance with
the Procedures adopted hereunder.
K. Each employee, who is deemed to be a "Covered Person" as defined
in the Procedures adopted hereunder, (or registered representative
and/or principal of AIM), shall refrain from engaging in personal
securities transactions in connection with a security that is not
registered under Section 12 of the Securities Act of 1933 (i.e., a
private placement security) unless such transaction has been
pre-approved by the Chief Compliance Officer or the Director of
Investments (or their designees).
L. Employees, who are deemed to be "Covered Persons" as defined in
the Procedures adopted hereunder, may not engage in a transaction
in connection with the purchase or sale of a security within seven
calendar days before and after an AIM investment company client
trades in that same (or equivalent) security unless the de minimis
exemption is available.
M. Each employee, who is deemed to be a "Covered Person" as defined
in the Procedures adopted hereunder, may not purchase and
voluntarily sell, or sell and voluntarily purchase the same (or
equivalent) securities of the same issuer within 60 calendar days
unless such employee complies with the disgorgement procedures
adopted by the Code of Ethics Committee. Subject to certain
limited exceptions set forth in the related Procedures, any
transaction under this provision may result in disgorgement
proceedings for any profits received in connection with such
transaction by such employee.
VI. Sanctions
Employees violating the provisions of AIM's Code or any Procedures
adopted hereunder may be subject to sanctions, which may include, among
other things, restrictions on such person's personal securities
transactions; a letter of admonition, education or formal censure;
fines, suspension, re-assignment, demotion or termination of employment;
or other significant remedial action. Employees may also be subject to
disgorgement proceedings for transactions in securities that are
inconsistent with Sections V.L. and V.M. above.
VII. Additional Disclosure
This Code and the related Procedures cannot, and do not, cover every
situation in which choices and decisions must be made, because other
company policies, practices and procedures (as well as good common
sense) and good business judgment also apply. Every person subject to
this Code should read and understand these documents thoroughly. They
present important rules of conduct and operating controls for all
employees. Employees are also expected to present questions to the
attention of their supervisors and to the Chief Compliance Officer (or
designee) and to report suspected violations as specified in these
documents.
For the Boards of Directors:
The AIM Management Group
by: /s/CHARLES T. BAUER
-------------------------------------------------
Charles T. Bauer
AUGUST 17, 1999
-------------------------------------------------
Date
-5-
<PAGE> 1
EXHIBIT o(2)
CODE OF ETHICS
OF
AIM VARIABLE INSURANCE FUNDS, INC.
WHEREAS, AIM Variable Insurance Funds, Inc. (the "Company") is a
registered investment company under the Investment Company Act of
1940, as amended (the "ICA");
WHEREAS, Rule 17j-1 under the ICA requires the Company to adopt a Code
of Ethics;
NOW, THEREFORE, the Company hereby adopts the following Code of Ethics,
effective as of February 25, 1993;
I. DEFINITIONS
For the purpose of the Code of Ethics the following terms shall have
the meanings set forth below:
(a) "Access person" means any director, officer, or advisory
person of the Company; provided, however, that any person who
is an access person of any investment advisor of, or
principal underwriter for, any registered investment company
and who is required by Rule 17j-1 of the ICA to report his or
her securities transactions to such investment advisor or
principal underwriter, shall not be deemed an access person
of the Company.
(b) "Advisory person" means
(i) any employee of the Company, its investment advisor or
administrator (or of any entity in a control
relationship with the Company, its investment advisor
or administrator, as defined in (d) hereof), who, in
connection with his or her regular functions or
duties, makes, participates in, or obtains information
(other than publicly available information) regarding
the purchase or sale of a security by the Company, or
whose functions relate to the making of any
recommendations with respect to such purchases or
sales; and
(ii) any natural person directly or indirectly owning,
controlling, or holding with power to vote, 25% or
more of the outstanding voting securities of the
Company, its investment advisor or administrator, who
obtains information (other than publicly available
information) concerning recommendations made by the
Company, its investment advisor or administrator with
regard to the purchase or sale of a security.
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AIM Variable Insurance Funds, Inc.
