-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CleLzu9DrIZiLOS5Ajefxv/Rc1/xNNFF91qkIecsxm3aMCzDN3u6cIkXg3dMiQC+ 6cVKzOFBTP43Idwe5RZ9tA== 0000950129-99-004202.txt : 19991227 0000950129-99-004202.hdr.sgml : 19991227 ACCESSION NUMBER: 0000950129-99-004202 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIM VARIABLE INSURANCE FUNDS INC CENTRAL INDEX KEY: 0000896435 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-57340 FILM NUMBER: 99718097 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-07452 FILM NUMBER: 99718098 BUSINESS ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7132141785 MAIL ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: SUITE 100 CITY: HOUSTON STATE: TX ZIP: 77046 485APOS 1 AIM VARIABLE INSURANCE FUNDS, INC. - P.E. #14 1 As filed with the Securities and Exchange Commission on September 28, 1999 1933 Act Registration No. 33-57340 1940 Act Registration No. 811-7452 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ---- --- Post-Effective Amendment No. 14 X ---- --- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 15 X ---- --- (Check appropriate box or boxes.) AIM VARIABLE INSURANCE FUNDS, INC. ------------------------------------------------------------ (Exact Name of Registrant as Specified in Charter) 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173 ------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code (713) 626-1919 ------------------- Charles T. Bauer 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173 ------------------------------------------------------------ (Name and Address of Agent for Service) Copy to: Jim A. Coppedge, Esquire A I M Advisors, Inc. 11 Greenway Plaza, Suite 100 Houston, Texas 77046-1173 Approximate Date of Proposed Public Offering: Continuous It is proposed that this filing will become effective (check appropriate box) immediately upon filing pursuant to paragraph (b) --- on (date) pursuant to paragraph (b) --- 60 days after filing pursuant to paragraph (a)(1) --- on (date) pursuant to paragraph (a)(1) --- X 75 days after filing pursuant to paragraph (a)(2) --- on (date) pursuant to paragraph (a)(2) of Rule 485. --- If appropriate, check the following: This post-effective amendment designates a new effective date --- for a previously filed post-effective amendment. Title of Securities Being Registered: Common Stock 2 AIM V.I. DENT DEMOGRAPHIC TRENDS FUND - -------------------------------------------------------------------------------- Shares of the fund are currently offered only to insurance company separate accounts. AIM V.I. Dent Demographic Trends Fund seeks to provide long-term growth of capital. -- Registered Trademark -- PROSPECTUS , 1999 This prospectus contains important information. Please read it before investing and keep it for future reference. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. There is a risk that you could lose a portion or all of your money. As with all other mutual fund securities, the Securities and Exchange Commission has not approved or disapproved these securities or determined whether the information in this prospectus is adequate or accurate. Anyone who tells you otherwise is committing a crime. [AIM LOGO APPEAR HERE] INVEST WITH DISCIPLINE -- Registered Trademark -- 3 ------------------------------------- AIM V.I. DENT DEMOGRAPHIC TRENDS FUND ------------------------------------- Table of Contents - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND STRATEGIES 1 - - - - - - - - - - - - - - - - - - - - - - - - - PRINCIPAL RISKS OF INVESTING IN THE FUND 1 - - - - - - - - - - - - - - - - - - - - - - - - - PERFORMANCE INFORMATION 2 - - - - - - - - - - - - - - - - - - - - - - - - - FUND MANAGEMENT 2 - - - - - - - - - - - - - - - - - - - - - - - - - The Advisors 2 Advisor Compensation 2 Portfolio Managers 2 OTHER INFORMATION 2 - - - - - - - - - - - - - - - - - - - - - - - - - Purchase and Redemption of Shares 2 Pricing of Shares 2 Taxes 3 Dividends and Distributions 3 OBTAINING ADDITIONAL INFORMATION Back Cover - - - - - - - - - - - - - - - - - - - - - - - - -
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM Funds and Design, AIM Investor and AIM Internet Connection are service marks of A I M Management Group Inc. No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and you should not rely on such other information or representations. 4 ------------------------------------- AIM V.I. DENT DEMOGRAPHIC TRENDS FUND ------------------------------------- INVESTMENT OBJECTIVE AND STRATEGIES - -------------------------------------------------------------------------------- The fund's investment objective is long-term growth of capital. The fund's investment objective may be changed by the fund's Board of Directors without shareholder approval. The fund seeks to meet its objective by investing in securities of companies that are likely to benefit from changing demographic, economic and lifestyle trends. These securities may include common stocks, convertible bonds, convertible preferred stocks and warrants of companies within a broad range of market capitalizations. The fund may also invest up to 25% of its total assets in foreign securities. The portfolio managers purchase securities of companies that have experienced, or that they believe have the potential for, above-average, long-term growth in revenues and earnings. The portfolio managers consider whether to sell a particular security when they believe the security no longer has that potential. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. PRINCIPAL RISKS OF INVESTING IN THE FUND - -------------------------------------------------------------------------------- There is a risk that you could lose all or a portion of your investment in the fund. The value of your investment in the fund will go up and down with the prices of the securities in which the fund invests. The prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. This is especially true with respect to equity securities of small- and medium-sized companies, whose prices may go up and down more than the prices of equity securities of larger, more established companies. Also, since equity securities of small- and medium-sized companies may not be traded as often as equity securities of larger, more established companies, it may be difficult or impossible for the fund to sell securities at a desired price. The prices of growth stocks in which the fund invests may rise and fall more than the prices of stocks generally. The values of the convertible securities in which the fund may invest also will be affected by market interest rates, the risk that the issuer may default on interest or principal payments and the value of the underlying common stock into which these securities may be converted. Specifically, since these types of convertible securities pay fixed interest and dividends, their values may fall if market interest rates rise and rise if market interest rates fall. Additionally, an issuer may have the right to buy back certain of the convertible securities at a time and at a price that is unfavorable to the fund. Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about these companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. The fund may participate in the Initial Public Offering (IPO) market, and a significant portion of the fund's returns consequently may be attributable to its investment in IPOs, which have a magnified impact due to the fund's small asset base. As the fund's assets grow, it is probable that the effect of the fund's investment in IPOs on its total returns will decline, which may reduce the fund's total returns. The value of your shares could be adversely affected if the computer systems used by the fund's investment advisor and the fund's other service providers are unable to distinguish the year 2000 from the year 1900. The fund's investment advisor and independent technology consultants are working to avoid year 2000-related problems in its systems and to obtain assurances that other service providers are taking similar steps. Year 2000 problems may also affect issuers in whose securities the fund invests. 1 5 ------------------------------------- AIM V.I. DENT DEMOGRAPHIC TRENDS FUND ------------------------------------- PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- Securities and Exchange Commission (SEC) rules do not allow us to provide a bar chart and performance table for funds that do not have at least a full calendar year of performance. FUND MANAGEMENT - -------------------------------------------------------------------------------- THE ADVISORS A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and is responsible for its day-to-day management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all aspects of the fund's operations and provides investment advisory services to the fund, including the fund's investment decisions, the execution of securities transactions, and obtaining and evaluating economic, statistical and financial information to formulate and implement investment programs for the fund. H.S. Dent Advisors, Inc. (the subadvisor) serves as the fund's subadvisor, and is located at 6515 Gwin Road, Oakland, California 94611. The subadvisor is responsible for providing the advisor with macroeconomic, thematic, demographic, lifestyle trends and sector research, custom reports and investment and market capitalization recommendations for the fund. The advisor has acted as an investment advisor since its organization in 1976. Today, the advisor, together with its subsidiaries, advises or manages over 125 investment portfolios, including the fund, encompassing a broad range of investment objectives. The subadvisor has acted as an investment advisor since 1999. ADVISOR COMPENSATION The advisor is to receive a fee from the fund calculated at the annual rate of 0.85% of the first $2 billion of average daily net assets and 0.80% over $2 billion of average daily net assets. PORTFOLIO MANAGERS The advisor uses a team approach to investment management. The individual members of the team who are primarily responsible for the day-to-day management of the fund's portfolio, all of whom are officers of A I M Capital Management, Inc., a wholly owned subsidiary of the advisor, are - - Edgar M. Larsen, Senior Portfolio Manager, who has been responsible for the fund since 1999 and has been associated with the advisor and/or its affiliates since 1996. From 1981 to 1996, he was, among other offices, Senior Vice President of John Hancock Advisers, Inc. and its predecessors. - - Lanny H. Sachnowitz, Senior Portfolio Manager, who has been responsible for the fund since 1999 and has been associated with the advisor and/or its affiliates since 1987. - - Derek H. Webb, Portfolio Manager, who has been responsible for the fund since 1999 and has been associated with the advisor and/or its affiliates since 1992. OTHER INFORMATION - -------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES The fund ordinarily effects orders to purchase and redeem shares at the fund's next computed net asset value after it receives an order. Life insurance companies participating in the fund serve as the fund's designee for receiving orders of separate accounts that invest in the fund. The fund currently offers shares only to insurance company separate accounts. In the future, the fund may offer them to pension and retirement plans that qualify for special federal income tax treatment. The Board of Directors monitors for possible conflicts among separate accounts (and will do so for plans) buying shares of the fund. A fund's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account (or plan) withdrawing because of a conflict. PRICING OF SHARES The fund prices its shares based on its net asset value. The fund values portfolio securities for which market quotations are readily available at market value. The fund values short-term investments maturing within 60 days at amortized cost, which approximates market value. The fund values all other securities and assets at their fair value. Securities and other assets quoted in foreign currencies are valued in U.S. dollars based on the prevailing exchange rates on that day. In addition, if, between the time trading ends on a particular security and the close of the New York Stock Exchange (NYSE), events occur that materially affect the value of the security, the fund may value the security at its fair value as determined in good faith by or under the supervision of the Board of Directors. The effect of using fair value pricing is that the fund's net asset value will be subject to 2 6 ------------------------------------- AIM V.I. DENT DEMOGRAPHIC TRENDS FUND ------------------------------------- the judgment of the Board of Directors or its designee instead of being determined by the market. Because the fund may invest in securities that are primarily listed on foreign exchanges, the value of the fund's shares may change on days when the separate account will not be able to purchase or redeem shares. The fund determines the net asset value of its shares as of the close of the NYSE on each day the NYSE is open for business. TAXES The amount, timing and character of distributions to the separate account may be affected by special tax rules applicable to certain investments purchased by the fund. Holders of variable contracts should refer to the prospectus for their contracts for information regarding the tax consequences of owning such contracts and should consult their tax advisers before investing. DIVIDENDS AND DISTRIBUTIONS DIVIDENDS The fund generally declares and pays dividends, if any, annually to separate accounts of participating life insurance companies. CAPITAL GAINS DISTRIBUTIONS The fund generally distributes long-term and short-term capital gains (including any net gains from foreign currency transactions), if any, annually to separate accounts of participating life insurance companies. At the election of participating life insurance companies, dividends and distributions are automatically reinvested at net asset value in shares of that fund. 3 7 ------------------------------------- AIM V.I. DENT DEMOGRAPHIC TRENDS FUND ------------------------------------- OBTAINING ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- More information may be obtained free of charge upon request. The Statement of Additional Information (SAI), a current version of which is on file with the SEC, contains more details about the fund and is incorporated by reference into the prospectus (is legally a part of this prospectus). Annual and semiannual reports to shareholders contain additional information about the fund's investments. If you wish to obtain free copies of the fund's current SAI, please send a written request to A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173 or call (800) 410-4246. You also can review and obtain copies of the fund's SAI, reports and other information at the SEC's Public Reference Room in Washington, DC; on the EDGAR database on the SEC's Internet website (http://www.sec.gov); or, after paying a duplication fee, by sending a letter to the SEC's Public Reference Section, Washington, DC 20549-0102 or by sending an electronic mail request to publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about the Public Reference Room. - -------------------------------------- AIM V.I. Dent Demographic Trends Fund SEC 1940 Act file number: 811-7452 - -------------------------------------- [AIM LOGO APPEARS HERE] www.aimfunds.com INVEST WITH DISCIPLINE --Registered Trademark-- 8 STATEMENT OF ADDITIONAL INFORMATION A I M V A R I A B L E I N S U R A N C E F U N D S, I N C. 11 GREENWAY PLAZA SUITE 100 HOUSTON, TX 77046-1173 (713) 626-1919 AIM V.I. AGGRESSIVE GROWTH FUND AIM V.I. BALANCED FUND AIM V.I. BLUE CHIP FUND AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. CAPITAL DEVELOPMENT FUND AIM V.I. DENT DEMOGRAPHIC TRENDS FUND AIM V.I. GLOBAL GROWTH AND INCOME FUND AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. HIGH YIELD FUND AIM V.I. TELECOMMUNICATIONS FUND AIM V.I. MONEY MARKET FUND
AIM V.I. VALUE FUND THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING A I M DISTRIBUTORS, INC., P. O. BOX 4739, HOUSTON, TX 77210-4739 OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS) OR (800) 410-4246 (ALL OTHERS). ------------------ STATEMENT OF ADDITIONAL INFORMATION DATED: ___________, 1999 RELATING TO PROSPECTUS DATED: __________, 1999 9 TABLE OF CONTENTS
PAGE INTRODUCTION............................................................................1 GENERAL INFORMATION ABOUT THE FUNDS.....................................................1 The Company and Its Shares.....................................................1 PERFORMANCE.............................................................................2 Total Return Calculations......................................................2 Historical Portfolio Results...................................................2 Yield Information..............................................................4 PORTFOLIO TRANSACTIONS AND BROKERAGE....................................................5 General Brokerage Policy.......................................................5 Allocation of IPO Securities Transactions......................................7 Section 28(e) Standards........................................................7 Portfolio Turnover.............................................................8 Brokerage Commissions Paid.....................................................8 INVESTMENT STRATEGIES AND RISKS.........................................................9 Aggressive Growth Fund.........................................................9 Balanced Fund.................................................................10 Blue Chip Fund................................................................10 Capital Appreciation Fund.....................................................12 Capital Development Fund......................................................12 Dent Demographic Trends Fund..................................................12 Diversified Income Fund.......................................................12 Global Growth and Income Fund.................................................12 Global Utilities Fund.........................................................13 Government Securities Fund....................................................14 Growth Fund...................................................................14 Growth and Income Fund........................................................15 High Yield Fund...............................................................15 International Equity Fund.....................................................15 Money Market Fund.............................................................16 Telecommunications Fund.......................................................17 Value Fund....................................................................18 CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES...........................................18 Money Market Obligations......................................................18 Repurchase Agreements.........................................................19 U.S. Government Agency Mortgage-Backed Securities.............................19 Convertible Securities........................................................20 Real Estate Investments Trusts ("REITs")......................................20 Foreign Securities............................................................21 Foreign Exchange Transactions.................................................22 ADRs and EDRs.................................................................22 Lending of Portfolio Securities...............................................22 Reverse Repurchase Agreements.................................................23 Delayed Delivery Agreements and When-Issued Securities........................23
i 10 Dollar Roll Transactions.................................................................................24 Borrowing................................................................................................25 Illiquid Securities......................................................................................25 Special Situations.......................................................................................25 Warrants ................................................................................................25 Short Sales..............................................................................................25 Rule 144A Securities.....................................................................................26 Investment in Other Investment Companies.................................................................26 Temporary Defensive Investments..........................................................................26 Asset Allocation Among Countries.........................................................................26 Utilities Industry.......................................................................................26 OPTIONS, FUTURES AND CURRENCY STRATEGIES..........................................................................27 Introduction.............................................................................................27 General Risks of Options, Futures and Currency Strategies................................................28 Cover .. ................................................................................................28 Writing Call Options.....................................................................................29 Writing Put Options......................................................................................29 Purchasing Put Options...................................................................................29 Purchasing Call Options..................................................................................30 Over-the-Counter Options.................................................................................30 Index Options............................................................................................31 Limitations on Options...................................................................................31 Interest Rate, Currency and Stock Index Futures Contracts................................................31 Options on Futures Contracts.............................................................................32 Forward Contracts........................................................................................32 Limitations on Use of Futures, Options on Futures and Certain Options on Currencies......................33 RISK FACTORS......................................................................................................34 Small Capitalization Companies...........................................................................34 Non-Investment Grade Debt Securities.....................................................................34 Foreign Securities.......................................................................................35 Non-diversified Portfolio (Global Utilities Fund Only)...................................................35 INVESTMENT RESTRICTIONS...........................................................................................36 Fundamental Restrictions.................................................................................36 Non-fundamental Restrictions.............................................................................37 MANAGEMENT........................................................................................................38 Directors and Officers...................................................................................38 Remuneration of Directors.......................................................................41 AIM Funds Retirement Plan for Eligible Directors/Trustees.......................................42 Deferred Compensation Agreements................................................................43 Investment Advisory, Sub-Advisory and Administrative Services Agreements.................................43 The Distribution Agreement...............................................................................49 DETERMINATION OF NET ASSET VALUE..................................................................................49 PURCHASE AND REDEMPTION OF SHARES.................................................................................52 DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS..........................................................................52
ii 11 MISCELLANEOUS INFORMATION................................................................55 Organization of the Company.....................................................55 Audit Reports...................................................................55 Legal Matters...................................................................56 Custodian and Transfer Agent....................................................56 Principal Holders of Securities.................................................56 Other Information...............................................................60 APPENDIX A..............................................................................A-1 APPENDIX B..............................................................................B-1 APPENDIX C..............................................................................C-1 FINANCIAL STATEMENTS.....................................................................FS
iii 12 INTRODUCTION AIM Variable Insurance Funds, Inc. (the "Company") is a mutual fund. The rules and regulations of the United States Securities and Exchange Commission (the "SEC") require all mutual funds to furnish prospective investors certain information concerning the activities of the fund being considered for investment. That information can be found in the most recent prospectus for each of the series portfolios of the Company (each referred to throughout as a "Fund"), which are:
Date of Most Fund Name: Recent Prospectus: --------- ----------------- AIM V.I. Aggressive Growth Fund May 3, 1999 AIM V.I. Balanced Fund May 3, 1999 AIM V.I. Blue Chip Fund September 24, 1999 AIM V.I. Capital Appreciation Fund May 3, 1999 Supplemented July 1, 1999 AIM V.I. Capital Development Fund May 3, 1999 AIM V.I. Dent Demographic Trends Fund __________, 1999 AIM V.I. Diversified Income Fund May 3, 1999 Supplemented July 1, 1999 AIM V.I. Global Growth and Income Fund May 3, 1999 Supplemented July 1, 1999 and September 14, 1999 AIM V.I. Global Utilities Fund May 3, 1999 Supplemented July 1, 1999 AIM V.I. Government Securities Fund May 3, 1999 AIM V.I. Growth and Income Fund May 3, 1999 AIM V.I. Growth Fund May 3, 1999 AIM V.I. High Yield Fund May 3, 1999 AIM V.I. International Equity Fund May 3, 1999 Supplemented July 1, 1999 AIM V.I. Money Market Fund May 3, 1999 Revised July 1, 1999 AIM V.I. Telecommunications Fund May 3, 1999 Supplemented July 1, 1999 AIM V.I. Value Fund May 3, 1999
