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As filed with the Securities and Exchange Commission on February 18, 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.
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Post-Effective Amendment No. 11 X
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 12 X
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(Check appropriate box or boxes.)
AIM VARIABLE INSURANCE FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, TX 77046-1173
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (713) 626-1919
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Charles T. Bauer
11 Greenway Plaza, Suite 100, Houston, TX 77046-1173
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(Name and Address of Agent for Service)
Copy to:
Nancy L. Martin, Esquire
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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on date pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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X on May 3, 1999 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
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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
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[AIM LOGO APPEARS HERE]
AIM VARIABLE INSURANCE FUNDS, INC.
PROSPECTUS
MAY 3, 1999
AIM V.I. Aggressive Growth Fund
AIM V.I. Balanced Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Capital Development Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. High Yield Fund
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Value Fund
Shares of the funds are currently offered only to insurance company separate
accounts. The investment objective of each fund is described under the heading
"Investment Objectives and Strategies."
This prospectus contains important information. Please read it before investing
and keep it for future reference.
Investments in the funds are 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.
THERE CAN BE NO ASSURANCE THAT THE AIM V.I. MONEY MARKET FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
INVESTMENT OBJECTIVES AND STRATEGIES.....................................................................3
PRINCIPAL RISKS OF INVESTING IN THE FUNDS................................................................8
PERFORMANCE INFORMATION.................................................................................13
ANNUAL TOTAL RETURNS ..............................................................................13
PERFORMANCE TABLES.................................................................................17
FUND MANAGEMENT.........................................................................................22
THE ADVISOR........................................................................................22
ADVISOR COMPENSATION...............................................................................22
PORTFOLIO MANAGERS.................................................................................22
OTHER INFORMATION.......................................................................................26
PURCHASE AND REDEMPTION OF SHARES..................................................................26
PRICING OF SHARES..................................................................................26
TAXES..............................................................................................26
DIVIDENDS AND DISTRIBUTIONS........................................................................26
FUTURE FUND CLOSURE................................................................................27
FINANCIAL HIGHLIGHTS....................................................................................28
OBTAINING ADDITIONAL INFORMATION...........................................................BACK COVER PAGE
</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 is a service
mark of A I M Management Group Inc.
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INVESTMENT OBJECTIVES AND STRATEGIES
AIM V.I. AGGRESSIVE GROWTH FUND
The fund's investment objective is to achieve long-term growth of capital.
The fund attempts to meet its objective by investing primarily in common
stocks, convertible bonds, convertible preferred stocks and warrants of small-
and medium-sized companies whose earnings the fund's portfolio managers expect
to grow more than 15% per year. The fund may also invest up to 25% of its total
assets in foreign securities.
The fund's portfolio managers focus on companies they believe are likely to
benefit from new or innovative products, services or processes as well as those
that have experienced above-average, long-term growth in earnings and have
favorable prospects for future growth. The fund's portfolio managers usually
sell a particular security when any of those factors materially changes.
AIM V.I. BALANCED FUND
The fund's investment objective is to achieve as high a total return as
possible, consistent with preservation of capital.
The fund attempts to meet this objective by investing in a broadly diversified
portfolio of high-yielding securities, including common stocks, preferred
stocks, convertible securities and bonds. The fund invests, normally, a minimum
of 30% and a maximum of 70% of its total assets in equity securities and a
minimum of 30% and a maximum of 70% of its total assets in non-convertible debt
securities. The fund may also invest up to 25% of its total assets in
convertible securities. The fund may invest up to 10% of its total assets in
debt securities rated below investment grade, i.e., "junk bonds," and debt
securities deemed of comparable quality. The fund may also invest up to 20% of
its total assets in foreign securities.
In selecting the percentages of assets to be invested in equity or debt
securities, the fund's portfolio managers consider such factors as the general
market and economic conditions, as well as trends, yields, interest rates and
changes in fiscal and monetary policies. The fund's portfolio managers will
primarily purchase equity securities for growth of capital and debt securities
for income purposes. However, the portfolio managers will focus on companies
whose securities have the potential for both capital appreciation and income
generation. The fund's portfolio managers usually sell a particular security
when they believe that security no longer has that potential.
AIM V.I. 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.
The fund may also invest up to 20% of its total assets in foreign securities.
The fund's portfolio managers focus on companies they believe are likely to
benefit from new or innovative products, services or processes as well as those
that have experienced above-average, long-term growth in earnings and have
excellent prospects for future growth. The fund's portfolio managers usually
sell a particular security when any of those factors materially changes.
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AIM V.I. CAPITAL DEVELOPMENT FUND
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing primarily in securities,
including common stocks, convertible securities and bonds, of small- and
medium-sized companies. The fund may also invest up to 25% of its total assets
in foreign securities.
Among factors which the portfolio managers may consider when purchasing these
securities are: (1) the growth prospects for a company's products; (2) the
economic outlook for its industry; (3) a company's new product development; (4)
its operating management capabilities; (5) the relationship between the price
of the security and its estimated fundamental value; (6) relevant market,
economic and political environments; and (7) financial characteristics, such as
balance sheet analysis and return on assets.
The fund's portfolio managers sell a particular security when any one of these
factors materially changes or when the securities are no longer considered the
securities of smaller companies.
AIM V.I. DIVERSIFIED INCOME FUND
The fund's investment objective is to achieve a high level of current income.
The fund attempts to meet this objective by investing primarily in (1)
securities issued by foreign governments, their agencies or instrumentalities;
(2) foreign and domestic corporate debt securities; (3) U.S. Government
securities, including U.S. Government agency mortgage-backed securities, and
(4) lower-quality debt securities, i.e., "junk bonds," of U.S. and foreign
companies or securities deemed of comparable quality. The fund's assets will
normally be invested in each of these four sectors, however the fund may invest
up to 100% of its total assets in U.S. Government securities.
The fund may invest up to 50% of its total assets in foreign securities,
including securities of issuers located in developing countries. The fund may
invest up to 25% of its total assets in government securities of any one
foreign country. The fund may also invest up to 10% of its total assets in
equity securities of U.S. and foreign companies. The fund may invest in debt
obligations issued by certain supranational entities, such as the World Bank.
The fund's portfolio managers focus on securities that they believe have
favorable prospects for current income, whether denominated in the U.S. dollar
or in other currencies. The fund's portfolio managers usually sell a particular
security when any of those factors materially changes.
AIM V.I. GLOBAL UTILITIES FUND
The fund's investment objectives are 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).
The fund attempts to meet these objectives by investing, normally, at least 65%
of its total assets in securities of domestic and foreign public utility
companies. In anticipation of or in response to adverse market conditions the
fund may invest up to 100% of its total assets in securities of U.S. issuers.
Public utility companies include companies that provide electricity, natural
gas, water and sanitary services to the public, 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 that derive a substantial portion of their revenues from utility
related activities.
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The fund may invest up to 80% of its total assets in foreign securities,
including securities of issuers located in developing countries. Developing
countries are those countries that are in the initial stages of their
industrial cycles. The fund will normally invest in the securities of companies
located in at least four different countries, including the United States. The
fund may invest up to 25% of its total assets in convertible securities. The
fund may also invest up to 25% of its total assets in non-convertible bonds.
The fund may invest up to 10% of its total assets in lower-quality debt
securities, i.e., "junk bonds."
The fund's portfolio managers focus on securities that have favorable prospects
for high current income and growth of capital. The fund's portfolio managers
usually sell a particular security when any of those factors materially
changes.
The fund is a non-diversified portfolio. With respect to 50% of its total
assets, it is permitted to invest more than 5% of its assets in the securities
of any one issuer.
AIM V.I. GOVERNMENT SECURITIES FUND
The fund's investment objective is to achieve high 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 fund may invest in securities of all maturities issued or guaranteed by the
U.S. Government or its agencies and instrumentalities, including: (1) U.S.
Treasury obligations, and (2) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities and supported by (a) the full faith
and credit of the U.S. Treasury, (b) the right of the issuer to borrow from the
U.S. Treasury, or (c) the credit of the agency or instrumentality. The fund
intends to maintain a dollar-weighted average portfolio maturity of between
three and ten years. The fund may invest in high-coupon U.S. Government agency
mortgage-backed securities, which consist of interests in underlying mortgages
with maturities of up to thirty years. The fund may also invest up to 20% of
its total assets in foreign securities.
The fund's portfolio managers focus on securities that they believe have
favorable prospects for current income, consistent with their concern for
safety of principal. The fund's portfolio managers usually sell a particular
security when any of those factors materially changes.
AIM V.I. GROWTH FUND
The fund's investment objective is to seek growth of capital primarily by
investing in seasoned and better capitalized companies considered to have
strong earnings momentum.
The fund may also invest up to 20% of its total assets in foreign securities.
The fund's portfolio managers focus on companies that have experienced
above-average growth in earnings and have excellent prospects for future
growth. The fund's portfolio managers usually sell a particular security when
any of those factors materially changes.
AIM V.I. GROWTH AND INCOME FUND
The fund's primary investment objective is growth of capital with a secondary
objective of current income.
The fund attempts to meet these objectives by investing at least 65% of its net
assets in common stocks the fund's portfolio managers believe have the
potential for above-average growth in revenues and earnings and at least 80% of
its net assets in securities that generate income. The fund may also invest up
to 20% of its total assets in foreign securities.
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The fund's portfolio managers sell a particular security when they believe the
securities no longer have that potential or the capacity to generate income.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment.
AIM V.I. HIGH YIELD FUND
The fund's investment objective is to achieve a high level of current income.
The fund's investment objective may be changed by the fund's Board of Directors
without shareholder approval.
The fund attempts to meet this objective by investing at least 65% of its
assets in publicly traded, lower-quality debt securities, i.e., "junk bonds."
The fund will invest at least 80% of its total assets in debt securities,
including convertible debt securities, and/or cash or cash equivalents. The
fund may also invest in preferred stock. The fund may invest up to 25% of its
total assets in foreign securities.
Although the fund's portfolio managers focus on debt securities that they
believe have favorable prospects for high current income, they also consider
the possibility of growth of capital of the security. The fund's portfolio
managers usually sell a particular security when any of those factors
materially changes.
AIM V.I. 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.
The fund attempts to meet this objective by investing at least 70% of its total
assets in marketable, foreign equity securities. The fund will normally invest
in companies located in at least four countries outside of the United States,
emphasizing investment in companies in the developed countries of Western
Europe and the Pacific Basin. The fund may invest up to 20% of its total assets
in securities of issuers located in developing countries, i.e., those that are
in the initial stages of their industrial cycles. The fund may invest up to 20%
of its total assets in securities exchangeable for or convertible into equity
securities of foreign companies.
The fund's portfolio managers focus on companies that have experienced
above-average, long-term growth in earnings and have excellent prospects for
future growth. In selecting countries in which the fund will invest, the fund's
portfolio managers also consider such factors as the prospect for relative
economic growth among countries or regions, economic or political conditions,
currency exchange fluctuations, tax considerations and the liquidity of a
particular security. The fund's portfolio managers usually sell a particular
security when any of those factors materially change.
AIM V.I. 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.
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The fund attempts to meet this objective by investing only in high-quality U.S.
dollar-denominated short-term obligations, including the following:
o securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities
o foreign government obligations
o bankers' acceptances, certificates of deposit, and time deposits from
U.S. or foreign banks
o repurchase agreements
o commercial paper
o taxable municipal securities
o master notes
The fund may invest up to 100% of its total assets in obligations issued by
banks. The fund may invest up to 25% of its total assets in foreign bank
obligations, limited to Eurodollar obligations (U.S. dollar-denominated
obligations issued by a foreign branch of a domestic bank), Yankee dollar
obligations (U.S. dollar-denominated obligations issued by a domestic branch of
a foreign bank), and obligations of foreign branches of foreign banks. No limit
applies to Eurodollar obligations unconditionally guaranteed by the domestic
parent of the foreign branch, or Yankee dollar obligations, if the U.S. branch
of the foreign bank is subject to the same regulations as U.S. banks.
The fund's portfolio managers focus on securities that they believe have
favorable prospects for current income, consistent with their concerns for
preservation of capital and liquidity. The fund's portfolio managers usually
hold portfolio securities to maturity, but may sell a particular security when
they deem it advisable.
AIM V.I. VALUE FUND
The fund's investment objective is to achieve long-term growth of capital by
investing primarily in equity securities judged by 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.
The fund also may invest in preferred stocks and debt instruments that are
consistent with its investment objective. Although the fund may receive income
from these investments, they will be purchased for their potential for growth
of capital and not for their ability to generate income. The fund also may
invest up to 25% of its total assets in foreign securities.
The fund's portfolio managers focus on undervalued equity securities of (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
that 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 their assets and where there is reason to expect
realization of this potential in the form of increased equity values. The
fund's portfolio managers usually sell a particular security when they believe
the company no longer fits into any of the above categories.
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ALL FUNDS (EXCEPT AIM V.I. MONEY MARKET FUND)
In anticipation of or in response to adverse market conditions or for cash
management purposes, each fund may hold all or a portion of its assets in cash,
money market securities, bonds or other debt securities. As a result, each fund
may not achieve its investment objectives.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
AIM V.I. AGGRESSIVE GROWTH 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 price of equity
securities goes up and down 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 common stocks of smaller
companies, whose prices may go up and down more than common stocks of larger,
more-established companies. Also, since common stocks of smaller companies may
not be traded as often as common stocks of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities at a desired
price. As a result, the price of your shares may decline.
AIM V.I. BALANCED FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from the fund may vary. 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 price of equity securities goes up
and down 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. Interest rate
increases may cause the price of a debt security to decrease; the longer the
debt security's duration, the more sensitive it is to this risk. The issuer of
a security may default or otherwise be unable to honor a financial obligation.
The values of convertible securities in which the fund invests may also be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying stock into which
these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest or dividends, their values may fall
if interest rates rise. 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.
AIM V.I. CAPITAL APPRECIATION 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 price of equity
securities goes up and down 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 common stocks of smaller
companies, whose prices may go up and down more than common stocks of larger,
more-established companies. Also, since common stocks of smaller companies may
not be traded as often as common stocks of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities at a desired
price. As a result, the price of your shares may decline.
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AIM V.I. CAPITAL DEVELOPMENT 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 price of equity
securities goes up and down 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 common stocks of smaller
companies, whose prices may go up and down more than common stock of larger,
more-established companies. Also, since common stock of smaller companies may
not be traded as often as common stock of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities in the fund
at a desired price. As a result, the price of your shares may decline.
AIM V.I. DIVERSIFIED INCOME FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. 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 price of equity securities fluctuates
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. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. When
interest rates rise, bond prices fall; the longer a bond's duration, the more
sensitive it is to this risk. Some of the securities purchased by the fund are
not guaranteed by the U.S. Government. The agency or instrumentality issuing
such security may default or otherwise be unable to honor a financial
obligation.
Compared to higher quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other
creditors' claims. The value of junk bonds often fluctuates in response to
company, political or economic developments and can decline significantly over
short periods of time or during periods of general or regional economic
difficulty. During those times the bonds could be difficult to value or sell at
a fair price. Credit ratings on junk bonds do not necessarily reflect their
actual market risk.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
U.S. Government agency mortgage-backed securities provide a higher coupon at
the time of purchase than current prevailing market interest rates. The fund
may purchase such securities at a premium, which means that a faster principal
prepayment rate than expected will reduce both the market value of and income
from such securities.
AIM V.I. GLOBAL UTILITIES FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from the fund may vary. 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 price of equity securities goes up
and down 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. Interest rate
increases may cause the price of a debt security to decrease; the longer a debt
security's duration, the more sensitive it is to this risk. The issuer of a
security may default or otherwise be unable to honor a financial obligation.
The value of the fund's shares is particularly vulnerable to factors affecting
the utility company industry, such as substantial economic, operational or
regulatory changes. Such changes may, among other things, increase compliance
costs or the costs of doing business. In addition, increases in fuel, energy
and other prices have historically limited the
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growth potential of utility companies. Because the fund focuses its investments
in the public utility industry, the value of your shares may rise and fall more
than the value of shares of a fund that invests more broadly.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were a diversified fund. The value of the fund's shares may vary more widely,
and the fund may be subject to greater investment and credit risk, than if the
fund invested more broadly.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
AIM V.I. GOVERNMENT SECURITIES FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. When interest rates
rise, bond prices fall; the higher a bond's duration, the more sensitive it is
to this risk. Some of the securities purchased by the fund are not guaranteed
by the U.S. Government. The agency or instrumentality issuing such security may
default or otherwise be unable to honor a financial obligation.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
High-coupon U.S. Government agency mortgage-backed securities provide a higher
coupon at the time of purchase than the then prevailing market rate yield. The
fund may purchase such securities at a premium, which means that a faster
principal prepayment rate than expected will reduce both the market value of,
and income from, such securities.
AIM V.I. GROWTH FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. 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 price of equity securities fluctuates
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.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
AIM V.I. GROWTH AND INCOME FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. 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 price of equity securities fluctuates
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. The values of the convertible
securities in which the fund may invest also will
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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.
AIM V.I. HIGH YIELD FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors
claims. The value of junk bonds often fluctuates in response to company,
political or economic growth developments and can decline significantly over
short periods of time or during periods of general or regional economic
difficulty. During those times, the bonds could be difficult to value or to
sell at a fair price. Credit ratings on junk bonds do not necessarily reflect
their actual market risk.
Debt securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; lower-quality bonds
are less sensitive to this risk than are higher-quality bonds.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
AIM V.I. INTERNATIONAL EQUITY 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 price of equity
securities goes up and down 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.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligations or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
AIM V.I. MONEY MARKET FUND
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. Although the fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the fund.
The income you may receive from your investment may vary. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. When
interests rates rise, bond prices fall; the longer a bond's duration, the more
sensitive it is to this risk. The value of the fund's shares is particularly
vulnerable to factors affecting the banking industry, such as government
regulation, credit risk and interest rate changes.
11
<PAGE> 13
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
AIM V.I. VALUE FUND
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. 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 price of equity securities fluctuates
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.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
ALL FUNDS
The value of your shares could be adversely affected if the computer systems
used by the funds' investment advisor and the funds' other service providers
are unable to distinguish the year 2000 from the year 1900.
The funds' 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 funds invests.
The prices of foreign securities may be further affected by other factors,
including:
o Currency exchange rates--The dollar value of the fund's foreign
investments will be affected by changes in the exchange rates between
the dollar and the currencies in which those investments are traded.
o Political and economic conditions--The value of the fund's foreign
investments may be adversely affected by political and social
instability in their home countries and by changes in economic or
taxation policies in those countries.
o Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are
U.S. companies. As a result, among other things, there generally is
less publicly available information about foreign companies than about
U.S. companies.
o Markets--The securities markets of other countries are smaller than
U.S. securities markets. As a result, many foreign securities may be
less liquid and more volatile than U.S. securities.
For AIM V.I. Global Utilities Fund and AIM V.I. International Equity Fund these
factors may affect the prices of securities issued by foreign companies located
in developing countries more than those in countries with mature economies. For
example, many developing countries have, in the past, experienced high rates of
inflation or sharply devaluated their currencies against the U.S. dollar,
thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures.
12
<PAGE> 14
PERFORMANCE INFORMATION
The bar charts and tables shown below provide an indication of the risks of
investing in each fund. A fund's past performance is not necessarily an
indication of its future performance.
AIM V.I. CAPITAL APPRECIATION FUND
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's shares
from year to year. The bar chart does not reflect charges at the separate
account level. If it did, the annual total returns shown would be lower.
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. 2.50%
1995............................. 35.69%
1996............................. 17.58%
1997............................. 13.50%
1998............................. 19.30%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
24.04% (quarter ended December 31, 1998) and the lowest quarter return was
- -14.75% (quarter ended September 30, 1998.)
AIM V.I. DIVERSIFIED INCOME FUND
ANNUAL TOTAL RETURNS
The following chart shows changes in the performance of the fund's shares from
year to year. The bar chart does not reflect charges at the separate account
level. If it did, the annual total returns shown would be lower.
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. (5.07)%
1995............................. 19.02%
1996............................. 10.19%
1997............................. 9.39%
1998............................. 3.58%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
5.54% (quarter ended June 30, 1995) and the lowest quarterly return was -3.16%
(quarter ended March 31, 1994.)
13
<PAGE> 15
AIM V.I. GLOBAL UTILITIES FUND
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's shares
from year to year. The bar chart does not reflect charges at the separate
account level. If it did, the annual returns shown would be lower.
AIM V.I. GLOBAL UTILITIES FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1995............................. 26.74%
1996............................. 12.07%
1997............................. 21.63%
1998............................. 16.49%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
12.15% (quarter ended December 31, 1998) and the lowest quarter return was
- -4.98% (quarter ended September 30, 1998.)
AIM V.I. GOVERNMENT SECURITIES FUND
ANNUAL TOTAL RETURNS
The following chart shows changes in the performance of the fund's shares from
year to year. The bar chart does not reflect charges at the separate account
level. If it did, the annual total returns shown would be lower.
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. (3.73)%
1995............................. 15.56%
1996............................. 2.29%
1997............................. 8.16%
1998............................. 7.73%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
5.48% (quarter ended June 30, 1995) and the lowest quarterly return was -2.82%
(quarter ended March 31, 1994.)
14
<PAGE> 16
AIM V.I. GROWTH FUND
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's shares
from year to year. The bar chart does not reflect charges at the separate
account level. If it did, the annual total returns shown would be lower.
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. (2.48)%
1995............................. 34.77%
1996............................. 18.09%
1997............................. 26.87%
1998............................. 34.12%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
27.80% (quarter ended December 31, 1998) and the lowest quarter return was
- -11.71% (quarter ended September 30, 1998.)
AIM V.I. GROWTH AND INCOME FUND
ANNUAL TOTAL RETURNS
The following chart shows changes in the performance of the fund's shares from
year to year. The bar chart does not reflect charges at the separate account
level. If it did, the annual total returns shown would be lower.
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1995............................. 33.86%
1996............................. 19.94%
1997............................. 25.72%
1998............................. 27.68%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
26.48% (quarter ended December 31, 1998) and the lowest quarterly return was
- -11.76% (quarter ended September 30, 1998.)
15
<PAGE> 17
AIM V.I. INTERNATIONAL EQUITY FUND
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's shares
from year to year. The bar chart does not reflect charges at the separate
account level. If it did, the annual total return shown would be lower.
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. (1.61)%
1995............................. 17.24%
1996............................. 20.05%
1997............................. 6.94%
1998............................. 15.49%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
14.36% (quarter ended March 31, 1998) and the lowest quarter return was -13.81%
(quarter ended September 30, 1998.)
AIM V.I. MONEY MARKET FUND
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's shares
from year to year. The bar chart does not reflect charges at the separate
account level. If it did, the annual total return shown would be lower.
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. 3.64%
1995............................. 5.70%
1996............................. 4.95%
1997............................. 5.13%
1998............................. 5.06%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
1.45% (quarter ended September 30, 1995) and the lowest quarterly return was
0.60% (quarter ended March 31, 1994.)
16
<PAGE> 18
AIM V.I. VALUE FUND
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's shares
from year to year.
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
[GRAPH]
ANNUAL
TOTAL
YEAR RETURN
---- ------
<S> <C>
1994............................. 4.04%
1995............................. 36.25%
1996............................. 15.02%
1997............................. 23.69%
1998............................. 32.41%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
27.04% (quarter ended December 31, 1998) and the lowest quarter return was
- -12.00% (quarter ended September 30, 1998.)
PERFORMANCE TABLES
AIM V.I. CAPITAL APPRECIATION FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 19.30% 17.23% 18.77% 05/05/93
- -----------------------------------------------------------------------------------------------------------
The Standard & Poor's 500 Index(1) 28.60% 24.08% 22.61%(2) 04/30/93(2)
===========================================================================================================
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
17
<PAGE> 19
AIM V.I. DIVERSIFIED INCOME FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Diversified Income Fund 3.58% 7.12% 7.38% 05/05/93
- -----------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(1) 8.69% 7.27% 7.25%(2) 04/30/93(2)
===========================================================================================================
</TABLE>
(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
considered representative of treasury, agency, corporate and
mortgage-backed debt securities.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
AIM V.I. GLOBAL UTILITIES FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Global Utilities Fund 16.49% 15.44% 05/02/94
- -----------------------------------------------------------------------------------------------------------
[Lipper Utility Fund Index](1) 18.40% 15.82%(2) 04/30/94(2)
===========================================================================================================
</TABLE>
(1) The Lipper Utility Fund Index [ ].
(2) The average annual total return given is since the date closest to the
inception date of the fund.
18
<PAGE> 20
AIM V.I. GOVERNMENT SECURITIES FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Government Securities Fund 7.73% 5.80% 5.76% 05/05/93
- -----------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate Government Bond Index(1) 8.49% 6.45% 6.31%(2) 04/30/93(2)
===========================================================================================================
</TABLE>
(1) The Lehman Bros Intermediate Government Bond Index is an unmanaged
composite generally considered representative of intermediate U.S.
Treasury and U.S. government agency securities.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
AIM V.I. GROWTH FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AIM V.I. Growth Fund 34.12% 21.44% 20.87% 05/05/93
- -----------------------------------------------------------------------------------------------------------
The Standard & Poor's 500 Index(1) 28.60% 24.08% 22.61%(2) 04/30/93(2)
===========================================================================================================
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. Stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
19
<PAGE> 21
AIM V.I. GROWTH AND INCOME FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Growth and Income Fund 27.68% 22.49% 05/02/94
- -----------------------------------------------------------------------------------------------------------
The Standard & Poor's 500 Index(1) 28.60% 26.68%(2) 04/30/94(2)
===========================================================================================================
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. Stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
AIM V.I. INTERNATIONAL EQUITY FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. International Equity Fund 15.49% 11.33% 13.36% 05/05/93
- -----------------------------------------------------------------------------------------------------------
The Morgan Stanley Capital International EAFE Index (1) 20.00% 9.19% 9.57%(2) 04/30/93(2)
===========================================================================================================
</TABLE>
(1) The Morgan Stanley Capital International EAFE Index measures performance
for 14 European developed country stock markets. The Index is
capitalization weighted. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a
sampling of large, medium and small capitalization companies from each
local market, taking into account the stocks' liquidity.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
20
<PAGE> 22
AIM V.I. MONEY MARKET FUND
The AIM V.I. Money Market Fund's seven day yield on December 31, 1998 was ___%.