(c) "Affiliated persons"or "Affiliates" means
(i) any employee or access person of the Company, and
any member of the immediate family (defined as
spouse, child, mother, father, brother, sister,
in-law or any other relative) of any such person who
lives in the same household as such person or who is
financially dependent upon such person;
(ii) any account for which any of the persons described in
(c)(i) hereof is a custodian, trustee or otherwise
acting in a fiduciary capacity, or with respect to
which any such person either has the authority to
make investment decisions or from time to time give
investment advice; and
(iii) any partnership, corporation, joint venture, trust
or other entity in which any employee of the Company
or access person of the Company directly or
indirectly, in the aggregate, has a 10% or more
beneficial interest or for which any such person is
a general partner or an executive officer.
(d) "Control" means the power to exercise a controlling influence
over the management or policies of a corporation. Any person
who owns beneficially, either directly or through one or more
controlled corporations, more than 25% of the voting
securities' of a corporation shall be presumed to control
such corporation.
(e) "Security" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest
or participation in any profit-sharing agreement, collateral-
trust certificate, preorganization certificate or
subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or other
mineral rights, or, in general, any interest or instrument
commonly known as a "security", or any certificate of
interest or participation in, temporary or interim
certificate for, receipt of, guarantee of, or warrant or
right to subscribe to or purchase, any of the foregoing;
provided, however, that "security" shall not mean securities
issued or guaranteed by the Government of the United States,
its agencies or instrumentalities, bankers' acceptances, bank
certificates of deposit, commercial paper and shares of
registered open-end investment companies.
(f) "Purchase or sale of a security" includes the writing of an
option to purchase or sell a security.
(g) "Security held or to be acquired" by the Company means any
security which, within the most recent fifteen (15) days, (i)
is or has been held by the Company, or (ii) is being or has
been considered by the Company for purchase by the Company.
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AIM Variable Insurance Funds, Inc.
(h) "Beneficial ownership of a security" by any person includes
securities held by: (a) a spouse, minor children or relatives
who share the same home with such person; (b) an estate for
such person's benefit; (c) a trust, of which (i) such person
is a trustee or such person or members of such person's
immediate family have a vested interest in the income or
corpus of the trust, or (ii) such person owns a vested
beneficial interest, or (iii) such person is the settlor and
such person has the power to revoke the trust without the
consent of all the beneficiaries; (d) a partnership in which
such person is a partner; (e) a corporation (other than with
respect to treasury shares of the corporation) of which such
person is an officer, director or 10% stockholder; (f) any
other person if, by reason of contract, understanding,
relationship, agreement or other arrangement, such person
obtains therefrom benefits substantially equivalent to those
of ownership; or (g) such person's spouse or minor children
or any other person, if, even though such person does not
obtain therefrom the above-mentioned benefits of ownership,
such person can vest or revest title in himself at once or at
some future time. A beneficial owner of a security also
includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or
otherwise, has or shares voting power and/or investment power
with respect to such security. Voting power includes the
power to vote, or to direct the voting of such security, and
investment power includes the power to dispose, or to direct
the disposition of such security. A person is the beneficial
owner of a security if he has the right to acquire beneficial
ownership of such security at any time within sixty (60)
days.
II. IDENTIFICATION OF ACCESS PERSONS
(a) The Company will maintain a list of all access persons and
will notify each access person in writing that such person is
an access person. once a person has been so identified he or
she shall continue to be an access person until otherwise
notified in writing by the Company; provided. however. if
such person is an access person solely because he or she is a
director of the Company, such person shall cease to be an
access person at the time such person ceases to be a
director.
(b) Each access person will be given a copy of the Code of Ethics
at the time such person becomes an access person.
III. COMPLIANCE WITH GOVERNING LAWS, REGULATIONS AND PROCEDURES
(a) Each access person shall comply strictly with all applicable
Federal and state laws and all rules and regulations of any
governmental agency or self-regulatory organization governing
his or her activities.
(b) Each access person shall comply strictly with procedures
established by the Company to ensure compliance with
applicable Federal and state laws and regulations of
governmental agencies and self-regulatory organizations.