The information regarding all the Funds (except AIM V.I. Blue Chip Fund, AIM V.I. Dent Demographic Trends Fund, AIM V.I. Global Growth and Income Fund and AIM V.I. Telecommunications Fund) is included in a Prospectus dated May 3, 1999, as supplemented July 1, 1999. One or more of the Funds may not be available under a particular variable annuity contract or variable life insurance policy. Accordingly, this Statement of Additional Information may contain information that is not relevant to the investment options under such a contract or policy. Copies of each Prospectus available under a contract or policy and additional copies of this Statement of Additional Information may be obtained without charge by contacting the principal distributor of each Fund's shares, A I M Distributors, Inc. ("AIM Distributors"), 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173 or by calling (800) 410-4246. Investors must receive a Prospectus before they invest. To the extent that this Statement of Additional Information contains information concerning a Fund that is not available under a contract or policy, the Statement of Additional Information does not constitute the offer of the shares of that Fund. This Statement of Additional Information is intended to furnish prospective investors with additional information concerning the Funds. Some of the information required to be in this Statement of Additional Information is also included in the Funds' current Prospectus and, in order to avoid repetition, reference will be made to sections of the Prospectus. Additionally, the Prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement filed with the SEC. Copies of the Registration Statement, including items omitted from the Prospectus and this Statement of Additional Information, may be obtained from the SEC by paying the charges prescribed under its rules and regulations. GENERAL INFORMATION ABOUT THE FUNDS THE COMPANY AND ITS SHARES The Company was organized on January 22, 1993, as a Maryland corporation, and is registered with the SEC as an open-end, series, management investment company. The Company currently consists of seventeen separate Funds as follows: the AIM V.I. Aggressive Growth Fund ("Aggressive Growth Fund"), the AIM V.I. Balanced Fund ("Balanced Fund"), the AIM V.I. Blue Chip Fund ("Blue Chip Fund"), the AIM V.I. Capital Appreciation Fund ("Capital Appreciation Fund"), the AIM V.I. Dent Demographic Trends Fund ("Dent Demographic Trends Fund"), the AIM V.I. Capital Development Fund ("Capital Development Fund"), the AIM V.I. Diversified Income Fund ("Diversified Income Fund"), the AIM V.I. Global Growth and Income Fund ("Global Growth and Income Fund"), the AIM V.I. Global Utilities Fund ("Global 1 13 Utilities Fund") (formerly known as the AIM V.I. Utilities Fund), the AIM V.I. Government Securities Fund ("Government Fund"), the AIM V.I. Growth Fund ("Growth Fund"), the AIM V.I. Growth and Income Fund ("Growth and Income Fund"), the AIM V.I. High Yield Fund ("High Yield Fund), the AIM V.I. International Equity Fund ("International Fund"), the AIM V.I. Telecommunications Fund ("Telecommunications Fund"), the AIM V.I. Money Market Fund ("Money Market Fund"), the AIM V.I. Value Fund ("Value Fund"). Each share of a Fund is entitled to one vote, to participate equally in dividends and distributions declared by the Board of Directors with respect to the Fund and, upon liquidation of the Fund, to participate in its proportionate share of the net assets allocable to the Fund remaining after satisfaction of outstanding liabilities of the Fund. Fund shares are fully paid, non-assessable and fully transferable when issued and have no preemptive, conversion or exchange rights. Fractional shares have proportionately the same rights, including voting rights, as are provided for a full share. Shareholders of the Funds do not have cumulative voting rights, and therefore the holders of more than 50% of the outstanding shares of all Funds voting together for election of directors may elect all of the members of the Board of Directors of the Company. In such event, the remaining holders cannot elect any directors of the Company. PERFORMANCE TOTAL RETURN CALCULATIONS Total returns quoted in advertising reflect all aspects of the applicable Fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in such Fund's net asset value per share (NAV) over the period. Average annual returns are calculated by determining the growth or decline in value of a hypothetical investment in a particular Fund over a stated period, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. While average annual returns are a convenient means of comparing investment alternatives, investors should realize that a Fund's performance is not constant over time, but changes from year to year, and that average annual returns do not represent the actual year-to-year performance of such Fund. In addition to average annual returns, each Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Average annual and cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be broken down into their components of income and capital (including capital gains and changes in share price) in order to illustrate the relationship of these factors and their contributions to total return. Total returns and other performance information may be quoted numerically or in a table, graph, or similar illustration. HISTORICAL PORTFOLIO RESULTS The Funds' (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund) average annual and cumulative total return for the period ended June 30, 1999 and average annual and cumulative total returns for the period May 5, 1993 (commencement of operations) through June 30, 1999, were as follows: 2 14
Since Inception -------------------------- Period Ended Average June 30, Annual Cumulative 1999 Return Return ------------ -------- ---------- AIM V.I. Aggressive Growth Fund** 10.31% 5.98% 7.00% AIM V.I. Balanced Fund** 17.65% 16.46% 19.41% AIM V.I. Capital Appreciation Fund 15.81% 18.88% 189.80% AIM V.I. Capital Development Fund** -1.05% -4.92% -5.70% AIM V.I. Diversified Income Fund -2.56% 6.41% 46.60% AIM V.I. Global Utilities Fund* 14.06% 15.36% 109.10% AIM V.I. Government Securities Fund 1.79% 4.93% 34.48% AIM V.I. Growth Fund 27.04% 21.35% 229.01% AIM V.I. Growth and Income Fund* 27.86% 23.34% 195.26% AIM V.I. High Yield Fund** -2.45% -1.69% -1.95% AIM V.I. International Equity Fund 1.52% 13.02% 112.35% AIM V.I. Money Market Fund 4.69% 4.58% 31.69% AIM V.I. Value Fund 27.94% 22.63% 250.85%
* The inception date of the AIM V.I. Global Utilities Fund and the AIM V.I. Growth and Income Fund was May 2, 1994. ** The inception date of the AIM V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital Development Fund and AIM V.I. High Yield Fund was May 1, 1998. The total returns quoted above do not reflect charges levied at the insurance company separate account level. For a complete description of the applicable charges, see the fee table in the prospectus for the appropriate insurance company separate account. Each Fund's performance may be compared in advertising to the performance of other mutual funds in general, or of particular types of mutual funds, especially those with similar objectives. Such performance data may be prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and other independent services which monitor the performance of mutual funds. The Funds may also advertise mutual fund performance rankings which have been assigned to each respective Fund by such monitoring services. Each Fund's performance may also be compared in advertising to the performance of comparative benchmarks such as the Consumer Price Index ("CPI"), the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such as bank certificates of deposit and/or savings accounts. The International Fund's performance may also be compared in advertising to performance of comparative benchmarks such as The Financial Times--Actuaries World Indices (a wide range of comprehensive measures of stock price performance for the major stock markets and regional areas), Morgan Stanley Capital International Indices (including the EAFE Index) Pacific Basin Index and Pacific Ex Japan Index (a widely recognized series of indices in international market performance), and indices of stocks comparable to those in which the Fund invests. Each Fund's advertising may from time to time include historical discussions of general economic conditions such as inflation rates and changes in the stock market, foreign and domestic interest rates and foreign and domestic political circumstances and events. In addition, each Fund's long-term performance may be described in advertising in relation to historical, political and/or economic events. From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may waive all or a portion of their fees and/or assume certain expenses of any Fund. Voluntary fee waivers or reductions or commitments to assume expenses may be rescinded at any time without further notice to investors. During periods of voluntary fee 3 15 waivers or reductions or commitments to assume expenses, AIM will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions or reimbursement of expenses set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund. Fee waivers or reductions or commitments to reduce expenses will have the effect of increasing that Fund's yield and total return. The performance of each Fund will vary from time to time and past results are not necessarily indicative of future results. A Fund's performance is a function of its portfolio management in selecting the type and quality of portfolio securities and is affected by operating expenses of the Fund and market conditions. A shareholder's investment in a Fund is not insured or guaranteed. These factors should be carefully considered by the investor before making an investment in any Fund. Some or all of the Funds may participate in the Initial Public Offering ("IPO") market, and a significant portion of those Funds' returns may be attributable to their investment in IPOs, which have a magnified impact due to the Funds' small asset base. There is no guarantee that as the Funds' assets grow, they will continue to experience substantially similar performance by investing in IPOs. From time to time, the Funds' sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. This includes, but is not limited to, literature addressing general information about mutual funds, variable annuities, variable life insurance, dollar-cost averaging, stocks, bonds, money markets, certificates of deposit, retirement, retirement plans, asset allocation, tax-free investing, college planning and inflation. YIELD INFORMATION Quotations of yield on the Money Market Fund may appear from time to time in the financial press and in advertisements. The Money Market Fund's yield is its investment income, less expenses, expressed as a percentage of assets on an annualized basis for an identified period, usually seven days. The yield is expressed as a simple annualized yield and as a compounded effective yield. The yield does not reflect the fees and charges imposed on the assets of the insurance company separate account. The standard formulas prescribed by the SEC for calculating yield and effective yield for the Money Market Fund are described below: The simple annualized yield is computed by determining the net change (exclusive of realized gains and losses from the sale of securities, unrealized appreciation and depreciation, and income other than investment income) in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the period, dividing the net change in account value by the value of the account at the beginning of the period, and annualizing the resulting quotient (base period return) on a 365-day basis. The net change in account value reflects the value of additional shares purchased with dividends from the original shares in the account during the period, dividends declared on such additional shares during the period, and expenses accrued during the period. The compounded effective yield is computed by determining the unannualized base period return, adding one to the base period return, raising the sum to a power equal to 365 divided by the number of days in the period, and subtracting one from the result. Historical yields are not necessarily indicative of future yields. Rates of return will vary as interest rates and other conditions affecting money market instruments change. Yields also depend on the quality, length of maturity and type of instruments in the Fund's portfolio and the Fund's operating expenses. Quotations of yield will be accompanied by information concerning the average weighted maturity of the Fund. Comparison of the quoted yields of various investments is valid only if yields are calculated in the same manner and for identical limited periods. When comparing the yield for a Fund with yields quoted with respect to other investments, shareholders should consider (a) possible differences in time periods, (b) the effect of the methods used to calculate quoted yields, (c) the quality and average-weighted maturity of portfolio investments, expenses, convenience, liquidity and other important factors, and (d) the taxable or tax-exempt character of all or part of dividends received. 4 16 The simple annualized yield and compounded effective yield for the Money Market Fund for the 7 days ended June 30, 1999 were 4.44% and 4.54%, respectively. PORTFOLIO TRANSACTIONS AND BROKERAGE GENERAL BROKERAGE POLICY Subject to policies established by the Board of Directors of the Company, AIM is responsible for decisions to buy and sell securities for each Fund, for the selection of broker-dealers, for the execution of the Fund's investment portfolio transactions, for the allocation of brokerage fees in connection with such transactions and, where applicable, for the negotiation of commissions and spreads on transactions. AIM's primary consideration in effecting a security transaction is to obtain the best net price and the most favorable execution of the order. While AIM generally seeks reasonably competitive commission rates, each Fund does not necessarily pay the lowest commission or spread available. Purchases and sales of portfolio securities for the Diversified Income Fund, the Money Market Fund and the Government Fund are generally transacted with the issuer or a primary market maker. In addition, a portion of the securities in which the Funds invest may be traded in over-the-counter ("OTC") markets. In such transactions, the Fund deals directly with the dealers who make markets in the securities involved, except in those circumstances where better prices and executions are available elsewhere. Portfolio transactions placed through dealers serving as primary market makers are effected at net prices, without commissions as such, but which include compensation to the dealer in the form of mark up or mark down. Traditionally, commission rates have not been negotiated on stock markets outside the United States. In recent years, however, an increasing number of overseas stock markets have adopted a system of negotiated rates, although a number of markets continue to be subject to an established schedule of minimum commission rates. Foreign equity securities may be held by a Fund in the form of American Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"), or other securities representing underlying securities of foreign issuers, or securities convertible into foreign equity securities. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in the United States securities markets, and EDRs, in bearer form, are designed for use in European securities markets. ADRs and EDRs may be listed on stock exchanges, or traded in OTC markets in the United States or Europe, as the case may be. ADRs, like other securities traded in the United States, will be subject to negotiated commission rates. The Funds are not under any obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities. Brokers who provide supplemental investment research to AIM may receive orders for transactions by a Fund. Information so received will be in addition to and not in lieu of the services required to be performed by AIM under its agreements with the Fund, and the expenses of AIM will not necessarily be reduced as a result of the receipt of such supplemental information. Certain research services furnished by broker-dealers may be useful to AIM in connection with its services to other advisory clients, including the other mutual funds advised by AIM (collectively with the Funds, the "AIM Funds"). Also, a Fund may pay a higher price for securities or higher commissions in recognition of research services furnished by broker-dealers. AIM may from time to time determine target levels of commission business for AIM to transact with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be determined based upon the following factors, among others: (1) the execution services provided by the 5 17 broker; (2) the research services provided by the broker; (3) certain products and/or services provided to the Funds, the cost of which will be included in Fund expenses reported to shareholders; and (4) the broker's attitude toward an interest in mutual funds in general and in the Funds and the other AIM Funds in particular. No specific formula will be used in connection with any of the foregoing considerations in determining the target levels. However, if a broker has indicated a certain level of desired commissions in return for certain research services provided by the broker, this factor will be taken into consideration by AIM. Subject to the overall objective of obtaining best price and execution for the Funds, AIM may also consider sales of shares by broker-dealers of each Fund and of the other AIM Funds as well as sales of variable annuity contracts ("Contracts") and variable life insurance policies ("Policies") funded through the Funds ("selling dealers"), as a factor in the selection of broker-dealers to execute portfolio transactions for a Fund. Such portfolio transactions may be executed directly by selling dealers or by other broker-dealers with which selling dealers have clearing arrangements. AIM will seek, whenever possible, to recapture for the benefit of a Fund any commissions, fees, brokerage or similar payments paid by the Fund on portfolio transactions. Normally, the only fees which may be recaptured are the soliciting dealer fees on the tender of a Fund's portfolio securities in a tender or exchange offer. AIM and its affiliates manage several other investment accounts, some of which may have investment objectives similar to those of the Funds. It is possible that, at times, identical securities will be appropriate for investment by one or more of such investment accounts. The position of each account, however, in the securities of the same issue may vary and the length of time that each account may choose to hold its investment in the securities of the same issue may likewise vary. The timing and amount of purchases by each account will also be determined by its cash position. If the purchase or sale of securities is consistent with the investment policies of a Fund(s) and one or more of these accounts is considered at or about the same time, AIM will fairly allocate transactions in such securities among the Fund(s) and these accounts. AIM may combine such transactions, in accordance with applicable laws and regulations, in order to obtain the best net price and most favorable execution. Simultaneous transactions could, however, adversely affect the ability of a Fund to obtain or dispose of the full amount of a security which it seeks to purchase or sell. These combined transactions, and related brokerage charges, will be allocated among the Fund(s) and such accounts in a manner consistent with guidelines and procedures approved by the Company's Board of Directors that are designed to achieve an equitable manner of allocation. In some cases the procedure for allocating portfolio transactions among the various investment accounts advised by AIM could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, the main factors considered by AIM are the respective investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held and the judgments of the persons responsible for recommending the investment. From time to time, an identical security may be sold by an AIM Fund or another investment account advised by AIM or A I M Capital Management, Inc. ("AIM Capital") and simultaneously purchased by another investment account advised by AIM or AIM Capital, when such transactions comply with applicable rules and regulations and are deemed consistent with the investment objective(s) and policies of the investment accounts advised by AIM or AIM Capital. Procedures pursuant to Rule 17a-7 under the Investment Company Act of 1940, as amended (the "1940 Act") regarding transactions between investment accounts advised by AIM or AIM Capital have been adopted by the Boards of Directors/Trustees of the various AIM Funds, including the Company. Although such transactions may result in custodian, tax or other related expenses, no brokerage commissions or other direct transaction costs are generated by transactions among the investment accounts advised by AIM or AIM Capital. 6 18 ALLOCATION OF IPO SECURITIES TRANSACTIONS From time to time, certain of the AIM Funds may become interested in participating in security distributions that are available in an IPO, and occasions may arise when purchases of such securities by one AIM Fund may also be considered for purchase by one or more other AIM Funds. In such cases, it shall be AIM's practice to specifically combine or otherwise bunch indications of interest for IPO securities for all AIM Funds participating in purchase transactions for that security, and to allocate such transactions in accordance with the following procedures: AIM will determine the eligibility of each AIM Fund that seeks to participate in a particular IPO by reviewing a number of factors, including suitability of the investment with the AIM Fund's investment objective, policies and strategies, the liquidity of the AIM Fund if such investment is purchased, and whether the portfolio manager intends to hold the security as a long-term investment. The allocation of limited supply securities issued in IPOs will be made to eligible AIM Funds in a manner designed to be fair and equitable for the eligible AIM Funds, and so that there is equal allocation of IPOs over the longer term. Where multiple funds are eligible, rotational participation may occur, based on the extent to which an AIM Fund has participated in previous IPOs as well as the size of the AIM Fund. Each eligible AIM Fund with an asset level of less than $500 million will be placed in one or three tiers, depending upon its asset level. The AIM Funds in the tier containing funds with the smallest asset levels will participate first, each receiving a 40 basis point allocation (rounded to the nearest share round lot that approximates 40 basis points) (the "Allocation"), based on that AIM Fund's net assets. This process continues until all of the AIM Funds in the three tiers receive their Allocations, or until the shares are all allocated. Should securities remain after this process, eligible AIM Funds will receive their Allocations on a straight pro rata basis. For the tier of AIM Funds not receiving a full Allocation, the Allocation may be made only to certain AIM Funds so that each may receive close to or exactly 40 basis points. Any AIM Funds with substantially identical investment objectives and policies will participate in syndicates in amounts that are substantially proportionate to each other. In these cases, the net assets of the largest AIM Fund will be used to determine in which tier, as described in the paragraph above, such group of AIM Funds will be placed. The price per share of securities purchased in such syndicate transactions will be the same for each AIM Fund. SECTION 28(e) STANDARDS As permitted by Section 28(e) of the Securities Exchange Act of 1934, AIM may cause a Fund to pay a broker that provides brokerage and research services to AIM an amount of commission for effecting a securities transaction for the Fund in excess of the commission another broker would have charged for effecting that transaction. To obtain the benefit of Section 28(e), AIM must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided . . . viewed in terms of either that particular transaction or [its] overall responsibilities with respect to the accounts as to which [it] exercises investment discretion" and that the services provided by a broker provide AIM with lawful and appropriate assistance in the performance of its investment decision-making responsibilities. Accordingly, the price to a Fund in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Broker-dealers utilized by AIM may furnish statistical, research and other information or services which are deemed by AIM to be beneficial to the Funds' investment programs. Research services received from brokers supplement AIM's own research (and the research of sub-advisors to other clients of AIM) and may include the following types of information: statistical and background information on industry groups and individual companies; forecasts and interpretations with respect to U.S. and foreign economies, securities markets, specific industry groups and individual companies; information on political developments; portfolio management strategies; performance information on securities and information concerning prices of securities; and information supplied by specialized services to AIM and to the Company's directors with respect to the performance, investment activities and fees and expenses of other mutual funds. Such information may be communicated electronically, orally, in written form or on computer software. Research services may also include the providing of equipment used to communicate research information, the arranging of meetings with management of companies and the providing of access to consultants who supply research information. The outside research assistance is useful to AIM since the brokers utilized by AIM as a group tend to follow a broader universe of securities and other matters than AIM's staff can follow. In addition, this research provides AIM with a diverse perspective on financial markets. Research services which are provided to AIM by brokers are available for the benefit of all accounts managed or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In some cases, the research services are available only from the broker providing such services. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM is of the opinion that because the broker research supplements rather than replaces its research, the receipt of such research does not tend to decrease its expenses, but tends to improve the quality of its investment advice. However, to the extent that AIM would have purchased any such research services had such services not been provided by brokers, the expenses of such services to AIM could be considered to have been reduced accordingly. For the fiscal year ended December 31, 1998 certain Funds paid brokerage commissions to certain brokers for research services. The amount of such transactions and related commissions paid by each Fund were as follows: 7 19
Commissions Transactions -------------- ------------------ AIM V. I. Aggressive Growth Fund $ 476 $ 265,096 AIM V. I. Balanced Fund $ 107 $ 73,629 AIM V. I. Capital Appreciation Fund $ 111,070 $ 76,873,344 AIM V. I. Capital Development Fund $ 475 $ 255,434 AIM V. I. Global Utilities Fund $ 1,105 $ 556,721 AIM V. I. Growth Fund $ 58,834 $ 52,124,585 AIM V. I. Growth and Income Fund $ 154,841 $ 136,649,725 AIM V. I. International Equity Fund $ 401 $ 90,510 AIM V. I. Value Fund $ 126,500 $ 120,560,762
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.