For the current seven day yield, call (800) 347-4246.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Money Market Fund 5.06% 4.90% 4.59% 05/05/93
===========================================================================================================
</TABLE>
AIM V.I. VALUE FUND
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
===========================================================================================================
Average Annual Total Returns Since Inception
(for the periods ended December 31, 1998) 1 Year 5 Years Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Value Fund 32.41% 21.70% 21.90% 05/05/93
- -----------------------------------------------------------------------------------------------------------
The Standard & Poor's 500 Index(1) 28.60% 24.08% 22.61%(2) 04/30/93(2)
===========================================================================================================
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. Stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
21
<PAGE> 23
FUND MANAGEMENT
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as each fund's investment advisor.
The advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173. The advisor supervises all aspects of each fund's operations and
provides investment advisory services to the funds, including obtaining and
evaluating economic, statistical and financial information to formulate and
implement investment programs for the funds.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the funds, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor received
compensation of average daily net assets of each fund as follows:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
<S> <C>
AIM V.I. Aggressive Growth Fund %
AIM V.I. Balanced Fund %
AIM V.I. Capital Appreciation Fund %
AIM V.I. Capital Development Fund %
AIM V.I. Diversified Income Fund %
AIM V.I. Global Utilities Fund %
AIM V.I. Government Securities Fund %
AIM V.I. Growth Fund %
AIM V.I. Growth and Income Fund %
AIM V.I. High Yield Fund %
AIM V.I. International Equity Fund %
AIM V.I. Money Market Fund %
AIM V.I. Value Fund %
</TABLE>
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 each fund's portfolio, all of whom are officers of A I M Capital Management,
Inc. a wholly owned subsidiary of the advisor, are
AIM V.I. AGGRESSIVE GROWTH FUND
o Robert M. Kippes, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1989.
22
<PAGE> 24
o Charles D. Scavone, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1996. From 1994 to 1996, Mr. Scavone was
Associate Portfolio Manager for Van Kampen American Capital Asset
Management, Inc.
o Kenneth A. Zschappel, Senior Portfolio Manager, who has been
responsible for the fund since 1998 and has been associated with the
advisor and/or its affiliates since 1990.
AIM V.I. BALANCED FUND
o Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1992.
o Claude C. Cody, IV, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1992.
o Robert G. Alley, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1992.
o Craig A. Smith, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1989.
o Meggan M. Walsh, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1991.
AIM V.I. CAPITAL APPRECIATION FUND
o David P. Barnard, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliates since 1982.
o Robert M. Kippes, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliates since 1989.
o Charles D. Scavone, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1996. From 1994 to 1996 Mr. Scavone was an
Associate Portfolio Manager for Van Kampen American Capital Asset
Management, Inc.
o Kenneth A. Zschappel, Senior Portfolio Manager, who has been
responsible for the fund since 1995 and has been associated with the
advisor and/or its affiliates since 1990.
AIM V.I. CAPITAL DEVELOPMENT FUND
o Edgar M. Larsen, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1996. From 1981 to 1996 Mr. Larsen was,
among other offices, Senior Vice President of John Hancock Advisers,
Inc. and its predecessors.
o Paul J. Rasplicka, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1994.
23
<PAGE> 25
AIM V.I. DIVERSIFIED INCOME FUND
o Robert G. Alley, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliates since 1992.
o Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible
for the fund since 1995 and has been associated with the advisor
and/or its affiliates since 1992.
o John L. Pessarra, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliate since 1990.
AIM V.I. GLOBAL UTILITIES FUND
o Carolyn L. Gibbs, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1992.
o Claude C. Cody, IV, Portfolio Manager, who has been responsible for
the fund since 1998 and has been associated with the advisor and/or
its affiliates since 1992.
o Robert G. Alley, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1992.
o Craig A. Smith, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1989.
o Meggan M. Walsh, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1991.
AIM V.I. GOVERNMENT SECURITIES FUND
o Scot W. Johnson, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1994.
o Karen Dunn Kelley, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliates since 1989.
o Marcel S. Theriot, Senior Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1994.
AIM V.I. GROWTH FUND
o David P. Barnard, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliates since 1982.
o Monika H. Degan, Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its
affiliates since 1995. From 1991 to 1995, Ms. Degan was a Senior
Financial Analyst for Shell Oil Co. Pension Trust.
24
<PAGE> 26
o Robert M. Kippes, Senior Portfolio Manager, who has been responsible
for the fund since 1993 and has been associated with the advisor
and/or its affiliates since 1989.
o Jonathan C. Schoolar, Senior Portfolio Manager , who has been
responsible for the fund since 1993 and has been associated with the
advisor and/or its affiliates since 1986.
AIM V.I. GROWTH AND INCOME FUND
o Brant H. DeMuth, Portfolio Manager, who has been responsible for the
fund since 1998, and has been associated with the advisor and/or its
affiliates since 1996. From 1992 to 1996, Mr. DeMuth was portfolio
manager for Colorado Public Employee Retirement Association.
o Joel E. Dobberpuhl, Senior Portfolio Manager, who has been responsible
for the fund since 1995, and has been associated with the advisor
and/or its affiliates since 1990.
o Lanny H. Sachnowitz, Senior Portfolio Manager, who has been
responsible for the fund since 1994, and has been associated with the
advisor and/or its affiliates since 1987.
AIM V.I. HIGH YIELD FUND
o John L. Pessarra, Senior Portfolio Manager, who has been responsible
for the fund since 1998, and has been associated with the advisor
and/or its affiliates since 1990.
o Kevin E. Rogers, Senior Portfolio Manager, who has been responsible
for the fund since 1998, and has been associated with the advisor
and/or its affiliates since 1991.
AIM V.I. INTERNATIONAL EQUITY FUND
o A. Dale Griffin, III, Senior Portfolio Manager, who has been
responsible for the fund since 1992 and has been associated with the
advisor and/or its affiliates since 1989.
o Clas G. Olsson, Portfolio Manager, who has been responsible for the
fund since 1997 and has been associated with the advisor and/or its
affiliates since 1994.
o Paul A. Rogge, Senior Portfolio Manager, who has been responsible for
the fund since its inception in 1992 and has been associated with the
advisor and/or its affiliates since 1991.
o Barrett K. Sides, Portfolio Manager, who has been responsible for the
fund since 1995 and has been associated with the advisor and/or its
affiliates since 1990.
AIM V.I. VALUE FUND
o Joel E. Dobberpuhl, Senior Portfolio Manager, who has been responsible
for the fund since 1993, and has been associated with the advisor
and/or its affiliates since 1990.
o Evan G. Harrel, Senior Portfolio Manager, who has been responsible for
the fund since 1998 and has been associated with the advisor and/or
its affiliates since 1998. From 1994 to 1998 Mr. Harrel was Vice
President and portfolio manager of Van Kampen American Capital Asset
Management, Inc. and portfolio manager of various growth and equity
funds.
25
<PAGE> 27
o Robert A. Shelton, Senior Portfolio Manager, who has been responsible
for the fund since 1997 and has been associated with the advisor
and/or its affiliates since 1995. From ____ to 1995, Mr. Shelton was a
financial analyst for CS First Boston.
OTHER INFORMATION
PURCHASE AND REDEMPTION OF SHARES
Each 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 each fund serves as the fund's designee for
receiving orders of separate accounts that invest in the fund.
PRICING OF SHARES
Each of the funds prices its shares based on its net asset value. The funds,
except AIM V.I. Money Market Fund, value portfolio securities for which market
quotations are readily available at market value. The funds value short-term
investments maturing within 60 days at amortized cost, which approximates
market value. AIM V.I. Money Market Fund values all of its securities based on
the amortized cost method. The funds, except AIM V.I. Money Market Fund, value
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 funds 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 a fund's net asset value will be subject to the judgment
of the Board of Directors or its designee instead of being determined by the
market. Because some of the funds may invest in securities that are primarily
listed on foreign exchanges, the value of those funds' 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 funds. 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
Each fund other than AIM V.I. Money Market Fund generally declares and pays
dividends, if any, annually to separate accounts of participating life
insurance companies. AIM V.I. Money Market Fund generally declares and pays
dividends, if any, daily.
26
<PAGE> 28
Capital Gains Distributions
Each fund other than AIM V.I. Money Market Fund generally distributes long-term
and short-term capital gains (including any net gains from foreign currency
transactions), if any, annually to separate accounts participating life
insurance companies. AIM V.I. Money Market Fund may distribute net realized
short-term gains, if any, more frequently.
At the election of participating life insurance companies, dividends and
distributions are automatically reinvested at net asset value in shares of that
fund.
FUTURE FUND CLOSURE
Due to the sometime limited availability of common stocks of small-cap
companies that meet the investment criteria for AIM V.I. Aggressive Growth
Fund, the fund may periodically suspend or limit the offering of its shares
will be closed to new participants when fund assets reach $200 million.
During closed periods, the fund will accept additional investments from
existing participants.
27
<PAGE> 29
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in each fund (assuming reinvestment of all
dividends and distributions).
The table shows the financial highlights for a share of each fund outstanding
during each of the fiscal years (or periods) indicated.
This information has been audited by Tait, Weller & Baker, whose report, along
with the fund's financial statements, is included in each fund's annual report,
which is available upon request.
AIM V.I. AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
------------------
For the period
May 1, 1998
through
December 31,
1998
------------------
<S> <C>
Net asset value, beginning of period $ xx.xx
-------
Income from investment operations:
Net investment income (loss) (x.xx)
-------
Net gains on securities (both realized and unrealized) (x.xx)
-------
Total from investment operations (x.xx)
-------
Distributions from net realized gains (x.xx)
-------
Net asset value, end of period $ xx.xx
-------
Total return (a) (x.xx)%
-------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx
-------
Ratio of expenses to average net assets (b) x.xx%(c)(d)
-------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c)
-------
Portfolio turnover rate xx%
-------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%.
28
<PAGE> 30
AIM V.I. BALANCED FUND
<TABLE>
<CAPTION>
------------------
For the period
May 1, 1998
through
December 31,
1998
------------------
<S> <C>
Net asset value, beginning of period $ xx.xx
-------
Income from investment operations:
Net investment income (loss) (x.xx)
-------
Net gains on securities (both realized and unrealized) (x.xx)
-------
Total from investment operations (x.xx)
-------
Distributions from net realized gains (x.xx)
-------
Net asset value, end of period $ xx.xx
-------
Total return (a) (x.xx)%
-------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx
-------
Ratio of expenses to average net assets (b) x.xx%(c)(d)
-------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c)
-------
Portfolio turnover rate xx%
-------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%.
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
29
<PAGE> 31
AIM V.I. CAPITAL DEVELOPMENT FUND
<TABLE>
<CAPTION>
------------------
For the period
May 1, 1998
through
December 31,
1998
------------------
<S> <C>
Net asset value, beginning of period $ xx.xx
-------
Income from investment operations:
Net investment income (loss) (x.xx)
-------
Net gains on securities (both realized and unrealized) (x.xx)
-------
Total from investment operations (x.xx)
-------
Distributions from net realized gains (x.xx)
-------
Net asset value, end of period $ xx.xx
-------
Total return (a) (x.xx)%
-------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx
-------
Ratio of expenses to average net assets (b) x.xx%(c)(d)
-------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c)
-------
Portfolio turnover rate xx%
-------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%.
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
30
<PAGE> 32
AIM V.I. GLOBAL UTILITIES FUND
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
---------------------------------------------------- -------------
Year Ended
Year Ended December 31, January 31,
---------------------------------------------------- -------------
1998 1997 1996 1995 1995
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- --------- --------- ---------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- -------- --------- --------- ---------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
-------- -------- --------- --------- ---------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
-------- -------- --------- --------- ---------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- -------- --------- --------- ---------
Portfolio turnover rate xx% xx% xx% xx% xx%
-------- -------- --------- --------- ---------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
31
<PAGE> 33
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
---------------------------------------------------- -------------
Year Ended
Year Ended December 31, January 31,
---------------------------------------------------- -------------
1998 1997 1996 1995 1995
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
-------- -------- --------- --------- ---------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
-------- -------- --------- --------- ---------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- -------- --------- --------- ---------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx $ xx,xxx
-------- -------- --------- --------- ---------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx%
-------- -------- --------- --------- ---------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)%
-------- -------- --------- --------- ---------
Portfolio turnover rate xx% xx% xx% xx% xx%
-------- -------- --------- --------- ---------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
32
<PAGE> 34
AIM V.I. HIGH YIELD FUND
<TABLE>
<CAPTION>
------------------
For the period
May 1, 1998
through
December 31,
1998
------------------
<S> <C>
Net asset value, beginning of period $ xx.xx
-------
Income from investment operations:
Net investment income (loss) (x.xx)
-------
Net gains on securities (both realized and unrealized) (x.xx)
-------
Total from investment operations (x.xx)
-------
Distributions from net realized gains (x.xx)
-------
Net asset value, end of period $ xx.xx
-------
Total return (a) (x.xx)%
-------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx
-------
Ratio of expenses to average net assets (b) x.xx%(c)(d)
-------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c)
-------
Portfolio turnover rate xx%
-------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%.
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
33
<PAGE> 35
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
---------------------------------------------- ----------------------
Year Ended December 31, Year ended January 31,
---------------------------------------------- ----------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net gains on securities (both realized and unrealized) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Total from investment operations (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Distributions from net realized gains (x.xx) (x.xx) (x.xx) (x.xx) (x.xx) (x.xx)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx $ xx.xx
------- ------- ------- ------- ------- -------
Total return (a) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx $xx,xxx
------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets (b) x.xx%(c)(d) x.xx% x.xx% x.xx% x.xx% x.xx%
------- ------- ------- ------- ------- -------
Ratio of net investment income (loss) to average net assets(e) (x.xx)%(c) (x.xx)% (x.xx)% (x.xx)% (x.xx)% (x.xx)%
------- ------- ------- ------- ------- -------
Portfolio turnover rate xx% xx% xx% xx% xx% xx%
------- ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
X.XX%, X.XX%, X.XX%, X.XX%, and X.XX% for 1998-1994.
(b) Ratios are annualized and based on average net assets of $XX,XXX,XXX,XXX.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (X.XX)%, (X.XX)%, (X.XX)%, (X.XX)% and (X.XX)% for
1998-1994.
34
<PAGE> 36
[BACK COVER PAGE]
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
Securities and Exchange Commission (SEC), contains more details about each 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 each fund's investments. The funds' annual report also
discusses the market conditions and investment strategies that significantly
affected each fund's performance during its last fiscal year.
If you wish to obtain free copies of the funds' current SAI, please send a
written request to A I M Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173.
You also can obtain copies of the funds' SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Variable Insurance Funds, Inc.
SEC 1940 Act file number: 811-7452
<PAGE> 37
[AIM LOGO]
AIM V.I. Global Growth and Income Fund
Prospectus
May 3, 1999
Shares of the fund are currently offered only to insurance company separate
accounts.
AIM V.I. Global Growth and Income Fund seeks to provide long-term growth of
capital together with current income.
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.
<PAGE> 38
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND STRATEGIES........................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND...................................3
FUND MANAGEMENT............................................................5
ADVISOR ARRANGEMENTS............................................5
ADVISOR COMPENSATION............................................5
PORTFOLIO MANAGERS..............................................5
OTHER INFORMATION..........................................................6
PURCHASE AND REDEMPTION OF SHARES...............................6
PRICING OF SHARES...............................................6
TAXES...........................................................6
DIVIDENDS AND DISTRIBUTIONS.....................................6
OBTAINING ADDITIONAL INFORMATION.............................BACK COVER PAGE
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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 39
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objectives are growth of capital together with current
income.
The fund seeks to achieve its objectives by investing at least 65% of its total
assets in a combination of blue-chip equity securities and high-quality
government bonds of U.S. and foreign issuers. "Blue chip" equity securities are
those which (1) offered, during the issuer's most recent fiscal year, an above
average dividend yield relative to the latest reported dividend yield on the
Morgan Stanley Capital International World Index, and (2) are issued by a
company with total equity market capitalization of at least $1 billion.
High-quality government bonds are rated within one of the two highest ratings
categories of Moody's Investors Service, Inc.
or Standard & Poor's, or are deemed to be of comparable quality.
The fund may invest up to 35% of its total assets in other equity securities
and government and corporate debt securities that are investment grade, i.e.,
rated within one of the four highest ratings categories of Moody's or S&P. The
fund may purchase 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 organizations, such as the World Bank. The fund will normally
invest in securities of issuers in at least three countries, including the
United States, and the fund may invest a significant portion of its assets in
the securities of U.S. issuers. However, the fund may not invest more than 40%
of its assets in securities of issuers in any one country, other than the U.S.
The fund may invest up to 100% of its total assets in either equity or debt
securities in response to general economic changes and market conditions around
the world.
The portfolio managers allocate assets among securities of countries and in
currency denominations where opportunities for meeting the fund's investment
objectives are expected to be the most attractive. The portfolio managers
usually sell a particular security when opportunities for meeting the fund's
investment objectives are no longer considered attractive.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money
market securities, 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 and that the income you may receive from your investment may vary. 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 price of equity securities goes up
and down 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. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. When
interest rates rise, bond prices fall; the longer a bond's duration, the more
sensitive it is to this risk.
The prices of foreign securities may be further affected by other factors,
including:
o Currency exchange rates - The dollar value of the fund's foreign
investments will be affected by changes in the exchange rates between
the dollar and the currencies in which those investments are traded.
o Political and economic conditions - The value of the fund's foreign
investments may be adversely affected by political and social
instability in their home countries and by changes in economic or
taxation policies in those countries.
3
<PAGE> 40
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o Markets - The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less
liquid and more volatile than U.S. securities.
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.
4
<PAGE> 41
FUND MANAGEMENT
ADVISOR ARRANGEMENTS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management including the fund's investment
decisions and the execution of securities transactions. The advisor is located
at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO Asset
Management Limited (the subadvisor), serves as the fund's subadvisor, is
located at 11 Devonshire Square, London, England EC2M4YR. The subadvisor is
responsible for providing the advisor with economic and market research,
securities analysis and investment recommendations with respect to the fund.
Both entities are affiliated.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives. The subadvisor has acted as an investment advisor since
its organization in 19__. The subadvisor advises approximately ___ investment
portfolios.
ADVISOR COMPENSATION
The advisor is to receive compensation from the fund calculated at the annual
rate of 1.00% of the fund's daily average 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, are
o Paul Griffiths, Portfolio Manager, who has been responsible for
the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1994.
o Michael Lindsell, Portfolio Manager, who has been responsible
for the fund since 1998 and has been associated with the
advisor and/or its affiliates since 1992.
o John Nadell, Portfolio Manager, who has been responsible for
the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1994.
5
<PAGE> 42
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 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.
6
<PAGE> 43
[BACK COVER PAGE]
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
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). 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.
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM V.I. Global Growth and Income Fund
SEC 1940 Act file number: 811-7452
<PAGE> 44
[AIM LOGO]
AIM V.I. Telecommunications Fund
Prospectus
May 3, 1999
Shares of the fund are currently offered only to insurance company separate
accounts.
AIM V.I. Telecommunications Fund seeks to provide long-term growth of capital.
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.
<PAGE> 45
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND STRATEGIES......................................3
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................3
FUND MANAGEMENT..........................................................5
THE ADVISOR...................................................5
ADVISOR COMPENSATION..........................................5
PORTFOLIO MANAGERS............................................5
OTHER INFORMATION........................................................6
PURCHASE AND REDEMPTION OF SHARES.............................6
PRICING OF SHARES.............................................6
TAXES.........................................................6
DIVIDENDS AND DISTRIBUTIONS...................................6
OBTAINING ADDITIONAL INFORMATION...........................BACK COVER PAGE
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 is a service
mark of A I M Management Group Inc.
2
<PAGE> 46
INVESTMENT OBJECTIVE AND STRATEGIES
The fund's investment objective is long-term growth of capital.
The fund seeks to achieve 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. The fund will
invest, normally, at least 65% of its total assets in common and preferred
stocks and warrants to acquire such stocks issued by telecommunications
companies. The fund considers a "telecommunications company" to be one that (1)
derives at least 50% of its revenues or earnings from telecommunications
activities, or (2) devotes at least 50% of its assets to such activities, based
on its most recent fiscal year. Such companies include those that develop,
manufacture, or sell communications services and equipment, computer and
electronic components and equipment, mobile communications, and broadcasting.
The fund may invest up to 35% of its assets in debt securities issued by
telecommunications companies and/or equity and debt securities of other
companies the portfolio managers believe will benefit from developments in the
telecommunications industry. The fund may also invest in lower quality debt
securities , i.e., "junk bonds."
The fund will normally invest in the equity securities of companies located in
at least three different countries, including the United States, and may invest
a significant portion of its assets in the securities of U.S. issuers. However,
the fund will not invest more than 40% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest
substantially in securities denominated in one or more currencies.
The portfolio managers allocate the fund's assets among securities of countries
and in currency denominations that are expected to provide the best
opportunities for meeting the fund's investment objective. In analyzing
specific companies for possible investment, the portfolio managers ordinarily
look for several of the following characteristics: above-average per share
earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
portfolio managers normally sell a particular security when any of those
factors materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currencies or multinational currency units), money
market securities, 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 common stocks in which the fund invests. The price of equity
securities rises and falls in response to many factors, including the
historical and prospective earnings of the issuer of the stock, the value of
its assets, general economic conditions, interest rates, investor perceptions,
and market liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
the telecommunications industry, such as substantial government regulation.
Because the fund focuses its investments in the telecommunications industries,
the value of your fund shares may rise and fall more than the value of shares
of a fund that invests more broadly.
In addition, the prices of securities issued by foreign issuers may be further
affected by other factors, including:
3
<PAGE> 47
o Currency Exchange Rates - The dollar value of the fund's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
o Political and Economic Conditions - The value of the fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies
in those countries
o Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, among other things, there generally is less
publicly available information about foreign companies than about U.S.
companies.
o Markets - The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less
liquid and more volatile than U.S. securities.
These factors may affect the price of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies
against the U.S. dollar, thereby causing the value of investments in companies
located in those countries to decline. Transaction costs are often higher in
developing countries and there may be delays in settlement procedures. In
addition, developing countries may have greater political or economic
instability, less regulation and smaller, less liquid and more volatile markets
than countries with more mature economies.
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.
4
<PAGE> 48
FUND MANAGEMENT
THE ADVISOR
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 obtaining and evaluating economic, statistical and
financial information to formulate and implement investment programs 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 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
The advisor is to receive compensation from the fund calculated at the annual
rate of 1.00% of the fund's daily average 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
o Jonathan C. Schoolar, Senior Portfolio Manager, who has been
responsible for the fund since 1999 and has been associated with the
advisor and/or its affiliates since 1986.
o Claude C. Cody IV, Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or
its affiliates since 1992.
o Paul A. Rogge, Senior Portfolio Manager, who has been responsible
for the fund since 1999 and has been associated with the advisor
and/or its affiliates since 1991.
o David P. Barnard, Senior Portfolio Manager, who has been responsible
for the fund since 1999 and has been associated with the advisor
and/or its affiliates since 1982.
o Kenneth A. Zschappel, Senior Portfolio Manager, who has been
responsible for the fund since 1999 and has been associated with the
advisor and/or its affiliates since 1990.
o Robert M. Kippes, Senior Portfolio Manager, who has been responsible
for the fund since 1999 and has been associated with the advisor
and/or its affiliates since 1989.
5
<PAGE> 49
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.
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 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.
6
<PAGE> 50
[BACK COVER PAGE]
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
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). 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.
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC- 0330 for information about the Public Reference Room.
AIM V.I. Telecommunications Fund
SEC 1940 Act file number: 811-7452
<PAGE> 51
STATEMENT OF
ADDITIONAL INFORMATION
AIM VARIABLE INSURANCE FUNDS, INC.
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
AIM V.I. AGGRESSIVE GROWTH FUND AIM V.I. BALANCED FUND
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. GLOBAL GROWTH AND INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH AND INCOME FUND AIM V.I. GROWTH FUND
AIM V.I. HIGH YIELD FUND AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. MONEY MARKET FUND AIM V.I. TELECOMMUNICATIONS FUND
AIM V.I. VALUE FUND
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH
MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P. O. BOX 4739,
HOUSTON, TX 77210-4739
OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS)
OR (800) 347-1919 (ALL OTHERS).