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AIM Variable Insurance Funds, Inc.
(c) Access persons shall not knowingly participate in, assist, or
condone any acts in violation of any statute or regulation
governing securities matters, nor any act which would violate
any provision of this Code of Ethics or any rules adopted
thereunder.
IV. CONFIDENTIALITY OF TRANSACTIONS
(a) Information relating to the Company's portfolio and research
and studies activities is confidential until publicly
available. Whenever statistical information or research is
supplied to or requested by the Company, such information
must not be disclosed to any persons other than as duly
authorized by the President or the Board of Directors of the
Company. If the Company is considering a particular purchase
or sale of a security, this must not be disclosed except to
such duly authorized persons.
(b) If any access person should obtain information concerning the
Company's portfolio (including, the consideration by the
Company of acquiring, or recommending any security for the
Company's portfolio), whether in the course of such person's
duties or otherwise, such person shall respect the
confidential nature of this information and shall not divulge
it to anyone unless it is properly part of such person's
services to the Company to do so or such person is
specifically authorized to do so by the President of the
Company.
V. ETHICAL STANDARDS
(a) Access persons shall conduct themselves in a manner
consistent with the highest ethical standards. They shall
avoid any action, whether for personal profit or otherwise,
that results in an actual or potential conflict of interest,
or the appearance of a conflict of interest, with the Company
or which may be otherwise detrimental to the interests of the
Company.
(b) Conflicts of interest generally result from a situation in
which an individual has personal interests in a matter that
is or may be competitive with his responsibilities to another
person or entity (such as the Company) or where an individual
has or may have competing obligations or responsibilities to
two or more persons or entities. In the case of the
relationship between the Company on the one hand, and its
employees and access persons and their respective affiliates,
on the other hand, such conflicts may result from the purchase
or sale of securities for the account of the Company and for
the account of any affiliated person or from the purchase or
sale for the account of the Company of securities in which an
access person or employee of the Company, or his or her
affiliates has an interest. In these cases, all potential or
actual conflicts must be disclosed and the first preference
and priority must be to avoid such conflicts of interest
whenever possible and, where they unavoidably occur, to
resolve them in a manner not disadvantageous to the Company.
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AIM Variable Insurance Funds, Inc.
VI. ACTIVITIES AND TRANSACTIONS OF ACCESS PERSONS
(a) No access person shall recommend to, or cause or attempt to
cause, the Company to acquire, dispose of, or hold any
security (including, any option, warrant or other right or
interest relating to such security) which such access person
or an affiliate of such access person has direct or indirect
beneficial ownership, unless the access person shall first
disclose to the Board of Directors all facts reasonably
necessary to identify the nature of the ownership of such
access person or his or her affiliate in such security.
(b) No access person or affiliate of such access person shall
engage in a purchase or sale of a security (including, any
option, warrant or other right or interest relating to such
security), other than on behalf of the Company, with respect
to any security, which, to the actual knowledge of such
access person at the time of such purchase or sale, is (i)
being considered for purchase or sale by the Company; or (ii)
being purchased or sold by the Company.
(c) The prohibitions of Section VI(b) above shall not apply to:
(i) Purchases or sales effected in any account over
which the access person has no direct or indirect
influence or control.
(ii) Purchases or sales which are nonvolitional on the
part of either the access person or the Company.
(iii) Purchases which are part of an automatic dividend
reinvestment plan.
(iv) Purchases effected upon the exercise of rights
issued by an issuer pro rata to all holders of a
class of its securities, to the extent such rights
were acquired from such issuer, and sales of such
rights so acquired.
(v) Purchases or sales which receive the prior approval
of the President of the Company because they are
only remotely potentially harmful to the Company
because they would be very unlikely to affect
trading in or the market value of the security, or
because they clearly are not related economically to
the securities to be purchased, sold or held by the
Company.
(d) If, in compliance with the limitations and procedures set
forth in this Section VI, any access person or an affiliate
of such person shall engage in a purchase or sale of a
security held or to be acquired by the Company, first
preference and priority must be given to any transactions
which involve the Company, and the Company must have the
benefit of the best price obtainable on acquisition and the
best price obtainable on disposition of such securities.