GOLDMAN, FUNDS SACHS & CO. - ----------------------------------- ---------------- AIM V.I. Capital Appreciation Fund $ 59,251,734 AIM V.I. Diversified Fund $ 2,305,989 AIM V.I. Global Utilities Fund $ 2,391,815 AIM V.I. Growth Fund $ 31,583,054 AIM V.I. Growth and Income Fund $ 35,491,011 AIM V.I. International Equity Fund $ 17,938,040 AIM V.I. Value Fund $ 77,768,447
The following information regarding securities acquired by the Funds of their regular brokers, as defined in Rule 10b-1 under the 1940 Act, is as of December 31, 1998. The Balanced Fund, the Growth and Income Fund and the Value Fund each held an amount of common stock issued by Merrill Lynch & Co. having a market value of $20,025, $9,345,000 and $2,670,000, respectively. The Growth Fund held an amount of common stock issued by PaineWebber Group, Inc. having a market value of $1,224,413. PORTFOLIO TURNOVER The portfolio turnover rate of each Fund is shown under "Financial Highlights" in the Prospectus. In any particular year, however, market conditions could result in portfolio activity at a rate greater or lesser than anticipated. The estimated portfolio turnover rate for the Blue Chip Fund, Dent Demographic Trends Fund, Global Growth and Income Fund and Telecommunications Fund is less than 100%. Higher portfolio turnover increases transaction costs to the Fund. BROKERAGE COMMISSIONS PAID Brokerage commissions paid by each of the Funds (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund) listed below were as follows for the fiscal years ended December 31, 1998, December 31, 1997 and December 31, 1996. The significant change in commissions paid from year to year for AIM V.I. Capital Appreciation Fund and AIM V.I. Growth and Income Fund is due to the increase in asset level. 8 20
December 31, December 31, December 31, 1998 1997 1996 --------------- ------------- ------------- AIM V.I. Aggressive Growth Fund* $ 2,983 N/A N/A AIM V.I. Balanced Fund* $ 2,241 N/A N/A AIM V.I. Capital Appreciation Fund $ 1,017,185 $ 644,279 $ 405,056 AIM V.I. Capital Development Fund* $ 3,748 N/A N/A AIM V.I. Diversified Income Fund $ 282 $ 2,818 $ 1,670 AIM V.I. Global Utilities Fund $ 18,422 $ 12,208 $ 16,365 AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- AIM V.I. Growth Fund $ 876,546 $ 621,467 $ 578,444 AIM V.I. Growth and Income Fund $ 2,834,451 $ 1,190,597 $ 417,167 AIM V.I. High Yield Fund* $ -0- N/A N/A AIM V.I. International Equity Fund $ 814,499 $ 605,318 $ 557,527 AIM V.I. Money Market Fund $ -0- $ -0- $ -0- AIM V.I. Value Fund $ 1,920,264 $ 1,503,734 $ 1,126,384
* Commissions paid are for the period May 1,1998 (date operations commenced) through December 31, 1998. INVESTMENT STRATEGIES AND RISKS Information concerning each Fund's fundamental investment objective is set forth in the Prospectus under the heading "Investment Objectives and Strategies." There can be no assurance that any Fund will achieve its objective. The principal features of each Fund's investment program and the primary risks associated with that investment program are discussed in the Prospectus under the following headings: "Investment Objectives and Strategies" and "Principal Risks of Investing in the Funds". The following discussion of investment policies supplements the discussion of the investment strategies and risks set forth in the Prospectus. Set forth in this section is a description of each Fund's investment policies, strategies and practices. The investment objective(s) of each Fund, except the High Yield Fund and Dent Demographic Trends Fund, are deemed to be fundamental policies and, therefore, unless permitted by law, may not be changed without the approval of a majority of that Fund's outstanding shares (within the meaning of the 1940 Act). The Board of Directors on behalf of the High Yield Fund or Dent Demographic Trends Fund is permitted to change the investment objective of that Fund without shareholder approval. Each Fund's investment policies, strategies and practices are not fundamental. The Board of Directors of the Company reserves the right to change any of these non-fundamental investment policies, strategies or practices without shareholder approval. However, shareholders will be notified before any material change in the investment policies become effective. Each Fund has adopted investment restrictions, some of which are fundamental and cannot be changed without shareholder approval. See "Investment Restrictions" in this Statement of Additional Information. Individuals considering the purchase of shares of any Fund should recognize that there are risks in the ownership of any security. AGGRESSIVE GROWTH FUND The Fund's investment objective is to achieve long-term growth of capital. The Fund will invest primarily in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which, in the opinion of the Fund's investment advisor, are expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small to medium-sized category (i.e., companies with a market capitalization within the range of small cap stocks in the Russell 2000 Index.) Management of the Fund will be particularly interested in companies that are likely to benefit from new or innovative products, services or processes that should enhance such companies' prospects for future growth in earnings. As a result of this policy, the market prices of many of the securities purchased and held by the Fund may fluctuate widely. Any income received from securities held by the Fund will be incidental, and an investor should not consider a purchase of shares of the 9 21 Fund as equivalent to a complete investment program. The Fund's portfolio is primarily comprised of securities of two basic categories: (a) "core" companies, which Fund management considers to have experienced above-average and consistent long-term growth in earnings and to have excellent prospects for outstanding future growth, and (b) "earnings acceleration" companies which Fund management believes are currently enjoying dramatic increase in profits. The Fund's strategy does not preclude investment in large, seasoned companies which in the judgement of AIM possess superior potential returns similar to companies with formative growth profiles. The Fund will also invest in established smaller companies (under $500 million in market capitalization) which offer exceptional value based upon substantially above average earnings growth potential relative to market value. The Fund may invest in non-equity securities, such as corporate bonds or U.S. Government obligations during periods when, in the opinion of AIM, prevailing market, financial, or economic conditions warrant, as well as when such holdings are advisable in light of a change in circumstances of a particular company or within a particular industry. BALANCED FUND The Fund's objective is to achieve as high a total return as possible, consistent with preservation of capital. The Fund seeks to achieve its objective by investing in a broadly diversified portfolio of high-yielding securities, including common stocks, preferred stocks, convertible securities and bonds. Although equity securities will be purchased primarily for capital appreciation and fixed income securities will be purchased primarily for income purposes, income and capital appreciation potential will be considered in connection with all investments. The Fund normally will have a minimum of 30% and a maximum of 70% of its total assets invested in equity securities and a minimum of 30% and a maximum of 70% of its total assets invested in (non-convertible) fixed income securities. Most of such fixed income securities will be rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Rating Services ("S&P") or, in unrated, deemed to be of comparable quality by AIM, although the Fund may invest to a limited extent in lower-rated securities. (For a description of the various rating categories, see Appendix A to this Statement of Additional Information.) The fixed income securities in which the Fund invests may include U.S. Government obligations, mortgage-backed securities, asset-backed securities, bank obligations, corporate debt obligations and unrated obligations, including those of foreign issuers. The Fund may, in pursuit of its objective, invest up to 10% of its total assets in debt securities rated lower than Baa by Moody's or BBB by S&P, which are commonly known as "junk bonds." See "Risk Factors -- Non-Investment Grade Debt Securities" for more information concerning the risk factors associated with investing in such securities. The Fund may also invest up to 25% of its total assets in convertible securities. Compliance with all of the above percentage requirements may limit the ability of the Fund to maximize total return. The actual percentage of the assets invested in equity and fixed income securities will vary from time to time, depending on the judgment of AIM as to general market and economic conditions and trends, yields and interest rates and changes in fiscal and monetary policies. BLUE CHIP FUND The Fund's primary investment objective is to provide long-term growth of capital. Current income is a secondary objective. It is anticipated that the major portion of the Fund's portfolio will ordinarily be invested in common stocks, convertible securities and bonds of blue chip companies (i.e., companies with leading market positions and which possess strong financial characteristics, as described below). There can, of course, be no assurance that the Fund will in fact achieve its objectives since all investments are inherently subject to market risks. The Fund will invest primarily (at least 65% of its total assets) in the common stocks of blue chip companies as determined by AIM. These companies will have the potential for above-average growth in earnings or be well-established in their respective industries. The Fund will generally invest in large and medium sized companies (i.e., companies which fall in the largest 85% of market capitalization of publicly traded companies listed in the United States) which possess the following characteristics: o Market Characteristics 10 22 Blue chip companies are those which occupy (or in AIM's judgment have the potential to occupy) leading market positions that are expected to be maintained or enhanced over time. Strong market positions, particularly in growing industries, can give a company pricing flexibility as well as the potential for strong unit sales. These factors can in turn lead to higher earnings growth and greater share price appreciation. Market leaders can be identified within an industry as those companies which have: - superior growth prospects compared with other companies in the same industry; - possession of proprietary technology with the potential to bring about major changes within an industry; and/or - leading sales within an industry, or the potential to become a market leader. o Financial Characteristics Blue chip companies possess at least one of the following attributes: - faster earnings growth than its competitors and the market in general; - higher profit margins relative to its competitors; - strong cash flow relative to its competitors; and/or - a balance sheet with relatively low debt and a high return on equity relative to its competitors. The Fund will diversify among industries and therefore will not invest 25% or more of its total assets in any one industry. When AIM believes securities other than common stocks offer opportunity for long-term growth of capital and income, the Fund may invest in United States government securities, corporate bonds and debentures and convertible preferred stocks and debt securities. The Fund will invest only in debt securities (other than convertible debt securities) which are rated at "Investment Grade" by either S&P or Moody's. Debt securities in the lowest investment grade (e.g., rated BBB by S&P or Baa by Moody's) have speculative characteristics and changes in economic conditions and other circumstances are more likely to lead to a weakened capacity on the part of the issuer to make principal and interest payments than is the case with higher grade bonds. The Fund will limit its investments in convertible securities to those in which the underlying common stock is a suitable investment for the Fund without regard to debt rating category, but will not invest more than 10% of its total assets in convertible securities. The Fund may invest in United States government securities and corporate bonds and debentures when AIM believes interest rates on such investments may decline thereby potentially increasing the market value of such securities or to meet the additional investment objective of producing current income. Under normal market conditions, the Fund expects at all times to have at least 65% of its total assets invested in securities which AIM believes offer opportunity for long-term growth of capital or income. The Fund may invest up to 25% of total assets in securities of issuers domiciled in foreign countries. For the risks involved in investing in foreign securities, see "Risk Factors - Foreign Securities" in this Statement of Additional Information. 11 23 CAPITAL APPRECIATION FUND The Fund's investment objective is growth of capital through investment in common stocks, with emphasis on medium- and small-sized growth companies. AIM will be particularly interested in companies that are likely to benefit from new or innovative products, services or processes that should enhance such companies' prospects for future growth in earnings. As a result of this policy, the market prices of many of the securities purchased and held by the Fund may fluctuate widely. Any income received from securities held by the Fund will be incidental, and an investor should not consider a purchase of shares of the Fund as equivalent to a complete investment program. The Capital Appreciation Fund's portfolio is primarily comprised of securities of two basic categories of companies: (1) "core" companies, which AIM considers to have experienced above-average and consistent long-term growth in earnings with excellent prospects for outstanding future growth, and (2) "earnings acceleration" companies which AIM believes are currently enjoying a dramatic increase in profits. CAPITAL DEVELOPMENT FUND The Fund's investment objective is long-term growth of capital. Production of income is incidental to this objective. The Fund's principal investments are in common stocks, convertible securities and bonds. There can, of course, be no assurance that the Fund will in fact achieve its objective since all investments are inherently subject to market risks. The Fund will invest primarily in securities of small and medium-sized companies (i.e., companies which fall in the smallest 85% by market capitalization of publicly traded companies in the United States). Among factors that AIM may consider when selecting investments in a company for the Fund are (i) the growth prospects for a company's products, (ii) the economic outlook for its industry, (iii) a company's new product development, (iv) its operating management capabilities, (v) the relationship between the price of the security and its estimated fundamental value, (vi) relevant market, economic and political environments and (vii) financial characteristics such as balance sheet analysis and return on assets. The Fund may invest in issuers making initial public offerings of their securities if AIM determines that the issuer has good prospects for growth. DENT DEMOGRAPHIC TRENDS FUND The Fund's investment objective is long-term growth of capital. The Fund will seek to achieve its investment objective by investing in companies that are likely to benefit from demographic, economic and lifestyle trends, as suggested by Harry S. Dent Jr.'s research. Dent is an internationally known strategic consultant and best-selling author who provides the Fund's portfolio managers with macroeconomic and sector research, along with investment and market capitalization recommendations. The Fund's portfolio managers then focus on companies that have historically experienced or are deemed to have the potential for above-average, long-term growth in revenues and earnings. The Fund makes use of a unique investment style that blends AIM's earnings momentum approach with proprietary guidance from Dent. The Fund also employs objective and unemotional sell decisions. The Fund's portfolio managers will not hesitate to sell stocks that experience decelerated earnings and negative earnings revisions. They actively monitor valuation targets and may reduce positions that they believe have become too heavily weighted in the Fund's portfolio. The Fund is not limited exclusively to small-,mid- or large-cap stocks, which may help minimize the risks associated with sector investing. Demographic, economic and lifestyle trends may occur in different phases around the world. The Fund is positioned to potentially capture other countries' generational cycles by investing in both domestic and foreign stock issuers. DIVERSIFIED INCOME FUND The Fund's investment objective is to seek to achieve a high level of current income. The Fund will seek to achieve its investment objective by investing primarily in: (i) domestic and foreign corporate debt securities, (ii) U.S. Government securities, including U.S. Government Agency Mortgage-Backed Securities, (iii) foreign government securities and (iv) lower-rated or unrated high yield debt securities (commonly known as "junk bonds") of U.S. and foreign companies. Under normal circumstances, the Fund's assets will be invested in each of these four sectors. The Fund may invest up to 10% of its total assets in common stocks, preferred stocks, similar equity securities and convertible securities of U.S. and foreign companies. The Fund does not intend to invest more than 50% of its total assets in lower-rated or unrated high yield securities or more than 50% of its total assets in foreign debt securities. (For a description of the various rating categories of corporate debt securities in which the Fund may invest, see Appendix A to this Statement of Additional Information. For a description of U.S. Government Agency Mortgage-Backed Securities, see Appendix B to this Statement of Additional Information.) However, the Fund may from time to time invest up to 100% of its total assets in U.S. Government securities and, as a defensive measure, may invest up to 100% of its total assets in money market securities. For a discussion of the investment risks associated with investments in high yield securities and foreign securities, see "Risk Factors" in this Statement of Additional Information. GLOBAL GROWTH AND INCOME FUND The Fund's investment objective is long-term growth of capital together with current income. In seeking those objectives, the Fund normally invests at least 65% of its total assets in a combination of blue-chip equity securities and high quality government bonds. The Fund considers an equity security to be "blue chip" if: (i) during the issuer's most recent fiscal year the security offered an above average dividend yield relative to the latest reported dividend yield on the Morgan Stanley Capital International World Index; and (ii) the total equity market capitalization of the issuer is at least $1 billion. Government bonds are deemed to be high quality if at the time of the Fund's investment they are rated within one of the two highest ratings categories of Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's, 12 24 a division of The McGraw-Hill Companies, Inc. ("S&P"), i.e., rated Aaa or Aa by Moody's or AAA or AA by S&P (or a comparable rating of any other nationally recognized statistical rating organizations "NRSROs") or, if unrated, are determined by AIM and INVESCO Asset Management Limited ("INVESCO") to be of comparable quality. (For a description of the various rating categories of corporate debt securities in which the Fund may invest, see Appendix A to this Statement of Additional Information.) Up to 35% of the Fund's assets may be invested in other equity securities, convertible securities and investment grade government and corporate debt obligations which AIM/INVESCO believes will assist the Fund in achieving its objectives. Equity securities that the Fund may purchase include common stocks, preferred stocks, and warrants to acquire such stocks and other equity securities. Government bonds that the Fund may purchase include debt obligations issued or guaranteed by the U.S. or foreign governments (including foreign states, provinces or municipalities) or their agencies, authorities or instrumentalities and debt obligations of supranational entities organized or supported by several national governments, such as the World Bank and the Asian Development Bank. The debt obligations held by the Fund may include debt obligations convertible into equity securities or having attached warrants or rights to purchase equity securities. Under normal market conditions, the Fund invests in the securities of issuers located in at least three different countries. Investments in securities of issuers in any one country other than the United States, will represent no more than 40% of the Fund's total assets. The Fund may purchase securities of an issuer located in one country but denominated in the currency of another country (or a multinational currency unit). AIM/INVESCO allocates the Fund's assets among securities of issuers located in countries where opportunities for meeting the Fund's investment objectives are expected to be the most attractive. The relative proportions of equity and debt securities held by the Fund at any one time will vary, and will depend upon AIM/INVESCO's assessment of global political and economic conditions and the relative strengths and weaknesses of the world equity and debt markets. To enable the Fund to respond to general economic changes and market conditions around the world, the Fund is authorized to invest up to 100% of its assets in either equity securities or debt securities. GLOBAL UTILITIES FUND The Fund's investment objective is to achieve a high level of current income and secondarily growth of capital, by investing primarily in the common and preferred stocks of public utility companies (either domestic or foreign). Under normal circumstances, at least 65% of the Fund's total assets will be invested in securities of public utility companies (either domestic or foreign). Public utility companies include companies that provide electricity, natural gas or water and other sanitary services to the public, and telephone or telegraph companies and other companies providing public communications services. The Fund may also invest in developing utility technology companies and in holding companies which derive a substantial portion of their revenues from utility-related activities. Generally, a holding company will be considered to derive a substantial portion of its revenues from utility-related activities if such activities account for at least 40% of its revenues. The Fund may invest up to 25% of its total assets in convertible securities. When AIM deems it appropriate, the Fund may also purchase the bonds of such companies. Investments in non-convertible bonds, however, will not exceed 25% of the Fund's total assets. The Fund may invest up to 10% of its total assets in lower-rated or unrated high yield securities. (For a description of the various rating categories of corporate debt securities in which the Fund may invest, see Appendix A to this Statement of Additional Information.) During the fiscal year ended December 31, 1998, the Fund invested less than 5% of its net assets in below investment grade debt securities. The Fund may also invest up to 80% of its total assets in securities of foreign companies, including investments in American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and underlying securities of foreign issuers. For a discussion of the investment risks associated with investments in non-investment grade debt securities and foreign securities, see "Risk Factors" in this Statement of Additional Information. 13 25 A portfolio of utility company securities is subject to a different degree of volatility than a more broadly diversified portfolio. Economic, operational or regulatory changes that affect utility companies will have a material impact upon the value of the securities that the Fund owns. Events, such as changing weather patterns, emergencies involving nuclear power plants, or rapidly changing fuel prices that have no direct connection with companies whose securities are owned by the Fund may affect the prices of those securities. Moreover, a portfolio of utilities industry securities is subject to the risks unique to that industry, such as inflationary or other increases in fuel and operating expenses, possible increases in the interest costs of loans needed for capital construction programs, compliance with environmental regulations, possible adverse changes in the regulatory climate and availability of fuel sources. GOVERNMENT SECURITIES FUND The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the United States Government. The government securities which may be purchased by the Fund include but are not limited to (1) U.S. Treasury obligations such as Treasury Bills (maturities of one year or less), Treasury Notes (maturities of one to ten years) and Treasury Bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. Government agencies and instrumentalities ("Agency Securities") which are supported by any of the following: (a) the full faith and credit of the U.S. Treasury, such as obligations of the Government National Mortgage Association ("GNMA"), (b) the right of the issuers to borrow an amount limited to a specific line of credit from the U.S. Treasury, such as obligations of the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Bank and the U.S. Postal Service or (c) the credit of the agency or instrumentality, such as obligations of the Federal Home Loan Mortgage Corporation ("FHLMC") and Federal Farm Credit System. Although their close relationship with the U.S. Government is believed to make them high-quality securities with minimal credit risks, the U.S. Government is not required by law to support the agencies and instrumentalities listed in (b) and (c), above. Accordingly, such securities may involve risk of loss of principal and interest; however, historically there have not been any defaults of such issues. For a listing of some of the types of Agency Securities in which the Fund may invest, see Appendix B to this Statement of Additional Information. The Fund's investments include high coupon U.S. Government Agency Mortgage-Backed Securities, which provide a higher coupon at the time of purchase than the prevailing market rate yield. The prices of high coupon U.S. Government Agency Mortgage-Backed Securities do not tend to rise as rapidly as those of traditional fixed rate securities at times when interest rates are decreasing, and tend to decline more slowly at times when interest rates are increasing. The Fund may purchase such securities at a premium, which means that a faster principal prepayment rate than expected will reduce the market value of and income from such securities, while a slower prepayment rate will tend to increase the market value of and income from such securities. The composition and weighted average maturity of the Fund's portfolio will vary from time to time, based upon the determination of AIM and how best to further the Fund's investment objective. The Fund may invest in government securities of all maturities, short-term, intermediate-term and long-term. The Fund intends to maintain a dollar-weighted average portfolio maturity of between three and ten years. This policy regarding portfolio maturity is a non-fundamental policy of the Fund. GROWTH FUND The Fund's investment objective is to seek growth of capital principally by investing in seasoned and better capitalized companies considered by AIM to have strong earnings momentum. Current income will not be an important criterion of investment selection, and any such income should be considered incidental. It is anticipated that common stocks will be the principal form of investment by the Fund. The Fund's portfolio is primarily comprised of securities of two basic categories of companies: (1) "core" companies, which AIM considers to have experienced above-average and consistent long-term growth in earnings and to have excellent prospects for outstanding future growth, and (2) "earnings acceleration" companies which Fund management believes are currently enjoying a dramatic increase in profits. 