------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 3, 1999
RELATING TO PROSPECTUS DATED: MAY 3, 1999
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <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............................................................................3
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................................................4
General Brokerage Policy.....................................................................4
Section 28(e) Standards......................................................................6
Portfolio Turnover...........................................................................7
Brokerage Commissions Paid...................................................................8
INVESTMENT STRATEGIES AND RISKS.......................................................................8
Aggressive Growth Fund.......................................................................8
Balanced Fund................................................................................9
Capital Appreciation Fund....................................................................9
Capital Development Fund.....................................................................9
Diversified Income Fund.....................................................................10
Global Growth and Income Fund...............................................................10
Global Utilities Fund.......................................................................11
Government Securities Fund..................................................................11
Growth Fund.................................................................................12
Growth & Income Fund........................................................................12
High Yield Fund.............................................................................12
International Equity Fund...................................................................13
Money Market Fund...........................................................................13
Telecommunications Fund.....................................................................14
Value Fund..................................................................................15
CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES.........................................................16
Money Market Obligations....................................................................16
Repurchase Agreements.......................................................................17
U.S. Government Agency Mortgage-Backed Securities...........................................17
Convertible Securities......................................................................17
Real Estate Investments Trusts ("REITS")....................................................18
Foreign Securities..........................................................................18
Foreign Exchange Transactions...............................................................19
ADRs and EDRs...............................................................................19
Lending of Portfolio Securities.............................................................20
Reverse Repurchase Agreements...............................................................20
Delayed Delivery Agreements and When-Issued Securities......................................20
Dollar Roll Transactions....................................................................22
Borrowing...................................................................................22
Illiquid Securities.........................................................................22
</TABLE>
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<PAGE> 53
<TABLE>
<S> <C> <C>
Special Situations..........................................................................22
Warrants ...................................................................................22
Short Sales.................................................................................23
Rule 144A Securities........................................................................23
Asset Allocation Among Countries............................................................23
Utilities Industry..........................................................................23
HEDGING AND OTHER INVESTMENT TECHNIQUES..............................................................24
Options ...................................................................................24
Futures and Forward Contracts...............................................................27
RISK FACTORS.........................................................................................29
Small Capitalization Companies..............................................................29
Non-Investment Grade Debt Securities........................................................29
Foreign Securities..........................................................................30
Non-diversified Portfolio (Global Utilities Fund Only)......................................31
INVESTMENT RESTRICTIONS..............................................................................31
Fundamental Restrictions....................................................................31
Non-fundamental Restrictions................................................................32
MANAGEMENT...........................................................................................33
Directors and Officers......................................................................33
Remuneration of Directors..........................................................36
AIM Funds Retirement Plan for Eligible Directors/Trustees..........................38
Deferred Compensation Agreements...................................................38
Investment Advisory, Sub-Advisory and Administrative Services Agreements....................39
The Distribution Agreement..................................................................44
DETERMINATION OF NET ASSET VALUE.....................................................................45
PURCHASE AND REDEMPTION OF SHARES....................................................................47
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.............................................................48
MISCELLANEOUS INFORMATION............................................................................50
Organization of the Company.................................................................50
Audit Reports...............................................................................51
Legal Matters...............................................................................51
Custodian and Transfer Agent................................................................51
Principal Holders of Securities.............................................................51
Other Information...........................................................................55
APPENDIX A..........................................................................................A-1
APPENDIX B..........................................................................................B-1
APPENDIX C..........................................................................................C-1
FINANCIAL STATEMENTS.................................................................................FS
</TABLE>
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<PAGE> 54
INTRODUCTION
AIM Variable Insurance Funds, Inc. (the "Company") is a mutual fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
certain information concerning the activities of the fund being considered for
investment. This information is included in Prospectuses dated May 3, 1999
(referred to collectively as the "Prospectuses" and separately as a
"Prospectus"), which relate to one or more of the fifteen series portfolios of
the Company (referred to collectively as the "Funds" and separately as a
"Fund"). One or more of the Company's fifteen Funds may not be available under a
particular variable annuity contract or variable life insurance policy.
Accordingly, this Statement of Additional Information may contain information
that is not relevant to the investment options under such a contract or policy.
Additional copies of the Prospectuses of the Funds available under a contract or
policy and this Statement of Additional Information may be obtained without
charge by contacting the principal distributor of the Funds' shares, A I M
Distributors, Inc. ("AIM Distributors"), P. O. Box 4739, Houston, TX 77210-4739
or by calling (713) 626-1919. Investors must receive a Prospectus before they
invest. To the extent that this Statement of Additional Information contains
information concerning a Fund that is not available under a contract or policy,
the Statement of Additional Information does not constitute the offer of the
shares of that Fund.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Funds' current Prospectus and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement filed with the SEC. Copies
of the Registration Statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized on January 22, 1993, as a Maryland
corporation, and is registered with the SEC as an open-end, series, management
investment company. The Company currently consists of fifteen separate Funds as
follows: the AIM V.I. Aggressive Growth Fund ("Aggressive Growth Fund"), the AIM
V.I. Balanced Fund ("Balanced Fund"), the AIM V.I. Capital Appreciation Fund
("Capital Appreciation Fund"), the AIM V.I. Capital Development Fund ("Capital
Development Fund"), the AIM 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 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
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<PAGE> 55
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. Global Growth and Income Fund and the
AIM V.I. Telecommunications Fund) average annual and cumulative total return for
the fiscal year ended December 31, 1998 and average annual and cumulative total
returns for the period May 5, 1993 (commencement of operations) through December
31, 1998, were as follows:
<TABLE>
<CAPTION>
Since
Inception
--------------------
Year Ended Average
December 31, Annual Cumulative
1998 Return Return
------------ ------- ----------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund**
AIM V.I. Balanced Fund**
AIM V.I. Capital Appreciation Fund
AIM V.I. Capital Development Fund**
AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund*
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund*
AIM V.I. High Yield Fund**
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Value Fund
</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.
2
<PAGE> 56
The total returns quoted above do not reflect charges levied at the
insurance company separate account level. For a complete description of the
applicable charges, see the fee table in the prospectus for the appropriate
insurance company separate account.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and other
independent services which monitor the performance of mutual funds. The Funds
may also advertise mutual fund performance rankings which have been assigned to
each respective Fund by such monitoring services.
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
The International Fund's performance may also be compared in
advertising to performance of comparative benchmarks such as The Financial
Times--Actuaries World Indices (a wide range of comprehensive measures of stock
price performance for the major stock markets and regional areas), Morgan
Stanley Capital International Indices, including the EAFE Index, Pacific Basin
Index and Pacific Ex Japan Index (a widely recognized series of indices in
international market performance), and indices of stocks comparable to those in
which the Fund invests.
Each Fund's advertising may from time to time include historical
discussions of general economic conditions such as inflation rates and changes
in the stock market, foreign and domestic interest rates and foreign and
domestic political circumstances and events.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, variable annuities, variable life insurance, dollar-cost
averaging, stocks, bonds, money markets, certificates of deposit, retirement,
retirement plans, asset allocation, tax-free investing, college planning and
inflation.
YIELD INFORMATION
Quotations of yield on the Money Market Fund may appear from time to
time in the financial press and in advertisements.
The Money Market Fund's yield is its investment income, less expenses,
expressed as a percentage of assets on an annualized basis for an identified
period, usually seven days. The yield is expressed as a simple annualized yield
and as a compounded effective yield. The yield does not reflect the fees and
charges imposed on the assets of the insurance company separate account.
The standard formulas prescribed by the SEC for calculating yield and
effective yield for the Money Market Fund are described below:
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities, unrealized
appreciation and depreciation, and income other than investment income) in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning
3
<PAGE> 57
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.
The simple annualized yield and compounded effective yield for the
Money Market Fund for the 7 days ended December 31, 1998 were _____ and _____,
respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the
Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and
sell securities for each Fund, for the selection of broker-dealers, for the
execution of the Fund's investment portfolio transactions, for the allocation of
brokerage fees in connection with such transactions and, where applicable, for
the negotiation of commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain the best net
price and the most favorable execution of the order. While AIM generally seeks
reasonably competitive commission rates, each Fund does not necessarily pay the
lowest commission or spread available.
Purchases and sales of portfolio securities for the Diversified Income
Fund, the Money Market Fund and the Government Fund are generally transacted
with the issuer or a primary market maker. In addition, a portion of the
securities in which the Funds invest may be traded in over-the-counter ("OTC")
markets. In such transactions, the Fund deals directly with the dealers who make
markets in the securities involved, except in those circumstances where better
prices and executions are available elsewhere. Portfolio transactions placed
through dealers serving as primary market makers are effected at net prices,
without commissions as such, but which include compensation to the dealer in the
form of mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. In recent years, however, an increasing
number of overseas stock markets have adopted a system of negotiated rates,
although a number of markets continue to be subject to an established schedule
of minimum commission rates.
Foreign equity securities may be held by the Fund in the form of
American Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers, or
securities convertible into foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence a
similar ownership
4
<PAGE> 58
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 broker; (2) the research services provided by the
broker; (3) certain products and/or services provided to the Funds, the cost of
which will be included in Fund expenses reported to shareholders; and (4) the
broker's attitude toward an interest in mutual funds in general and in the Funds
and the other AIM Funds in particular. No specific formula will be used in
connection with any of the foregoing considerations in determining the target
levels. However, if a broker has indicated a certain level of desired
commissions in return for certain research services provided by the broker, this
factor will be taken into consideration by AIM.
Subject to the overall objective of obtaining best price and execution
for the Funds, AIM may also consider sales of shares by broker-dealers of each
Fund and of the other AIM Funds as well as sales of variable annuity contracts
("Contracts") and variable life insurance policies ("Policies") funded through
the Funds ("selling dealers"), as a factor in the selection of broker-dealers to
execute portfolio transactions for a Fund. Such portfolio transactions may be
executed directly by selling dealers or by other broker-dealers with which
selling dealers have clearing arrangements.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which may be recaptured are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
AIM and its affiliates manage several other investment accounts, some
of which may have investment objectives similar to those of the Funds. It is
possible that, at times, identical securities will be appropriate for investment
by one or more of such investment accounts. The position of each account,
however, in the securities of the same issue may vary and the length of time
that each account may choose to hold its investment in the securities of the
same issue may likewise vary. The timing and amount of purchases by each account
will also be determined by its cash position. If the purchase or sale of
securities is consistent with the investment policies of a Fund(s) and one or
more of these accounts is considered at or about the same time. AIM may combine
such transactions, in accordance with applicable laws and regulations, in order
to obtain the best net price and most favorable execution. Simultaneous
transactions could, however, adversely affect the ability of a Fund to obtain or
dispose of the full amount of a security which it seeks to purchase or sell.
These combined transactions, and related brokerage charges, will be
allocated among the Fund(s) and such accounts in a manner consistent with
guidelines and procedures approved by the Company's Board of Directors that are
designed to achieve an equitable manner of allocation. In some cases the
procedure for allocating portfolio transactions among the various investment
accounts advised by AIM could have an adverse effect on the price or amount of
securities available to a Fund. In making such allocations, the main factors
5
<PAGE> 59
considered by AIM are the respective investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the judgments of the persons
responsible for recommending the investment.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another investment account
advised by AIM or AIM Capital, when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment objective(s)
and policies of the investment accounts advised by AIM or AIM Capital.
Procedures pursuant to Rule 17a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") regarding transactions between investment accounts
advised by AIM or AIM Capital have been adopted by the Boards of
Directors/Trustees of the various AIM Funds, including the Company. Although
such transactions may result in custodian, tax or other related expenses, no
brokerage commissions or other direct transaction costs are generated by
transactions among the investment accounts advised by AIM or AIM Capital.
SECTION 28(e) STANDARDS
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
AIM may cause a Fund to pay a broker that provides brokerage and research
services to AIM an amount of commission for effecting a securities transaction
for the Fund in excess of the commission another broker would have charged for
effecting that transaction. To obtain the benefit of Section 28(e), AIM must
make a good faith determination that the commissions paid are "reasonable in
relation to the value of the brokerage and research services provided . . .
viewed in terms of either that particular transaction or [its] overall
responsibilities with respect to the accounts as to which [it] exercises
investment discretion" and that the services provided by a broker provide AIM
with lawful and appropriate assistance in the performance of its investment
decision-making responsibilities. Accordingly, the price to a Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM to be beneficial to the
Funds' investment programs. Research services received from brokers supplement
AIM's own research (and the research of sub-advisors to other clients of AIM)
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to AIM and to the Company's directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the brokers
utilized by AIM as a group tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, this research provides
AIM with a diverse perspective on financial markets. Research services which are
provided to AIM by brokers are available for the benefit of all accounts managed
or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM is of the opinion that
because the broker research supplements rather than replaces its research, the
receipt of such research does not tend to decrease its expenses, but tends to
improve the quality of its investment advice. However, to the extent that AIM
would have purchased
6
<PAGE> 60
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:
<TABLE>
<CAPTION>
Commissions Transactions
----------- ------------
<S> <C> <C> <C>
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. International Equity Fund $ $
AIM V. I. Value Fund $ $
</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, SMITH BARNEY,
FUNDS SACHS & CO. INC.
- --------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Diversified Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Government Securities Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Growth Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. International Equity Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Money Market Fund $ $
- --------------------------------------------------------------------------------
AIM V.I. Value Fund $ $
- --------------------------------------------------------------------------------
</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. ___________________ held an amount of common stock issued by
___________________ having a market value of $_________.
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 Global Growth and
Income Fund and Telecommunications Fund is less than 100%. Higher portfolio
turnover increases transaction costs to the Fund.
7
<PAGE> 61
BROKERAGE COMMISSIONS PAID
Brokerage commissions paid by each of the Funds (except 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.
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ N/A N/A
AIM V.I. Balanced Fund* $ N/A N/A
AIM V.I. Capital Appreciation Fund $ $ 644,279 $ 405,056
AIM V.I. Capital Development Fund* $ N/A N/A
AIM V.I. Diversified Income Fund $ $ 2,818 $ 1,670
AIM V.I. Global Utilities Fund $ $ 12,208 $ 16,365
AIM V.I. Government Securities Fund $ $ -0- $ -0-
AIM V.I. Growth Fund $ $ 621,467 $ 578,444
AIM V.I. Growth and Income Fund $ $ 1,190,597 $ 417,167
AIM V.I. High Yield Fund* $ N/A N/A
AIM V.I. International Equity Fund $ $ 605,318 $ 557,527
AIM V.I. Money Market Fund $ $ -0- $ -0-
AIM V.I. Value Fund $ $ 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, are deemed to be fundamental policies and,
therefore, unless permitted by law, may not be changed without the approval of a
majority of that Fund's outstanding shares (within the meaning of the 1940 Act).
The Board of Directors on behalf of the High Yield Fund is permitted to change
the investment objective of that Fund without shareholder approval. Each Fund's
investment policies, strategies and practices are not fundamental. The Board of
Directors of the Company reserves the right to change any of these
non-fundamental investment policies, strategies or practices without shareholder
approval. 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 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
8
<PAGE> 62
from new or innovative products, services or processes that should enhance such
companies' prospects for future growth in earnings. As a result of this policy,
the market prices of many of the securities purchased and held by the Fund may
fluctuate widely. Any income received from securities held by the Fund will be
incidental, and an investor should not consider a purchase of shares of the Fund
as equivalent to a complete investment program. The Fund's portfolio is
primarily comprised of securities of two basic categories: (a) "core" companies,
which Fund management considers to have experienced above-average and consistent
long-term growth in earnings and to have excellent prospects for outstanding
future growth, and (b) "earnings acceleration" companies which Fund management
believes are currently enjoying dramatic increase in profits. The Fund's
strategy does not preclude investment in large, seasoned companies which in the
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 to investors as possible, consistent with preservation of capital. The
Fund seeks to achieve its objective by investing in a broadly diversified
portfolio of high-yielding securities, including common stocks, preferred
stocks, convertible securities and bonds. Although equity securities will be
purchased primarily for capital appreciation and fixed income securities will be
purchased primarily for income purposes, income and capital appreciation
potential will be considered in connection with all investments. The Fund
normally will have a minimum of 30% and a maximum of 70% of its total assets
invested in equity securities and a minimum of 30% and a maximum of 70% of its
total assets invested in (non-convertible) fixed income securities. Most of such
fixed income securities will be rated Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's 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.
CAPITAL APPRECIATION FUND. The Fund's investment objective is to seek
capital appreciation through investments in common stocks, with emphasis on
medium-sized and smaller emerging growth companies. AIM will be particularly
interested in companies that are likely to benefit from new or innovative
products, services or processes that should enhance such companies' prospects
for future growth in earnings. As a result of this policy, the market prices of
many of the securities purchased and held by the Fund may fluctuate widely. Any
income received from securities held by the Fund will be incidental, and an
investor should not consider a purchase of shares of the Fund as equivalent to a
complete investment program. The Capital Appreciation Fund's portfolio is
primarily comprised of securities of two basic categories of companies: (1)
"core" companies, which AIM considers to have experienced above-average and
consistent long-term growth in earnings 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
capital appreciation. Production of income is incidental to this objective. The
Fund's principal investments are in common stocks, convertible securities and
bonds. There can, of course, be no assurance that the Fund will in fact achieve
its objective since all investments are inherently subject to market risks.
9
<PAGE> 63
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. The Fund may also invest up to 10% of its total assets in
securities of other registered investment companies.
DIVERSIFIED INCOME FUND. The Fund's investment objective is to seek to
achieve a high level of current income. The Fund will seek to achieve its
investment objective by investing primarily in: (i) foreign government
securities, (ii) foreign and domestic corporate debt securities, (iii) U.S.
Government securities, including U.S. Government Agency Mortgage-Backed
Securities and (iv) lower-rated or unrated high yield debt securities (commonly
known as "junk bonds") of U.S. and foreign companies. Under normal
circumstances, the Fund's assets will be invested in each of these four sectors.
The Fund may invest up to 10% of its total assets in common stocks, preferred
stocks, similar equity securities and convertible securities of U.S. and foreign
companies. The Fund does not intend to invest more than 50% of its total assets
in lower-rated or unrated high yield securities or more than 50% of its total
assets in foreign debt securities. (For a description of the various rating
categories of corporate debt securities in which the Fund may invest, see
Appendix A to this 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 objectives are
long-term capital appreciation 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, 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.
10
<PAGE> 64
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 as a secondary objective the Fund seeks to
achieve capital appreciation, by investing primarily in the common and preferred
stocks of public utility companies (either domestic or foreign). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
securities of public utility companies (either domestic or foreign). Public
utility companies include companies that provide electricity, natural gas or
water and other sanitary services to the public, and telephone or telegraph
companies and other companies providing public communications services. The Fund
may also invest in developing utility technology companies and in holding
companies which derive a substantial portion of their revenues from
utility-related activities. Generally, a holding company will be considered to
derive a substantial portion of its revenues from utility-related activities if
such activities account for at least 40% of its revenues. The Fund may invest up
to 25% of its total assets in convertible securities. When AIM deems it
appropriate, the Fund may also purchase the bonds of such companies. Investments
in non-convertible bonds, however, will not exceed 25% of the Fund's total
assets. The Fund may invest up to 10% of its total assets in lower-rated or
unrated high yield securities. (For a description of the various rating
categories of corporate debt securities in which the Fund may invest, see
Appendix A to this 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.
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
11
<PAGE> 65
("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 through investment in common stocks of seasoned and better
capitalized companies considered by AIM to have strong earnings momentum.
Current income will not be an important criterion of investment selection, and
any such income should be considered incidental. It is anticipated that common
stocks will be the principal form of investment by the Fund. 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.
GROWTH & INCOME FUND. The Fund's investment objective is to seek growth
of capital, with current income as a secondary objective. Although the amount of
the Fund's current income will vary from time to time, it is anticipated that
the current income realized by the Fund will generally be greater than that
realized by mutual funds whose sole objective is growth of capital. The Fund
seeks to achieve its objective by generally investing at least 65% of its net
assets in stocks of companies believed by management to have the potential for
above average growth in revenues and earnings. The Fund generally will also
invest at least 80% of its net assets in securities which pay income to the
Fund.
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
- --------
(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, One, Duff and Phelps, Inc., Fitch Investors
Services, Inc. and,
12
<PAGE> 66
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 seek
to provide long-term growth of capital by investing in a diversified portfolio
of international equity securities the issuers of which are considered by AIM to
have strong earnings momentum. Any income realized by the Fund will be
incidental and will not be an important criterion in the selection of portfolio
securities.
In managing the Fund, AIM seeks to apply to a diversified portfolio of
international equity securities substantially the same investment strategy which
it applies to the Growth Fund with respect to that Fund's investment in United
States equities markets. The Fund will utilize to the extent practicable a fully
managed investment policy providing for the selection of securities which meet
certain quantitative standards determined by AIM. AIM will review carefully the
earnings history and prospects for growth of each company considered for
investment by the Fund. It is expected that the Fund's portfolio, when fully
invested, will generally be comprised of two basic categories of foreign
companies: (1) "core" companies, which AIM considers to have experienced
consistent long-term growth in earnings and to have strong prospects for
outstanding future growth, and (2) companies that AIM believes are currently
experiencing a greater than anticipated increase in earnings. If a particular
foreign company meets the quantitative standards determined by AIM, its
securities may be acquired by the Fund regardless of the location of the company
or the percentage of the Fund's investments in the company's country or region.
However, AIM will also consider other factors in making investment decisions for
the Fund, including such factors as the prospects for relative economic growth
among countries or regions, economic and political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security. For
a discussion of the investment risks associated with investments in foreign
securities, see "Risk Factors" in this Statement of Additional Information.
MONEY MARKET FUND. The Fund's investment objective is to seek to
provide as high a level of current income as is consistent with the preservation
of capital and liquidity. The Fund seeks to achieve its objective by investing
in a diversified portfolio of high quality U.S. dollar denominated money market
instruments and other similar instruments with maturities of 397 days or less
from the date of purchase, and will maintain a dollar weighted-average portfolio
maturity of 90 days or less. Securities subject to repurchase agreements may
bear longer maturities.
The Fund invests in a broad range of U.S. Government and foreign
government obligations, and bank and commercial instruments that may be
available in the money markets. Such obligations include U.S. Treasury
- --------------------------
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.
13
<PAGE> 67
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.
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
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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 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 and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio. The
Fund should not be purchased by those who seek income as their primary
investment objective.
In addition to the securities described above, the Fund may also
acquire preferred stocks and debt instruments having prospects for growth of
capital. Although these different types of securities can be expected to
generate amounts of income to satisfy the Fund's secondary objective, they will
be purchased for their potential for growth of capital.
The primary thrust of AIM's search for undervalued equity securities is
in four categories: (1) out-of-favor cyclical growth companies; (2) established
growth companies that are undervalued compared to historical relative valuation
parameters; (3) companies where there is early but tangible evidence of
improving prospects which are not yet reflected in the price of the company's
equity securities; and (4) companies whose equity securities are selling at
prices that do not reflect the current market value of its assets and where
there is reason to expect realization of this potential in the form of increased
equity values.
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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 Fund's 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 a significant degree in these
instruments, its ability to achieve its investment objectives may be adversely
affected.
In addition to the Money Market Obligations described above, as a
temporary or defensive measure, and without regard to their respective
investment objectives, AIM, 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 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.
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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 Untied States Government or by one of its agencies
or instrumentalities, including but not limited to GNMA, FNMA, or FHLMC. U.S.
Government Agency Mortgage-Backed Certificates provide for the pass-through to
investors of their pro-rata share of monthly payments (including any principal
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and 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
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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, International Fund
and 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
Aggressive Growth Fund, Balanced Fund, Capital Appreciation Fund, Capital
Development Fund, Global Utilities Fund, Growth Fund, Growth and Income Fund and
Value Fund; and (ii) 10% of the total assets of Diversified Income Fund and 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.
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, the Growth & Income Fund, and the Money Market Fund; (ii)
25% of the value of the total assets of the Aggressive Growth Fund, the Capital
Development Fund, the High Yield Fund and the Value Fund; (iii) 50% of the value
of the total assets of the Diversified Income Fund; (iv) 90% of the value of the
total assets of the Global Growth and Income Fund; (v) 80% of the value of the
total assets of the Global Utilities Fund; and (vi) 75% of the value of the
total assets of the Telecommunications Fund. The International Fund will invest
at least 70% of its total assets in foreign securities.
The Diversified Income Fund may invest in debt obligations which may be
denominated in the U.S. dollar or in other currencies issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank,
Asian Development Bank and European Economic Community), and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities. The Diversified Income Fund may also invest in debt
obligations issued by U.S. corporations denominated in non-U.S. dollar
currencies. No more than 25% of the Diversified Income Fund's total assets, at
the time of purchase, will be invested in government securities of any one
foreign country. At the present time, AIM does not intend to invest more than
10% of the Diversified Income
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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 Utilities Fund may invest up to 80% of its total assets in
securities of foreign companies, including investments in ADRs, EDRs and other
securities representing underlying securities of foreign issuers. Under normal
market conditions, the Global Utilities Fund will be invested in securities of
issuers located in at least four countries, one of which will be the United
States, although for defensive purposes, it may invest 100% of its total assets
in securities of U.S. issuers. In some foreign countries, utility companies are
partially owned by government agencies. In some cases, foreign government
agencies may have significant investments in businesses other than utility
companies. Also, investments in securities of foreign issuers may involve other
risks which are not ordinarily associated with investments in domestic issuers.
See "Risk Factors" in this Statement of Additional Information. In addition,
investors should also be aware that the Global Utilities Fund may invest in
companies located within emerging or developing countries.
Under normal market conditions the International Fund will invest at
least 70% of its total assets in marketable equity securities (including common
and preferred stock and depositary receipts for stock) and may invest up to 20%
of its total assets in securities exchangeable for or convertible into stock 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
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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 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
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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
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.
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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 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 331/3% 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 Capital Development 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
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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 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.
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.
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Electric utility companies are also subject to extensive local
regulation in environmental and site location matters. Future legislation with
regard to the issues of acid rain and toxic and radioactive wastes could have a
significant impact on the manner in which utility companies conduct their
business, and the costs that they incur. Since the late 1970s, investor-owned
utilities have experienced a number of unfavorable regulatory trends, including
increased regulatory resistance to price increases and new legislation
encouraging competition.
Electric utilities have recently become subject to competition in
varying degrees. This competition can have the effect of decreasing revenues and
profit margins.