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AIM Variable Insurance Funds, Inc.
(e) If, as a result of fiduciary obligations to other persons or
entities, an access person believes that such person or an
affiliate of such person is unable to comply with certain
provisions of the Code, such access person shall so advise
the Board of Directors in writing, setting forth with
reasonable specificity the nature of such fiduciary
obligations and the reasons why such access person believes
such person is unable to comply with any such provisions. The
Board of Directors may, in its discretion, exempt such access
person or an affiliate of such person from any such
provisions, if the Board of Directors shall determine that
the services of such access person are valuable to the
Company and the failure to grant such exemption is likely to
cause such access person to be unable to render services to
the Company. Any access person granted an exemption
(including, an exception for an affiliate of such person)
pursuant to this Section VI(e) shall, within three business
days after engaging in a purchase or sale of a security held
or to be acquired by a client, furnish the Board of Directors
with a written report concerning such transaction, setting
forth the information specified in Section VII(b) hereof.
VII. REPORTING PROCEDURES
(a) Except as provided by Sections VII(c) and (d) hereof, every
access person shall report to the Board of Directors the
information described in Section VII(b) hereof with respect
to transactions in any security in which such access person
has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership in the security (whether or
not such security is a security held or to be acquired by a
client); provided, however, that any such report may contain
a statement that the report shall not be construed as an
admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to
which the report relates.
(b) Every report required to be made pursuant to Section VII(a)
hereof shall be made not later than ten days after the end of
the calendar quarter in which the transaction to which the
report relates was effected and shall contain the following
information:
(i) The date of the transaction, the title and the
number of shares, and the principal amount of each
security involved;
(ii) The nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer or bank with or
through whom the transaction was effected.
(c) Notwithstanding the provisions of Section VII(a) and (b)
hereof, no person shall be required to make a report with
respect to transactions effected for any account over which
such person does not have any direct or indirect influence or
control.
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AIM Variable Insurance Funds, Inc.
(d) Notwithstanding the provisions of Section VII(a) and (b)
hereof, an access person who is not an "interested person" of
the Company within the meaning of Section 2(a)(19) of the
ICA, and who would be required to make a report solely by
reason of being a director of the Company, need only report a
transaction in a security if such director at the time of the
transaction, knew or, in the ordinary course of fulfilling
his official duties as a director of the Company, should have
known, that, during the 15-day period immediately preceding
or after the date of the transaction by the director, such
security is or was purchased or sold, or considered by the
Company or its investment advisor for purchase or sale by the
Company.
(e) Every access person who beneficially owns, directly or
indirectly, 1/2% or more of the stock of any company the
securities of which are eligible for purchase by the Company
shall report such holdings to the Company.
VIII. REVIEW PROCEDURES
(a) The reports submitted by access persons pursuant to Section
VII(b) hereof shall be reviewed at least quarterly by the
Board of Directors or such other persons or committees as
shall be designated by the Board of Directors in order to
monitor compliance with this Code of Ethics.
(b) If it is determined by the Board of Directors that a
violation of this Code of Ethics has occurred and that the
person violating this Code of Ethics has purchased or sold a
security at a more advantageous price than that obtained by
the Company, such person shall be required to offer to sell
to or purchase from the Company, as the case may be, such
security at the more advantageous price. If this cannot be
consummated, then the Board of Directors shall take such
other course of action as it may deem appropriate. With
respect to any violation of this Code of Ethics, the Board of
Directors may take any preventative, remedial or other action
which it may deem appropriate. In determining whether or not
there has been, or may be, a conflict of interest between the
Company and any person subject to this Code of Ethics, the
Board of Directors shall consider all of the relevant facts
and circumstances.
IX. SANCTIONS
Persons violating this Code of Ethics or related procedures may be
subject to sanctions. Sanctions could include, for example,
restrictions on a person's personal securities transactions, a letter
of censure, fines or suspension. In addition, civil and criminal
penalties may be imposed against persons for violating the Insider Act.