14 26 GROWTH AND INCOME FUND The Fund's primary investment objective is growth of capital, with a secondary objective of current income. The Fund seeks to meet these objectives by investing at least 65% of its net assets in income-producing securities, including dividend-paying common stocks and convertible securities. The Fund's portfolio managers purchase securities of established companies that have long-term above-average growth in earnings and dividends, and growth companies that they believe have the potential for above-average growth in earnings and dividends. The Fund's portfolio managers consider whether to sell a particular security when they believe the security no longer has that potential or the capacity to generate income. HIGH YIELD FUND The Fund's objective is to achieve a high level of current income. The Fund seeks to achieve its objective by investing primarily in publicly traded non-investment grade debt securities. The Fund will also consider the possibility of capital growth when it purchases and sells securities. Debt securities of less than investment grade are considered "high risk" securities (commonly referred to as junk bonds). The Fund seeks high income principally by purchasing securities that are rated Baa, Ba or B by Moody's or BBB, BB, or B by S&P, or securities of comparable quality in the opinion of AIM that are either unrated or rated by other NRSROs(1). (For a description of the various rating categories, see Appendix A to this Statement of Additional Information.) The Fund may also hold, from time to time, securities rated Caa by Moody's or CCC by S&P, or if unrated or rated by other NRSROs, securities of comparable quality as determined by AIM. It should be noted, however, that achieving the Fund's investment objective may be more dependent on the credit analysis of AIM, and less on that of credit rating agencies, than may be the case for funds that invest in more highly rated bonds. At least 80% of the value of the Fund's total assets will be invested in debt securities, including convertible debt securities, and/or cash and cash equivalents. At least 65% of the value of the Fund's assets will be invested in high yield debt securities. The Fund may also invest in preferred stocks. While the securities held by the Fund are expected to provide greater income and, possibly, opportunity for greater gain than investments in more highly rated securities, they may be subject to greater risk of loss of income and principal and are more speculative in nature. The Fund's yield and the net asset value of its shares may be expected to fluctuate over time. Therefore, an investment in the Fund may not be appropriate for some investors and should not constitute a complete investment program for others. See "Risk Factors -- Non-Investment Grade Debt Securities." The Fund may invest in both illiquid securities and securities which are subject to restrictions on resale because they have not been registered under the Securities Act of 1933. See "Illiquid Securities" for further information regarding such investments. INTERNATIONAL EQUITY FUND The Fund's investment objective is to provide long-term growth of capital by investing in a diversified portfolio of international equity securities whose issuers are considered to have strong earnings momentum. Any income realized by the Fund will be incidental and will not be an important criterion in the selection of portfolio securities. In managing the Fund, AIM seeks to apply to a diversified portfolio of international equity securities substantially the same investment strategy which it applies to the Growth Fund with respect to that Fund's investment in United States equities markets. The Fund will utilize to the extent practicable a fully managed investment policy providing for the selection of securities which meet certain quantitative standards determined - ------------------------------------- (1) "Requisite NRSRO" shall mean (a) any two nationally recognized statistical rating organizations that have issued a rating with respect to a security or class of debt obligations of an issuer, or (b) if only one NRSRO has issued a rating with respect to such security or issuer at the time the Fund acquires the security; that NRSRO. At present the NRSROs are: Standard & Poor's Corp., Moody's Investors Service, Inc., Thomson Bankwatch, Duff and Phelps, Inc., Fitch IBCA, Inc. and, with respect to certain types of securities, IBCA Ltd and its subsidiary, IBCA, Inc. Subcategories or gradations in ratings (such as "+" or "-") do not count as rating categories. 15 27 by AIM. AIM will review carefully the earnings history and prospects for growth of each company considered for investment by the Fund. It is expected that the Fund's portfolio, when fully invested, will generally be comprised of two basic categories of foreign companies: (1) "core" companies, which AIM considers to have experienced consistent long-term growth in earnings and to have strong prospects for outstanding future growth, and (2) companies that AIM believes are currently experiencing a greater than anticipated increase in earnings. If a particular foreign company meets the quantitative standards determined by AIM, its securities may be acquired by the Fund regardless of the location of the company or the percentage of the Fund's investments in the company's country or region. However, AIM will also consider other factors in making investment decisions for the Fund, including such factors as the prospects for relative economic growth among countries or regions, economic and political conditions, currency exchange fluctuations, tax considerations and the liquidity of a particular security. For a discussion of the investment risks associated with investments in foreign securities, see "Risk Factors" in this Statement of Additional Information. MONEY MARKET FUND The Fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity. The Fund seeks to achieve its objective by investing in a diversified portfolio of high quality U.S. dollar denominated money market instruments and other similar instruments with maturities of 397 days or less from the date of purchase, and will maintain a dollar weighted-average portfolio maturity of 90 days or less. Securities subject to repurchase agreements may bear longer maturities. The Fund invests in a broad range of U.S. Government and foreign government obligations, and bank and commercial instruments that may be available in the money markets. Such obligations include U.S. Treasury obligations and repurchase agreements secured by such obligations. The Money Market Fund intends to invest in bankers' acceptances, certificates of deposit, repurchase agreements, time deposits, variable rate master demand notes, taxable municipal securities and commercial paper, and U.S. Government direct obligations and U.S. Government agencies' securities. Bankers acceptances, certificates of deposit and time deposits may be purchased from U.S. or foreign banks. All of these instruments, which are collectively referred to as "Money Market Obligations," are briefly described in Appendix C to this Statement of Additional Information. The Fund will limit investments in Money Market Obligations to those which are denominated in U.S. dollars and which at the date of purchase are "First Tier" securities as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. Generally "First Tier" securities are securities that are rated in the highest rating category by two NRSROs, or, if only rated by one NRSRO, are rated in the highest rating category by that NRSRO, or, if unrated, are determined by AIM (under the supervision of and pursuant to guidelines established by the Board of Directors) to be comparable quality to a rated security that meets the foregoing quality standards. For a more complete definition of a "First Tier" security, see "Money Market Obligations" in this Statement of Additional Information. The Money Market Fund may invest up to 100% of its total assets in obligations issued by banks. While the Fund will limit its investments in bank instruments to U.S. dollar denominated obligations, it may invest in Eurodollar obligations (i.e., U.S. dollar-denominated obligations issued by a foreign branch of a domestic bank), Yankee dollar obligations (i.e., U.S. dollar-denominated obligations issued by a domestic branch of a foreign bank) and obligations of foreign branches of foreign banks. The Money Market Fund will limit its aggregate investments in foreign bank obligations, including Eurodollar obligations and Yankee dollar obligations, to 25% of its total assets at the time of purchase, provided that there is no limitation upon the Fund's investments in (a) Eurodollar obligations, if the domestic parent of the foreign branch issuing the obligation is unconditionally liable in the event that the foreign branch for any reason fails to pay on the Eurodollar obligation; and (b) Yankee dollar obligations, if the U.S. branch of the foreign bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar and other foreign bank obligations include time deposits, which are non-negotiable deposits maintained in a bank for a specified period of time at a stated interest rate. For a discussion of the risks pertaining to investments in foreign securities, see "Risk Factors" in this Statement of Additional Information. 16 28 TELECOMMUNICATIONS FUND The Fund's investment objective is long-term growth of capital. It seeks its objective by investing primarily in equity securities of companies throughout the world engaged in the development, manufacture or sale of telecommunications services or equipment. At least 65% of the Fund's total assets normally will be invested in common and preferred stocks and warrants to acquire such stocks issued by telecommunications companies. A "telecommunications company" is an entity in which (i) at least 50% of either its revenues or earnings was derived from telecommunications activities, or (ii) at least 50% of its assets was devoted to telecommunications activities, based on the issuer's most recent fiscal year. The remainder of the assets of the Fund may be invested in debt securities issued by telecommunications companies and/or equity and debt securities of companies outside of the telecommunications industry which, in the opinion of AIM, stand to benefit from developments in the telecommunications industries. (For a description of the various rating categories of corporate debt securities in which the Fund may invest, see Appendix A to this Statement of Additional Information). The Fund may, in pursuit of its objective, invest up to 5% of its total assets in below investment grade debt securities. See "Risk Factors -- Non-Investment Grade Debt Securities" for more information concerning the risk factors associated with investing in such securities. The Fund may invest substantially in securities denominated in one or more currencies. Under normal conditions, the Fund invests in the equity securities of issuers located in at least three different countries, including the United States. No more than 40% of the Fund's total assets will be invested in securities of issuers in any one country other than the United States. Telecommunications companies cover a variety of sectors, ranging from companies concentrating on established technologies to those primarily engaged in emerging or developing technologies. The characteristics of companies focusing on the same technology will vary among countries depending upon the extent to which the technology is established in the particular country. AIM will allocate the Fund's investments among these sectors depending upon its assessment of their relative long-term growth potentials. The Fund will invest primarily in issuers engaged in designing, developing or providing the following products and services: communications equipment and services (including equipment and services for both data and voice transmission); electronic components and equipment; broadcasting (including television and radio, satellite, microwave and cable television and narrowcasting); computer equipment, mobile communications and cellular radio/paging; electronic mail; local and wide area networking and linkage of word and data processing systems; publishing and information systems; videotext and teletext; and emerging technologies combining telephone, television and/or computer systems. Telecommunications is a global industry with significant, growing markets outside of the United States. A sizeable proportion of the companies that comprise the telecommunications industry are headquartered outside of the United States. From time to time, however, a significant portion of the Fund's assets may be invested in the securities of domestic issuers. AIM uses its financial expertise in markets located throughout the world in attempting to identify those countries and telecommunications companies then providing the greatest potential for long-term capital appreciation. In this fashion, AIM and the Fund seek to enable shareholders to capitalize on the substantial investment opportunities and the potential for long-term growth of capital presented by the global telecommunications industry. AIM will allocate the Fund's assets among securities of countries and in currency denominations and industry sectors where opportunities for meeting the Fund's investment objective are expected to be the most attractive. AIM believes that there are opportunities for continued growth in demand for components, products, media and systems to collect, store, retrieve, transmit, process, distribute, record, reproduce and use information. The pervasive societal impact of communications and information technologies has been accelerated by the lower costs and higher efficiencies that result from the blending of computers with 17 29 telecommunications systems. Accordingly, companies engage in the production of methods for using electronic and, potentially, video technology to communicate information are expected to be important in the Fund's portfolio. Older technologies, such as photography and print, also may be represented, however. VALUE FUND The Fund's investment objective is to achieve long-term growth of capital by investing primarily in equity securities judged by AIM to be undervalued relative to the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity market generally. Income is a secondary objective. This secondary objective would be satisfied principally from the income (interest and dividends) generated by the common stocks, convertible bonds and convertible preferred stocks that make up the Fund's portfolio. The Fund should not be purchased by those who seek income as their primary investment objective. In addition to the securities described above, the Fund may also acquire preferred stocks and debt instruments having prospects for growth of capital. Although these different types of securities can be expected to generate amounts of income to satisfy the Fund's secondary objective, they will be purchased for their potential for growth of capital. The primary thrust of AIM's search for undervalued equity securities is in four categories: (1) out-of-favor cyclical growth companies; (2) established growth companies that are undervalued compared to historical relative valuation parameters; (3) companies where there is early but tangible evidence of improving prospects which are not yet reflected in the price of the company's equity securities; and (4) companies whose equity securities are selling at prices that do not reflect the current market value of its assets and where there is reason to expect realization of this potential in the form of increased equity values. CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES Each of the Funds has the flexibility to invest, to the extent described below, in a variety of instruments designed to enhance its investment capabilities. Each of the Funds may invest in money market obligations, foreign securities (including ADRs and EDRs), repurchase agreements, reverse repurchase agreements, taxable municipal securities, illiquid securities and Rule 144A securities; the Diversified Income Fund and the Government Fund may invest in U.S. Government Agency Mortgage-Backed Securities; each of the Funds may purchase or sell securities on a delayed delivery or when-issued basis and may borrow money; each of the Funds, other than the Money Market Fund, may lend portfolio securities and make short sales "against the box." A short sale is "against the box" to the extent that the Fund contemporaneously owns or has the right to obtain securities identical to those sold short without payment of any further consideration. Each of the Funds, other than the Money Market Fund, may write (i.e., sell) "covered" put and call options and buy put and call options on domestic and foreign securities, securities indices and currencies. Each of the Funds, other than the Money Market Fund, may use exchange-traded financial futures contracts, options thereon, and forward contracts as a hedge to protect against possible changes in market values. A brief description of these investment instruments and their risks appears below. See "Hedging and Other Investment Techniques" in this Statement of Additional Information for more detailed information. MONEY MARKET OBLIGATIONS When deemed appropriate for temporary or defensive purposes, each of the Funds may hold cash or cash equivalent Money Market Obligations. Of course, the Money Market Fund invests exclusively in Money Market Obligations. While none of the Funds other than the Money Market Fund is required by regulation or fundamental policy to limit such investments to those which, at the date of purchase, are "First Tier" securities as that term is defined in Rule 2a-7 under the 1940 Act, it is the current intention of AIM to limit such investments to those securities which, at the time of purchase, are considered "First Tier" securities or securities which AIM has determined to be of comparable credit quality. To the extent that a Fund invests to 18 30 a significant degree in these instruments, its ability to achieve its investment objective may be adversely affected. In addition to the Money Market Obligations described above, as a temporary or defensive measure, and without regard to their respective investment objectives, AIM, or AIM/INVESCO for the Global Growth and Income Fund, may invest all or substantially all of the assets of the Aggressive Growth Fund, the Balanced Fund, the Dent Demographic Trends Fund, the Diversified Income Fund, the Global Growth and Income Fund, the Global Utilities Fund, the High Yield Fund, the International Fund and the Telecommunications Fund in cash or Money Market Obligations, including repurchase agreements, denominated in foreign currencies. As set forth in the Prospectus, the Money Market Fund will limit its purchases of Money Market Obligations to U.S. dollar denominated securities which are "First Tier" securities, as such term is defined from time to time in Rule 2a-7 under the 1940 Act. A First Tier Security is generally a security that: (i) has received a short-term rating, or is subject to a guarantee that has received a short-term rating, or, in either case, is issued by an issuer with a short-term rating from the Requisite NRSROs in the highest short-term rating category for debt obligations; (ii) is an unrated security that the Fund's investment adviser has determined are of comparable quality to a rated security described in (i); (iii) is a security issued by a registered investment company that is a money market fund; or (iv) is a Government Security. Subsequent to its purchase by the Fund, an issue of Money Market Obligations may cease to be a First Tier security. Subject to certain exceptions set forth in Rule 2a-7, such an event will not require the elimination of the security from the Fund, but AIM will consider such an event to be relevant in its determination of whether the Fund should continue to hold the security. REPURCHASE AGREEMENTS Each of the Funds may enter into repurchase agreements with institutions believed by the Company's Board of Directors to present minimal credit risk. A repurchase agreement is an instrument under which the Fund acquires ownership of a debt security and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the Fund's holding period. With regard to repurchase transactions, in the event of a bankruptcy or other default of a seller of a repurchase agreement (such as the sellers' failure to repurchase the obligation in accordance with the terms of the agreement), a Fund could experience both delays in liquidating the underlying securities and losses, including: (a) a possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. Repurchase agreements are considered to be loans by the Fund under the 1940 Act. Repurchase agreements will be secured by U.S. Treasury securities, U.S. Government agency securities (including, but not limited to, those which have been stripped of their interest payments and mortgage-backed securities) and commercial paper. Although the underlying collateral for repurchase agreements may have maturities exceeding one year, the Funds will not enter into repurchase agreements expiring in more than seven days. The Fund may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from the Fund on demand and the effective interest rate is negotiated on a daily basis. Repurchase agreements are considered to be loans by the Fund under the 1940 Act. Securities subject to repurchase agreements will be held in the custodian's account with the Federal Book-Entry System on behalf of the Fund. U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES The Diversified Income Fund and the Government Fund may invest in U.S. Government Agency Mortgage-Backed Securities. These securities are obligations issued or guaranteed by the United States Government or by one of its agencies or instrumentalities, including but not limited to GNMA, FNMA, or 19 31 FHLMC. U.S. Government Agency Mortgage-Backed Certificates provide for the pass-through to investors of their pro-rata share of monthly payments (including any principal prepayments) made by the individual borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of such securities and servicers of the underlying mortgage loans. GNMA, FNMA and FHLMC each guarantee timely distributions of interest to certificate holders. GNMA and FNMA guarantee timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC Gold Participation Certificates now guarantee timely payment of monthly principal reductions. Although their close relationship with the U.S. Government is believed to make them high-quality securities with minimal credit risks, the U.S. Government is not obligated by law to support either FNMA or FHLMC. However, historically there have not been any defaults of FNMA or FHLMC issues. See Appendix B for a more complete description of GNMA securities. Mortgage-backed securities consist of interests in underlying mortgages generally with maturities of up to thirty years. However, due to early unscheduled payments of principal of the underlying mortgages, the securities have a shorter average life and, therefore, less volatility than a comparable thirty-year bond. The value of U.S. Government Agency Mortgage-Backed Securities, like other traditional debt instruments, will tend to move in the opposite direction compared to interest rates. CONVERTIBLE SECURITIES To the extent consistent with their respective investment objectives, each of the Funds (except the Money Market Fund) may invest in convertible securities. Convertible securities usually consist of corporate debt securities or preferred stock that may in certain circumstances be converted into a predetermined number of shares of another form of that issuer's equity, usually common stock. Convertible securities consequently often involve attributes of both debt and equity instruments, and investment in such securities requires analysis of both credit and stock market risks. Convertible securities rank senior to common stock in a corporation's capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security's governing instrument. Although the Funds will only purchase convertible securities that AIM considers to have adequate protection parameters, including an adequate capacity to pay interest and repay principal in a timely manner, each applicable Fund invests in such securities without regard to corporate bond ratings. REAL ESTATE INVESTMENTS TRUSTS ("REITs") To the extent consistent with their respective investment objectives and policies, each of the Funds (except the Government Fund and the Money Market Fund) may invest in equity and/or debt securities issued by REITs. Such investments will not exceed (i) 25% of the total assets of the Aggressive Growth Fund, the Balanced Fund, the Blue Chip Fund, the Capital Appreciation Fund, the Capital Development Fund, the Dent Demographic Trends Fund, the Global Utilities Fund, the Growth Fund, the Growth and Income Fund, the International Fund and the Value Fund; and (ii) 10% of the total assets of the Diversified Income Fund and the High Yield Fund. REITs are trusts which sell equity or debt securities to investors and use the proceeds to invest in real estate or interest therein. A REIT may focus on particular projects, such as apartment complexes, or geographic regions, such as the Southeastern United States, or both. To the extent that the Fund has the ability to invest in REITs, the Fund could conceivably own real estate directly as a result of a default on the securities it owns. The Fund, therefore, may be subject to certain risks associated with the direct ownership of real estate including difficulties in valuing and trading real estate, declines in the value of real estate, risks related to general and local economic conditions, adverse changes in the climate for real estate, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants, and increases in interest rates. 