Natural Gas Industry. The natural gas industry is comprised primarily
of many small distribution companies and a few large interstate pipeline
companies. The Public Utility Holding Company Act of 1935 has generally acted as
a bar to the consolidation of pipeline and distribution companies. Regulation of
these companies is similar to that of electric companies. The performance of
natural gas utilities may also be substantially affected by fluctuations in
energy prices. Competition in the natural gas industry has resulted in the
consolidation of the industry.
Communications Industry. Most of the communications industry capacity
is concentrated in the hands of a few very large publicly-held companies, unlike
the situation in the electric and gas industries. Significant risks for the
investor to overcome still exist, however, including risk relating to pricing at
marginal versus embedded cost. New entrants may have lower costs of material due
to newer technologies or lower standards of reliability than those heretofore
imposed by American Telephone & Telegraph ("AT&T") on the industry. Accordingly,
the marginal cost of incremental service is much lower than the costs embedded
in an existing network. Communications companies are not subject to the Public
Utility Holding Company Act of 1935.
Interstate communications service may be subject to Federal
Communications Commission regulation. Local service may be regulated by the
states. In addition, AT&T and its former subsidiaries are still subject to
judicial review pursuant to the settlement of the antitrust case brought against
them by the Department of Justice.
Water Utility Industry. The water utility industry is composed of
regulated public utilities that are involved in the distribution of drinking
water to densely populated areas. The industry is geographically diverse and
subject to 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.
HEDGING AND OTHER INVESTMENT TECHNIQUES
OPTIONS
Each of the Funds, other than the Money Market Fund, may write (sell)
"covered" put and call options and buy put and call options, including
securities index and foreign currency options. A call option is a contract that
gives to the holder the right to buy a specified amount of the underlying
security at a fixed or determinable price (called the exercise or strike price)
upon exercise of the option. A put option is a contract that gives the holder
the right to sell a specified amount of the underlying security at a fixed or
determinable price upon exercise of the option. In the case of index options,
exercises are settled through the payment of cash rather than the delivery of
property. A call option is covered if, for example, the Fund owns or has the
right to acquire the underlying security covered by the call or, in the case of
a call option on an index, holds securities the price changes of which are
expected to substantially replicate the movement of the index. A put option is
covered if, for example, the Fund segregates liquid assets with a value equal to
the exercise price of the put option.
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These Funds may write call options on securities or securities indexes
for the purpose of increasing their return (through receipt of premiums) or to
provide a partial hedge against a decline in the value of their portfolio
securities or both. In return for the premium income, the Fund loses any
opportunity to profit from an increase in the market price of the underlying
securities, above the exercise price, while the contract is outstanding, except
to the extent the premium represents a profit. The Fund also retains the risk of
loss if the price of the security declines, although the premium is intended to
offset that loss in whole or in part. As long as its obligations under the
option continue, a Fund must assume that the call may be exercised at any time
and that the net proceeds realized from the sale of the underlying securities
pursuant to the call may be substantially below the prevailing market price.
These Funds may write put options on securities or securities indexes in order
to earn additional income or (in the case of put options written on individual
securities) to purchase the underlying security at a price below the current
market price. If a Fund writes an option which expires unexercised or is closed
out by the Fund at a profit, it will retain all or part of the premium received
for the option, which will increase its gross income. If the price of the
underlying security moves adversely to the Fund's position, the option may be
exercised and the Fund will be required to sell or purchase the underlying
security at a disadvantageous price, or, in the case of index options, deliver
an amount of cash, which loss may only be partially offset by the amount of
premium received.
A Fund may enter into a "closing purchase transaction", by purchasing
an option identical to the one it has written, and terminate its obligations
under the covered call. The Fund will realize a gain (or loss) from a closing
purchase transaction if the amount paid to purchase a call option is less (or
more) than the premium received upon writing the corresponding call option. Any
loss resulting from the exercise or closing out of a call option is likely to be
offset in whole or in part by unrealized appreciation of the underlying security
owned by the Fund primarily because a price increase of a call option generally
reflects an increase in the market price of the securities on which the option
is based. In order to sell portfolio securities that cover a call option, a Fund
will effect a closing purchase transaction so as to close out any existing
covered call option on those securities. A closing purchase transaction for
exchange-traded options may be made only on a national securities exchange. A
liquid secondary market on an exchange may not always exist for any particular
option, or at any particular time, and, for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Fund is unable to effect a closing purchase transaction, the Fund will not sell
the underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
A Fund may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised. If a Fund is able to enter into a closing purchase transaction, the
Fund will realize a profit (or loss) from that transaction if the cost of the
transaction is less (or more) than the premium received from the writing of the
option. After writing a put option, a Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying securities plus the premiums received from the sale of
the option.
Each of the Funds noted above may also purchase put or call options on
securities and securities indexes in order to hedge against changes in interest
rates or stock prices which may adversely affect the prices of securities that
the Fund wants to purchase at a later date, to hedge its existing investments
against a decline in value, or to attempt to reduce the risk of missing a market
or industry segment advance. In the event that the expected changes in interest
rates or stock prices occur, the Fund may be able to offset the resulting
adverse effect on the Fund by exercising or selling the options purchased. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise or liquidation of the
option. Unless the price of the underlying security or level of the securities
index changes by an amount in excess of the premium paid, the option may expire
without value to the Fund.
The purchase of put options on securities enables a Fund to preserve,
at least partially, unrealized gains in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund may continue to
receive interest or dividend income on the security.
An option on a securities index, unlike a stock option (which gives the
holder the right to purchase or sell a specified stock at a specified price)
gives the holder the right to receive a cash "exercise settlement amount" equal
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to (i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier." A securities index fluctuates with changes in the market
values of the securities included in the index. For example, some securities
index options are based on a broad market index such as the S&P 500 or the NYSE
Composite Index, or a narrower market index such as the S&P 100. Indexes may
also be based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indexes are
currently traded on the following exchanges, among others: The Chicago Board
Options Exchange, New York Stock Exchange, and American Stock Exchange. Options
on indexes of debt securities and other types of securities indexes are not
currently available. If such options are introduced and traded on exchanges in
the future, the Funds may use them.
The value of securities index options in any investment strategy
depends upon the extent to which price movements in the portion of the
underlying securities correlate with price movements in the selected securities
index. Perfect correlation is not possible because the securities held or to be
acquired by a Fund will not exactly match the composition of the securities
indexes on which options are written. In the purchase of securities index
options the principal risk is that the premium and transaction costs paid by a
Fund in purchasing an option will be lost if the changes (increase in the case
of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option. In writing securities index options, the
principal risk is that a Fund could bear a loss on the options that would be
only partially offset (or not offset at all) by the increased value or reduced
cost of the hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities used
as cover.
The Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
Fund's overall position. For example, the Fund may purchase a put option and
write a covered call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. This technique, called a "collar," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the put option.
Another possible combined position would involve writing a covered call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written covered call option in the event of a substantial
price increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Options purchased or written by a Fund may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options. Such
options and the securities used as "cover" for such options, unless otherwise
indicated, would be considered illiquid securities.
In instances in which a Fund has entered into agreements with primary
dealers with respect to the over-the-counter options it has written, and such
agreements would enable the Fund to have an absolute right to repurchase at a
pre-established formula price the over-the-counter option written by it, the
Fund would treat as illiquid only securities equal in amount to the formula
price described above less the amount by which the option is "in-the-money,"
i.e, the price of the option exceeds the exercise price.
Each of the Funds, except the Money Market Fund, may purchase put and
call options and write covered put and call options on foreign currencies for
the purpose of protecting against declines the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. Such investment strategies will be used as a hedge and not for
speculation. As in the case of other types of options, the writing of an option
on foreign currency will constitute a hedge, however it differs in that it is
only a partial hedge, up to the amount of the premium received. Moreover, the
Fund could be required to purchase or sell foreign currencies at disadvantageous
exchange rates; thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the Fund's position,
it may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies may be traded
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on the national securities exchange or in the over-the-counter market. As
described above, options traded in the over-the-counter market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to options traded over-the-counter.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the applicable Fund's other investments and
the risk that there may not be a liquid secondary market for the option when the
Fund seeks to hedge against adverse market movements. This may cause the Fund to
lose the entire premium on purchase options or reduce its ability to effect
closing transactions at favorable prices.
The Funds will not write options if, immediately after such sale, the
aggregate value of the securities or obligations underlying the outstanding
options exceeds 25% of the applicable Fund's total assets. The Funds will not
purchase options if, at the time of the investment, the aggregate premiums paid
for outstanding options will exceed 5% of the applicable Fund's total assets.
FUTURES AND FORWARD CONTRACTS
Each of the Funds, other than the Money Market Fund, may purchase and
sell futures contracts on debt securities and on indexes of debt securities to
hedge against anticipated changes in interest rates that might otherwise have an
adverse effect on the value of their assets or assets they intend to acquire. In
addition, they may purchase and sell stock index futures contracts to hedge the
value of the portfolio against changes in market conditions. These Funds may
also purchase put and call options on futures contracts and write "covered" put
and call options on futures contracts in order to hedge against changes in
interest rates or stock prices. A futures contract is a bilateral agreement to
buy or sell a security (or deliver a cash settlement price, in the case of an
index future) for a set price in the future. When the contract is entered into,
a good faith deposit, known as initial margin, is made with the broker.
Subsequent daily payments, known as variation margin, are made to and by the
broker reflecting changes in the value of the security or level of the index.
Futures contracts are authorized by boards of trade designated as "contracts
markets" by the Commodity Futures Trading Commission ("CFTC"). Certain results
may be accomplished more quickly, and with lower transaction costs, in the
futures market (because of its greater liquidity) than in the cash market.
In cases of purchases of futures contracts, an amount of liquid assets,
equal to the cost of the futures contracts (less any related margin deposits),
will be segregated to collateralize the position and ensure that the use of such
futures contracts is unleveraged. Unlike when a Fund purchases or sells a
security, no price is paid or received by a Fund upon the purchase or sale of a
future contract. Initially, a Fund will be required to deposit with its
custodian for the account of the broker a stated amount, as called for by the
particular contract, of liquid assets. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable. This process is known as "marking-to-market." For example, when a
Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment with respect to
that increase in value. Conversely, where a Fund has purchased a stock index
futures contract and the price of the underlying stock index has declined, that
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. Variation margin payments would be made
in similar fashion when a Fund has purchased an interest rate futures contract.
At any time prior to expiration of the futures contract, a Fund may elect to
close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination
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of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
A Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits. Positions taken
in the futures markets are typically liquidated through offsetting transactions,
which may result in a gain or a loss, before delivery or cash settlement is
required. However, a Fund may close out a position by making or taking delivery
of the underlying securities wherever it appears economically advantageous to do
so.
Purchases of options on futures contracts may present less risk than
the purchase and sale of the underlying futures contracts, since the potential
loss is limited to the amount of the premium plus related transaction costs. A
call option on a futures contract gives the purchaser the right, in return for
the premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.
Positions in futures contracts may be closed out only on an exchange or
a board of trade which provides the market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there may not always be a liquid market,
and it may not be possible to close a futures position at that time; in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of maintenance margin. Whenever futures positions are used
to hedge portfolio securities, however, any increase in the price of the
underlying securities held by the Fund may partially or completely offset losses
on the futures contracts.
If a broker or clearing member of an options or futures clearing
corporation were to become insolvent, the Funds could experience delays and
might not be able to trade or exercise options or futures purchased through that
broker. In addition, the Funds could have some or all of their positions closed
out without their consent. If substantial and widespread, these insolvencies
could ultimately impair the ability of the clearing corporations themselves.
While the principal purpose of engaging in these transactions is to limit the
effects of adverse market movements, the attendant expense may cause the Funds'
returns to be less than if the transactions had not occurred. Their overall
effectiveness, therefore, depends on AIM's accuracy in predicting future changes
in interest rate levels or securities price movements, as well as on the expense
of engaging in these transactions.
Although the Funds are authorized to invest in futures contracts and
related options with respect to non-U.S. instruments, they will limit such
investments to those which have been approved by the Commodity Futures Trading
Commission ("CFTC") for investment by U.S. investors. These Funds may enter into
futures contracts and buy and sell related options, provided that the futures
contracts and related options investments are made for "bona fide hedging"
purposes, as defined under CFTC regulations. No more than 5% of a Fund's total
assets will be committed to initial margin deposits required pursuant to futures
contracts. Percentage investment limitations on a Fund's investment in options
on futures contracts are set forth above under "Options."
To the extent that any of the Funds invests in securities denominated
in foreign currencies (which is substantially all of the securities held by the
International Fund and a significant portion of securities held by the
Diversified Income Fund and the Global Utilities Fund), the value of the Fund's
portfolio will be affected by changes in exchange rates between currencies
(including the U.S. dollar), as well as by changes in the market value of the
securities themselves. In order to mitigate the effects of such changes, each of
the Funds, other than the Money Market Fund, may enter into futures contracts on
foreign currencies (and related options) and may enter into forward contracts
for the purchase or sale of a specific currency at a future date at a price set
at the time of the contract. Forward contracts are traded over-the-counter, and
not on organized commodities or securities exchanges. As a result, it may be
more difficult to value such contracts, and it may be difficult to enter into
closing transactions with respect to them.
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In managing their currency exposure, the Funds may buy and sell
currencies either in the spot (cash) market or in the forward market (through
forward contracts generally expiring within one year). The Funds may also enter
into forward contracts with respect to a specific purchase or sale of a
security, or with respect to their portfolio positions generally. When such a
Fund purchases a security denominated in a foreign currency for settlement in
the near future, it may immediately purchase in the forward market the currency
needed to pay for and settle the purchase. By entering into a forward contract
with respect to the specific purchase or sale of a security denominated in a
foreign currency, the applicable Fund can secure an exchange rate between the
trade and settlement dates for that purchase or sale transaction. This practice
is sometimes referred to as "transaction hedging." Positions hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions (or underlying portfolio positions, such as in an ADR) denominated or
quoted in a foreign currency. Unlike futures contracts, forward contracts are
generally individually negotiated and privately traded. A forward contract
obligates the seller to sell a specific security or currency at a specific price
on a future date, which may be any fixed number of days from the date of the
contract. The Funds may enter into forward contracts for transaction hedging
purposes with respect to all or a substantial portion of their trades. The Funds
will not speculate in foreign exchange nor commit a larger percentage of their
total assets to foreign exchange hedges than the percentage of their total
assets which they could invest in foreign securities. The Global Utilities Fund
and the International Fund may enter into forward contracts for transaction
hedging purposes with respect to all or a substantial portion of their trades.
There are risks associated with hedging transactions. During certain
market conditions, a hedging transaction may not completely offset a decline or
rise in the value of the Fund's portfolio securities or currency being hedged.
In addition, changes in the market value of securities or currencies may differ
substantially from the changes anticipated by the Fund when hedged positions
were established. Successful use of hedging transactions is dependent upon AIM's
ability to predict correctly movements in the direction of the applicable
markets. No assurance can be given that AIM's judgment in this respect will be
correct. Accordingly, a Fund may lose the expected benefit of hedging if markets
move in an unanticipated manner. Moreover, in the futures and options on futures
markets, it may not always be possible to execute a put or sell at the desired
price, or to close out an open position due to market conditions, limits on open
positions, and/or daily price fluctuations.
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 Global Utilities Fund and the Telecommunications
Fund, seek to meet their respective investment objectives by investing in
non-investment grade debt securities, commonly known as "junk bonds." While
generally providing greater income and opportunity for gain, non-investment
grade debt securities may be subject to greater risks than higher-rated
securities. Economic downturns tend to disrupt the market for junk bonds and
adversely affect their values. Such economic downturns may be expected to result
in increased price volatility for junk bonds and of the value of shares of the
above-named Funds, and increased issuer defaults on junk bonds.
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In addition, many issuers of junk bonds are substantially leveraged,
which may impair their ability to meet their obligations. In some cases, junk
bonds are subordinated to the prior payment of senior indebtedness, which
potentially limits a Fund's ability to fully recover principal or to receive
payments when senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its
market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. Junk bonds have
speculative characteristics which are likely to increase in number and
significance with each successive lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in
the absence of readily available market quotations for such securities, the
relative lack of reliable objective data makes it more difficult for the
Company's directors to value a Fund's securities, and judgment plays a more
important role in determining such valuations. Increased illiquidity in the junk
bond market also may affect a Fund's ability to dispose of such securities at
desirable prices.
In the event a Fund experiences an unexpected level of net redemptions,
the Fund could be forced to sell its junk bonds without regard to their
investment merits, thereby decreasing the asset 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 members'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.
30
<PAGE> 84
MARKET RISK. The securities markets in many of the countries in which
the Fund invests will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies and
governments may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs as well as
administrative difficulties (such as the need to use foreign custodians) may be
associated with the maintenance of assets in foreign jurisdictions. There is
generally less government regulation and supervision of foreign stock exchanges,
brokers and issuers which may make it difficult to enforce contractual
obligations. In addition, transaction costs in foreign securities markets are
likely to be higher, since brokerage commission rates in foreign countries are
likely to be higher than in the United States.
In addition, there are risks associated with certain investment
strategies employed by the 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;
31
<PAGE> 85
(6) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total assets
at market value at the time of each investment, except that the Money Market
Fund may invest up to 100% of its assets in obligations issued by banks. This
limitation does not apply to the Global Utilities Fund or to investments in
obligations of the U.S. Government or any of its agencies or instrumentalities
but will apply to foreign government obligations unless the Securities and
Exchange Commission permits their exclusion;
(7) issue senior securities, except to the extent permitted by the
1940 Act, including permitted borrowings;
(8) purchase securities of an issuer (other than investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or except that each Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order), if as a result with respect to 75% of the value of the Fund's total
assets, taken at market value, (i) more than 5% of the Fund's total assets taken
at market value would be invested in the securities of such issuer, except that
up to 25% of the Fund's total assets may be invested in securities issued or
guaranteed by any foreign government or its agencies or instrumentalities, or
(ii) such purchase would at the time result in more than 10% of the outstanding
voting securities of such issuer being held by the Fund. As a matter of
operating policy, the Money Market Fund will invest no more than 5% of the value
of that Fund's total assets in securities, other than U.S. Government securities
of any one issuer, except that the Money Market Fund may invest up to 25% of its
total assets in First Tier Securities (as defined in Rule 2a-7 under the 1940
Act) of a single issuer for a period of up to three business days after the
purchase of such security. This restriction does not apply to the Global
Utilities Fund; and
(9) Each Fund may, not withstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as that Fund.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Funds but are
not fundamental. They may be changed for any Fund without approval of that
Fund's voting securities.
(1) None of the Funds will invest more than 15% (10% for the Money
Market Fund) of its assets in securities restricted as to disposition under
federal securities laws, or securities otherwise considered illiquid or not
readily marketable, including repurchase agreements having a maturity of more
than seven days.
(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.
32
<PAGE> 86
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 (79) Director and Chairman of the Board of Directors,
Chairman A I M Management Group Inc.,
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; and Vice Chairman
and Director, AMVESCAP PLC.
- --------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (54) 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 (74) 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. (63) 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 (46) 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.
33
<PAGE> 87
<TABLE>
<CAPTION>
========================================================================================================
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
*CARL FRISCLING (61)
919 Third Avenue Director Partner, Kramer, Levin, Naftalis & Frankel
New York, NY 10022 (law firm). Formerly, Partner, Reid & Priest
(law firm).
- --------------------------------------------------------------------------------------------------------
**ROBERT H. GRAHAM (51) 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
350 Fifth Avenue, Suite 301 U.S.A.; Commissioner, New York City
New York, NY 10118 Department for the Aging; and Member,
Board of Directors, Metropolitan
Transportation Authority of New York State.
- --------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
- --------------------------------------------------------------------------------------------------------
IAN W. ROBINSON (75) Director Formerly, Executive Vice President and
183 River Drive Chief Financial Officer, Bell Atlantic
Tequesta, FL 33469 Management Services, Inc. (provider of
centralized management services to telephone
companies); Executive Vice President, Bell
Atlantic Corporation (parent of seven telephone
companies); and Vice President and Chief
Financial Officer, Bell Telephone Company of
Pennsylvania and Diamond State Telephone
Company.
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
** A director who is an "interested person" of the Company as defined in the
1940 Act.
34
<PAGE> 88
<TABLE>
<CAPTION>
========================================================================================================
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
LOUIS S. SKLAR (59) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
- --------------------------------------------------------------------------------------------------------
***JOHN J. ARTHUR (54) Senior Vice Director and Senior Vice President,
President and A I M Advisors, Inc.; and Vice President and
Treasurer Treasurer, A I M Management Group Inc.
- --------------------------------------------------------------------------------------------------------
GARY T. CRUM (51) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Senior Vice
President, A I M Management Group Inc.
and A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP
PLC.
- --------------------------------------------------------------------------------------------------------
***CAROL F. RELIHAN (44) 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.,
A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President Vice President and Fund Controller,
and Assistant A I M Advisors, Inc.; and Assistant Vice
Treasurer President and Assistant Treasurer, Fund
Management Company.
- --------------------------------------------------------------------------------------------------------
ROBERT G. ALLEY (50) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------
STUART W. COCO (43) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
*** Mr. Arthur and Ms. Relihan are married to each other.
35
<PAGE> 89
<TABLE>
<CAPTION>
========================================================================================================
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
MELVILLE B. COX (54) 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 (37) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------
JONATHAN C. SCHOOLAR (37) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, 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,
Fields, Frischling, Pennock, Robinson (Chairman), 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.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock, Robinson, 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, Robinson, 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
36
<PAGE> 90
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)(3) FROM ALL AIM FUNDS(4)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------
Bruce L. Crockett
- ------------------------------------------------------------------------------------------------------
Owen Daly II
- ------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr 0 0 0
- ------------------------------------------------------------------------------------------------------
Jack Fields 0
- ------------------------------------------------------------------------------------------------------
Carl Frischling(4)
- ------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ------------------------------------------------------------------------------------------------------
John F. Kroeger(5)
- ------------------------------------------------------------------------------------------------------
Prema Mathai-Davis 0 0 0
- ------------------------------------------------------------------------------------------------------
Lewis F. Pennock
- ------------------------------------------------------------------------------------------------------
Ian W. Robinson
- ------------------------------------------------------------------------------------------------------
Louis S. Sklar
======================================================================================================
</TABLE>
(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 $________.
(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 $_______. 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 (comprised of over 50
portfolios). 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
$_______ 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 $________ 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."
37
<PAGE> 91
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 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such director's years of service
(not in excess of 10 years of service) completed with respect to any of the
Applicable AIM Funds. Such benefit is payable to each eligible director in
quarterly installments. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan commences, the
director's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased director, for no more
than ten years beginning the first day of the calendar quarter following the
date of the director's death. Payments under the Plan are not secured or funded
by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming a specified level of
compensation and years of service classifications. The estimated credited years
of service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger,
Mathai-Davis, Pennock, Robinson and Sklar are 11, 11, 0, 1, 21, 20, 0, 17, 11
and 9 years, respectively.
ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
====================================================
Number of Annual Retainer
Years of Paid By All AIM Funds
Service With
the Applicable
AIM Funds $90,000
====================================================
<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, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the
38
<PAGE> 92
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 Global Growth and
Income Fund. The address of INVESCO is 11 Devonshire Square, London, England EC2
M4YR. See "Fund Management" in the Prospectus.
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 Management is an indirect wholly owned
subsidiary of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, United
Kingdom. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in the business of investment management on an
international basis. Certain of the directors and officers of AIM are also
executive officers of the Company and their affiliations are shown under
"Directors and Officers."
AIM and the Company have adopted a Code of Ethics (the "Code of
Ethics") which requires investment personnel and certain other employees (a) to
pre-clear all personal securities transactions subject to the Code of Ethics,
(b) to file reports or duplicate confirmations regarding such transactions, (c)
to refrain from personally engaging in (i) short-term trading of a security,
(ii) transactions involving a security within seven days of an AIM Fund
transaction involving the same security, and (iii) transactions involving
securities being considered for investment by an AIM Fund and (d) abide by
certain other provisions under the Code of Ethics. The Code of Ethics also
prohibits investment personnel and all other employees from purchasing
securities in an initial public offering. Personal trading reports are reviewed
periodically by AIM, and the Board of Directors reviews quarterly and annual
reports (including information on any substantial violations of the Code of
Ethics). Sanctions for violations of the Code of Ethics may include censure,
monetary penalties, suspension or termination of employment.
The Advisory Agreement for the Funds provides that each Fund will pay
all expenses of the Fund, including, without limitation: brokerage commissions,
taxes, legal, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to directors and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Company on behalf of
the Funds in connection with membership in investment company organizations, the
cost of printing copies of prospectuses and statements of additional information
distributed to the Fund's shareholders; and all other charges and costs of the
Fund's operations unless otherwise explicitly provided.
39
<PAGE> 93
The Advisory Agreement for the Funds and the Sub-Advisory Agreement for
Global Growth and Income Fund provides that the agreement will remain in effect
for the initial term and continue in effect from year to year thereafter only if
such continuance is specifically approved at least annually (i) by the Company's
Board of Directors or by the vote of a majority of the outstanding voting
securities of the 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, 1998. The Advisory Agreement became effective on
February 28, 1997. The Sub-Advisory Agreement 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. The Sub-Advisory Agreement
became effective December 14, 1998. The Advisory Agreement provides that the
Company, AIM (in the case of the Advisory Agreement) or INVESCO (in the case of
the 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 0.40% of the advisory fees it receives pursuant to the
Advisory Agreement with respect to Global Growth and Income Fund to INVESCO.