20 32 In addition to the risks described above, equity REITs may be affected by any changes in the value of the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified, and are therefore subject to the risk of financing single or a limited number of projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to maintain exemption from the 1940 Act. Changes in interest rates may also affect the value of debt securities held by a Fund. By investing in REITs indirectly through a Fund, a shareholder will bear not only his/her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. FOREIGN SECURITIES To the extent consistent with their respective investment objectives, each of the Funds may invest in foreign securities. It is not anticipated that such foreign securities will constitute more than: (i) 20% of the value of the total assets of the Balanced Fund, the Capital Appreciation Fund, the Government Fund, the Growth Fund and the Growth and Income Fund; (ii) 25% of the value of the total assets of the Aggressive Growth Fund, the Blue Chip Fund, the Capital Development Fund, the Dent Demographic Trends Fund, the High Yield Fund and the Value Fund; (iii) 50% of the value of the total assets of the Diversified Income Fund and the Money Market Fund (however, the Money Market Fund may only invest in foreign securities denominated in U.S. dollars); (iv) 75% of the value of the total assets of the Telecommunications Fund; (v) 80% of the value of the total assets of the Global Utilities Fund; and (vi) 90% of the value of the total assets of the Global Growth and Income Fund. The International Fund will invest at least 70% of its total assets in foreign securities. The Diversified Income Fund may invest in debt obligations which may be denominated in the U.S. dollar or in other currencies issued or guaranteed by foreign corporations, certain supranational entities (such as the World Bank, Asian Development Bank and European Economic Community), and foreign governments (including political subdivisions having taxing authority) or their agencies or instrumentalities. The Diversified Income Fund may also invest in debt obligations issued by corporations denominated in non-U.S. dollar currencies. No more than 25% of the Diversified Income Fund's total assets, at the time of purchase, will be invested in government securities of any one foreign country. At the present time, AIM does not intend to invest more than 10% of the Diversified Income Fund's total assets in securities issued by foreign governments or foreign companies located in developing countries in various regions of the world. A "developing country" is a country in the initial stages of its industrial cycle. Investments in emerging markets or developing countries involve exposure to economic structures that are generally less diverse and mature and to political systems which can be expected to have less stability than those of more developed countries. Such countries may have relatively unstable governments, economies based on only a few industries, and securities markets which trade only a small number of securities. Historical experience indicates that emerging markets have been more volatile than the markets of more mature economies; such markets have also from time to time provided higher rates of return and greater risks to investors. AIM believes that these characteristics of emerging markets can be expected to continue in the future. The Global Growth and Income Fund may invest up to 90% of its total assets in securities of foreign companies. Under normal market conditions, the Global Growth and Income Fund will be invested in securities of issuers located in at least three different countries. Investments in securities of issuers in any one country other than the United States, will represent no more than 40% of the Fund's total assets. The Fund may purchase securities of an issuer located in one country but denominated in the currency of another country (or a multinational currency unit). The Global Utilities Fund may invest up to 80% of its total assets in securities of foreign companies, including investments in ADRs, EDRs and other securities representing underlying securities of foreign issuers. Under normal market conditions, the Global Utilities Fund will be invested in securities of issuers located in at least four countries, one of which will be the United States, although for defensive purposes, it may invest 100% of its total assets in securities of U.S. issuers. In some foreign countries, utility companies are partially owned by government agencies. In some cases, foreign government agencies may have significant investments in businesses other than utility companies. Also, investments in securities of foreign issuers may involve other risks which are not ordinarily associated with investments in domestic issuers. In addition, investors should also be aware that the Global Utilities Fund may invest in companies located within emerging or developing countries. Under normal market conditions the International Fund will invest at least 70% of its total assets in marketable equity securities (including common and preferred stock and depositary receipts for stock) and 21 33 may invest up to 20% of its total assets in securities exchangeable for or convertible into stock or foreign companies. Under normal market conditions, the International Fund intends to invest in the securities of foreign companies located in at least four countries outside the United States. The International Fund will emphasize investment in foreign companies in the developed countries of Western Europe and the Pacific Basin, but the Fund may also invest to a lesser extent in the securities of companies located in developing countries in various regions of the world. At the present time, AIM does not intend to invest more than 20% of the International Fund's total assets in securities issued by foreign governments or foreign companies located in developing countries. For a discussion of the risks pertaining to investments in foreign obligations, see "Risk Factors" in this Statement of Additional Information. FOREIGN EXCHANGE TRANSACTIONS Purchases and sales of foreign securities are usually made with foreign currencies, and consequently the Funds (except the Government Fund and the Money Market Fund) may from time to time hold cash balances in the form of foreign currencies and multinational currency units. Such foreign currencies and multinational currency units will usually be acquired on a spot (i.e. cash) basis at the spot rate prevailing in foreign exchange markets and will result in currency conversion costs to the Fund. A Fund attempts to purchase and sell foreign currencies on as favorable a basis as practicable; however, some price spread on foreign exchange transactions (to cover service charges) may be incurred, particularly when the Fund changes investments from one country to another, or when U.S. Dollars are used to purchase foreign securities. Certain countries could adopt policies which would prevent the Fund from transferring cash out of such countries, and the Fund may be affected either favorably or unfavorably by fluctuations in relative exchange rates while the Fund holds foreign currencies. ADRS AND EDRS To the extent consistent with their respective investment objectives each of the Funds (except the International Fund which is discussed separately above) may also invest in securities which are in the form of ADRs, EDRs or other securities representing underlying securities of foreign issuers. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. ADRs, EDRs and other securities representing underlying securities of foreign issuers are treated as foreign securities for purposes of determining the applicable limitation on investment in foreign securities. LENDING OF PORTFOLIO SECURITIES Each Fund (except the Money Market Fund) may, from time to time, lend securities from their respective portfolios, with a value not exceeding 33 1/3% of their respective total assets, to banks, brokers and other financial institutions, and receive in return collateral in the form of liquid assets which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The collateral received will consist of cash, U.S. Government securities, letters of credit or such other collateral as may be permitted under each such Fund's investment program. While the securities are being lent, a Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. A Fund has a right to call each loan and obtain the securities on five business days' notice or, in connection with securities trading on foreign markets, within such longer period of time which coincides with the normal settlement period for purchases and sales of such securities in such foreign markets. A Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. During the period of the loan, the applicable Fund receives the income on both the loaned securities and the collateral (or a fee) and thereby increases its yield. In the event that the borrower defaults on its obligation to return loaned securities because 22 34 of insolvency or otherwise, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent that the value of the collateral falls below the market value of the loaned securities. Loans will only be made to persons deemed by AIM to be of good standing and will not be made unless, in the judgment of AIM, the consideration to be earned from such loans would justify the risk. REVERSE REPURCHASE AGREEMENTS Reverse repurchase agreements involve the sale by the Fund of portfolio securities, with an agreement that the Fund will repurchase the securities at an agreed upon price, date and interest payment. Each Fund may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements; (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. At the time it enters into a reverse repurchase agreement, a Fund will segregate liquid assets having a dollar value equal to the repurchase price. Each of the Funds may enter into reverse repurchase agreements in amounts not exceeding 33 1/3% of the value of their respective total assets. Reverse repurchase agreements involve the risk that the market value of securities retained by a Fund in lieu of liquidating may decline below the repurchase price of the securities sold by the Fund which is obligated to repurchase. This risk, if encountered, could cause a reduction in the net asset value of the Fund's shares. Reverse repurchase agreements are considered to be borrowings under the 1940 Act. See "Borrowing" in this Statement of Additional Information for percentage limitations on borrowings. DELAYED DELIVERY AGREEMENTS AND WHEN-ISSUED SECURITIES Each Fund may enter into delayed delivery agreements and may purchase securities on a "when-issued" basis. Delayed delivery agreements involve commitments by each such Fund to dealers or issuers to acquire securities or instruments at a specified future date beyond the customary settlement date for such securities. These commitments fix the payment price and interest rate to be received on the investment. Delayed delivery agreements will not be used as a speculative or leverage technique. Rather, from time to time, AIM can anticipate that cash for investment purposes will result from scheduled maturities of existing portfolio instruments or from net sales of shares of the Fund and may enter into delayed delivery agreements to assure that the Fund will be as fully invested as possible in instruments meeting its investment objective. Until the settlement date, the Fund will segregate cash or other liquid assets of a dollar value sufficient at all times to make payment for the delayed delivery securities. The delayed delivery securities, which will not begin to accrue interest until the settlement date, will be recorded as an asset of the Fund and will be subject to the risks of market fluctuation. The purchase price of the delayed delivery securities is a liability of the Fund until settlement. If cash is not available to the Fund at the time of settlement, the Fund may be required to dispose of portfolio securities that it would otherwise hold to maturity in order to meet its obligation to accept delivery under a delayed delivery agreement. The Board of Directors has determined that entering into delayed delivery agreements does not present a materially increased risk of loss to shareholders, but the Board of Directors may restrict the use of delayed delivery agreements if the risk of loss is determined to be material or if it affects the constant net asset value of the Money Market Fund. Many new issues of debt securities are offered on a "when-issued" basis, that is, the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. The Funds will only make commitments to purchase such debt securities with the intention of actually acquiring such securities, but the Funds may each sell these securities before the settlement date if it is deemed advisable. The Fund holds, and maintains until the settlement date segregated liquid assets of a dollar value sufficient 23 35 at all times to make payment for the when-issued securities. The securities will be marked-to-market and additional assets will be segregated if necessary to maintain adequate coverage of the when-issued commitments. Securities purchased on a when-issued basis and the securities held in the Funds' portfolios are subject to changes in market value based upon the public's perception of the creditworthiness of the issuer and changes in the level of interest rates (which will generally result in all of those securities changing in value in the same way, i.e., all those securities experiencing appreciation when interest rates rise). Therefore, if, in order to achieve higher interest income, a Fund is to remain substantially fully invested at the same time that it has purchased securities on a when-issued basis, there will be a possibility that the market value of the Fund's assets will fluctuate to a greater degree. Furthermore, when the time comes for the Fund to meet its obligations under when-issued commitments, the Fund will do so by using then-available cash flow, by sale of the segregated securities, by the sale of other securities or, although it would not normally expect to do so, by directing the sale of the when-issued securities themselves (which may have a market value greater or less than the applicable Fund's payment obligation). A sale of securities to meet such obligations carries with it a greater potential for the realization of net short-term capital gains, which are not exempt from federal income taxes. The value of when-issued securities on the settlement date may be more or less than the purchase price. If a Fund enters into a delayed delivery agreement or purchases a when-issued security, the Fund will direct its custodian bank to segregate liquid assets in an amount equal to its delayed delivery agreements or when-issued commitments. If the market value of such securities declines, additional cash or securities will be segregated on a daily basis so that the market value of the account will equal the amount of such Fund's delayed delivery agreements and when-issued commitments. To the extent that funds are segregated, they will not be available for new investment or to meet redemptions. Investment in securities on a when-issued basis and use of delayed delivery agreements may increase the Fund's exposure to market fluctuation, or may increase the possibility that the Fund will incur a short-term loss, if the Fund must engage in portfolio transactions in order to honor a when-issued commitment or accept delivery of a security under a delayed delivery agreement. The Fund will employ techniques designed to minimize these risks. No additional delayed delivery agreements or when-issued commitments will be made by a Fund if, as a result, more than 25% of the Fund's net assets would become so committed. The Government Fund may engage in buy/sell back transactions (a form of delayed delivery agreement). In a buy/sell back transaction, the Fund enters a trade to sell securities at one price and simultaneously enters a trade to buy the same securities at another price for settlement at a future date. DOLLAR ROLL TRANSACTIONS In order to enhance portfolio returns and manage prepayment risk, the Diversified Income Fund and the Government Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage security held in the portfolio to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayments histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the sold security. Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the 24 36 agreement. In the event the buyer of securities under a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. See "Borrowing," below for the applicable limitation on dollar roll transactions. BORROWING Each of the Funds may borrow money to a limited extent from banks (including the Funds' custodian bank) for temporary or emergency purposes subject to the limitations under the 1940 Act. Each Fund will restrict borrowings, reverse repurchase agreements and dollar roll transactions to an aggregate of 33 1/3% of the Fund's total assets at the time of the transaction. No Fund will purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets. ILLIQUID SECURITIES None of the Funds will invest more than 15% of their respective net assets in illiquid securities, including restricted securities which are illiquid. The Money Market Fund will not invest more than 10% of its net assets in illiquid securities. SPECIAL SITUATIONS Although the Capital Appreciation Fund does not currently intend to do so, it may invest in "special situations." A special situation arises when, in the opinion of the Fund's management, the securities of a particular company will, within a reasonably estimable period of time, be accorded market recognition at an appreciated value solely by reason of a development applicable to that company, and regardless of general business conditions or movements of the market as a whole. Developments creating special situations might include, among others: liquidations, reorganizations, recapitalizations, mergers, material litigation, technical breakthroughs and new management or management policies. Although large and well known companies may be involved, special situations more often involve comparatively small or unseasoned companies. Investments in unseasoned companies and special situations often involve much greater risk than is inherent in ordinary investment securities. WARRANTS The Aggressive Growth Fund, the Blue Chip Fund, the Capital Development Fund, the Dent Demographic Trends Fund, the Global Growth and Income Fund, the Growth and Income Fund and the Telecommunications Fund may, from time to time, invest in warrants. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Of course, since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of a warrant, the current market value of the underlying security, the life of the warrant and various other investment factors. SHORT SALES Each of the Funds (except the Money Market Fund) may enter into short sales transactions from time to time. None of these Funds will make short sales of securities nor maintain a short position unless at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal 25 37 in amount to, the securities sold short. This is a technique known as selling short "against the box." Such short sales will be used by each of the Funds for the purpose of deferring recognition of gain or loss for federal income tax purposes. In no event may more than 10% of the value of any such Fund's total assets be deposited or pledged as collateral for such sales at any time. RULE 144A SECURITIES Each of the Funds may invest in securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "1933 Act"). These securities are sometimes referred to as private placements. Although securities which may be resold only to "qualified institutional buyers" in accordance with the provisions of Rule 144A under the 1933 Act are technically considered "restricted securities," the Funds may each purchase Rule 144A securities without regard to the limitation on investments in illiquid securities described above under "Illiquid Securities," provided that a determination is made that such securities have a readily available trading market. AIM will determine the liquidity of Rule 144A securities under the supervision of the Company's Board of Directors. Determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination AIM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, AIM could consider the (i) frequency of trades and quotes, (ii) number of dealers and potential purchasers, (iii) dealer undertakings to make a market, and (iv) nature of the security and of market place trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored by AIM and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities. INVESTMENT IN OTHER INVESTMENT COMPANIES Each of the Funds may invest in other investment companies to the extent permitted by the 1940 Act, and rules and regulations thereunder, and if applicable, exemptive orders granted by the SEC. The Funds have obtained an exemptive order from the SEC allowing them to invest in money market funds that have AIM or an affiliate of AIM as an investment adviser (the "Affiliated Money Market Funds"), provided that investments in Affiliated Money Market Funds do not exceed 25% of the total assets of such Fund. With respect to a Fund's purchase of shares of the Affiliated Money Market Funds, the Fund will indirectly pay the advisory fees and other operating expenses of the Affiliated Money Market Funds. TEMPORARY DEFENSIVE INVESTMENTS In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, each of the Funds may temporarily hold all or a portion of its assets in cash, money market instruments, bonds, or other debt securities. Each of the Funds may also invest up to 25% of its total assets in Affiliated Money Market Funds for these purposes. For a description of the various rating categories of corporate bonds and commercial paper in which the Funds may invest, see the Appendix to this Statement of Additional Information. ASSET ALLOCATION AMONG COUNTRIES The Global Growth and Income Fund currently contemplates that it will invest principally in securities of issuers in the United States, Canada, Japan, the Western European nations, New Zealand and Australia, and it may invest in securities denominated in more than one currency. UTILITIES INDUSTRY The following is a general description of the particular types of utilities industries in which the Global Utilities Fund may invest. Electric Utility Industry. Electric utilities are heavily regulated. Local rates are subject to the review of state commissions, and sales either between companies or that cross state lines are subject to review by the Federal Energy Regulatory Commission. The industry is also subject to regulation by the SEC under the Public Utility Holding Company Act of 1935. In addition, companies constructing or operating nuclear powered generating stations are subject to extensive regulation by the Nuclear Regulatory Commission. Electric utility companies are also subject to extensive local regulation in environmental and site location matters. Future legislation with regard to the issues of acid rain and toxic and radioactive wastes could have a significant impact on the manner in which utility companies conduct their business, and the costs that they incur. Since the late 1970s, investor-owned utilities have experienced a number of unfavorable regulatory trends, including increased regulatory resistance to price increases and new legislation encouraging competition. Electric utilities have recently become subject to competition in varying degrees. This competition can have the effect of decreasing revenues and profit margins. 26 38 Natural Gas Industry. The natural gas industry is comprised primarily of many small distribution companies and a few large interstate pipeline companies. The Public Utility Holding Company Act of 1935 has generally acted as a bar to the consolidation of pipeline and distribution companies. Regulation of these companies is similar to that of electric companies. The performance of natural gas utilities may also be substantially affected by fluctuations in energy prices. Competition in the natural gas industry has resulted in the consolidation of the industry. Communications Industry. Most of the communications industry capacity is concentrated in the hands of a few very large publicly-held companies, unlike the situation in the electric and gas industries. Significant risks for the investor to overcome still exist, however, including risk relating to pricing at marginal versus embedded cost. New entrants may have lower costs of material due to newer technologies or lower standards of reliability than those heretofore imposed by American Telephone & Telegraph ("AT&T") on the industry. Accordingly, the marginal cost of incremental service is much lower than the costs embedded in an existing network. Communications companies are not subject to the Public Utility Holding Company Act of 1935. Interstate communications service may be subject to Federal Communications Commission regulation. Local service may be regulated by the states. In addition, AT&T and its former subsidiaries are still subject to judicial review pursuant to the settlement of the antitrust case brought against them by the Department of Justice. Water Utility Industry. The water utility industry is composed of regulated public utilities that are involved in the distribution of drinking water to densely populated areas. The industry is geographically diverse and subject to the same rate base and rate of return regulations as are other public utilities. Demand for water is most heavily influenced by the local weather, population growth in the service area and new construction. Supplies of clean, drinkable water are limited and are primarily a function of the amount of past rainfall. Other. In addition to the particular types of utilities industries described above, the Fund may invest in developing utility technology companies (such as cellular telephone, fiber optics and satellite communications firms) and in holding companies which derive a substantial portion of their revenues from utility-related activities. OPTIONS, FUTURES AND CURRENCY STRATEGIES INTRODUCTION Each of the Funds (except the Money Market Fund) may each use forward contracts, futures contracts, options on securities, options on indices, options on currencies, and options on futures contracts to attempt to hedge against the overall level of investment and currency risk normally associated with each Fund's investments. These instruments are often referred to as "derivatives," which may be defined as financial instruments whose performance is derived, at least in part, from the performance of another asset (such as a security, currency or an index of securities). 27 39 GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES The use by the Funds of options, futures contracts and forward currency contracts involves special considerations and risks, as described below. Risks pertaining to particular strategies are described in the sections that follow. (1) Successful use of hedging transactions depends upon AIM's ability to correctly predict the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While AIM is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed. (2) There might be imperfect correlation, or even no correlation, between the price movements of an instrument (such as an option contract) and the price movements of the investments being hedged. For example, if a "protective put" is used to hedge a potential decline in a security and the security does decline in price, the put option's increased value may not completely offset the loss in the underlying security. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. (4) There is no assurance that a liquid secondary market will exist for any particular option, futures contract, forward contract or option thereon at any particular time. (5) As described below, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in instruments involving obligations to third parties. If a Fund were unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. The requirements might impair the Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. (6) There is no assurance that a Fund will use hedging transactions. For example, if a Fund determines that the cost of hedging will exceed the potential benefit to the Fund, the Fund will not enter into such transaction. COVER Transactions using forward contracts, futures contracts and options (other than options purchased by a Fund) expose a Fund to an obligation to another party. A Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, currencies, or other options, forward contracts or futures contracts or (2) cash, liquid assets and/or short-term debt securities with a value sufficient at all times to cover its potential obligations not covered as provided in (1) above. Each Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities. To the extent that a futures contract, forward contract or option is deemed to be illiquid, the assets used to "cover" the Fund's obligation will also be treated as illiquid for purposes of determining the Fund's maximum allowable investment in illiquid securities. Even though options purchased by the Funds do not expose the Funds to an obligation to another party, but rather provide the Funds with a right to exercise, the Funds intend to "cover" the cost of any such exercise. To the extent that a purchased option is deemed illiquid, the Fund will treat the market value of the option (i.e., the amount at risk to the Fund) as illiquid, but will not treat the assets used as cover on such transactions as illiquid. Assets used as cover cannot be sold while the position in the corresponding forward contract, futures contract or option is open, unless they are replaced with other appropriate assets. If a large portion of a Fund's assets is used for cover or otherwise set aside, it could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations. 28 40 WRITING CALL OPTIONS Each of the Funds may write (sell) covered call options on securities, futures contracts, forward contracts, indices and currencies. As the writer of a call option, a Fund would have the obligation to deliver the underlying security, cash or currency (depending on the type of derivative) to the holder (buyer) at a specified price (the exercise price) at any time until (American style) or on (European style) a certain date (the expiration date). So long as the obligation of a Fund continues, it may be assigned an exercise notice, requiring it to deliver the underlying security, cash or currency against payment of the exercise price. This obligation terminates upon the expiration of the call option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option identical to that previously sold. When writing a call option a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security, contract or currency above the exercise price, and retains the risk of loss should the price of the security, contract or currency decline. Unlike one who owns securities, contracts or currencies not subject to an option, a Fund has no control over when it may be required to sell the underlying securities, contracts or currencies, since most options may be exercised at any time prior to the option's expiration. If a call option that a Fund has written expires, it will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency during the option period. If the call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. Writing call options can serve as a limited hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. Closing transactions may be effected in order to realize a profit on an outstanding call option, to prevent an underlying security, contract or currency from being called or to permit the sale of the underlying security, contract or currency. Furthermore, effecting a closing transaction will permit the Fund to write another call option on the underlying security, contract or currency with either a different exercise price or expiration date, or both. WRITING PUT OPTIONS Each of the Funds may write (sell) covered put options on securities, futures contracts, forward contracts, indices and currencies. As the writer of a put option, a Fund would have the obligation to buy the underlying security, contract or currency (depending on the type of derivative) at the exercise price at any time until (American style) or on (European style) the expiration date. This obligation terminates upon the expiration of the put option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option identical to that previously sold. A Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the lower price it is willing to pay for the underlying security, contract or currency. The risk in such a transaction would be that the market price of the underlying security, contract or currency would decline below the exercise price less the premium received. PURCHASING PUT OPTIONS Each of the Funds may purchase covered put options on securities, futures contracts, forward contracts, indices and currencies. As the holder of a put option, a Fund would have the right to sell the underlying security, contract or currency at the exercise price at any time until (American style) or on (European style) the expiration date. A Fund may enter into closing sale transactions with respect to such options, exercise such option or permit such option to expire. 29 41 A Fund may purchase a put option on an underlying security, contract or currency ("protective put") owned by the Fund in order to protect against an anticipated decline in the value of the security, contract or currency. Such hedge protection is provided only during the life of the put option. The premium paid for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon exercise of said option. Conversely, if the underlying security, contract or currency does not decline in value, the option may expire worthless and the premium paid for the protective put would be lost. A Fund may also purchase put options on underlying securities, contracts or currencies against which it has written other put options. For example, where a Fund has written a put option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a put option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written put. Used in combinations, these strategies are commonly referred to as "put spreads." Likewise, a Fund may write call options on underlying securities, contracts or currencies against which it has purchased protective put options. This strategy is commonly referred to as a "collar." PURCHASING CALL OPTIONS Each of the Funds may purchase covered call options on securities, futures contracts, forward contracts, indices and currencies. As the holder of a call option, a Fund would have the right to purchase the underlying security, contract or currency at the exercise price at any time until (American style) or on (European style) the expiration date. A Fund may enter into closing sale transactions with respect to such options, exercise such options or permit such options to expire. Call options may be purchased by a Fund for the purpose of acquiring the underlying security, contract or currency for its portfolio. Utilized in this fashion, the purchase of call options would enable a Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium paid. So long as it holds such a call option, rather than the underlying security or currency itself, the Fund is partially protected from any unexpected decline in the market price of the underlying security, contract or currency and, in such event, could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. Each of the Funds may also purchase call options on underlying securities, contracts or currencies against which it has written other call options. For example, where a Fund has written a call option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a call option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written call. Used in combinations, these strategies are commonly referred to as "call spreads." OVER-THE-COUNTER OPTIONS Options may be either listed on an exchange or traded in over-the-counter ("OTC") markets. Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. A Fund will not purchase an OTC option unless it believes that daily valuations for such options are readily obtainable. OTC options differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which guarantees performance). Consequently, there is a risk of non-performance by the dealer. Since no exchange is involved, OTC options are valued on the basis of an average of the last bid prices obtained from dealers, unless a quotation from only one dealer is available, in which case only that dealer's price will be used. In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any specific time. Although a Fund will enter into OTC options only with dealers that are expected to be capable of entering into closing transactions with it, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the dealer, a Fund might be unable to close out an OTC option position at any time prior to its expiration. 30 42 The staff of the SEC considers purchased OTC options (i.e. the market value of the option) to be illiquid securities. A Fund may also sell OTC options and, in connection therewith, segregate assets or cover its obligations with respect to OTC options written by it. The assets used as cover for OTC options written by the Fund will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Fund may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. INDEX OPTIONS Puts and calls on indices are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question (and thus on price movements in the securities market or a particular market sector generally) rather than on price movements in individual securities or futures contracts. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call or put times a specified multiple (the "multiplier"), which determines the total dollar value for each point of such difference. The risks of investment in index options may be greater than options on securities. Because index options are settled in cash, when a Fund writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Fund can offset some of the risk of writing a call index option position by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will not be perfectly correlated with the value of the index. LIMITATIONS ON OPTIONS A Fund will not write options if, immediately after such sale, the aggregate value of securities or obligations underlying the outstanding options exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at the time of the investment, the aggregate premiums paid for the options will exceed 5% of the Fund's total assets. INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS Each of the Funds may enter into interest rate, currency or stock index futures contracts (collectively, "Futures" or "Futures Contracts") as a hedge against changes in prevailing levels of interest rates, currency exchange rates or stock price levels, respectively, in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by it. A Fund's hedging may include sales of Futures as an offset against the effect of expected increases in interest rates, and decreases in currency exchange rates and stock prices, and purchases of Futures as an offset against the effect of expected declines in interest rates, and increases in currency exchange rates or stock prices. A Futures Contract is a two party agreement to buy or sell a specified amount of a specified security or currency (or delivery of a cash settlement price, in the case of an index future) for a specified price at a designated date, time and place. A stock index future provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading on the contract and the price agreed upon in the Futures Contract; no physical delivery of stocks comprising the index is made. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times the Future is outstanding. The Funds will only enter into Futures Contracts that are traded (either domestically or internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon 31 43 in the United States are regulated under the Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. For a further discussion of the risks associated with investments in foreign securities, see "Foreign Securities" in this Statement of Additional Information. Closing out an open Future is effected by entering into an offsetting Future for the same aggregate amount of the identical financial instrument or currency and the same delivery date. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular Future at a particular time. If a Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the Future. A Fund's Futures transactions will be entered into for hedging purposes only; that is, Futures will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures will be purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. "Margin" with respect to Futures is the amount of funds that must be deposited by a Fund in order to initiate Futures trading and maintain its open positions in Futures. A margin deposit made when the Futures Contract is entered ("initial margin") is intended to ensure the Fund's performance under the Futures Contract. The margin required for a particular Future is set by the exchange on which the Future is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract. Subsequent payments, called "variation margin," to and from the futures commission merchant through which a Fund entered into the Futures Contract will be made on a daily basis as the price of the underlying security, currency or index fluctuates making the Futures more or less valuable, a process known as marking-to-market. If a Fund were unable to liquidate a Future or an option on a Futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the Future or option or to maintain cash or securities in a segregated account. OPTIONS ON FUTURES CONTRACTS Options on Futures Contracts are similar to options on securities or currencies except that options on Futures Contracts give the purchaser the right, in return for the premium paid, to assume a position in a Futures Contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the Futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's Futures margin account. FORWARD CONTRACTS A forward contract is an obligation, usually arranged with a commercial bank or other currency dealer, to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. A Fund either may accept or make delivery of the currency at the maturity of the forward contract. A Fund may also, if its contra party agrees prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Forward contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions. Each of the Funds may engage in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. A Fund may enter into forward contracts with respect to a specific 32 44 purchase or sale of a security, or with respect to its portfolio positions generally. When a Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency. The cost to a Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal basis, no fees or commissions are involved. The use of forward contracts does not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to acquire, but it does establish a rate of exchange in advance. In addition, while forward contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies increase. LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON CURRENCIES To the extent that a Fund enters into Futures Contracts, options on Futures Contracts and options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") will not exceed 5% of the total assets of the Fund, after taking into account unrealized profits and unrealized losses on any contracts it has entered into. This guideline may be modified by the Board, without a shareholder vote. This limitation does not limit the percentage of the Fund's assets at risk to 5%. 33 45 RISK FACTORS Investors should consider carefully the following special factors before investing in any of the Funds. SMALL CAPITALIZATION COMPANIES Investors should realize that equity securities of small to medium-sized companies may involve greater risk than is associated with investing in more established companies. Small to medium-sized companies often have limited product and market diversification, fewer financial resources or may be dependent on a few key managers. Any one of the foregoing may change suddenly and have an immediate impact on the value of the company's securities. Furthermore, whenever the securities markets are experiencing rapid price changes due to national economic trends, secondary growth securities have historically been subject to exaggerated price changes. NON-INVESTMENT GRADE DEBT SECURITIES The Balanced Fund, the Diversified Income Fund, the High Yield Fund, and to a lesser extent the Dent Demographic Trends Fund, the Global Utilities Fund and the Telecommunications Fund may seek to meet their respective investment objectives by investing in non-investment grade debt securities, commonly known as "junk bonds." While generally providing greater income and opportunity for gain, non-investment grade debt securities may be subject to greater risks than higher-rated securities. Economic downturns tend to disrupt the market for junk bonds and adversely affect their values. Such economic downturns may be expected to result in increased price volatility for junk bonds and of the value of shares of the above-named Funds, and increased issuer defaults on junk bonds. In addition, many issuers of junk bonds are substantially leveraged, which may impair their ability to meet their obligations. In some cases, junk bonds are subordinated to the prior payment of senior indebtedness, which potentially limits a Fund's ability to fully recover principal or to receive payments when senior securities are subject to a default. The credit rating of a junk bond does not necessarily address its market value risk, and ratings may from time to time change to reflect developments regarding the issuer's financial condition. Junk bonds have 34 46 speculative characteristics which are likely to increase in number and significance with each successive lower rating category. When the secondary market for junk bonds becomes more illiquid, or in the absence of readily available market quotations for such securities, the relative lack of reliable objective data makes it more difficult for the Company's directors to value a Fund's securities, and judgment plays a more important role in determining such valuations. Increased illiquidity in the junk bond market also may affect a Fund's ability to dispose of such securities at desirable prices. In the event a Fund experiences an unexpected level of net redemptions, the Fund could be forced to sell its junk bonds without regard to their investment merits, thereby decreasing the asset based upon which the Fund's expenses can be spread and possibly reducing the Fund's rate of return. Prices of junk bonds have been found to be less sensitive to fluctuations in interest rates, and more sensitive to adverse economic changes and individual corporate developments, than those of higher-rated debt securities. FOREIGN SECURITIES Investments by a Fund in foreign securities whether denominated in U.S. dollars or foreign currencies, may entail the following risks set forth below. Investments by a Fund in ADRs, EDRs or similar securities also may entail some or all of the risks described below. CURRENCY RISK. The value of the Fund's foreign investments may be affected by changes in currency exchange rates. The U.S. dollar value of a foreign security generally decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and tends to increase when the value of the U.S. dollar falls against such currency. On January 1, 1999, certain members of the European Economic and Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain established a common European currency known as the "euro" and each member's local currency became a denomination of the euro. It is anticipated that each participating country will replace its local currency with the euro on July 1, 2002. Any other European country that is a member of the European Union and satisfies the criteria for participation in the EMU may elect to participate in the EMU and may supplement its existing currency with the euro. The anticipated replacement of existing currencies with the euro on July 1, 2002 could cause market disruptions before or after July 1, 2002 and could adversely affect the value of securities held by the Fund. POLITICAL AND ECONOMIC RISK. The economies of many of the countries in which the Fund may invest are not as developed as the United States economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Fund's investments. REGULATORY RISK. Foreign companies are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Fund may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Fund's shareholders. MARKET RISK. The securities markets in many of the countries in which the Fund invests will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies and governments may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative difficulties (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is 35 47 generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States. In addition, there are risks associated with certain investment strategies employed by the Funds as discussed in the previous section. NON-DIVERSIFIED PORTFOLIO (GLOBAL UTILITIES FUND ONLY) The Global Utilities Fund is a non-diversified portfolio, which means that it may invest a greater proportion of its assets in the securities of a smaller number of issuers and therefore may be subject to greater market and credit risk than a more broadly diversified portfolio. (A diversified portfolio may not invest more than 5% of its assets in obligations of one issuer, with respect to 75% of its total assets.) INVESTMENT RESTRICTIONS FUNDAMENTAL RESTRICTIONS The following restrictions apply to all of the Funds and are fundamental. Unless permitted by law, they will not be changed for any Fund without approval of that Fund's voting securities. None of the Funds will: (1) invest for the purpose of exercising control over or management over a company except that each Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order; (2) act as an underwriter, except to the extent that, in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter for purposes of the 1933 Act; (3) purchase or sell real estate or any interest therein, except that each Fund may, as appropriate and consistent with its investment policies and other investment restrictions, invest in securities of corporate or governmental entities secured by real estate or marketable interests therein or securities of issuers that engage in real estate operations or interests therein, and may hold and sell real estate acquired as a result of ownership in such securities; (4) purchase or sell commodity contracts, except that each Fund may, as appropriate and consistent with its investment policies and other investment restrictions, enter into futures contracts on securities, securities indices and currency, options on such futures contracts, forward foreign currency exchange contracts, forward commitments and repurchase agreements; (5) make loans, except for collateralized loans of portfolio securities in an amount not exceeding 33 1/3% of the applicable Fund's total assets. This restriction does not prevent a Fund from purchasing government obligations, short-term commercial paper, or publicly traded debt, including bonds, notes, debentures, certificates of deposit, bankers acceptances and equipment trust certificates, nor does this restriction apply to loans made under insurance policies, or through entry into repurchase agreements, to the extent they may be viewed as loans; (6) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets at market value at the time of each investment, except that the Money Market Fund may invest up to 36 48 100% of its assets in obligations issued by banks. This limitation does not apply to the Global Utilities Fund or to investments in obligations of the U.S. Government or any of its agencies or instrumentalities but will apply to foreign government obligations unless the Securities and Exchange Commission permits their exclusion; (7) issue senior securities, except to the extent permitted by the 1940 Act, including permitted borrowings; and (8) purchase securities of an issuer (other than investments in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or except that each Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order), if as a result with respect to 75% of the value of the Fund's total assets, taken at market value, (i) more than 5% of the Fund's total assets taken at market value would be invested in the securities of such issuer, except that up to 25% of the Fund's total assets may be invested in securities issued or guaranteed by any foreign government or its agencies or instrumentalities, or (ii) such purchase would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund. As a matter of operating policy, the Money Market Fund will invest no more than 5% of the value of that Fund's total assets in securities, other than U.S. Government securities of any one issuer, except that the Money Market Fund may invest up to 25% of its total assets in First Tier Securities (as defined in Rule 2a-7 under the 1940 Act) of a single issuer for a period of up to three business days after the purchase of such security. This restriction does not apply to the Global Utilities Fund. Each Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and limitations as that Fund. NON-FUNDAMENTAL RESTRICTIONS The following investment restrictions apply to all of the Funds but are not fundamental. They may be changed for any Fund without approval of that Fund's voting securities. (1) None of the Funds will invest more than 15% (10% for the Money Market Fund) of its assets in securities restricted as to disposition under federal securities laws, or securities otherwise considered illiquid or not readily marketable, including repurchase agreements having a maturity of more than seven days. (2) None of the Funds will purchase or retain the securities of any issuer if, to the knowledge of AIM, those officers and Directors of the Company, its adviser or distributor owning individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer. (3) The Company does not currently intend to invest all of the assets of any Fund in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and limitations as that Fund. (4) The Fund may not invest in securities issued by other investment companies except as part of a merger, reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from the provisions of the 1940 Act. 37 49 MANAGEMENT DIRECTORS AND OFFICERS The directors and officers of the Company and their principal occupations during at least the last five years are set forth below. Unless otherwise indicated, the address of each director and executive officer is 11 Greenway Plaza, Suite 100, Houston, Texas 77046.
POSITIONS HELD NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS --------------------- --------------- ---------------------------------------- *CHARLES T. BAUER (80) Director and Chairman of the Board of Directors, A I M Chairman Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc. and Fund Management Company; and Vice Chairman and Director, AMVESCAP PLC. BRUCE L. CROCKETT (55) Director Director, ACE Limited (insurance company). 906 Frome Lane Formerly, Director, President and Chief McLean, VA 22102 Executive Officer, COMSAT Corporation and Chairman, Board of Governors of INTELSAT, (international communications company). OWEN DALY II (75) Director Director, Cortland Trust Inc. (investment Six Blythewood Road company). Formerly, Director, CF & I Steel Baltimore, MD 21210 Corp., Monumental Life Insurance Company and Monumental General Insurance Company; and Chairman of the Board of Equitable Bancorporation. EDWARD K. DUNN, JR. (64) Director Chairman of the Board of Directors, 2 Hopkins Plaza, 20th Floor Mercantile Mortgage Corp. Formerly, Vice Baltimore, MD 21201 Chairman of the Board of Directors and President, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares. JACK FIELDS (47) Director Chief Executive Officer, Texana Global, Inc. 8810 Will Clayton Parkway (foreign trading company) and Twenty First Jetero Plaza, Suite E Century, Inc. (a governmental affairs Humble, TX 77338 company). Formerly, Member of the U.S. House of Representatives.
- -------- * A director who is an "interested person" of A I M Advisors, Inc. and the Company as defined in the 1940 Act. 38 50
POSITIONS HELD NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS --------------------- --------------- ---------------------------------------- **CARL FRISCHLING (62) Director Partner, Kramer, Levin, Naftalis & Frankel 919 Third Avenue (law firm). Formerly, Partner, Reid & Priest New York, NY 10022 (law firm). *ROBERT H. GRAHAM (52) Director and Director, President and Chief Executive President Officer, A I M Management Group Inc.; Director and President, A I M Advisors, Inc.; Director and Senior Vice President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc. and Fund Management Company; Director, AMVESCAP PLC. PREMA MATHAI-DAVIS (49) Director Chief Executive Officer, YWCA of the U.S.A.; 350 Fifth Avenue, Suite 301 Commissioner, New York City Department New York, NY 10118 for the Aging; and Member of the Board of Directors, Metropolitan Transportation Authority of New York State. LEWIS F. PENNOCK (57) Director Attorney in private practice in Houston, 6363 Woodway, Suite 825 Texas. Houston, TX 77057 LOUIS S. SKLAR (60) Director Executive Vice President, Development and Transco Tower, 50th Floor Operations, Hines Interests Limited 2800 Post Oak Blvd. Partnership (real estate development). Houston, TX 77056 GARY T. CRUM (52) Senior Vice Director and President, A I M Capital President Management, Inc.; Director and Executive Vice President, A I M Management Group Inc. and A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC.
- -------- ** A director who is an "interested person" of the Company as defined in the 1940 Act. * A director who is an "interested person" of A I M Advisors, Inc. and the Company as defined in the 1940 Act. 39 51
POSITIONS HELD NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS --------------------- --------------- ---------------------------------------- CAROL F. RELIHAN (45) Senior Vice Director, Senior Vice President, General President and Counsel and Secretary, A I M Advisors, Inc.; Secretary Senior Vice President, General Counsel and Secretary, A I M Management Group Inc.; Director, Vice President and General Counsel, Fund Management Company; General Counsel and Vice President, A I M Fund Services, Inc.; and Vice President, A I M Capital Management, Inc. and A I M Distributors, Inc. DANA R. SUTTON (40) Vice President and Vice President and Fund Controller, Treasurer A I M Advisors, Inc.; and Assistant Vice President and Assistant Treasurer, Fund Management Company. ROBERT G. ALLEY (51) Vice President Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. STUART W. COCO (44) Vice President Senior Vice President, A I M Capital Management, Inc. and Vice President, A I M Advisors, Inc. MELVILLE B. COX (56) Vice President Vice President and Chief Compliance Officer, A I M Advisors, Inc., A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., and Fund Management Company. KAREN DUNN KELLEY (39) Vice President Senior Vice President, A I M Capital Management, Inc. and Vice President, A I M Advisors, Inc. EDGAR M. LARSEN (59) Vice President Vice President, A I M Capital Management, Inc.