Pursuant to the Advisory Agreement, AIM receives a fee from each of AIM
V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital
Appreciation Fund, AIM V.I. Capital Development Fund, AIM V.I. Diversified
Income Fund AIM V.I. Global Growth and Income Fund, AIM V.I. Global Utilities
Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. Growth
and Income Fund, AIM V.I. High Yield Fund, AIM V.I. International Equity Fund,
AIM V.I. Money Market Fund, AIM V.I. Telecommunications Fund and AIM V.I. Value
Fund calculated at the following annual rate, based on the average daily net
assets of the Fund during the year:
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GROWTH FUND
AIM V.I. GROWTH AND INCOME FUND
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C> <C>
First $250 million.......................................................... 0.65%
Over $250 million.......................................................... 0.60%
AIM V.I. AGGRESSIVE GROWTH FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
First $150 million.......................................................... 0.80%
Over $150 million........................................................... 0.625%
AIM V.I. BALANCED FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
First $150 million.......................................................... 0.75%
Over $150 million........................................................... 0.50%
</TABLE>
40
<PAGE> 94
<TABLE>
<CAPTION>
AIM V.I. CAPITAL DEVELOPMENT FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $350 million.......................................................... 0.75%
Over $350 million........................................................... 0.625%
AIM V.I. DIVERSIFIED INCOME FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
First $250 million.......................................................... 0.60%
Over $250 million........................................................... 0.55%
AIM V.I. GLOBAL GROWTH AND INCOME FUND
AIM V.I. TELECOMMUNICATIONS FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
Average Daily Net Assets.................................................... 1.00%
AIM V.I. GOVERNMENT SECURITIES FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
First $250 million.......................................................... 0.50%
Over $250 million........................................................... 0.45%
AIM V.I. HIGH YIELD FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
First $200 million ......................................................... 0.625%
Next $300 million........................................................... 0.55%
Next $500 million........................................................... 0.50%
Amount over $1 billion...................................................... 0.45%
AIM V.I. INTERNATIONAL EQUITY FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
First $250 million.......................................................... 0.75%
Over $250 million........................................................... 0.70%
</TABLE>
41
<PAGE> 95
<TABLE>
<CAPTION>
AIM V.I. MONEY MARKET FUND
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million ......................................................... 0.40%
Over $250 million........................................................... 0.35%
</TABLE>
Each of the following Funds (except 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:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ N/A N/A
AIM V.I. Balanced Fund* $ N/A N/A
AIM V.I. Capital Appreciation Fund $ $ 3,083,708 $ 1,884,838
AIM V.I. Capital Development Fund* $ N/A N/A
AIM V.I. Diversified Income Fund $ $ 447,539 $ 306,235
AIM V.I. Global Utilities Fund $ $ 106,309 $ 57,054
AIM V.I. Government Securities Fund $ $ 138,550 $ 107,471
AIM V.I. Growth Fund $ $ 1,453,488 $ 916,484
AIM V.I. Growth and Income Fund $ $ 2,609,695 $ 678,242
AIM V.I. High Yield Fund* $ N/A N/A
AIM V.I. International Equity Fund $ $ 1,519,323 $ 924,578
AIM V.I. Money Market Fund $ $ 254,546 $ 264,855
AIM V.I. Value Fund $ $ 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.
Global Growth and Income Fund and the AIM V.I.
Telecommunications Fund) as follows:
42
<PAGE> 96
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund* $ N/A N/A
AIM V.I. Balanced Fund* $ N/A N/A
AIM V.I. Capital Appreciation Fund $ $ -0- $ -0-
AIM V.I. Capital Development Fund* $ N/A N/A
AIM V.I. Diversified Income Fund $ $ -0- $ -0-
AIM V.I. Global Utilities Fund $ $ -0- $ 15,954
AIM V.I. Government Securities Fund $ $ -0- $ -0-
AIM V.I. Growth Fund $ $ -0- $ -0-
AIM V.I. Growth and Income Fund $ $ -0- $ -0-
AIM V.I. High Yield Fund* $ N/A N/A
AIM V.I. International Equity Fund $ $ -0- $ -0-
AIM V.I. Money Market Fund $ $ -0- $ -0-
AIM V.I. Value Fund $ $ -0- $ -0-
</TABLE>
* Fees waived were for the period May 1, 1998 (date operations commenced)
through December 31, 1998.
In addition to the management fees paid by each Fund (except 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* $ N/A N/A
AIM V.I. Balanced Fund* $ N/A N/A
AIM V.I. Capital Appreciation Fund $ $ -0- $ -0-
AIM V.I. Capital Development Fund* $ N/A N/A
AIM V.I. Diversified Income Fund $ $ -0- $ -0-
AIM V.I. Global Utilities Fund $ $ -0- $ -0-
AIM V.I. Government Securities Fund $ $ -0- $ -0-
AIM V.I. Growth Fund $ $ -0- $ -0-
AIM V.I. Growth and Income Fund $ $ -0- $ -0-
AIM V.I. High Yield Fund* $ N/A N/A
AIM V.I. International Equity Fund $ $ -0- $ -0-
AIM V.I. Money Market Fund $ $ -0- $ -0-
AIM V.I. Value Fund $ $ -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. Effective May 1, 1998, the
Funds
43
<PAGE> 97
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.
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. Global Growth and Income Fund and
the AIM V.I. Telecommunications Fund) pursuant to 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* $ N/A N/A
AIM V.I. Balanced Fund* $ N/A N/A
AIM V.I. Capital Appreciation Fund $ $ 43,588 $ 46,623
AIM V.I. Capital Development Fund* $ N/A N/A
AIM V.I. Diversified Income Fund $ $ 48,683 $ 49,500
AIM V.I. Global Utilities Fund $ $ 47,128 $ 47,729
AIM V.I. Government Securities Fund $ $ 37,872 $ 38,695
AIM V.I. Growth Fund $ $ 44,692 $ 39,552
AIM V.I. Growth and Income Fund $ $ 43,065 $ 38,784
AIM V.I. High Yield Fund* $ N/A N/A
AIM V.I. International Equity Fund $ $ 59,724 $ 58,644
AIM V.I. Money Market Fund $ $ 38,289 $ 29,412
AIM V.I. Value Fund $ $ 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.
44
<PAGE> 98
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 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.
FUTURE 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
45
<PAGE> 99
determined by dividing the value of the Fund's securities, cash and other assets
(including interest accrued but not collected), less all its liabilities
(including accrued expenses and dividends payable), by the number of shares
outstanding of the Fund and rounding the resulting per share net asset value to
the nearest one cent. Determination of the Fund's net asset value per share is
made in accordance with generally accepted accounting principles.
The securities of the Fund are valued on the basis of amortized cost.
This method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if the security were sold. During
such periods, the daily yield on shares of the Fund computed as described under
"Yield Information" may differ somewhat from an identical computation made by
another investment company with identical investments utilizing available
indications as to the market value of its portfolio securities.
The valuation of the portfolio instruments based upon their amortized
cost and the concomitant maintenance of the net asset value per share of $1.00
for the Fund is permitted in accordance with applicable rules and regulations of
the SEC which require the Fund to adhere to certain conditions. The Fund will
invest only in "Eligible Securities," as defined in Rule 2a-7 of the 1940 Act,
which the Fund's Board of Directors has determined present minimal credit risk.
Rule 2a-7 also requires, among other things, that the Fund maintain a
dollar-weighted average portfolio maturity of 90 days or less and purchase only
instruments having remaining maturities of 397 calendar days or less.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share at
$1.00 for the Fund as computed for the purpose of sales and redemptions. Such
procedures include review of the Fund's holdings by the Board of Directors at
such intervals as they may deem appropriate, to determine whether the net asset
value calculated by using available market quotations or other reputable sources
for the Fund deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing holders of
the Fund's shares. In the event the Board of Directors determines that such a
deviation exists for the Fund, it will take such corrective action as the Board
of Directors deems necessary and appropriate with respect to the Fund, including
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; the withholding of
dividends; redemption of shares in kind; or the establishment of a net asset
value per share by using available market quotations.
The Fund intends to comply with any amendments made to Rule 2a-7 which
may require corresponding changes in the Fund's procedures which are designed to
stabilize the Fund's price per share at $1.00.
For All Other Funds: The net asset value per share of each Fund is
normally determined daily as of the close of trading on the NYSE (generally 4:00
p.m. Eastern time) on each business day of the Company. In the event the NYSE
closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net
asset value of a Fund share is determined as of the close of the NYSE on such
day. For purposes of determining net asset value per share, futures and options
contracts closing prices which are available 15 minutes after the close of
trading of the NYSE will generally be used. Net asset value per share is
determined by dividing the value of the Fund's securities, cash and other assets
(including interest accrued but not collected), less all its liabilities
(including accrued expenses and dividends payable), by the total number of
shares outstanding. Determination of the Fund's net asset value per share is
made in accordance with generally accepted accounting principles.
Each equity security held by the Fund is valued at its last sales price
on the exchange where the security is principally traded or, lacking any sales
on a particular day, the security is valued at the mean between the closing bid
and asked prices on that day. Each security traded in the over-the-counter
market (but not including securities
46
<PAGE> 100
reported on the NASDAQ National Market System) is valued at the mean between the
last bid and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean between the closing bid and asked prices on that day. Debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Company's officers
in a manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of trading of the NYSE.
Generally, trading in foreign securities is substantially completed
each day at various times prior to the close of the NYSE. The values of such
foreign securities used in computing the net asset value of each Fund's shares
are determined at such times as trading is completed. Foreign currency exchange
rates are also generally determined prior the close of the NYSE. Occasionally,
events affecting the values of such foreign securities and such foreign
securities exchange rates may occur after the time at which such values are
determined and prior to the close of the NYSE that will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
PURCHASE AND REDEMPTION OF SHARES
The Company offers the shares of the Funds, on a continuous basis, to
both registered and unregistered separate accounts of affiliated and
unaffiliated Participating Insurance Companies to fund variable annuity
contracts (the "Contracts") and variable life insurance policies ("Policies").
Each separate account contains divisions, each of which corresponds to a Fund in
the Company. Net purchase payments under the Contracts are placed in one or more
of the divisions of the relevant separate account and the assets of each
division are invested in the shares of the Fund which corresponds to that
division. Each separate account purchases and redeems shares of these Funds for
its divisions at net asset value without sales or redemption charges. Currently
several insurance company separate accounts invest in the Funds.
The Company, in the future, may offer the shares of its Funds to
certain pension and retirement plans ("Plans") qualified under the Internal
Revenue Code. The relationships of Plans and Plan participants to the Fund would
be subject, in part, to the provisions of the individual plans and applicable
law. Accordingly, such relationships could be different from those described in
this Prospectus for separate accounts and owners of Contracts and Policies, in
such areas, for example, as tax matters and voting privileges.
Each Fund ordinarily effects orders to purchase or redeem its shares
that are based on transactions under Policies or Contracts (e.g., purchase or
premium payments, surrender or withdrawal requests, etc.) at the Fund's net
asset value per share next computed on the day on which the separate account
processes such transactions. Each Fund effects orders to purchase or redeem its
shares that are not based on such transactions at the Fund's net asset value per
share next computed on the day on which the Fund receives the orders.
Please refer to the appropriate separate account prospectus related to
your Contract for more information regarding the Contract.
47
<PAGE> 101
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS. The Funds declare and distribute
dividends representing substantially all net investment income as follows:
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
DECLARED PAID
--------- ---------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund ........... annually annually
AIM V.I. Balanced Fund .................... annually annually
AIM V.I. Capital Appreciation Fund ........ annually annually
AIM V.I. Capital Development Fund ......... annually annually
AIM V.I. Diversified Income Fund .......... annually annually
AIM V.I. Global Utilities Fund ............ annually annually
AIM V.I. 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 & 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.
48
<PAGE> 102
The holding of the foreign currencies and investments by a Fund in
certain "passive foreign investment companies" may be limited in order to avoid
imposition of a tax on such Fund.
Each Fund investing in foreign securities may be subject to foreign
withholding taxes on income from its investments. In any year in which more than
50% in value of a Fund's total assets at the close of the taxable year consists
of securities of foreign corporations, the Fund may elect to treat any foreign
taxes paid by it as if they had been paid by its shareholders. The insurance
company segregated asset accounts holding Fund shares should consider the impact
of this election.
Holders of Contracts under which assets are invested in the Funds
should refer to the prospectus for the Contracts for Information regarding the
tax aspects of ownership of such Contracts.
Each Fund is treated as a separate association taxable as a
corporation.
Each Fund intends to qualify under the Internal Revenue Code of 1986,
as amended (the "Code"), as a regulated investment company ("RIC") for each
taxable year. Accordingly, each Fund must, among other things, meet the
following requirements: A. Each Fund must generally derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies. B. Each Fund must diversify its holdings
so that, at the end of each fiscal quarter or within 30 days thereafter: (i) at
least 50% of the market value of the Fund's assets is represented by cash, cash
items (including receivables), U.S. Government securities, securities of other
RICs, and other securities, with such other securities limited, with respect to
any one issuer, to an amount not greater than 5% of the Fund's assets and not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. Government securities or securities of other RICs).
The Code imposes a nondeductible 4% excise tax on a RIC that fails to
distribute during each calendar year at least 98% of its ordinary income for the
calendar year, 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
49
<PAGE> 103
foreign government and its agencies, instrumentalities and political
subdivisions all will be considered the same issuer. The regulations also
provide that a Fund's shareholders are limited, generally, to life insurance
company separate accounts, general accounts of the same life insurance company,
an investment adviser or affiliate in connection with the creation or management
of a Fund or the trustee of a qualified pension plan. Section 817(h) provides,
as a safe harbor, that a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's total assets are cash and
cash items, government securities and securities of other RICs. Failure of a
Fund to satisfy the Section 817(h) requirements would result in taxation of and
treatment of the Contract holders investing in a corresponding division other
than as described in the applicable prospectuses of the various insurance
company separate accounts.
MISCELLANEOUS INFORMATION
ORGANIZATION OF THE COMPANY
The Company was organized on January 22, 1993 as a Maryland
corporation, and is registered with the Securities and Exchange Commission as an
open-end, series, management investment company. The Company currently consists
of thirteen separate portfolios (i.e., the Funds).
The authorized capital stock of the Company consists of 4,000,000,000
shares of common stock with a par value of $.001 per share, of which 250,000,000
shares are classified AIM V.I. AGGRESSIVE GROWTH FUND shares, 250,000,000 shares
are classified AIM V.I. BALANCED FUND shares, 250,000,000 shares are classified
AIM V.I. CAPITAL APPRECIATION FUND shares, 250,000,000 shares are classified AIM
V.I. CAPITAL DEVELOPMENT FUND shares, 250,000,000 shares are classified AIM V.I.
DIVERSIFIED INCOME FUND shares, 250,000,000 shares are classified AIM V.I.
GLOBAL 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 & 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.
50
<PAGE> 104
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, Two Penn Center Plaza, Philadelphia, PA 19102, serves
as the auditors of each Fund.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the
Company on certain federal securities law matters.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, MA 02110, is custodian of all securities and cash of the Funds.
The custodian attends to the collection of principal and income, pays and
collects all monies for securities bought and sold by the Portfolios, and
performs certain other ministerial duties. State Street also acts as transfer
and dividend disbursing agent for the Funds. These services do not include any
supervisory function over management or provide any protection against any
possible depreciation of assets. The Funds pay State Street such compensation as
may be agreed upon from time to time.
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 April 1, 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.
51
<PAGE> 105
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>
</TABLE>
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>
</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>
</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>
</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>
</TABLE>
52
<PAGE> 106
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>
</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>
</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>
</TABLE>
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>
</TABLE>
53
<PAGE> 107
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>
</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>
</TABLE>
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
------------ ---------------- ------------- --------------
<S> <C> <C> <C>
</TABLE>
54
<PAGE> 108
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>
</TABLE>
As of April 1, 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.
- -------------------------
* 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.
55
<PAGE> 109
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
A-1
<PAGE> 110
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard and Poor's Ratings Services classifications are as follows:
*AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
*AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
*A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
*BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.
BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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.
A-2
<PAGE> 111
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:
*AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
*AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
*A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
*BBB+, BBB, BBB- -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in quality rating within this category or
into a higher or lower quality rating grade.
CCC -- Well below investment grade securities. May be in default or have
considerable uncertainty as to timely payment of Interest, preferred dividends
and/or principal. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
Fitch Investors Service, Inc.'s bond ratings are as follows:
*AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
*AA -- Bonds considered to be Investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
*A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
A-3
<PAGE> 112
*BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain Identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D -- Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these bonds, and
"D" represents the lowest potential for recovery.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA", "DDD", "DD", or "D" categories.
A-4
<PAGE> 113
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.
B-1
<PAGE> 114
Loans not provided from FNMA's own portfolio are purchased only from primary
lenders that satisfy certain criteria developed by FNMA, including depth of
mortgage origination experience, servicing experience and financial capacity.
FNMA may purchase an entire loan pool from a single lender, and issue
Certificates backed by that loan pool alone, or may package a pool made up of
loans purchased from various lenders.
Various types of mortgage loans, and loans with varying interest rates, may
be included in a single pool, although each pool will consist of mortgage loans
related to one-family or two-to-four family residential properties.
Substantially all FNMA mortgage pools currently consist of fixed interest rate
and growing equity mortgage loans, although FNMA mortgage pools may also consist
of adjustable interest rate mortgage loans or other types of mortgage loans.
Each mortgage loan must conform to FNMA's published requirements or guidelines
with respect to maximum principal amount, loan-to-value ratio, loan term,
underwriting standards and insurance coverage.
All mortgage loans are held by FNMA as trustee pursuant to a trust indenture
for the benefit of Certificate holders. The trust indenture gives FNMA
responsibility for servicing and administering the loans in a pool. FNMA
contracts with the lenders or other servicing institutions to perform all
services and duties customary to the servicing of mortgages, as well as duties
specifically prescribed by FNMA, all under FNMA supervision. FNMA may remove
service providers for cause.
The pass-through rate on FNMA Certificates is the lowest annual interest
rate borne by an underlying mortgage loan in the pool, less a fee to FNMA as
compensation for servicing and for FNMA's guarantee lenders servicing the
underlying mortgage loans receive as compensation a portion of the fee paid to
FNMA, the excess yields on pooled loans with coupon rates above the lowest rate
borne by any mortgage loan in the pool and certain other amounts collected, such
as late charges.
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.
B-2
<PAGE> 115
As the prepayment rates of individual mortgage pools will vary widely, it is
not possible to accurately predict the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single family dwelling mortgage with 25- to 30-year maturity,
the type of mortgage which backs the vast majority of GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA
Certificates, the coupon rate of interest of GNMA Certificates is lower than the
interest paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates.
The yield which will be earned on GNMA Certificates may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GENERAL SERVICES ADMINISTRATION ("GSA") PARTICIPATION CERTIFICATES -- are
participation certificates issued by the General Services Administration of the
U.S. Government.
MARITIME ADMINISTRATION BONDS -- are bonds issued and provided by the
Department of Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS -- are short-term project notes and long-term
bonds issued by public housing and urban renewal agencies in connection with
programs administered by the Department of Housing and Urban Development of the
U.S. Government, the payment of which is secured by the U.S. Government.
SBA DEBENTURES -- are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing
Association.
TITLE XI BONDS -- are bonds issued in accordance with the provisions of
Title XI of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by
the Washington Metropolitan Area Transit Authority and are guaranteed by the
Secretary of Transportation of the U.S. Government.
B-3
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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.
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3. COMMERCIAL INSTRUMENTS.
COMMERCIAL PAPER -- The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on these
issues vary from a few days to nine months.
VARIABLE RATE MASTER DEMAND NOTES -- Variable rate master demand notes are
unsecured demand notes that permit Investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers who meet the
foregoing quality criteria as discussed in the Statement of Additional
Information under "Investment Programs." The interest rate on a variable rate
master demand note is periodically redetermined according to a prescribed
formula. Although there is no secondary market in master demand notes, the payee
may demand payment of the principal amount of the note on relatively short
notice. All variable rate master demand notes acquired by the Money Market Fund
will be payable within a prescribed notice period not to exceed seven days.
4. REPURCHASE AGREEMENTS.
A repurchase agreement is a contractual undertaking whereby the seller of
securities (limited to U.S. Government securities, including securities issued
or guaranteed by the U.S. Treasury or the various agencies and instrumentalities
of the U.S. Government) agrees to repurchase the securities at a specified price
on a future date determined by negotiations.
5. TAXABLE MUNICIPAL SECURITIES.
Taxable municipal securities are debt securities issued by or on behalf of
states and their political subdivisions, the District of Columbia, and
possessions of the United States, the interest on which is not exempt from
federal income tax.
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FINANCIAL STATEMENTS
FS
<PAGE> 119
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.
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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, 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) Amendment No. 2, dated December 14, 1998, to Master
Investment Advisory Agreement, between Registrant and
A I M Advisors, Inc. is hereby filed electronically.
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(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 County Selection and Mandatory Securities
Depository Responsibilities Delegation Agreement
between Registrant and A I M Advisors, Inc. is hereby
filed electronically.
- (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. 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.
(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 on
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, 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, 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.
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(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.
(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.
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<PAGE> 123
(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.
(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. 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.
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<PAGE> 124
(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-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.
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<PAGE> 125
- (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.
- (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, is hereby filed electronically.
(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 is hereby
filed electronically.
(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
is hereby filed electronically.
(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.
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- (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 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.
(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.
- (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.
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(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 Exhibit to
Post-Effective Amendment No. 10 on October 2, 1998 and
is incorporated herein by reference.
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(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 here in 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) - 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.
(28) - 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.
(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.
(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.) is hereby filed electronically.
(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 is hereby
filed electronically.
(32) - (a) Participation Agreement, dated May 1, 1998, between
Registrant and PFL Life Insurance Company was filed
electronically as an Exhibit to
C-10
<PAGE> 129
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 is hereby
filed electronically.
(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.
(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
is hereby filed electronically.
(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
is hereby filed electronically.
(38) - Participation Agreement, dated July 1, 1998, between
Registrant and United Investors Life Insurance Company
is hereby filed electronically.
(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.
C-11
<PAGE> 130
(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
is hereby filed electronically.
(41) - Participation Agreement, dated July 27, 1998, between
Registrant and Allmerica Financial 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.
(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 November 23, 1998,
between Registrant and American General Annuity
Insurance Company is hereby filed electronically.
(44) - Participation Agreement, dated December 1, 1998,
between Registrant and the Prudential Insurance Company
of America is hereby filed electronically.
(45) - 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.
- (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
C-12
<PAGE> 131
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) Consent of Messrs Freedman, Levy, Kroll & Simonds
is hereby filed electronically.
(2) - Consent of Messrs. Tait, Weller & Baker to be 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 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.
m - Registrant's Plan pursuant to Rule 12b-1 under the 1940
Act - None.
n - Multiple Class Plan (Rule 18f-3) - None.
o - Financial Data Schedules - None.
C-13
<PAGE> 132
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.
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 $25,000,000 limit of liability.
C-14
<PAGE> 133
Item 26. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature that each investment adviser 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 captions "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 act as a principal underwriter, depositor, or
investment advisor.
AIM Advisor Funds, Inc.
AIM Equity Funds, Inc. (Retail Classes)
GT Global Floating Rate Fund, Inc. d/b/a AIM Floating Rate Fund
AIM Funds Group
AIM Growth Series
AIM International Funds, Inc.
AIM Investment Funds
AIM Investment Portfolios
AIM Investment Securities Funds (AIM Limited Maturity Treasury
Fund - Class A Shares)
AIM Series Trust
AIM Special Opportunities Funds
AIM Summit Fund, Inc.
AIM Tax-Exempt Funds, Inc.
(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
</TABLE>
- --------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-15
<PAGE> 134
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ------------------ -------------------------- --------------------
<S> <C> <C>
Gary T. Crum Director Senior Vice President
Robert H. Graham Senior Vice President & Director President & Director
William G. Littlepage Senior Vice President & Director None
James L. Salners Senior Vice President None
John Caldwell Senior Vice President None
Gordon J. Sprague Senior Vice President None
Michael C. Vessels Senior Vice President None
Marilyn M. Miller Senior Vice President None
B. J. Thompson First Vice President None
John J. Arthur Vice President & Treasurer Senior Vice President &
Treasurer
Ofelia M. Mayo Vice President, General Counsel Assistant Secretary
& Assistant Secretary
William H. Kleh Vice President None
Carol F. Relihan Vice President Senior Vice President &
Secretary
James R. Anderson Vice President None
Mary K. Coleman Vice President None
Melville B. Cox Vice President; Chief Compliance Officer Vice President
Charles R. Dewey Vice President None
Sidney M. Dilgren Vice President None
Tony D. Green Vice President None
Terri L. Ransdell Vice President None
</TABLE>
- -----------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-16
<PAGE> 135
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ------------------ -------------------------- --------------------
<S> <C> <C>
Kamala C. Sachidanandan Vice President None
Frank V. Serebrin Vice President None
Christopher T. Simutis Vice President None
Robert D. Van Sant, Jr. Vice President None
Gary K. Wendler Vice President None
Kathleen J. Pflueger Secretary Assistant Secretary
David E. Hessel Assistant Vice President, None
Assistant Treasurer & Controller
Luke P. Beausoleil Assistant Vice President None
Tisha Christopher Assistant Vice President None
Glenda Dayton Assistant Vice President None
Mary E. Gentempo Assistant Vice President None
Kathleen M. Douglas Assistant Vice President None
Terri N. Fiedler Assistant Vice President None
Jeffrey L. Horne Assistant Vice President None
Melissa E. Hudson Assistant Vice President None
Jodie L. Johnson Assistant Vice President None
Kathryn A. Jordan Assistant Vice President None
Kim T. Lankford Assistant Vice President None
Wayne W. LaPlante Assistant Vice President None
Ivy B. McLemore Assistant Vice President None
David B. O'Neil Assistant Vice President None
</TABLE>
- --------------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-17
<PAGE> 136
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Patricia M. Shyman Assistant Vice President None
Nicholas D. White Assistant Vice President None
Norman W. Woodson Assistant Vice President None
Nancy L. Martin Assistant General Counsel & Assistant Secretary
Assistant Secretary
Samuel D. Sirko Assistant General Counsel & Assistant Secretary
Assistant Secretary
Stephen I. Winer Assistant Secretary Assistant Secretary
</TABLE>
(c) Not Applicable
Item 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
C-18
<PAGE> 137
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)].
None
C-19
<PAGE> 138
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 18th day of
February, 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:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ CHARLES T. BAUER Chairman & Director 02/18/99
- ---------------------------
(Charles T. Bauer)
/s/ ROBERT H. GRAHAM Director & President 02/18/99
- --------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ BRUCE L. CROCKETT Director 02/18/99
- ---------------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Director 02/18/99
- ---------------------------
(Owen Daly II)
/s/ EDWARD K. DUNN, JR. Director 02/18/99
- ---------------------------
(Edward K. Dunn, Jr.)
/s/ JACK FIELDS Director 02/18/99
- ---------------------------
(Jack Fields)
/s/ CARL FRISCHLING Director 02/18/99
- ---------------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Director 02/18/99
- ---------------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Director 02/18/99
- ---------------------------
(Lewis F. Pennock)
/s/ IAN W. ROBINSON Director 02/18/99
- ---------------------------
(Ian W. Robinson)
/s/ LOUIS S. SKLAR Director 02/18/99
- ---------------------------
(Louis S. Sklar)
/s/ JOHN J. ARTHUR Senior Vice President & 02/18/99
- --------------------------- Treasurer (Principal Financial
(John J. Arthur) and Accounting Officer)
<PAGE> 139
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No.
- -------
<S> <C>
d(3)(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.
d(4)(b) Amendment No. 1 to Foreign Country Selection and Mandatory
Securities Depository Responsibilities Delegation Agreement
between Registrant and A I M Advisors, Inc.
d(4)(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.
e(2)(c) Amendment No. 2, dated December 14, 1998, to Master
Distribution Agreement between Registrant and A I M
Distributors, Inc.
h(4)(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.
h(9)(f) Copy of Amendment No. 5, dated January 12, 1999 to
Participation Agreement dated December 19, 1995, between
Registrant and Glenbrook Life and Annuity Company.
h(11)(b) Amendment No. 1, dated November 11, 1997 to Participation
Agreement dated October 7, 1996, between Registrant and IDS
Life Insurance Company.
h(12)(b) Copy of Amendment No. 1, dated November 11, 1997 to
Participation Agreement dated October 7, 1996, between
Registrant and IDS Life Insurance Company of New York.
h(29)(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.).
h(31)(b) Amendment No. 1 dated December 28, 1998 to the Participation
Agreement, dated April 21, 1998, between Registrant and
Keyport Life Insurance Company.
h(32)(c) Amendment No. 2 dated November 27, 1998 to the Participation
Agreement, dated May 1, 1998, between Registrant and PFL Life
Insurance Company.
</TABLE>
<PAGE> 140
<TABLE>
<S> <C>
h(35)(b) Amendment No. 1 dated November 20, 1998 to the Participation
Agreement, dated June 16, 1998, between Registrant and
Lincoln National Life Insurance Company.
h(37) Participation Agreement, dated July 1, 1998, between
Registrant and Union Central Life Insurance Company.
h(38) Participation Agreement, dated July 1, 1998, between
Registrant and United Investors Life Insurance Company.
h(40)(b) Amendment No. 1 dated December 28, 1998 to the Participation
Agreement, dated July 13, 1998, between Registrant and
Keyport Life Insurance Company.
h(43) Participation Agreement dated November 23, 1998 between
Registrant and American General and Annuity Insurance
Company.
h(44) Participation Agreement, dated December 1, 1998, between
Registrant and Prudential Insurance Company of America.
i(1)(f) Consent of Messrs. Freedman, Levy, Kroll & Simonds
</TABLE>
<PAGE> 1
EXHIBIT d(3)(c)
AMENDMENT NO. 2
TO
MASTER INVESTMENT ADVISORY AGREEMENT
This amendment dated as of December 14, 1998, 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 two new
portfolios, AIM V.I. Global Growth and Income Fund and AIM V.I.
Telecommunications Fund;
NOW, THEREFORE, the parties agree as follows:
1. Appendix A to the Agreement is hereby deleted in its entirety
and replaced with the following:
APPENDIX A
TO
MASTER INVESTMENT ADVISORY AGREEMENT
OF
AIM VARIABLE INSURANCE FUNDS, INC.
The Company shall pay the Advisor as full compensation for all services
rendered and all facilities furnished hereunder, a management fee for each Fund
by applying the following annual rates to the average daily net assets of each
Fund for the calendar year computed in the manner used for the determination of
the net asset value of shares of each Fund.
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. GROWTH FUND
AIM V.I. GROWTH AND INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million ................................................... 0.65%
Over $250 million .................................................... 0.60%
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $150 million.................................................... 0.80%
Over $150 million..................................................... 0.625%
</TABLE>
<PAGE> 2
AIM V.I. BALANCED FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $150 million ................................................... 0.75%
Over $150 million .................................................... 0.50%
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $350 million ................................................... 0.75%
Over $350 million .................................................... 0.625%
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
- ---------- ------
<S> <C>
First $250 million ................................................... 0.60%
Over $250 million .................................................... 0.55%
</TABLE>
AIM V.I. 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>
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>
<PAGE> 3
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: December 14, 1998
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(4)(b)
AMENDMENT NO. 1
TO
FOREIGN COUNTRY SELECTION
AND MANDATORY SECURITIES DEPOSITORY RESPONSIBILITIES
DELEGATION AGREEMENT
This Amendment No. 1 dated as of September 28, 1998, amends the Foreign
Country Selection and Mandatory Securities Depository Responsibilities
Delegation Agreement (the "Agreement"), dated September 9, 1998, between A I M
Advisors, Inc., a Delaware corporation and each registered investment company
(the "Investment Companies") and its respective portfolios (the "Funds") listed
on the signature page thereof.
W I T N E S S E T H:
WHEREAS, the parties to the Agreement desire to amend the Agreement to
add AIM Investment Securities Funds on behalf of its AIM High Yield Fund II
portfolio as a party to the agreement;
NOW, THEREFORE, the parties agree as follows;
1. The list of Investment Companies and Funds covered by the
Agreement is hereby amended to include the following:
"AIM INVESTMENT SECURITIES FUNDS
AIM High Yield Fund II"
2. In all other respects, the Agreement is hereby confirmed and
remains in full force and effect.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be
executed by their respective officers on the date first written above.
A I M ADVISORS, INC.
Attest: /s/ SAMUEL D. SIRKO By: /s/ ROBERT H. GRAHAM
--------------------------------- --------------------------
Assistant Secretary President
(SEAL)
<TABLE>
<S> <C>
AIM ADVISOR FUNDS, INC. AIM SPECIAL OPPORTUNITIES FUNDS
AIM Advisor Flex Fund AIM Small Cap Opportunities Fund
AIM Advisor International Value Fund
AIM Advisor Large Cap Value Fund AIM SUMMIT FUND, INC.
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund AIM INTERNATIONAL FUNDS, INC.
AIM Asian Growth Fund
AIM EQUITY FUNDS, INC. AIM European Development Fund
AIM Aggressive Growth Fund AIM International Equity Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund
AIM Capital Development Fund AIM Global Growth Fund
AIM Charter Fund AIM Global Income Fund
AIM Constellation Fund
AIM Weingarten Fund AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Aggressive Growth Fund
AIM FUNDS GROUP AIM V.I. Balanced Fund
AIM Balanced Fund AIM V.I. Capital Appreciation Fund
AIM Global Utilities Fund AIM V.I. Capital Development Fund
AIM High Yield Fund AIM V.I. Diversified Income Fund
AIM Income Fund AIM V.I. Global Utilities Fund
AIM Money Market Fund AIM V.I. Government Securities Fund
AIM Select Growth Fund AIM V.I. Growth Fund
AIM Value Fund AIM V.I. Growth & Income Fund
AIM V.I. High Yield Fund
AIM INVESTMENT SECURITIES FUNDS AIM V.I. International Equity Fund
AIM High Yield Fund II AIM V.I. Money Market Fund
AIM V.I. Value Fund
</TABLE>
Attest: /s/ SAMUEL D. SIRKO By: /s/ ROBERT H. GRAHAM
------------------------------ ----------------------------
Assistant Secretary President
(SEAL)
2
<PAGE> 1
EXHIBIT d(4)(c)
AMENDMENT NO. 2
TO
FOREIGN COUNTRY SELECTION
AND MANDATORY SECURITIES DEPOSITORY RESPONSIBILITIES
DELEGATION AGREEMENT
This Amendment No. 2, dated as of December 14, 1998, amends the Foreign
Country Selection and Mandatory Securities Depository Responsibilities
Delegation Agreement (the "Agreement"), dated September 9, 1998, between A I M
Advisors, Inc., a Delaware corporation and each registered investment company
(the "Investment Companies") and its respective portfolios (the "Funds") listed
on the signature page thereof.
W I T N E S S E T H:
WHEREAS, the parties to the Agreement desire to amend the Agreement to
add AIM V.I. Global Growth and Income Fund and AIM V.I. Telecommunications Fund
of AIM Variable Insurance Funds, Inc. as a party to the agreement;
NOW, THEREFORE, the parties agree as follows;
1. The list of Investment Companies and Funds covered by the
Agreement is hereby amended to include the following:
"AIM V.I. Global Growth and Income Fund
AIM V.I. Telecommunications Fund"
2. In all other respects, the Agreement is hereby confirmed and
remains in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be
executed by their respective officers on the date first written above.
A I M ADVISORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------- ----------------------------------
Assistant Secretary President
(SEAL)
AIM ADVISOR FUNDS, INC. AIM SPECIAL OPPORTUNITIES FUNDS
AIM Advisor Flex Fund AIM Small Cap Opportunities Fund
AIM Advisor International Value Fund
AIM Advisor Large Cap Value Fund AIM SUMMIT FUND, INC.
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund AIM INTERNATIONAL FUNDS, INC.
AIM Asian Growth Fund
AIM EQUITY FUNDS, INC. AIM European Development Fund
AIM Aggressive Growth Fund AIM International Equity Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund
AIM Capital Development Fund AIM Global Growth Fund
AIM Charter Fund AIM Global Income Fund
AIM Constellation Fund
AIM Weingarten Fund AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Aggressive Growth Fund
AIM FUNDS GROUP AIM V.I. Balanced Fund
AIM Balanced Fund AIM V.I. Capital Appreciation Fund
AIM Global Utilities Fund AIM V.I. Capital Development Fund
AIM High Yield Fund AIM V.I. Diversified Income Fund
AIM Income Fund AIM V.I. Global Growth and Income Fund
AIM Money Market Fund AIM V.I. Global Utilities Fund
AIM Select Growth Fund AIM V.I. Government Securities Fund
AIM Value Fund AIM V.I. Growth Fund
AIM V.I. Growth & Income Fund
AIM INVESTMENT SECURITIES FUNDS AIM V.I. High Yield Fund
AIM High Yield Fund II AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Telecommunications Fund
AIM V.I. Value Fund
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
---------------------- ---------------------------------
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT e(2)(c)
AMENDMENT NO. 2
TO
MASTER DISTRIBUTION AGREEMENT
The Master Distribution Agreement (the "Agreement"), dated as of
February 28, 1997 by and between AIM Variable Insurance Funds, Inc., a Maryland
corporation and A I M Distributors, Inc., a Delaware corporation, is hereby
amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"SCHEDULE A
TO
MASTER DISTRIBUTION AGREEMENT
OF
AIM VARIABLE INSURANCE FUNDS, INC.
o AIM V.I. Aggressive Growth Fund
o AIM V.I. Balanced Fund
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Capital Development Fund
o AIM V.I. Diversification Income Fund
o AIM V.I. Global 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: December 14, 1998
-----------
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 h(4)(b)
AMENDMENT NO. 1
TO
MASTER ADMINISTRATIVE SERVICES AGREEMENT
This Amendment, dated as of December 14, 1998, 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") add the following Funds to the provisions
of the agreement:
AIM V. I. Global Growth and Income Fund
AIM V. I. Telecommunications 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(9)(f)
AMENDMENT NO. 5
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated December 19, 1995, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Glenbrook Life and Annuity Company,
an Illinois life insurance company and Allstate Life Financial Services, Inc., a
Delaware corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
SCHEDULE A
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNTS UTILIZING THE FUNDS FUNDS AVAILABLE UNDER THE SEPARATE
------------------------------------- ----------------------------------
ACCOUNTS
--------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Glenbrook Life and Annuity Company AIM V.I. Aggressive Growth Fund
Separate Account A * AIM V.I. Balanced Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Capital Development Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund
- ------------------------------------------------------------- AIM V.I. Government Securities Fund
Glenbrook Life A I M Variable Life AIM V.I. Growth Fund
Separate Account A ** AIM V.I. Growth and Income Fund
AIM V.I. High Yield Fund
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Value Fund
- -------------------------------------------------------------------------------------------------------------------------
Glenbrook Life Multi-Manager AIM V.I. Balanced Fund
Variable Account *** AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
- ------------------------------------------------------------- AIM V.I. Global Utilities Fund
Glenbrook Life Variable Life AIM V.I. Government Securities Fund
Separate Account A **** AIM V.I. Growth Fund
- ------------------------------------------------------------- AIM V.I. Growth and Income Fund
Glenbrook Life Variable Life AIM V.I. High Yield Fund
Separate Account B + AIM V.I. International Equity Fund
AIM V.I. Value Fund
- ----------------------------------------------------------------------------------------------------------------------
Glenbrook Life and Annuity Company Variable Annuity Account AIM V.I. Capital Appreciation Fund
++ AIM V.I. High Yield Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*The Contracts funded by the separate account are individual and group
flexible premium deferred variable annuity contracts, know as the "AIM Lifetime
Plus(SM) Variable Annuity" and the "AIM Lifetime Plus(SM) II Variable Annuity".
** The Contract funded by the separate account is a modified single premium
variable life insurance contract known as the "AIM Lifetime Plus(SM) Variable
Life" contract.
*** The Contract funded by the separate account is a flexible premium deferred
variable annuity contract, know as the "Glenbrook Provider Variable Annuity".
**** The Contract funded by the separate account is a modified single premium
variable life insurance contract know as the "Glenbrook Provider Variable Life"
contract.
+ The Contract funded by the separate account is a flexible premium
variable universal life insurance contract know as the "Glenbrook Contour".
++ The Contract funded by the separate account is a flexible premium deferred
variable annuity contract know as the "STI Classic Variable Annuity".
Page 1 of 2
<PAGE> 2
All other terms and provisions of the Agreement not amended herein shall remain
in full force and effect.
Effective Date: January 12, 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)
GLENBROOK LIFE AND ANNUITY COMPANY
Attest: /s/ PATRICK MORNER By: /s/ CRAIG WHITEHEAD
--------------------------- ------------------------------------
Name: Patrick Morner Name: Craig Whitehead
----------------------------- ----------------------------------
Title: Assistant Vice President Title: Senior Vice President
---------------------------- and Director
--------------------------------
(SEAL)
ALLSTATE LIFE FINANCIAL SERVICES, INC.
Attest: /s/ PATRICK MORNER By: /s/ JOHN HUNTER
--------------------------- ------------------------------------
Name: Patrick Morner Name: John Hunter
----------------------------- ----------------------------------
Title: Assistant Vice President Title: President
---------------------------- ---------------------------------
(SEAL)
Page 2 of 2
<PAGE> 1
EXHIBIT h(11)(b)
AMENDMENT TO PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
AND
IDS LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
--------------------
Section 5.3 is hereby amended to add, at the end of the last
sentence, the following:
IDS Life's responsibilities in connection with the foregoing
shall be carried out with a view only to the interests of
Participants.
IN WITNESS WHEREOF, the Parties have caused this Amendment to the
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers signing below on the 11th of November, 1997.
<PAGE> 2
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
--------------------------- ---------------------------------------
Nancy L. Martin Robert H. Graham
Assistant Secretary President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ W.G. LITTLEPAGE
--------------------------- ---------------------------------------
Nancy L. Martin W.G. Littlepage
Assistant Secretary Sr. Vice President
IDS LIFE INSURANCE COMPANY, on
behalf of itself and its separate accounts
Attest: /s/ WILLIAM A. STOLTZMANN By: /s/ PAMELA J. MORET
--------------------------- ---------------------------------------
Name: William A. Stoltzmann Name: Pamela J. Moret
----------------------------- -------------------------------------
Title: Vice President Title: Vice President
---------------------------- ------------------------------------
<PAGE> 1
EXHIBIT h(12)(b)
AMENDMENT TO PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
IDS LIFE INSURANCE COMPANY OF NEW YORK,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
AND
AMERICAN EXPRESS FINANCIAL ADVISORS, INC.
--------------------
Section 5.3 is hereby amended to add, at the end of the last
sentence, the following:
IDS Life of New York's responsibilities in connection with the
foregoing shall be carried out with a view only to the
interests of Participants.
IN WITNESS WHEREOF, the Parties have caused this Amendment to the
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers signing below on the 11th of November, 1997.
<PAGE> 2
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
----------------------------- ----------------------------------
Nancy L. Martin Robert H. Graham
Assistant Secretary President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ W.G. LITTLEPAGE
----------------------------- ----------------------------------
Nancy L. Martin W.G. Littlepage
Assistant Secretary Sr. Vice President
IDS LIFE INSURANCE COMPANY OF
NEW YORK, on behalf of itself and its
separate accounts
Attest: /s/ WILLIAM A. STOLTZMANN By: /s/ PAMELA J. MORET
----------------------------- ----------------------------------
Name: William A. Stoltzmann Name: /s/ Pamela J. Moret
------------------------------- --------------------------------
Title: Vice President Title: Vice President
------------------------------ -------------------------------
AMERICAN EXPRESS FINANCIAL
ADVISORS, INC.
Attest: /s/ WILLIAM A. STOLTZMANN By: /s/ PAMELA J. MORET
----------------------------- ----------------------------------
Name: William A. Stoltzmann Name: Pamela J. Moret
------------------------------- --------------------------------
Title: Vice President Title: Vice President
------------------------------ -------------------------------
<PAGE> 1
EXHIBIT h(29)(b)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated February 17, 1998, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Sun Life Assurance Company of Canada
(U.S.), a Delaware life insurance company and Clarendon Insurance Agency, Inc. a
Massachusetts corporation, is hereby amended as follows:
Section 5 of the Agreement is hereby deleted in its entirety and replaced
with the following:
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:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
CLARENDON INSURANCE AGENCY, INC.
One Sun Life Executive Park
Wellesley Hills, MA 02481
Facsimile: (781) 237-0707
Attention Maura A. Murphy, Esq.
AIM VARIABLE INSURANCE FUNDS, INC.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attention: Nancy L. Martin, Esq.
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 SEPARATE
POLICIES UTILIZING THE FUNDS ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Sun Life of Canada (U.S.) o FUTURITY VARIABLE ANNUITY CONTRACT
AIM V.I. Growth Fund Variable Account F o FUTURITY II VARIABLE ANNUITY CONTRACT
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: December 11, 1998
-------------------------
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
1 of 2
<PAGE> 2
(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)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Attest: /s/ MAURA A. MURPHY By: /s/ ROBERT K. LEACH
---------------------------- -----------------------------------
Name: Maura A. Murphy Name: Robert K. Leach
------------------------------ ---------------------------------
Title: Senior Associate Counsel Title: Vice President
----------------------------- --------------------------------
(SEAL)
CLARENDON INSURANCE AGENCY, INC.
Attest: /s/ MAURA A. MURPHY By: /s/ JANE M. MANCINI
---------------------------- -----------------------------------
Name: Maura A. Murphy Name: Jane M. Mancini
------------------------------ ---------------------------------
Title: Assistant Secretary Title: President and Director
----------------------------- --------------------------------
(SEAL)
2 of 2
<PAGE> 1
EXHIBIT h(31)(b)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated April 21, 1998, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, Keyport Life
Insurance Company, a Rhode Island life insurance company and Keyport Financial
Services, Corp., 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 SEPARATE
POLICIES UTILIZING THE FUNDS ACCOUNTS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Variable Account A o DVA
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: 12/28/98
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)
KEYPORT LIFE INSURANCE COMPANY
Attest: /s/ DONALD A. TRUMAN By: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Name: /s/ DONALD A. TRUMAN Name: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Title: Assistant Vice President Title: Vice President
and Assistant Secretary
------------------------ ----------------------------------
(SEAL)
1 of 2
<PAGE> 2
KEYPORT FINANCIAL SERVICES, CORP.
Attest: /s/ DONALD A. TRUMAN By: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Name: /s/ DONALD A. TRUMAN Name: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Title: Assistant Vice President Title: Vice President
and Assistant Secretary
------------------------ ----------------------------------
(SEAL)
2 of 2
<PAGE> 1
EXHIBIT h(32)(c)
AMENDMENT NO. 2
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated May 1, 1998, by and among
AIM Variable Insurance Funds, Inc. a Maryland corporation, A I M Distributors,
Inc., a Delaware corporation, PFL Life Insurance Company, an Iowa life
insurance company and AFSG Securities Corporation, a Pennsylvania corporation,
is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
SCHEDULE A
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FUNDS AVAILABLE UNDER SEPARATE ACCOUNTS POLICIES FUNDED BY THE
THE POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital PFL Retirement Builder Variable PFL Life Insurance Company
Appreciation Fund Annuity Account Policy Form No.
AV288-1010-95-796
AIM V.I. Government Legacy Builder Variable Life (including successors forms,
Securities Fund Separate Account addenda and endorsements may
vary by state under marketing
AIM V.I. Growth & names: "Retirement Income
Income Fund Builder Variable Annuity,"
"Portfolio Select Variable
AIM V.I. International Annuity")
Equity Fund
PFL Life Insurance Company
AIM V.I. Value Fund Policy Form No.'s
VL20 & JL20 under the
marketing name "Legacy
Builder II"
- ----------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: November 27, 1998
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
-------------------------- ----------------------------
<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
--------------------------- ------------------------
PFL LIFE INSURANCE COMPANY
Attest: /s/ FRANK A. CAMP By: /s/ WILLIAM L. BUSLER
-------------------------- ---------------------------
Name: Frank A. Camp Name: William L. Busler
---------------------------- -------------------------
Title: Vice President & Division Title: President
--------------------------- ------------------------
General Counsel
---------------------------
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
--------------------------- ------------------------
<PAGE> 1
EXHIBIT h(35)(b)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated June 16, 1998, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware Corporation and The Lincoln National Life
Insurance Company, an Indiana life insurance company, is hereby amended as
follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
SCHEDULE A
<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 Lincoln Life Variable Annuity o The Lincoln National Life Insurance Company:
AIM V.I. Diversified Income Fund Account N Flexible Premium Variable Annuity Contracts
AIM V.I. Growth Fund AN425LL
AIM V.I. International Equity Fund Lincoln Life Flexible Premium and state variations thereof
AIM V.I. Value Fund Variable Life Account M
o The Lincoln National Life Insurance Company:
Lincoln Life Flexible Premium Flexible Premium Variable Life Insurance
Variable Life Account R Policy LN605LL/LN615LL/LN617LL
and state variations thereof
o The Lincoln National Life Insurance Company:
Flexible Premium Variable Life Insurance
Policy On the Lives of Two Insureds LN650LL
and state variations thereof
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Schedule A to be executed in its name and behalf of its duly authorized officer
on the date specified below. All other terms and provisions of the Agreement not
amended herein shall remain in full force and effect.
Effective Date: November 20, 1998
--------------------
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)
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Attest: /s/ STEVEN M. KLUEVER By: /s/ KELLY D. CLEVENGER
---------------------------- -----------------------------------
Name: Steven M. Kluever Name: Kelly D.Clevenger
Title: Assistant Vice President Title: Vice President
(SEAL)
2 of 2
<PAGE> 1
EXHIBIT h(37)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
THE UNION CENTRAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
CARILLON INVESTMENTS, 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................................................................................3
2.4 Dividends and Distributions.....................................................................4
2.5 Book Entry......................................................................................4
Section 3. Costs and Expenses....................................................................................5
3.1 General.........................................................................................5
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...............................................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
6.3 Funds To Remain Available......................................................................17
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C>
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............................................................................................24
Section 18. Confidentiality.....................................................................................25
Section 19. Trademarks and Fund Names...........................................................................25
Section 20. Parties to Cooperate................................................................................26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of July, 1998
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
The Union Central Life Insurance Company, an Ohio 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 Carillon Investments, 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 nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
references 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";
references 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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<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
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, it being understood by the Parties that AVIF
may sell shares of any Fund to any person eligible to invest in that Fund in
accordance with applicable provisions of Section 817(h) of the Code and the
regulations thereunder, and that if such provisions are not applicable, then
AVIF may sell shares of any Fund to any person, including members of 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) 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
3
<PAGE> 7
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.
(c) Notwithstanding any provision of the Agreement to the contrary, the
Parties agree that AVIF shall determine the applicable price for Share orders
attributable to Contracts funded by unregistered Accounts in accordance with
Section 2.3(a) hereof, provided that LIFE COMPANY represents and warrants that
it is legally or contractually obligated to treat such orders in the same manner
as orders attributable to Contracts funded by registered Accounts. Each Share
order placed by LIFE COMPANY that is attributable, in whole or in part, to
Contracts funded by an unregistered Account, shall be deemed to constitute such
representation and warranty by LIFE COMPANY unless the order specifically states
to the contrary. Otherwise, AVIF shall determine the applicable price for Share
orders attributable to Contracts funded by unregistered Accounts in accordance
with Section 2.3(b) hereof. As used herein, an Account is registered if it is
registered under the 1940 Act.