The standing committees of the Board of Directors are the Audit Committee, the Investments Committee and the Nominating and Compensation Committee. The members of the Audit Committee are Messrs. Crockett, Daly, Dunn (Chairman), Fields, Frischling, Pennock, Sklar and Ms. Mathai-Davis. The Audit Committee is responsible for meeting with the Company's auditors to review audit procedures and results and to consider any matters arising from an audit to be brought to the attention of the directors as a whole with respect to the Company's fund accounting or its internal accounting controls, or for considering such matters as may from time to time be set forth in a Charter adopted by the Board of Directors and such Committee. 40 52 The members of the Investments Committee are Messrs. Bauer, Crockett, Daly, Dunn, Fields, Frischling, Pennock, Sklar (Chairman) and Ms. Mathai-Davis. The Investments Committee is responsible for reviewing portfolio compliance, brokerage allocation, portfolio investment pricing issues, interim dividend and distribution issues, or considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors and such Committee. The members of the Nominating and Compensation Committee are Messrs. Crockett (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Ms. Mathai-Davis. The Nominating and Compensation Committee is responsible for considering and nominating individuals to stand for election as directors who are not interested persons, reviewing from time to time the compensation payable to the disinterested directors, or considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors of such Committee. All of the Company's Directors also serve as directors or trustees of some or all of the other investment companies managed or advised by AIM. All of the Directors' executive officers hold similar offices with some or all of the other investment companies managed or advised by AIM. Remuneration of Directors Each director is reimbursed for expenses incurred in connection with each meeting of the Board of Directors or any Committee thereof. Each director of the Company who is not also an officer of the Company is compensated for his services according to a fee schedule which recognizes the fact that such director also serves as a director or trustee of certain other investment companies advised or managed by AIM. Each such director receives a fee, allocated among the AIM Funds for which he serves as a director or trustee, which consists of an annual retainer component and a meeting fee component. Set forth below is information regarding compensation paid or accrued during the fiscal year ended December 31, 1998 for each director of the Company:
RETIREMENT BENEFITS AGGREGATE ACCRUED TOTAL COMPENSATION BY ALL AIM COMPENSATION DIRECTOR FROM COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3) - ---------------------- --------------------- --------------------- ------------------------ Charles T. Bauer $ -0- $ -0- $ -0- Bruce L. Crockett $ 13,095 $ 37,485 $ 96,000 Owen Daly II $ 13,095 $ 122,898 $ 96,000 Edward K. Dunn, Jr. $ 11,098 $ -0- $ 78,889 Jack Fields $ 13,024 $ 15,826 $ 95,500 Carl Frischling(4) $ 13,024 $ 97,791 $ 95,500 Robert H. Graham $ -0- $ -0- $ -0- John F. Kroeger(5) $ 8,980 $ 107,896 $ 91,654 Prema Mathai-Davis $ 4,625 $ -0- $ 32,636 Lewis F. Pennock $ 13,024 $ 45,766 $ 95,500 Ian W. Robinson(6) $ 12,876 $ 94,442 $ 94,500 Louis S. Sklar $ 12,952 $ 90,232 $ 95,500
41 53 - ------------------- (1) The total amount of compensation deferred by all Directors of the Company during the fiscal year ended December 31, 1998, including interest earned thereon, was $60,584. (2) During the fiscal year ended December 31, 1998, the total amount of expenses allocated to the Company in respect of such retirement benefits was $21,293. Data reflects compensation estimated for the calendar year ended December 31, 1998. (3) Each Director serves as a director or trustee of a total of 12 registered investment companies advised by AIM. Data reflects compensation estimated for the calendar year ended December 31, 1998. (4) The Company paid the law firm of Kramer, Levin, Naftalis & Frankel LLP $35,121 in legal fees for services provided to the Funds during the fiscal year ended December 31, 1998. Mr. Frischling, a Director of the Company, is a partner in such firm. (5) Mr. Kroeger was a director until June 11, 1998, when he resigned. On that date he became a consultant to the Company. Of the amount listed above $4,723 was for compensation for service as a director and the remainder as a consultant. Mr. Kroeger passed away on November 26, 1998. Mr. Kroeger's widow will receive his pension as described below under "AIM Funds Retirement Plan for Eligible Directors/Trustee." (6) Mr. Robinson was a director until March 12, 1999, when he retired. AIM Funds Retirement Plan for Eligible Directors/Trustees Under the terms of the AIM Funds Retirement Plan for Eligible Directors/Trustees (the "Plan"), each director (who is not a employee of any of the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be entitled to certain benefits upon retirement from the Board of Directors. Pursuant to the Plan, the normal retirement date is the date on which the eligible director has attained age 65 and has completed at least five years of continuous service with one or more of the regulated investment companies managed, administered or distributed by AIM or its affiliates (the "Applicable AIM Funds"). Each eligible director is entitled to receive an annual benefit from the Applicable AIM Funds commencing on the first day of the calendar quarter coincident with or following his date of retirement equal to a maximum of 75% of the annual retainer paid or accrued by the Applicable AIM Funds for such director during the twelve-month period immediately preceding the director's retirement (including amounts deferred under a separate agreement between the Applicable AIM Funds and the director) and based on the number of such director's years of service (not in excess of 10 years of service) completed with respect to any of the Applicable AIM Funds. Such benefit is payable to each eligible director in quarterly installments. If an eligible director dies after attaining the normal retirement date but before receipt of any benefits under the Plan commences, the director's surviving spouse (if any) shall receive a quarterly survivor's benefit equal to 50% of the amount payable to the deceased director, for no more than ten years beginning the first day of the calendar quarter following the date of the director's death. Payments under the Plan are not secured or funded by any AIM Fund. Set forth below is a table that shows the estimated annual benefits payable to an eligible director upon retirement assuming a specified level of compensation and years of service classifications. The estimated credited years of service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock, Robinson, Sklar and Ms. Mathai-Davis are 11, 11, 0, 1, 21, 20, 17, 11, 9 and 0 years, respectively. 42 54 ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
Number of Years of Service With Annual Retirement the Applicable Compensation Paid By All AIM Funds Applicable AIM Funds -------------- ------------------------- 10 $67,500 9 $60,750 8 $54,000 7 $47,250 6 $40,500 5 $33,750
Deferred Compensation Agreements Messrs. Daly, Dunn, Fields, Frischling, Robinson and Sklar (for purposes of this paragraph only, the "deferring directors") have each executed a Deferred Compensation Agreement (collectively, the "Agreements"). Pursuant to the Agreements, the deferring directors elected to defer receipt of 100% of their compensation payable by the Company, and such amounts are placed into a deferral account. Currently, the deferring directors may select various AIM Funds in which all or part of their deferral account shall be deemed to be invested. Distributions from the deferring directors' deferral accounts will be paid in cash, in generally equal quarterly installments over a period of five (5) or ten (10) years (depending on the Agreement) beginning on the date the deferring director's retirement benefits commence under the Plan. The Company's Board of Directors, in its sole discretion, may accelerate or extend the distribution of such deferral accounts after the deferring director's termination of service as a director of the Company. If a deferring director dies prior to the distribution of amounts in his deferral account, the balance of the deferral account will be distributed to his designated beneficiary in a single lump sum payment as soon as practicable after such deferring director's death. The Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the deferring directors have the status of unsecured creditors of the Company and of each other AIM Fund from which they are deferring compensation. INVESTMENT ADVISORY, SUB-ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS Each Fund has entered into a master investment advisory agreement (the "Advisory Agreement") dated February 28, 1997, and a master administrative services agreement (the "Administrative Services Agreement"), dated May 1, 1998, with AIM. A prior investment advisory agreement with substantially identical terms to the Advisory Agreement was in effect prior to February 28, 1997. A prior master administrative services agreement ("Prior Administrative Services Agreement") with substantially similar terms to the Administrative Services Agreement, was in effect prior to May 1, 1998. In addition, AIM has entered into a Sub-Advisory Agreement, dated December 14, 1998 (the "Sub-Advisory Agreement"), with INVESCO Asset Management Limited ("INVESCO"), an indirect wholly owned subsidiary of AMVESCAP PLC, with respect to the Global Growth and Income Fund. The address of INVESCO is 11 Devonshire Square, London, England EC2 M4YR. AIM has also entered into a Sub-Advisory Agreement, dated ________________, 1999 (also a "Sub-Advisory Agreement") with H.S. Dent Advisors, Inc. ("Dent"), with respect to the Dent Demographic Trends Fund. The address of Dent is 6515 Giwin Road, Oakland, California 94611. See "Fund Management" in the Prospectus. 43 55 AIM was organized in 1976, and along with its subsidiaries, manages or advises over 110 investment portfolios encompassing a broad range of investment objectives. AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM Management"), a holding company that has been engaged in the financial services business since 1976. The address of AIM is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM and the Company have adopted a Code of Ethics (the "Code of Ethics") which requires investment personnel and certain other employees (a) to pre-clear all personal securities transactions subject to the Code of Ethics, (b) to file reports or duplicate confirmations regarding such transactions, (c) to refrain from personally engaging in (i) short-term trading of a security, (ii) transactions involving a security within seven days of an AIM Fund transaction involving the same security, and (iii) transactions involving securities being considered for investment by an AIM Fund and (d) abide by certain other provisions under the Code of Ethics. The Code of Ethics also prohibits investment personnel and all other employees from purchasing securities in an initial public offering. Personal trading reports are reviewed periodically by AIM, and the Board of Directors reviews quarterly and annual reports (including information on any substantial violations of the Code of Ethics). Sanctions for violations of the Code of Ethics may include censure, monetary penalties, suspension or termination of employment. The Advisory Agreement for the Funds provides that each Fund will pay all expenses of the Fund, including, without limitation: brokerage commissions, taxes, legal, auditing, or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to directors and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Company on behalf of the Funds in connection with membership in investment company organizations, the cost of printing copies of prospectuses and statements of additional information distributed to the Fund's shareholders; and all other charges and costs of the Fund's operations unless otherwise explicitly provided. The Advisory Agreement for the Funds and the Sub-Advisory Agreements for the Global Growth and Income Fund and the Dent Demographic Trends Fund provide that they will each remain in effect for the initial term and continue in effect from year to year thereafter only if such continuance is specifically approved at least annually (i) by the Company's Board of Directors or by the vote of a majority of the outstanding voting securities of the Funds (as defined in the 1940 Act); and (ii) by the affirmative vote of a majority of the directors who are not parties to the agreement or "interested persons" of any such party (the "Non-Interested Directors") by votes cast in person at a meeting called for such purpose. The Advisory Agreement was initially approved by the Company's Board of Directors (including the affirmative vote of all of the Non-Interested Directors) on December 11, 1996 and was approved by the Funds' shareholders on February 7, 1997. The Board of Directors of the Company approved the continuance of the Agreement until June 30, 2000. The Advisory Agreement became effective on February 28, 1997. The Sub-Advisory Agreement for the Global Growth and Income Fund was initially approved by the Company's Board of Directors (including the affirmative vote of all of the Non-Interested Directors) on September 26, 1998, and was approved by the Fund's sole shareholder and became effective December 14, 1998. The Sub-Advisory Agreement for the Dent Demographic Trends Fund was initially approved by the Company's Board of Directors (including the affirmative vote of all of the Non-Interested Directors) on September 24, 1999, and became effective __________, 1999. The Advisory and Sub-Advisory Agreements provide that each company, AIM (in the case of the Advisory Agreement), INVESCO (in the case of the Global Growth and Income Sub-Advisory Agreement), and Dent (in the case of the Dent Demographic Trends Fund Sub-Advisory Agreement), may terminate such agreement with respect to any Fund(s) on sixty (60) days' written notice without penalty. Each agreement terminates automatically in the event of its assignment. As compensation for its services, AIM pays 0.49% of the advisory fees it receives pursuant to the Advisory Agreement with respect to Global Growth and Income Fund to INVESCO. As compensation for its services, AIM pays Dent the following fees pursuant to the Sub-Advisory Agreement with respect to the Dent Demographic Trends Fund:
ANNUAL NET ASSETS RATE - ---------- -------- First $1 billion........................................................................................... 0.13% Over $1 billion, to and including $2 billion............................................................... 0.10% Over $2 billion............................................................................................ 0.07%
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions, AIM will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Fund's detriment during the period stated in the agreement between AIM and the Fund. 44 56 Pursuant to the Advisory Agreement, AIM receives a fee from each of the AIM V.I. Aggressive Growth Fund, the AIM V.I. Balanced Fund, the AIM V.I. Blue Chip Fund, the AIM V.I. Capital Appreciation Fund, the AIM V.I. Capital Development Fund, the Dent Demographic Trends Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Global Growth and Income Fund, the AIM V.I. Global Utilities Fund, the AIM V.I. Government Securities Fund, the AIM V.I. Growth Fund, the AIM V.I. Growth and Income Fund, the AIM V.I. High Yield Fund, the AIM V.I. International Equity Fund, the AIM V.I. Money Market Fund, the AIM V.I. Telecommunications Fund and the AIM V.I. Value Fund calculated at the following annual rate, based on the average daily net assets of the Fund during the year: AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND AIM V.I. VALUE FUND
ANNUAL NET ASSETS RATE - ---------- -------- 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%
AIM V.I. BLUE CHIP FUND AIM V.I. CAPITAL DEVELOPMENT FUND
ANNUAL NET ASSETS RATE - ---------- -------- First $350 million........................................................................................ 0.75% Over $350 million ........................................................................................ 0.625%
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
ANNUAL NET ASSETS RATE - ---------- -------- First $2 billion.......................................................................................... 0.85% Over $2 billion........................................................................................... 0.80%
AIM V.I. DIVERSIFIED INCOME FUND
ANNUAL NET ASSETS RATE - ---------- -------- First $250 million........................................................................................ 0.60% Over $250 million ........................................................................................ 0.55%
45 57 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%
AIM V.I. MONEY MARKET FUND
ANNUAL NET ASSETS RATE - ---------- -------- First $250 million........................................................................................ 0.40% Over $250 million ........................................................................................ 0.35%
Each of the Funds (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund) paid to AIM a management fee (net of fee waivers) for the fiscal years ended December 31, 1998, December 31, 1997, and December 31, 1996, under the Advisory Agreement and a prior, substantially identical advisory agreement, as follows: 46 58
December 31, December 31, December 31, 1998 1997 1996 ---------------- ------------------- --------------- AIM V.I. Aggressive Growth Fund* $ 1,609 N/A N/A AIM V.I. Balanced Fund* $ -0- N/A N/A AIM V.I. Capital Appreciation Fund $ 3,521,837 $ 3,083,708 $ 1,884,838 AIM V.I. Capital Development Fund* $ -0- N/A N/A AIM V.I. Diversified Income Fund $ 580,119 $ 447,539 $ 306,235 AIM V.I. Global Utilities Fund $ 161,488 $ 106,309 $ 57,054 AIM V.I. Government Securities Fund $ 221,956 $ 138,550 $ 107,471 AIM V.I. Growth Fund $ 1,941,818 $ 1,453,488 $ 916,484 AIM V.I. Growth and Income Fund $ 5,556,833 $ 2,609,695 $ 678,242 AIM V.I. High Yield Fund* $ -0- N/A N/A AIM V.I. International Equity Fund $ 1,744,127 $ 1,519,323 $ 924,578 AIM V.I. Money Market Fund $ 252,407 $ 254,546 $ 264,855 AIM V.I. Value Fund $ 5,570,566 $ 3,303,799 $ 1,955,091
* Fees paid were for the period May 1, 1998 (date operations commenced) through December 31, 1998. For the fiscal years ended December 31, 1998, December 31, 1997 and December 31, 1996, AIM waived management fees for each Fund (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund) as follows:
December 31, December 31, December 31, 1998 1997 1996 ---------------- ------------------- --------------- AIM V.I. Aggressive Growth Fund* $ 11,445 N/A N/A AIM V.I. Balanced Fund* $ 21,238 N/A N/A AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- AIM V.I. Capital Development Fund* $ 9,522 N/A N/A AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0- AIM V.I. Global Utilities Fund $ -0- $ -0- $ 15,954 AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- AIM V.I. Growth Fund $ -0- $ -0- $ -0- AIM V.I. Growth and Income Fund $ -0- $ -0- $ -0- AIM V.I. High Yield Fund* $ 20,728 N/A N/A AIM V.I. International Equity Fund $ -0- $ -0- $ -0- AIM V.I. Money Market Fund $ -0- $ -0- $ -0- AIM V.I. Value Fund $ -0- $ -0- $ -0-
* Fees waived were for the period May 1, 1998 (date operations commenced) through December 31, 1998. 47 59 In addition to the management fees paid by each Fund (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund) for the fiscal years ended December 31, 1998, December 31, 1997 and December 31, 1996, AIM absorbed other expenses as follows:
December 31, December 31, December 31, 1998 1997 1996 ------------- ----------------- ----------------- AIM V.I. Aggressive Growth Fund* $ 43,400 N/A N/A AIM V.I. Balanced Fund* $ 25,501 N/A N/A AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- AIM V.I. Capital Development Fund* $ 48,808 N/A N/A AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0- AIM V.I. Global Utilities Fund $ -0- $ -0- $ -0- AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- AIM V.I. Growth Fund $ -0- $ -0- $ -0- AIM V.I. Growth and Income Fund $ -0- $ -0- $ -0- AIM V.I. High Yield Fund* $ 24,798 N/A N/A AIM V.I. International Equity Fund $ -0- $ -0- $ -0- AIM V.I. Money Market Fund $ -0- $ -0- $ -0- AIM V.I. Value Fund $ -0- $ -0- $ -0-
* Fee amounts are for the period May 1, 1998 (date operations commenced) through December 31, 1998. The Administrative Services Agreement for the Funds provides that AIM may perform certain accounting and other administrative services to each Fund which are not required to be performed by AIM under the Advisory Agreement. For such services, AIM would be entitled to receive from each Fund reimbursement of its expenses. In addition, AIM provides, or assures that Participating Insurance Companies will provide, certain services implementing the Company's funding arrangements with Participating Insurance Companies. These services include: establishment of compliance procedures; negotiation of participation agreements; preparation of prospectuses, financial reports and proxy statements for existing Contractowners; maintenance of master accounts; facilitation of purchases and redemptions requested by Contractowners; distribution to existing Contractowners of copies of prospectuses, proxy materials, periodic Fund reports and other materials; maintenance of records; and Contractowner services and communication. Effective May 1, 1998, the Funds reimburse AIM for its costs in providing, or assuring that Participating Insurance Companies provide, these services, currently in an amount up to 0.25% of the average net asset value of each Fund in excess of the net asset value of each Fund on April 30, 1998. The Administrative Services Agreement for the Funds provides that the agreement will remain in effect for the initial term and continue in effect from year to year thereafter only if such continuance is specifically approved at least annually (i) by the Company's Board of Directors or by the vote of a majority of the outstanding voting securities of the Funds (as defined in the 1940 Act); and (ii) by the affirmative vote of a majority of the Non-Interested Directors, by votes cast in person at a meeting called for such purpose. The agreement terminates automatically in the event of its assignment or in the event of termination of the Master Investment Advisory Agreement. 48 60 For the fiscal years ended December 31, 1998, December 31, 1997 and December 31, 1996, AIM received reimbursement of administrative services costs from each of the Funds (except the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund) pursuant to the Administrative Services Agreement and the Prior Administrative Services Agreement as follows:
December 31, December 31, December 31, 1998 1997 1996 -------------- ----------- ------------ AIM V.I. Aggressive Growth Fund* $ 26,658 N/A N/A AIM V.I. Balanced Fund* $ 26,649 N/A N/A AIM V.I. Capital Appreciation Fund $ 62,063 $43,588 $46,623 AIM V.I. Capital Development Fund* $ 26,658 N/A N/A AIM V.I. Diversified Income Fund $ 47,528 $48,683 $49,500 AIM V.I. Global Utilities Fund $ 46,855 $47,128 $47,729 AIM V.I. Government Securities Fund $ 50,152 $37,872 $38,695 AIM V.I. Growth Fund $ 57,128 $44,692 $39,552 AIM V.I. Growth and Income Fund $ 296,138 $43,065 $38,784 AIM V.I. High Yield Fund* $ 28,103 N/A N/A AIM V.I. International Equity Fund $ 76,026 $59,724 $58,644 AIM V.I. Money Market Fund $ 36,480 $38,289 $29,412 AIM V.I. Value Fund $ 420,725 $53,632 $47,116