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.
4
<PAGE> 8
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 other 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.
(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 use its best efforts 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. The representations and warranties of this Section
4.1(b) shall not apply with respect to any Fund whose beneficial interests are
held solely by owners of "pension plan contracts" within the meaning of Section
818(a) of the Code and other persons whose federal income tax treatment is not
dependent on the Fund's compliance with the requirements of Section 817(h) of
the Code.
(c) Notwithstanding any other provision herein to the contrary, 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:
5
<PAGE> 9
(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 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
6
<PAGE> 10
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.
(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.
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<PAGE> 11
(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 Ohio and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 3907.15 of the Ohio
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) 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 Ohio
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's prospectus, statement of additional information, private
placement memoranda and other documents pursuant to which Contracts are offered,
and any amendments or supplements thereto (collectively, the "Account
Prospectus"), will at all times comply in all material respects with all
applicable 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, statement of additional information and any amendments or
supplements thereto (collectively, the "AVIF Prospectus" will at all times
comply in all material respects with all applicable requirements of the 1933 Act
and the rules thereunder.
8
<PAGE> 12
(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 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.
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<PAGE> 13
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 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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<PAGE> 14
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 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.
(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
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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 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:
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<PAGE> 16
(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 majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of
the Accounts from AVIF or any Fund and reinvesting
such assets in a different investment medium,
including another Fund of AVIF, or submitting the
question whether such segregation should be
implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., annuity Participants, life
insurance Participants or all Participants) that
votes in favor of such segregation, or offering to
the affected Participants the option of making such a
change; and
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<PAGE> 17
(ii) establishing a new registered investment company of
the type defined as a "management company" in Section
4(3) of the 1940 Act or a new separate account that
is operated as a management company.
(b) If the material irreconcilable conflict arises because of 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.
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
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<PAGE> 18
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
(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
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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, where required, 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, as
applicable, 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 this Agreement 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 UNION CENTRAL INSURANCE COMPANY
CARILLON INVESTMENTS, INC.
1876 Waycross Road
Cincinnati, Ohio 45240
Facsimile: 513-595-2918
Attn: John F. Labmeier, Esq., Law Dept.
Elizabeth G. Monsell
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 and/or Policyholders 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
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(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,
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 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
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(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing, not supplied
for use therein by or on behalf of 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 "Associated Persons,"
as that term is defined in paragraph (m) of Article I
of the NASD's By-Laws), in connection with the sale
or distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading if such a statement or omission was
made in reliance upon and in conformity with
information furnished to AVIF, 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.
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<PAGE> 24
(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, 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
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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 "Associated Persons"
as that term is defined in Section (m) 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.
(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
22
<PAGE> 26
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 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.
23
<PAGE> 27
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
24
<PAGE> 28
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) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other tradenames, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to
use the AIM licensed marks in connection with LIFE COMPANY's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
25
<PAGE> 29
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
(d) During the term of this grant of license, a licensor may request
that a licensee submit samples of any materials bearing any of the licensor's
licensed marks which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall obtain
the prior written approval of the licensor for the use of any new materials
developed to replace the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to
the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and 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 UNION CENTRAL LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ JOHN F. LABMEIER By: /s/ DENNIS J. COYLE
----------------------- --------------------------------
Name: JOHN F. LABMEIER Name: Dennis J. Coyle
-----------------------
Title: Vice President Title: Vice President
-----------------------
CARILLON INVESTMENTS, INC.
Attest: /s/ JOHN F. LABMEIER By: /s/ ELIZABETH G. MONSELL
----------------------- --------------------------------
Name: JOHN F. LABMEIER Name: Elizabeth G. Monsell
-----------------------
Title: Vice President Title: President
-----------------------
27
<PAGE> 31
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Balanced Fund
AIM V.I. Capital Appreciation Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
UCL Mutual Fund Separate Account No. 33
UNREGISTERED SEPARATE ACCOUNTS UTILIZING THE FUNDS
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
ESP ("Employee Savings Plan")
Allocated Group Annuity Policy
Policy Forms Nos. UC64347 and UC64342
28
<PAGE> 32
SCHEDULE B
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Balanced Fund
AIM V.I. Capital Appreciation Fund
AIM and Design
[AIM LOGO APPEARS HERE]
29
<PAGE> 33
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 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>
30
<PAGE> 1
EXHIBIT h(38)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
UNITED INVESTORS LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
MID-AMERICA PARTNERS, 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 .................................................... 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
6.3 Funds To Remain Available .......................................... 17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C>
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 .............................................................. 24
Section 18. Confidentiality ....................................................... 25
Section 19. Amendments ............................................................ 25
Section 20. Parties to Cooperate .................................................. 25
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of July, 1998
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
United Investors Life Insurance Company, a Missouri 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 MAP Investments,
Inc., 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 nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, 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");
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 all shares of the Funds will be sold
only to Participating Insurance Companies and other entities, all in accordance
with Section 817(h)(4) of the Internal Revenue code of 1986, as amended (the
"Code") and Treasury Regulations Section 1.817-5. Shares of the Fund will not be
sold to the general public.
2
<PAGE> 6
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
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) 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
3
<PAGE> 7
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. Any adjustments for pricing
errors shall be made according to Schedule B, attached hereto and made a part
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 C, attached
hereto and made a part hereof, each Party will 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.
4
<PAGE> 8
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) Subject to section 4.1 (d) and (e) hereof, AVIF represents and
warrants that each Fund is currently qualified as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and represents that it will qualify and maintain qualification of each
Fund as a RIC. AVIF will notify 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) Subject to section 4.1 (d) and (e) hereof, 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. 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;
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<PAGE> 9
(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 except
that LIFE COMPANY will not be liable for such costs if the
failure to comply with 817(h) arises from a failure to
meet the requirements of Treasury Regulation Section
1.817-5(b)(1) or (2) or Treasury Regulation Section
1.817-5(f) through no fault of LIFE COMPANY; 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) Subject to section 4.1 (a) and (b) hereof, 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 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) Subject to section 4.1 (a) and (b) hereof, 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
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 Missouri and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the Missouri Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(d) AIM 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
Missouri 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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<PAGE> 12
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
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.
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<PAGE> 13
(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 (including notices and
orders), requests for no-action letters and responses, 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 shall provide LIFE COMPANY with as much notice as is
reasonably practicable of any proxy solicitation for a Fund and of any material
change in the Fund's Prospectus or registration statement, particularly any
changes resulting in a change to the prospectus or registration statement
relating to the Contracts. Where such material changes are an item for
consideration by the Board of AVIF, such notice requirements of AVIF may be
satisfied by providing LIFE COMPANY with a copy of an agenda of the relevant
Board of Directors meeting of AVIF.
(c) AVIF will provide to LIFE COMPANY camera ready or computer
diskette copies of all AVIF prospectuses and printed copies, in an amount
specified by LIFE COMPANY, of AVIF
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<PAGE> 14
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.
(d) 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.
(e) 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.
(f) 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.
(g) 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;
(c) an administrative or judicial decision in any relevant
proceeding;
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<PAGE> 16
(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 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
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<PAGE> 17
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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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, 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, AIM, or its 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
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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 sixty (60) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
16
<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.
17
<PAGE> 21
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.
UNITED INVESTORS LIFE INSURANCE COMPANY
2001 3rd Avenue South
Birmingham, Alabama 35233
Facsimile: (205) 325-2720
Attn: James L. Sedgwick, President
MID-AMERICA PARTNERS, INC.
9020 N. May Avenue, Ste. 290
Oklahoma City, Oklahoma 73120
Facsimile: (405) 840-8770
Attn: Mark Davenport
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
18
<PAGE> 22
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 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
19
<PAGE> 23
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, 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, insofar as such losses, claims, damages,
liabilities or actions are related to the sale or acquisition of AVIF's shares;
and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or
its affiliates by or on behalf of LIFE
21
<PAGE> 25
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 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
(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 or AIM in this Agreement or
arise out of or result from any other material breach of
this Agreement by AVIF or AIM.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF 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
22
<PAGE> 26
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, 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.
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<PAGE> 27
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
24
<PAGE> 28
SECTION 18. CONFIDENTIALITY
AVIF and AIM 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
and AIM agree that if they 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 or AIM from information supplied to it by the LIFE COMPANY
Protected Parties' customers who also maintain accounts directly with AVIF, AVIF
and AIM 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 AIM or any of their 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.
19. 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 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
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
UNITED INVESTORS LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ JOHN H. LIVINGSTON By: /s/ JAMES L. SEDGWICK
---------------------------- ---------------------------------
Name: John H. Livingston Name: James L. Sedgwick
Title: Secretary Title: President
MAP INVESTMENTS, INC.
Attest: /s/ TERRY L. JOHNSON By: /s/ D. MARK DAVENPORT
---------------------------- ---------------------------------
Name: Terry L. Johnson Name: D. Mark Davenport
Title: Assistant Secretary Title: President
26
<PAGE> 30
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
RetireMap Variable Account
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Variable Annuity Contract V96
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 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 the amount of $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, printing
supplements 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 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 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>
*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.
29
<PAGE> 1
EXHIBIT h(40)(b)
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated July 13, 1998, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, Keyport
Benefit Life Insurance Company, a New York life insurance company and Keyport
Financial Services, Corp., 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 SEPARATE
POLICIES UTILIZING THE FUNDS ACCOUNTS
------------------------- ------------------- --------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Variable Account A o DVA
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: 12/28/98
-----------------------
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)
KEYPORT BENEFIT LIFE INSURANCE COMPANY
Attest: /s/ DONALD A. TRUMAN By: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Name: /s/ DONALD A. TRUMAN Name: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Title: Assistant Vice President Title: Vice President
and Assistant Secretary
------------------------ ----------------------------------
(SEAL)
1 of 2
<PAGE> 2
KEYPORT FINANCIAL SERVICES, CORP.
Attest: /s/ DONALD A. TRUMAN By: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Name: /s/ DONALD A. TRUMAN Name: /s/ JACOB M. HIRSCHLER
------------------------ ----------------------------------
Title: Assistant Vice President Title: Vice President
and Assistant Secretary
------------------------ ----------------------------------
(SEAL)
2 of 2
<PAGE> 1
EXHIBIT h(43)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
AMERICAN GENERAL ANNUITY INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AGA BROKERAGE SERVICES, 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..................................................... 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...................................................... 7
4.4 Notice of Certain Proceedings and Other Circumstances................ 8
4.5 AGAIC To Provide Documents; Information About AVIF................... 9
4.6 AVIF To Provide Documents; Information About AGAIC................... 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 AGAIC...................................................... 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......................................................... 17
Section 11. Foreign Tax Credits....................................................... 18
Section 12. Indemnification........................................................... 18
12.1 Of AVIF and AIM by AGAIC and UNDERWRITER............................. 18
12.2 Of AGAIC and UNDERWRITER by AVIF and AIM............................. 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......................................................... 23
Section 17. Headings.................................................................. 23
Section 18. Confidentiality........................................................... 24
Section 19. Trademarks and Fund Names................................................. 24
Section 20. Parties to Cooperate...................................................... 25
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 23rd day of November,
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
American General Annuity Insurance Company, a Texas life insurance company
("AGAIC"), 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 AGA Brokerage Services,
Inc., an affiliate of AGAIC 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, AGAIC 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, AGAIC 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, AGAIC 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, AGAIC 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 AGAIC 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
AGAIC 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) AGAIC is open for business.
(b) AGAIC 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.
AGAIC 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 AGAIC 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 AGAIC.
(c) With respect to payment of the purchase price by AGAIC and of
redemption proceeds by AVIF, AGAIC 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 AGAIC,
AGAIC, 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 AGAIC.
2.2 TIMELY PAYMENTS.
AGAIC 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 AGAIC 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 AGAIC 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 AGAIC 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), AGAIC shall be the designated agent of AVIF for receipt of
orders relating to Contract
3
<PAGE> 7
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 AGAIC 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 AGAIC of any income dividends
or capital gain distributions payable on the Shares of any Fund. AGAIC 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
AGAIC 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. AGAIC 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 AGAIC. Shares ordered from AVIF will be
recorded in an appropriate title for AGAIC, 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.
4
<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 AGAIC 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 AGAIC 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) AGAIC agrees that if the Internal Revenue Service ("IRS") asserts
in writing in connection with any governmental audit or review of AGAIC or, to
AGAIC's knowledge, of any Participant, that any Fund has failed to comply with
the diversification requirements of Section 817(h) of the Code or AGAIC
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) AGAIC shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality
provisions of Section 18 as to any Participant);
(ii) AGAIC shall consult with AVIF as to how to minimize
any liability that may arise as a result of such
failure or alleged failure;
(iii) AGAIC 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) AGAIC 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 AGAIC will
retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by AGAIC to the
IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
5
<PAGE> 9
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 AGAIC 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 AGAIC to any such
person without the express written consent of AVIF
which shall not be unreasonably withheld;
(vi) AGAIC 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 AGAIC) 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) AGAIC 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 AGAIC 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 AGAIC
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, AGAIC may,
in its discretion, authorize AVIF or its affiliates to act in the name of AGAIC
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 AGAIC 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.
6
<PAGE> 10
(d) AGAIC 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; AGAIC 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) AGAIC 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. AGAIC 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 AGAIC, including, the furnishing of information not otherwise available to
AGAIC which is required by state insurance law to enable AGAIC to obtain the
authority needed to issue the Contracts in any applicable state.
(b) AGAIC 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 Texas 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 Texas 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) AGAIC 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
Texas 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) AGAIC 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
7
<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 AGAIC 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 AGAIC. AVIF will
make every reasonable effort to prevent the issuance, with respect to any Fund,
8
<PAGE> 12
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) AGAIC 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. AGAIC 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 AGAIC TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) AGAIC 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) AGAIC 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 another
designated agent by giving notice to AGAIC in the manner required by Section 9
hereof.
(c) Neither AGAIC 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) AGAIC 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
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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 AGAIC.
(a) AVIF will provide to AGAIC 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 AGAIC a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by AGAIC, 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
AGAIC in a timely manner so as to enable AGAIC, 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 AGAIC or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which AGAIC, 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 AGAIC 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. AGAIC
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 AGAIC, 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 AGAIC for distribution; or
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<PAGE> 14
(iii) in sales literature or other promotional material approved by AGAIC or its
affiliates, except with the express written permission of AGAIC.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning AGAIC, 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 AGAIC, 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 AGAIC, 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 AGAIC
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
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<PAGE> 15
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"). AGAIC 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, AGAIC 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 AGAIC to disregard voting instructions of Participants. AGAIC'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,
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<PAGE> 16
AGAIC 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 AGAIC's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AGAIC 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 AGAIC that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by AGAIC 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 AGAIC conflicts with the
majority of other state regulators, then AGAIC will withdraw each Account's
investment in AVIF within six (6) months after AVIF's Board of Directors informs
AGAIC 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 AGAIC for the purchase and redemption of Shares of AVIF.
No charge or penalty will be imposed as a result of such withdrawal.
(d) AGAIC 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.
AGAIC will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
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<PAGE> 17
5.5 NOTICE TO AGAIC.
AVIF will promptly make known in writing to AGAIC 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.
AGAIC 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 AGAIC, or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding AGAIC'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 AGAIC 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, AGAIC
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 AGAIC, 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 AGAIC; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of AGAIC if the Fund ceases to qualify as a RIC under
Subchapter M of the Code or under successor or similar provisions, or if AGAIC
reasonably believes that the Fund may fail to so qualify; or
(g) at the option of AGAIC if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if AGAIC
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by AGAIC 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 AGAIC, 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 AGAIC 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 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.
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA 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, AGAIC 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. AGAIC will vote Shares
in accordance with timely instructions received from Participants. AGAIC 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
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<PAGE> 21
to the extent that the SEC continues to interpret the 1940 Act to require pass
through voting privileges for Participants. Neither AGAIC 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. AGAIC reserves the right to vote shares held in any Account in its
own right, to the extent permitted by law. AGAIC 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 AGAIC 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 AGAIC 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 AGAIC AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, AGAIC 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
AGAIC 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
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<PAGE> 22
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 AGAIC 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 AGAIC, UNDERWRITER
or their respective affiliates and on which such
persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of AGAIC, 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 AGAIC, 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 AGAIC 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
AGAIC or UNDERWRITER in this Agreement or arise out
of or result from any other material breach of this
Agreement by AGAIC or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by AGAIC 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.
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<PAGE> 23
(b) Neither AGAIC 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 AGAIC 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 AGAIC 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 AGAIC and UNDERWRITER of any such action shall not
relieve AGAIC 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, AGAIC 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 AGAIC or UNDERWRITER to such
Indemnified Party of AGAIC's or UNDERWRITER's election to assume the defense
thereof, the Indemnified Party will cooperate fully with AGAIC 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 AGAIC 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 AGAIC,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
AGAIC, 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 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
20
<PAGE> 24
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 AGAIC, 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 AGAIC, 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
21
<PAGE> 25
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 AGAIC 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 AGAIC of Shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for each Account
that AGAIC 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 AGAIC, 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, AGAIC, 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 AGAIC or UNDERWRITER hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by AGAIC 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 AGAIC or any Participating Insurance
Company to maintain its variable annuity or life insurance
22
<PAGE> 26
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.
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.
23
<PAGE> 27
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of AGAIC or any
of its affiliates (collectively, the "AGAIC 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 AGAIC
Protected Parties or any of their employees or agents in connection with AGAIC's
performance of its duties under this Agreement are the valuable property of the
AGAIC Protected Parties. AVIF agrees that if it comes into possession of any
list or compilation of the identities of or other information about the AGAIC
Protected Parties' customers, or any other information or property of the AGAIC
Protected Parties, other than such information as may be independently developed
or compiled by AVIF from information supplied to it by the AGAIC 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 AGAIC's
prior written consent; or (b) as required by law or judicial process. AGAIC
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. AGAIC 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 AGAIC from information supplied to it by the AVIF Protected
Parties' customers who also maintain accounts directly with AGAIC, AGAIC 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., AGAIC and UNDERWRITER, neither AGAIC 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 AGAIC or
any of its affiliates, or any variation of any such trademark,
24
<PAGE> 28
trade name, service mark or logo, without AGAIC's prior written consent, the
granting of which shall be at AGAIC'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
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
AMERICAN GENERAL ANNUITY INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: /s/ CYNTHIA A. TOLES By: /s/ THOMAS C. WEST, JR.
-------------------------- ----------------------------
Name: Cynthia A. Toles Name: Thomas C. West, Jr.
Title: Senior Vice President, Title: Chief Executive Officer and
General Counsel and Chairman of the Board
Secretary
AGA BROKERAGE SERVICES, INC.
Attest: /s/ DWIGHT L. CRAMER By: /s/ KURT FREDLAND
-------------------------- ----------------------------
Name: Dwight L. Cramer Name: Kurt Fredland
-------------------------- ----------------------------
Title: Vice President & Secretary Title: President
-------------------------- ----------------------------
26
<PAGE> 30
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
AGA Separate Account A
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
o VA61-94
o VA61-T5-94
o VA63-94
o VA63-T5-94
o VA64-T5-94
27
<PAGE> 31
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
====================================================================================================================
AGAIC 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 owners upon request by policy owners 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
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>
28
<PAGE> 1
EXHIBIT h(44)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
AND
PRUCO SECURITIES CORPORATION
<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 Registration ............................................................................4
3.3 Other (Non-Sales-Related) ...............................................................5
3.4 Other (Sales-Related) ...................................................................5
3.5 Parties To Cooperate ....................................................................5
Section 4. Legal Compliance ..............................................................................6
4.1 Tax Laws ................................................................................6
4.2 Insurance and Certain Other Laws ........................................................8
4.3 Securities Laws .........................................................................9
4.4 Notice of Certain Proceedings and Other Circumstances ...................................9
4.5 Prudential and the Underwriter To Provide Documents; Information About AVIF
.......................................................................................10
4.6 AVIF or AIM To Provide Documents; Information About Prudential and the Underwriter .....11
4.7 Definition of Sales Literature or Other Promotional Material ...........................12
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 Prudential ...................................................................15
5.6 Information Requested by Board of Directors ............................................15
5.7 Compliance with SEC Rules ..............................................................15
5.8 Other Requirements .....................................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C> <C>
Section 6. Termination ..................................................................................15
6.1 Events of Termination ..................................................................15
6.2 Notice Requirement for Termination .....................................................17
6.3 Funds To Remain Available ..............................................................17
6.4 Survival of Warranties and Indemnifications ............................................17
6.5 Continuance of Agreement for Certain Purposes ..........................................18
Section 7. Parties To Cooperate Respecting Termination ..................................................18
Section 8. Assignment ...................................................................................18
Section 9. Notices ......................................................................................18
Section 10. Voting Procedures ...........................................................................19
Section 11. Foreign Tax Credits .........................................................................19
Section 12. Indemnification .............................................................................20
12.1 Of AVIF and AIM by Prudential and the Underwriter ......................................20
12.2 Of Prudential and the Underwriter by AVIF and AIM ......................................22
12.3 Effect of Notice .......................................................................24
12.4 Successors .............................................................................24
12.5 Assignments ............................................................................24
Section 13. Applicable Law ..............................................................................25
Section 14. Execution in Counterparts ...................................................................25
Section 15. Severability ................................................................................25
Section 16. Rights Cumulative ...........................................................................25
Section 17. Headings ....................................................................................25
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of December,
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM");
The Prudential Insurance Company of America ("Prudential"), a New Jersey life
insurance company, on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Pruco Securities
Corporation, a New Jersey corporation and the principal underwriter of the
Contracts and Policies referred to below ("Underwriter") (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of 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
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 (the "1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, AIM currently serves as the distributor for the Shares; and
WHEREAS, Prudential will be the issuer of certain variable annuity
contracts ("Contracts") and/or variable life insurance policies ("Policies") as
set forth on Schedule A hereto, as the Parties hereto may amend from time to
time, which Contracts and Policies (hereinafter collectively, the "Policies"),
if required by applicable law, will be registered under the 1933 Act; and
WHEREAS, Prudential will fund the Policies through the Accounts, each
of which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
1
<PAGE> 5
WHEREAS, Prudential will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Policies will be registered as securities under the
1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Prudential intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Policies; and
WHEREAS, the Underwriter is a broker-dealer registered with the SEC
under the 1934 Act and a member in good standing of the NASD;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Prudential for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other
Funds to provide additional funding media for the Policies, or to delete,
combine, or modify existing Funds, by amending Schedule A hereto. Upon such
amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares
herein shall include a reference to any such additional Fund. Schedule A, as
amended from time to time, is incorporated herein by reference and is a part
hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that Shares of each Fund have
been and will be sold only to those entities listed under Section 817(h)(4) of
the Code and the regulations thereunder, as such Code Section and the
regulations may be amended from time to time.
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 Prudential with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, and
(ii) AVIF calculates the Fund's net asset value.
(b) Prudential will use the data provided by AVIF each
Business Day pursuant to paragraph (a) immediately above to calculate Account
unit values and to process transactions that receive that same Business Day's
Account unit values. Prudential will perform such Account processing the same
Business Day, and will place corresponding orders to purchase or redeem Shares
with AVIF by 9:00 a.m. Central Time the following Business Day; provided,
however, that AVIF shall provide additional time to Prudential in the event that
AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a) immediately
above. Such additional time shall be equal to the additional time that AVIF
takes to make the net asset values available to Prudential.
(c) Each order to purchase or redeem Shares will separately
describe the amount of Shares of each Fund to be purchased, redeemed or
exchanged and will not be netted; provided, however, with respect to payment of
the purchase price by Prudential and of redemption proceeds by AVIF, Prudential
and AVIF shall net purchase and redemption orders with respect to each Fund and
shall transmit one (1) net payment per Fund in accordance with Section 2.2,
below. Each order to purchase or redeem Shares shall also specify whether the
order results from purchase payments, surrenders, partial withdrawals, routine
withdrawals of charges, or requests for other transactions under Policies
(collectively, "Policy transactions").
(d) If AVIF provides materially incorrect Share net asset
value information, Prudential shall be entitled to an adjustment to the number
of Shares purchased or redeemed to reflect the correct net asset value per
Share. Any material error in the calculation or reporting of net asset value per
Share, dividend or capital gain information shall be reported promptly upon
discovery to Prudential.
2.2 TIMELY PAYMENTS.
Prudential will wire payment for net purchases to a custodial
account designated by AVIF by 1:00 p.m. Central Time on the same day as the
order for Shares is placed, to the extent practicable. AVIF will wire payment
for net redemptions to an account designated by Prudential by 1:00 p.m. Central
Time on the same day as the Order is placed, to the extent practicable, but in
any event within five (5) calendar days after the date the order is placed in
order to enable Prudential to pay redemption proceeds within the time specified
in Section 22(e) of the 1940 Act or such shorter period of time as may be
required by law.
3
<PAGE> 7
2.3 APPLICABLE PRICE.
(a) Share purchase and redemption orders that result from
Policy transactions and that Prudential receives prior to the close of regular
trading on the New York Stock Exchange on a Business Day will be executed at the
net asset values of the appropriate Funds next computed after receipt by AVIF or
its designated agent of the orders. For purposes of this Section 2.3(a), the
Underwriter shall be the designated agent of AVIF for receipt of orders relating
to Policy transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided, that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Prudential
will be effected at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the order therefor, and such
orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice promptly to Prudential of any income
dividends or capital gain distributions payable on the Shares of any Fund.
Prudential hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-dividend
date net asset values until Prudential otherwise notifies AVIF in writing, it
being agreed by the Parties that the ex-dividend date and the payment date with
respect to any dividend or distribution will be the same Business Day.
Prudential reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry
only. Stock certificates will not be issued to Prudential. Shares ordered from
AVIF will be recorded in an appropriate title for Prudential, on behalf of its
Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party
will bear all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such
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<PAGE> 8
registrations current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
with respect to AVIF and its Shares and payment of all applicable registration
or filing fees with respect to any of the foregoing.
(b) Prudential will bear the cost of registering, to the
extent required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Policies under the 1933 Act and keeping
such registrations current and effective; including, without limitation, the
preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs
of preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) Prudential will bear the costs of preparing, filing with
the SEC and setting for printing each Account's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "Account Prospectus"), any periodic reports to Policy owners, annuitants or
participants under the Policies (collectively, "Participants"), voting
instruction solicitation material, and other Participant communications.
(c) Prudential or the Underwriter will print in quantity and
deliver to existing Participants the documents described in Section 3.3(b) above
and the documents provided by AVIF in camera ready or computer diskette form
pursuant to Section 4.6(b) hereof. The costs of printing in quantity and
delivering to existing Participants such documents will be borne by Prudential.
3.4 OTHER (SALES-RELATED).
The Underwriter will bear the expenses of distributing Fund
Shares and the Policies. These expenses would include by way of illustration,
but are not limited to, the costs of printing and distributing to offerees the
AVIF Prospectus and periodic reports of AVIF. These costs would also include the
costs of preparing, printing, and distributing sales literature and advertising
relating to the Funds, as well as filing such materials with, and obtaining
approval from, the SEC, NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable,
in arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
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SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will qualify and maintain qualification of each Fund as a RIC. AVIF will notify
Prudential immediately upon having a reasonable basis for believing that a Fund
has ceased to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will comply and maintain each
Fund's compliance with the diversification requirements set forth in Section
817(h) of the Code and Section 1.817-5(b) of the regulations under the Code.
AVIF will notify Prudential immediately upon having a reasonable basis for
believing that a Fund has ceased to so comply or that a Fund might not so comply
in the future.
(c) Prudential agrees that if the Internal Revenue Service
("IRS") asserts in writing in connection with any governmental audit or review
of Prudential or, to Prudential's knowledge, of any Participant, that any Fund
has failed to comply with the diversification requirements of Section 817(h) of
the Code or Prudential otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) Prudential shall promptly notify AVIF of such
assertion or potential claim;
(ii) Prudential shall consult with AVIF as to how to
minimize any liability that may arise as a result of such
failure or alleged failure;
(iii) Prudential shall use its best efforts to
minimize any liability of AVIF or its affiliates resulting
from such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations Section
1.817-5(a)(2), to the Commissioner of the IRS that such
failure was inadvertent;
(iv) Prudential shall permit AVIF, its affiliates and
their legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative or
judicial proceeding or contests (including judicial appeals
thereof) with the IRS, any Participant or any other claimant
regarding any claims that could give rise to liability to AVIF
or its affiliates as a result of such a failure or alleged
failure;
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<PAGE> 10
(v) any written materials to be submitted by
Prudential to the IRS, any Participant or any other claimant
in connection with any of the foregoing proceedings or
contests (including, without limitation, any such materials to
be submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by Prudential to
AVIF (together with any supporting information or analysis) at
least ten (10) business days' prior to the day on which such
proposed materials are to be submitted, and (b) shall not be
submitted by Prudential to any such person without the express
written consent of AVIF which shall not be unreasonably
withheld;
(vi) Prudential shall provide AVIF or its affiliates
and their accounting and legal advisors with such cooperation
as AVIF shall reasonably request (including, without
limitation, by permitting AVIF and its accounting and legal
advisors to review the relevant books and records of
Prudential) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it pursuant to
the preceding clause or its assessment of the validity or
amount of any claim against its arising from such a failure or
alleged failure;
(vii) Prudential shall not with respect to any claim
of the IRS or any Participant that would give rise to a claim
against AVIF or its affiliates (a) compromise or settle any
claim, (b) accept any adjustment on audit, or (c) forego any
allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which shall
not be unreasonably withheld, provided that Prudential shall
not be required, after exhausting all administrative
penalties, to appeal any adverse judicial decision unless AVIF
or its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable basis
exists for taking such appeal; and provided further that the
costs of any such appeal shall be borne equally by the Parties
hereto; and
(viii) AVIF and its affiliates shall have no
liability as a result of such failure or alleged failure if
Prudential fails to comply with any of the foregoing clauses
(i) through (vii), and such failure could be shown to have
materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give
its written consent to any compromise or settlement of any claim or liability
hereunder, Prudential may, in its discretion, authorize AVIF or its affiliates
to act in the name of Prudential in, and to control the conduct of, such
conferences, discussions, proceedings, contests or appeals and all
administrative or judicial appeals thereof, and in that event AVIF or its
affiliates shall bear the fees and expenses associated with the conduct of the
proceedings that it is so authorized to control; provided that in no event shall
Prudential have any liability resulting from AVIF's refusal to accept the
proposed settlement or compromise with respect to any failure caused by AVIF. As
used in this Agreement, the term "affiliates" shall have the same meaning as
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
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<PAGE> 11
(d) Prudential represents and warrants that the Policies
currently are and will be treated as annuity, endowment, or life insurance
contracts under applicable provisions of the Code and that it will maintain such
treatment; Prudential will notify AVIF immediately upon having a reasonable
basis for believing that any of the Policies have ceased to be so treated or
that they might not be so treated in the future.
(e) Prudential represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Prudential will continue to meet such definitional
requirements, and it will notify AVIF immediately upon having a reasonable basis
for believing that such requirements have ceased to be met or that they might
not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF and AIM will use their best efforts to comply with
any applicable state insurance laws or regulations, to the extent specifically
requested in writing by Prudential.
(b) Prudential represents and warrants that (i) it is an
insurance company duly organized, validly existing and in good standing under
the laws of the State of New Jersey and has full corporate power, authority and
legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under the New Jersey
Insurance Code and the regulations thereunder, and (iii) the Policies comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a Delaware
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full power, authority and right to
execute, deliver and perform its duties and comply with the its obligations
under this Agreement.
(e) The Underwriter represents and warrants that it is a New
Jersey corporation duly organized, validly existing, and in good standing under
the laws of the State of New Jersey and has full power, authority, and legal
right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
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4.3 SECURITIES LAWS.
(a) Prudential and the Underwriter represent and warrant that
(i) interests in each Account pursuant to the Policies will be registered under
the 1933 Act to the extent required by the 1933 Act, (ii) the Policies will be
duly authorized for issuance and sold in compliance with all applicable federal
and state laws, including, without limitation, the 1933 Act, the 1934 Act, the
1940 Act and Arizona 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) Prudential will amend the
registration statement for its Policies under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Policies or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF and AIM represent and warrant that (i) Shares sold
pursuant to this Agreement will be registered under the 1933 Act to the extent
required by the 1933 Act and duly authorized for issuance and sold in compliance
with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to
the extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF and/or AIM will immediately notify Prudential of (i)
the issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to AVIF's registration statement
under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or AVIF Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund in
any state or jurisdiction, including, without limitation, any circumstances in
which (a) such Shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law, or (b) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by Prudential. AVIF will
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<PAGE> 13
make every reasonable effort to prevent the issuance, with respect to any Fund,
of any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
(b) Prudential and the Underwriter will immediately notify
AVIF of (i) the issuance by any court or regulatory body of any stop order,
cease and desist order, or other similar order with respect to each Account's
registration statement under the 1933 Act relating to the Policies or each
Account Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or Account Prospectus, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Policies,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Prudential will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 PRUDENTIAL AND THE UNDERWRITER TO PROVIDE DOCUMENTS;
INFORMATION ABOUT AVIF.
(a) Prudential or the Underwriter will provide to AVIF or its
designated agent at least one (1) complete copy of all SEC registration
statements, Account Prospectuses, reports, any preliminary and final voting
instruction solicitation material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to each
Account or the Policies, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
(b) The Underwriter will provide to AVIF or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
five (5) business days' prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) business days
after receipt of such material or such shorter period as the Parties hereto may,
from time to time, agree upon. AVIF hereby designates its investment adviser as
the entity to receive such sales literature or other promotional material, until
such time as AVIF appoints another designated agent by giving notice to
Prudential in the manner required by Section 9 hereof.
(c) Neither Prudential, the Underwriter, nor any of their
respective affiliates will give any information or make any representations or
statements on behalf of or concerning AVIF or its affiliates in connection with
the sale of the Policies other than (i) the information or representations
contained in the registration statement, including the AVIF Prospectus contained
therein, relating to Shares, as such registration statement and AVIF Prospectus
may be amended from time to time; or (ii) in reports or proxy materials for
AVIF; or (iii) in sales literature or other promotional material approved by
AVIF, except with the express written permission of AVIF.
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(d) Prudential and the Underwriter shall adopt and implement
procedures reasonably designed to ensure that information concerning AVIF and
its affiliates that is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither AVIF
nor any of its affiliates shall be liable for any losses, damages or expense
relating to the improper use of such broker only materials.
4.6 AVIF OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT PRUDENTIAL AND
THE UNDERWRITER.
(a) AVIF will provide to Prudential at least one (1) complete
copy of all SEC registration statements, AVIF Prospectuses, reports, any
preliminary and final proxy material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to AVIF
or the Shares of a Fund, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
(b) AVIF will provide to Prudential or the Underwriter camera
ready or computer diskette copies of all AVIF Prospectuses, proxy materials,
periodic reports to shareholders and other materials required by law to be sent
to Participants who have allocated any Policy value to a Fund. AVIF will provide
such copies to Prudential or the Underwriter in a timely manner so as to enable
Prudential or the Underwriter, as the case may be, to print and distribute such
materials within the time required by law to be furnished to Participants.
(c) AIM will provide to Prudential or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which Prudential, the Underwriter or any of their
respective affiliates is named, or that refers to the Policies, at least five
(5) business days' prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if Prudential
or its designated agent objects to such use within five (5) business days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. Prudential shall receive all such sales literature or
other promotional material, until such time as it appoints a designated agent by
giving notice to AVIF in the manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or concerning
Prudential, the Underwriter, each Account, or the Policies other than (i) the
information or representations contained in the registration statement,
including each Account Prospectus contained therein, relating to the Policies,
as such registration statement and Account Prospectus may be amended from time
to time; or (ii) in reports or voting instruction materials for each Account; or
(iii) in sales literature or other promotional material approved by Prudential
or its affiliates, except with the express written permission of Prudential.
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(e) AIM shall adopt and implement procedures reasonably
designed to ensure that information concerning Prudential, the Underwriter, and
their respective affiliates that is intended for use only by brokers or agents
selling the Policies (i.e., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither
Prudential, the Underwriter, nor any of their respective affiliates shall be
liable for any losses, damages or expense relating to the improper use of such
broker only materials.
4.7 DEFINITION OF SALES LITERATURE OR OTHER PROMOTIONAL MATERIAL.
For purposes of this Section 4.7, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, video tape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circular, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published articles), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, prospectuses, statements of
additional information, shareholder reports, and proxy materials and any other
material constituting sales literature of advertising under NASD Rules, the 1940
Act or the 1933 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order 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 life insurance contracts, separate accounts
of insurance companies unaffiliated with Prudential, and trustees of qualified
pension and retirement plans (collectively, "Mixed and Shared Funding"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section 5.
Sections 5.2 through 5.8 below shall apply, if and only if AVIF continues to
implement Mixed and Shared Funding, pursuant to such an exemptive order or
otherwise. AVIF hereby notifies Prudential that it may be appropriate to include
in the prospectus pursuant to which a Policy is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times
consist of directors a majority of whom (the "Disinterested Directors") are not
interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940
Act and the Rules thereunder and as modified by any applicable orders of the
SEC, except that if this condition is not met by reason of the death,
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<PAGE> 16
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"). Prudential agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract Participants or by
Participants of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to
disregard the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with
exemptive orders of the type referred to in Section 5.1 hereof, Prudential will
assist the Board of Directors in carrying out its responsibilities by providing
the Board of Directors with all information reasonably necessary for the Board
of Directors to consider any issue raised, including information as to a
decision by Prudential to disregard voting instructions of Participants.
Prudential's responsibilities with the foregoing shall be carried out with a
view only to the interest of Participants.
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5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, Prudential will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all
of the Accounts from AVIF or any Fund and reinvesting such
assets in a different investment medium, including another
Fund of AVIF, or submitting the question whether such
segregation should be implemented to a vote of all affected
Participants and, as appropriate, segregating the assets of
any particular group (e.g., annuity Participants, life
insurance Participants or all Participants) that votes in
favor of such segregation, or offering to the affected
Participants the option of making such a change; and
(ii) establishing a new registered investment company
of the type defined as a "management company" in Section 4(3)
of the 1940 Act or a new separate account that is operated as
a management company.
(b) If the material irreconcilable conflict arises because of
Prudential's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
Prudential may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to Prudential that this provision is being implemented,
and until such withdrawal AVIF shall continue to accept and implement orders by
Prudential for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to Prudential
conflicts with the majority of other state regulators, then Prudential will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs Prudential that it has determined that such decision
has created a material irreconcilable conflict, and until such withdrawal AVIF
shall continue to accept and implement orders by Prudential for the purchase and
redemption of Shares of AVIF.
(d) Prudential agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested
Directors will determine whether or not any proposed action adequately remedies
any material irreconcilable conflict. In no event, however, will AVIF or any of
its affiliates be required to establish a new funding medium for any Policies.
Prudential will not be required by the terms hereof to establish a new funding
medium
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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 PRUDENTIAL.
AVIF will promptly make known in writing to Prudential the
Board of Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Prudential and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive 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 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:
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(a) at the option of AVIF or Prudential upon the approval by
(i) a majority of the Disinterested Directors, or (ii) a majority vote of the
Shares of the affected Fund that are held in the corresponding Subaccount of an
Account (pursuant to the procedures set forth in Section 10 of this Agreement
for voting Shares in accordance with Participant instructions); provided,
however, that the approvals described in clauses (i) and (ii) above shall not be
required if (1) the aggregate account value under the Policies is less than one
million dollars ($1,000,000,000) at the date the notice of termination is
delivered, and (2) thirty-six (36) full calendar months have expired following
the date the first Policy invested in any Fund; or
(b) at the option of AVIF or AIM upon institution of formal
proceedings against Prudential or its affiliates by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Prudential's
obligations under this Agreement or related to the sale of the Policies, the
operation of each Account, or the purchase of Shares, if, in each case, AVIF or
AIM reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Fund with respect to which the Agreement is to be
terminated; or
(c) at the option of Prudential upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, Prudential reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on Prudential, or the Subaccount corresponding to
the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the
Fund's Shares are not registered and, in all material respects, issued and sold
in accordance with any applicable federal or state law, or (ii) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by Prudential; or
(e) upon termination of the corresponding Subaccount's
investment in the Fund pursuant to Section 5 hereof; or
(f) at the option of Prudential if the Fund ceases to qualify
as a RIC under Subchapter M of the Code or under successor or similar
provisions, or if Prudential reasonably believes that the Fund may fail to so
qualify; or
(g) at the option of Prudential if the Fund fails to comply
with Section 817(h) of the Code or with successor or similar provisions, or if
Prudential reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF or AIM if the Policies issued by
Prudential cease to qualify as annuity contracts or life insurance contracts
under the Code (other than by reason of the
16
<PAGE> 20
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; or
(j) at the option of either party upon six (6) months' advance
written notice.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and
until the Party terminating this Agreement gives prior written notice to the
other Party to this Agreement of its intent to terminate, and such notice shall
set forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the
provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall
be given at least six (6) months in advance of the effective date of termination
unless a shorter time is required by law or is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the
provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall
be given at least ninety (90) days in advance of the effective date of
termination unless a shorter time is required by law or is agreed to by the
Parties hereto; and
(c) in the event that any termination is based upon the
provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such
prior written notice shall be given as soon as possible after the terminating
Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Except (a) as necessary to implement Participant-initiated
transactions, (b) as required by state insurance laws or regulations, (c) as
required pursuant to Section 5 of this Agreement, or (d) with respect to any
Fund as to which this Agreement has terminated pursuant to Section 6.1 hereof,
Prudential shall not (i) redeem AVIF Shares attributable to the Policies (as
opposed to AVIF Shares attributable to Prudential's assets held in each
Account), or (ii) prevent Participants from allocating payments to or
transferring amounts from a Fund that was otherwise available under the
Policies, until six (6) months after Prudential shall have notified AVIF of its
intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the
termination of this Agreement.
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<PAGE> 21
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any
Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any
Shares of that Fund that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the date as of
which an Account owns no Shares of the affected Fund.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable
assistance to one another in taking all necessary and appropriate steps for the
purpose of ensuring that an Account owns no Shares of a Fund after the Final
Termination Date with respect thereto, or, in the case of a termination pursuant
to Section 6.1(a), the termination date specified in the notice of termination.
Such steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Policies in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with
the written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2
hereof will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile numbers,
or such other persons, addresses or facsimile numbers as the Party receiving
such notices or communications may subsequently direct in writing:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, 21st Floor
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
18
<PAGE> 22
PRUCO SECURITIES CORPORATION
751 Broad Street
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
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.
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section
3 hereof, Prudential will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Prudential will vote
Shares in accordance with timely instructions received from Participants.
Prudential will vote Shares that are (a) not attributable to Participants to
whom pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
Prudential nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. Prudential reserves the right to vote shares
held in any Account in its own right, to the extent permitted by law. Prudential
shall be responsible for assuring that each of its Accounts holding Shares
calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify Prudential of
any changes of interpretations or amendments to the Mixed and Shared Funding
exemptive order it has obtained.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Prudential concerning
any decision to elect or not to elect pursuant to Section 853 of the Code to
pass through the benefit of any foreign tax credits to its shareholders.
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<PAGE> 23
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY PRUDENTIAL AND THE UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and
12.1(c), below, Prudential and the Underwriter each agree to indemnify and hold
harmless AVIF, its affiliates (including AIM), and each of their respective
directors and officers, and each person, if any, who controls AVIF or its
affiliates (including AIM) within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Prudential) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or actions are related to the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration statement,
any Account Prospectus, the Policies, or sales literature or
advertising for the Policies (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Prudential or the
Underwriter by or on behalf of AVIF for use in any Account's
1933 Act registration statement, any Account Prospectus, the
Policies, or sales literature or advertising or otherwise for
use in connection with the sale of Policies or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other
statements or representations (other than statements or
representations contained in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing,
not supplied for use therein by or on behalf of Prudential or
the Underwriter and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of
Prudential, the Underwriter or their respective affiliates or
persons under their control (including, without limitation,
their employees and "Associated Persons," as that term is
defined in paragraph (m) of Article I of the NASD's By-Laws),
in connection with the sale or distribution of the Policies or
Shares; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, or the
omission or alleged omission to state
20
<PAGE> 24
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or AIM by or on
behalf of Prudential, the Underwriter or their respective
affiliates for use in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by Prudential
or the Underwriter to perform the obligations, provide the
services and furnish the materials required of them under the
terms of this Agreement, or any material breach of any
representation and/or warranty made by Prudential or the
Underwriter in this Agreement or arise out of or result from
any other material breach of this Agreement by Prudential or
the Underwriter; or
(v) arise as a result of failure by the Policies
issued by Prudential to qualify as life insurance, endowment,
or annuity contracts under the Code, otherwise than by reason
of any Fund's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) Neither Prudential nor the Underwriter shall be liable
under this Section 12.1 with respect to any losses, claims, damages, liabilities
or actions to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither Prudential nor the Underwriter shall be liable
under this Section 12.1 with respect to any action against an Indemnified Party
unless AVIF or AIM shall have notified Prudential or the Underwriter in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Prudential or the
Underwriter of any such action shall not relieve Prudential or the Underwriter
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this Section 12.1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, Prudential or the Underwriter shall be entitled to
participate, at its own expense, in the defense of such action and also shall be
entitled to assume the defense thereof, with counsel approved by the Indemnified
Party named in the action, which approval shall not be unreasonably withheld.
After notice from Prudential or the Underwriter to such Indemnified Party of its
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Prudential and shall bear the fees and expenses of any additional
counsel retained by it, and Prudential will not be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently incurred
by such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
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<PAGE> 25
12.2 OF PRUDENTIAL AND THE UNDERWRITER BY AVIF AND AIM.
(a) Except to the extent provided in Sections 4.1(c)(vii),
12.2(d), 12.2(e) and 12.2(f), below, AVIF and AIM each agree to indemnify and
hold harmless Prudential, the Underwriter, their respective affiliates, and each
of their respective directors and officers, and each person, if any, who
controls Prudential, the Underwriter, or their respective affiliates within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 12.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
AVIF and AIM) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law, or otherwise,
insofar as such losses, claims, damages, liabilities or actions are related to
the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus or sales literature or advertising of AVIF (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of Prudential or its affiliates for
use in AVIF's 1933 Act registration statement, AVIF
Prospectus, or in sales literature or advertising (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other
statements or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Policies, or any amendment
or supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF or its affiliates and on which
such persons have reasonably relied) or the negligent, illegal
or fraudulent conduct of AVIF, its affiliates or persons under
their control (including, without limitation, their employees
and "Associated Persons"), in connection with the sale or
distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising
covering the Policies, or any amendment or supplement to any
of the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to Prudential, the
Underwriter, or their respective affiliates by or on behalf of
AVIF
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<PAGE> 26
or AIM for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising covering the Policies, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF or AIM
to perform the obligations, provide the services and furnish
the materials required of it under the terms of this
Agreement, or any material breach of any representation and/or
warranty made by AVIF or AIM in this Agreement or arise out of
or result from any other material breach of this Agreement by
AVIF or AIM.
(b) Except to the extent provided in Sections 4.1(c)(vii),
12.2(d), 12.2(e) and 12.2(f) hereof, AVIF and AIM each agree to indemnify and
hold harmless the Indemnified Parties from and against any and all losses,
claims, damages, liabilities (including amounts paid in settlement thereof with,
except as set forth in Section 12.2(c) below, the written consent of AVIF and
AIM) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses) to which the Indemnified Parties may become subject directly
or indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against Prudential or the Underwriter pursuant to the
Policies, the costs of any ruling and closing agreement or other settlement with
the IRS, and the cost of any substitution by Prudential of Shares of another
investment company or portfolio for those of any adversely affected Fund as a
funding medium for each Account that Prudential reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) The written consent of AVIF and AIM referred to in Section
12.2(b) above shall not be required with respect to amounts paid in connection
with any ruling and closing agreement or other settlement with the IRS.
(d) Neither AVIF nor AIM shall be liable under this Section
12.2 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of such Indemnified Party's
reckless disregard of its obligations and duties (i) under this Agreement, or
(ii) to Prudential, each Account, the Underwriter or Participants.
(e) Neither AVIF nor AIM shall be liable under this Section
12.2 with respect to any action against an Indemnified Party unless the
Indemnified Party shall have notified AVIF or AIM in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify AVIF or AIM of any such action shall
not relieve AVIF or AIM from any liability
23
<PAGE> 27
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF or
AIM will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF or AIM to such Indemnified Party
of its election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any additional
counsel retained by it, and AVIF will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
(f) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Prudential, the Underwriter, or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Prudential or
the Underwriter hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants, (ii) the failure by Prudential or any Participating Insurance Company
to maintain its segregated asset account (which invests in any Fund) as a
legally and validly established segregated asset account under applicable state
law and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom), or (iii) the failure by Prudential or any
Participating Insurance Company to maintain its variable annuity and/or variable
life insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified
Party referred to in Sections 12.1(c) or 12.2(e) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to be
an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest liability
with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
This Agreement shall be binding on successors of any Party who
shall be entitled, among other things, to the benefits of the indemnification
contained in this Section 12.
12.5 ASSIGNMENTS.
This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties, which consent shall not be
unreasonably withheld.
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<PAGE> 28
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof
interpreted under and in accordance with Maryland law, without regard for that
state's principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
will not be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, that the Parties are entitled to under federal
and state laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are
for purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
---------------------------------------------
25
<PAGE> 29
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
-------------------------- -------------------------------
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 PRUDENTIAL INSURANCE COMPANY OF
AMERICA, on behalf of itself and its
separate accounts
Attest: /s/ THOMAS C. CASTANO By: /s/ FRED H. FUNK
-------------------------- -------------------------------
Name: Thomas A. Castano Name: Fred H. Funk
-------------------------- -------------------------------
Title: Assistant Secretary Title: VP, Product Development
-------------------------- -------------------------------
PRUCO SECURITIES CORPORATION
Attest:/s/ THOMAS C. CASTANO By:/s/ RICHARD A. TOPP
--------------------------- -----------------------------------
Name: Thomas A. Castano Name: Richard A. Topp
----------------------------- ---------------------------------
Title: Assistant Secretary Title: President
---------------------------- --------------------------------
26
<PAGE> 30
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
The Prudential Variable Appreciable Account,
established August 11, 1987
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
Prudential Variable Universal Life Insurance Policy
27
<PAGE> 1
EXHIBIT i(1)(f)
CONSENT OF
FREEDMAN, LEVY, KROLL & SIMONDS
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the statement of additional information contained in Post-Effective
Amendment No. 11 to the Form N-1A Registration Statement of AIM Variable
Insurance Funds, Inc. (File No. 33-57340).
/s/ FREEDMAN, LEVY, KROLL & SIMONDS
FREEDMAN, LEVY, KROLL & SIMONDS
Washington, D.C.
February 17, 1999