* Fees paid were for the period May 1, 1998 (date operations commenced) through December 31, 1998. THE DISTRIBUTION AGREEMENT The Funds have entered into a master distribution agreement (the "Distribution Agreement") with AIM Distributors, dated February 28, 1997. Information concerning AIM Distributors and the continuous offering of the Funds' shares is set forth in the Prospectus under the heading "Fund Management." The Distribution Agreement provides that AIM Distributors will bear the expenses of printing from the final proof and distributing prospectuses and statements of additional information of the Funds relating to the sale of Fund shares. The Distribution Agreement provides that the Funds shall bear the expenses of qualification of shares of the Fund for sale in connection with the public offering in any jurisdictions where qualification is required by law. AIM Distributors has not undertaken to sell any specified number of shares of the Funds. The Distribution Agreement for the Funds provides that it will continue in effect for its initial term and from year to year thereafter only if such continuance is specifically approved at least annually (i) by the Company's Board of Directors or by the vote of a majority of the outstanding voting securities of the Funds (as defined in the 1940 Act); and (ii) by the affirmative vote of a majority of Non-Interested Directors by votes cast in person at a meeting called for such purpose. The Company or AIM Distributors may terminate its Distribution Agreement on sixty (60) days' written notice without penalty. The Distribution Agreement will terminate automatically in the event of its assignment. DETERMINATION OF NET ASSET VALUE The net asset value per share (or share price) of each of the Funds will be determined as of the close of regular trading of the New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern Time) on each "business day of the Fund." In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a 49 61 particular day, the net asset value of a Fund share is determined as of the close of the NYSE on such day. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the NYSE. A "business day of a Fund" is any day on which the NYSE is open for business. It is expected that the NYSE will be closed during the next twelve months on Saturdays and Sundays and on the observed holidays of New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per share of a Fund is determined by subtracting the liabilities (e.g., the expenses) of the Fund from the assets of the Fund and dividing the result by the total number of shares outstanding of such Fund. The determination of a Fund's net asset value per share is made in accordance with generally accepted accounting principles. VALUATION OF INVESTMENTS OF ALL FUNDS EXCEPT THE MONEY MARKET FUND. Among other items, a Fund's liabilities include accrued expenses and dividends payable, and its total assets include portfolio securities valued at their market value as well as income accrued but not received. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the Company's officers and in accordance with methods which are specifically authorized by the Board of Directors of the Company. Short-term obligations with maturities of 60 days or less are valued at amortized cost as reflecting fair value. VALUATION OF THE MONEY MARKET FUND'S INVESTMENTS. The Money Market Fund uses the amortized cost method of valuing the securities held by the Fund and rounds the Fund's per share net asset value to the nearest whole cent; therefore, it is anticipated that the net asset value of the shares of the Fund will remain constant at $1.00 per share. However, the Company can give no assurance that the Fund can maintain a $1.00 net asset value per share. FUTURES CONTRACTS. Initial margin deposits made upon entering into futures contracts are recognized as assets due from the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund that has entered into the futures contract records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. For the Money Market Fund: The net asset value per share of the Fund is determined daily as of the close of trading on the New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net asset value of a Fund share is determined as of the close of the NYSE on such day. Net asset value per share is determined by dividing the value of the Fund's securities, cash and other assets (including interest accrued but not collected), less all its liabilities (including accrued expenses and dividends payable), by the number of shares outstanding of the Fund and rounding the resulting per share net asset value to the nearest one cent. Determination of the Fund's net asset value per share is made in accordance with generally accepted accounting principles. The securities of the Fund are valued on the basis of amortized cost. This method values a security at its cost on the date of purchase and thereafter assumes a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the security. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if the security were sold. During such periods, the daily yield on shares of the Fund computed as described under "Yield Information" may differ somewhat from an identical computation made by another investment company with identical investments utilizing available indications as to the market value of its portfolio securities. 50 62 The valuation of the portfolio instruments based upon their amortized cost and the concomitant maintenance of the net asset value per share of $1.00 for the Fund is permitted in accordance with applicable rules and regulations of the SEC which require the Fund to adhere to certain conditions. The Fund will invest only in "Eligible Securities," as defined in Rule 2a-7 of the 1940 Act, which the Fund's Board of Directors has determined present minimal credit risk. Rule 2a-7 also requires, among other things, that the Fund maintain a dollar-weighted average portfolio maturity of 90 days or less and purchase only instruments having remaining maturities of 397 calendar days or less. The Board of Directors is required to establish procedures designed to stabilize, to the extent reasonably practicable, the Fund's price per share at $1.00 for the Fund as computed for the purpose of sales and redemptions. Such procedures include review of the Fund's holdings by the Board of Directors at such intervals as they may deem appropriate, to determine whether the net asset value calculated by using available market quotations or other reputable sources for the Fund deviates from $1.00 per share and, if so, whether such deviation may result in material dilution or is otherwise unfair to existing holders of the Fund's shares. In the event the Board of Directors determines that such a deviation exists for the Fund, it will take such corrective action as the Board of Directors deems necessary and appropriate with respect to the Fund, including the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten the average portfolio maturity; the withholding of dividends; redemption of shares in kind; or the establishment of a net asset value per share by using available market quotations. The Fund intends to comply with any amendments made to Rule 2a-7 which may require corresponding changes in the Fund's procedures which are designed to stabilize the Fund's price per share at $1.00. For All Other Funds: The net asset value per share of each Fund is normally determined daily as of the close of trading on the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Company. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net asset value of a Fund share is determined as of the close of the NYSE on such day. For purposes of determining net asset value per share, futures and options contracts closing prices which are available 15 minutes after the close of trading of the NYSE will generally be used. Net asset value per share is determined by dividing the value of the Fund's securities, cash and other assets (including interest accrued but not collected), less all its liabilities (including accrued expenses and dividends payable), by the total number of shares outstanding. Determination of the Fund's net asset value per share is made in accordance with generally accepted accounting principles. Each equity security held by the Fund is valued at its last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price on that day. Debt securities are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued on the basis of amortized cost. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the NYSE. 51 63 Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such foreign securities used in computing the net asset value of each Fund's shares are determined at such times as trading is completed. Foreign currency exchange rates are also generally determined prior the close of the NYSE. Occasionally, events affecting the values of such foreign securities and such foreign securities exchange rates may occur after the time at which such values are determined and prior to the close of the NYSE that will not be reflected in the computation of a Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. PURCHASE AND REDEMPTION OF SHARES The Company offers the shares of the Funds, on a continuous basis, to both registered and unregistered separate accounts of affiliated and unaffiliated Participating Insurance Companies to fund variable annuity contracts (the "Contracts") and variable life insurance policies ("Policies"). Each separate account contains divisions, each of which corresponds to a Fund in the Company. Net purchase payments under the Contracts are placed in one or more of the divisions of the relevant separate account and the assets of each division are invested in the shares of the Fund which corresponds to that division. Each separate account purchases and redeems shares of these Funds for its divisions at net asset value without sales or redemption charges. Currently several insurance company separate accounts invest in the Funds. The Company, in the future, may offer the shares of its Funds to certain pension and retirement plans ("Plans") qualified under the Internal Revenue Code. The relationships of Plans and Plan participants to the Fund would be subject, in part, to the provisions of the individual plans and applicable law. Accordingly, such relationships could be different from those described in this Prospectus for separate accounts and owners of Contracts and Policies, in such areas, for example, as tax matters and voting privileges. The Board of Directors monitors for possible conflicts among separate accounts (and will do so for plans) buying shares of the Funds. Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a separate account to comply with such laws could cause a conflict. To eliminate a conflict, the Board of Directors may require a separate account or Plan to withdraw its participation in a Fund. A Fund's net asset value could decrease if it had to sell investment securities to pay redemptions proceeds to a separate account (or plan) withdrawing because of a conflict. Each Fund ordinarily effects orders to purchase or redeem its shares that are based on transactions under Policies or Contracts (e.g., purchase or premium payments, surrender or withdrawal requests, etc.) at the Fund's net asset value per share next computed on the day on which the separate account processes such transactions. Each Fund effects orders to purchase or redeem its shares that are not based on such transactions at the Fund's net asset value per share next computed on the day on which the Fund receives the orders. Please refer to the appropriate separate account prospectus related to your Contract for more information regarding the Contract. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS DIVIDENDS AND DISTRIBUTIONS. The Funds declare and distribute dividends representing substantially all net investment income as follows: 52 64
DIVIDENDS DIVIDENDS DECLARED PAID --------- --------- AIM V.I. Aggressive Growth Fund ................................ annually annually AIM V.I. Balanced Fund ......................................... annually annually AIM V.I. Blue Chip Fund ........................................ annually annually AIM V.I. Capital Appreciation Fund ............................. annually annually AIM V.I. Capital Development Fund .............................. annually annually AIM V.I. Dent Demographic Trends Fund .......................... annually annually AIM V.I. Diversified Income Fund ............................... annually annually AIM V.I. Global Utilities Fund ................................. annually annually AIM V.I. Global Growth and Income Fund ......................... annually annually AIM V.I. Government Securities Fund ............................ annually annually AIM V.I. Growth Fund ........................................... annually annually AIM V.I. Growth and Income Fund ................................ annually annually AIM V.I. High Yield Fund ....................................... annually annually AIM V.I. International Equity Fund ............................. annually annually AIM V.I. Money Market Fund ..................................... daily daily AIM V.I. Telecommunications Fund................................ annually annually AIM V.I. Value Fund ............................................ annually annually
Substantially all net realized capital gains, if any, are distributed on an annual basis, except for the Money Market Fund, which may distribute net realized short-term gains more frequently. All such distributions will be automatically reinvested, at the election of Participating Insurance Companies, in shares of the Fund issuing the distribution at the net asset value determined on the reinvestment date. TAX MATTERS. Each series of shares of the Company is treated as a separate association taxable as a corporation. Each Fund intends to qualify under the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company ("RIC") for each taxable year. As a RIC, a Fund will not be subject to federal income tax to the extent it distributes to its shareholders its net investment income and net capital gains. In order to qualify as a regulated investment company, each Fund must satisfy certain requirements concerning the nature of its income, diversification of its assets and distribution of its income to shareholders. In order to ensure that individuals holding the Contracts whose assets are invested in a Fund will not be subject to federal income tax on distributions made by the Fund prior to the receipt of payments under the Contracts, each Fund intends to comply with additional requirements of Section 817(h) of the Code relating to both diversification of its assets and eligibility of an investor to be its shareholder. Certain of these requirements in the aggregate may limit the ability of a Fund to engage in transactions involving options, futures contracts, forward contracts and foreign currency and related deposits. Any Fund's transactions in non-equity options, forward contracts, futures contracts and foreign currency will be subject to special tax rules, the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments in the holding periods of fund securities and convert short-term capital losses into long-term capital losses. These losses could therefore affect the amount, timing and character of distributions. The holding of the foreign currencies and investments by a Fund in certain "passive foreign investment companies" may be limited in order to avoid imposition of a tax on such Fund. Each Fund investing in foreign securities may be subject to foreign withholding taxes on income from its investments. In any year in which more than 50% in value of a Fund's total assets at the close of the taxable year consists of securities of foreign corporations, the Fund may elect to treat any foreign taxes paid by it as if they had been paid by its shareholders. The insurance company segregated asset accounts holding Fund shares should consider the impact of this election. 53 65 Holders of Contracts under which assets are invested in the Funds should refer to the prospectus for the Contracts for information regarding the tax aspects of ownership of such Contracts. Each Fund is treated as a separate association taxable as a corporation. Because each Fund intends to qualify under the Code as a RIC for each taxable year, each Fund must, among other things, meet the following requirements: A. Each Fund must generally derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities, foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies. B. Each Fund must diversify its holdings so that, at the end of each fiscal quarter or within 30 days thereafter: (i) at least 50% of the market value of the Fund's assets is represented by cash, cash items (including receivables), U.S. Government securities, securities of other RICs, and other securities, with such other securities limited, with respect to any one issuer, to an amount not greater than 5% of the Fund's assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities or securities of other RICs). The Code imposes a nondeductible 4% excise tax on a RIC that fails to distribute during each calendar year at least 98% of its ordinary income for the calendar year, at least 98% of its capital gain net income for the 12-month period ending on October 31 of the calendar year and certain other amounts. Each Fund intends to make sufficient distributions to avoid imposition of the excise tax. Some Funds meet an exception which results in their not being subject to excise tax. As a RIC, each Fund will not be subject to federal income tax on its income and gains distributed to shareholders if it distributes at least (i) 90% of its investment company taxable income for the taxable year; and (ii) 90% of the excess of its tax-exempt interest income under Code Section 103(a) over its deductions disallowed under Code Sections 265 and 171(a)(2). Each Fund intends to comply with the diversification requirements imposed by Section 817(h) of the Code and the regulations thereunder. These requirements, which are in addition to the diversification requirements imposed on each Fund by the 1940 Act and Subchapter M of the Code, place certain limitations on (i) the assets of the insurance company separate accounts that may be invested in securities of a single issuer and (ii) eligible investors. Because Section 817(h) and those regulations treat the assets of each Fund as assets of the corresponding division of the insurance company separate accounts, each Fund intends to comply with these diversification requirements. Specifically, the regulations provide that, except as permitted by the "safe harbor" described below, as of the end of each calendar quarter or within 30 days thereafter no more than 55% of a Fund's total assets may be represented by any one investment, no more than 70% by any two investments, no more than 80% by any three investments and no more than 90% by any four investments. For this purpose, all securities of the same issuer are considered a single investment, and while each U.S. Government agency and instrumentality is considered a separate issuer, a particular foreign government and its agencies, instrumentalities and political subdivisions all will be considered the same issuer. The regulations also provide that a Fund's shareholders are limited, generally, to life insurance company separate accounts, general accounts of the same life insurance company, an investment adviser or affiliate in connection with the creation or management of a Fund or the trustee of a qualified pension plan. Section 817(h) provides, as a safe harbor, that a separate account will be treated as being adequately diversified if the diversification requirements under Subchapter M are satisfied and no more than 55% of the value of the account's total assets are cash and cash items, government securities and securities of other RICs. Failure of a Fund to satisfy the Section 817(h) requirements would result in taxation of and treatment of the Contract holders investing in a corresponding division other than as described in the applicable prospectuses of the various insurance company separate accounts. 54 66 MISCELLANEOUS INFORMATION ORGANIZATION OF THE COMPANY The Company was organized on January 22, 1993 as a Maryland corporation, and is registered with the Securities and Exchange Commission as an open-end, series, management investment company. The Company currently consists of seventeen separate portfolios (i.e., the Funds). The authorized capital stock of the Company consists of 4,500,000,000 shares of common stock with a par value of $.001 per share, of which 250,000,000 shares are classified AIM V.I. AGGRESSIVE GROWTH FUND shares, 250,000,000 shares are classified AIM V.I. BALANCED FUND shares, 250,000,000 shares are classified AIM V.I. BLUE CHIP FUND shares, 250,000,000 shares are classified AIM V.I. CAPITAL APPRECIATION FUND shares, 250,000,000 shares are classified AIM V.I. CAPITAL DEVELOPMENT FUND shares, 250,000,000 shares are classified as the AIM V.I. DENT DEMOGRAPHIC TRENDS FUND shares, 250,000,000 shares are classified AIM V.I. DIVERSIFIED INCOME FUND shares, 250,000,000 shares are classified AIM V.I. GLOBAL GROWTH AND INCOME FUND shares, 250,000,000 shares are classified AIM V.I. GLOBAL UTILITIES FUND shares, 250,000,000 shares are classified AIM V.I. GOVERNMENT SECURITIES FUND shares, 250,000,000 are classified AIM V.I. GROWTH FUND shares, 250,000,000 shares are classified AIM V.I. GROWTH AND INCOME FUND shares, 250,000,000 shares are classified AIM V.I. HIGH YIELD FUND shares, 250,000,000 shares are classified AIM V.I. INTERNATIONAL EQUITY FUND shares, 250,000,000 shares are classified AIM V.I. MONEY MARKET FUND shares, 250,000,000 shares are classified AIM V.I. TELECOMMUNICATIONS FUND shares, 250,000,000 shares are classified AIM V.I. VALUE FUND shares, and the balance of which are unclassified. The shares of each Fund have equal rights with respect to voting, except that (i) the holders of shares of a particular Fund voting together will have the exclusive right to vote on matters (such as advisory fees) pertaining solely to that Fund, and (ii) the holders of shares of a particular Fund will have the exclusive right to vote on matters pertaining to distribution plans, if any such plans are adopted, relating solely to such Fund. Shareholders of the Funds do not have cumulative voting rights. The Company understands that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with the instructions received from Contract owners, annuitants and beneficiaries. Fund shares held by a registered separate account as to which no instructions have been received will be voted for or against any proposition, or in abstention, in the same proportion as the shares of that separate account as to which instructions have been received. Fund shares held by a registered separate account that are not attributable to Contracts will also be voted for or against any proposition in the same proportion as the shares for which voting instructions are received by that separate account. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. Under Maryland law and the Company's By-Laws, the Company need not hold an annual meeting of shareholders unless a meeting is required under the 1940 Act to elect directors. Shareholders may remove directors from office, and a meeting of shareholders may be called at the request of the holders of 10% or more of the Company's outstanding shares. There are not preemptive or conversion rights applicable to any of the Company's shares. Each Fund's shares, when issued, are fully paid and non-assessable. AUDIT REPORTS The Company furnishes semi-annual reports containing information about the Funds and their operations, including a list of the investments held in each Fund's portfolio and their respective financial statements. Financial statements, audited by independent auditors, will be issued annually. The firm of Tait, Weller & Baker, Eight Penn Center Plaza, Philadelphia, PA 19103, serves as the auditors of each Fund. 55 67 LEGAL MATTERS Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the Company on certain federal securities law matters. CUSTODIAN AND TRANSFER AGENT State Street Bank and Trust Company ("State Street"), 225 Franklin Street, Boston, MA 02110, is custodian of all securities and cash of the Funds. The custodian attends to the collection of principal and income, pays and collects all monies for securities bought and sold by the Portfolios, and performs certain other ministerial duties. State Street also acts as transfer and dividend disbursing agent for the Funds. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets. The Funds pay State Street such compensation as may be agreed upon from time to time. PRINCIPAL HOLDERS OF SECURITIES To the best of the knowledge of each Fund, the names of the record holders of 5% or more of the outstanding shares of the Fund as of September 22, 1999, and the percentage of the outstanding shares of such Fund owned by such shareholders as of such date are set out below. The address of A I M Advisors, Inc. is 11 Greenway Plaza, Suite 100, Houston, TX 77046. The address of Connecticut General Life Insurance Company is 900 Cottage Grove Road, Hartford, CT 06152-2321. The address of Glenbrook Life and Annuity Company is 3100 Sanders Road, N4C, Northbrook, IL 60062. The address of IDS Life Insurance Company is IDS Tower 10, T27/52, Minneapolis, MN 55440. The address of Merrill Lynch Life Insurance Company is 800 Scudders Mill Road, Plainsboro, NJ 08536. The address of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey is Gateway Center Three, 13th Floor, Newark, NJ 07102. The address of First Citicorp Life Insurance Company is One Court Square, Long Island City, NY 11120. The address of Union Central Life Insurance Company is 1876 Waycross Road, Cincinnati, OH 45240. The address for Hartford Life Insurance Company is 200 Hopmeadow Street, Simsburg, CT 06089. The address of Security Life of Denver Insurance Company is 1290 Broadway, Denver, CO 80203. The address of Aetna Life Insurance and Annuity Company is 151 Farmington Avenue, Hartford, CT 06156. AIM V.I. AGGRESSIVE GROWTH FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Glenbrook Life & Annuity Company -0- -0- 100%*
- -------- * A shareholder who beneficially owns more than 25% of the voting securities of a Fund may be presumed to "control" the Fund. The Funds understand that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. 56 68 AIM V.I. BALANCED FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Glenbrook Life & Annuity Company -0- -0- 75.85%* Union Central Life Insurance Company -0- -0- 24.01%
AIM V.I. CAPITAL APPRECIATION FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 40.48%* Glenbrook Life & Annuity Company -0- -0- 19.84% Merrill Lynch Life Insurance Company -0- -0- 15.80% Aetna Life Insurance and Annuity Company -0- -0- 11.84%
AIM V.I. CAPITAL DEVELOPMENT FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Glenbrook Life & Annuity Company -0- -0- 89.75%* A I M Advisors, Inc. -0- -0- 10.09%
AIM V.I. DIVERSIFIED INCOME FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 58.10%* Glenbrook Life & Annuity Company -0- -0- 33.91%*
- -------- * A shareholder who beneficially owns more than 25% of the voting securities of a Fund may be presumed to "control" the Fund. The Funds understand that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. 57 69 AIM V.I. GLOBAL UTILITIES FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 50.06%* Glenbrook Life & Annuity Company -0- -0- 43.48%*
AIM V.I. GOVERNMENT SECURITIES FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 34.99%* Glenbrook Life & Annuity Company -0- -0- 25.34%* First Citicorp Life Insurance Company -0- -0- 22.62% Security Life of Denver Insurance Company -0- -0- 8.44%
AIM V.I. GROWTH FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 47.78%* Glenbrook Life & Annuity Company -0- -0- 26.40%* Aetna Life Insurance and Annuity Company -0- -0- 9.76%
- -------- * A shareholder who beneficially owns more than 25% of the voting securities of a Fund may be presumed to "control" the Fund. The Funds understand that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. 58 70 AIM V.I. GROWTH AND INCOME FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- IDS Life Insurance Company -0- -0- 62.06%* Glenbrook Life & Annuity Company -0- -0- 9.75% Connecticut General Life Insurance Company -0- -0- 9.21% Pruco Life Insurance Company -0- -0- 8.26%
AIM V.I. HIGH YIELD FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Glenbrook Life & Annuity Company -0- -0- 53.92%* Hartford Life Insurance Company -0- -0- 33.38%* A I M Advisors, Inc. -0- -0- 12.70%
AIM V.I. INTERNATIONAL EQUITY FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 53.10%* Glenbrook Life & Annuity Company -0- -0- 22.93% First Citicorp Life Insurance Company -0- -0- 6.75%
- -------- * A shareholder who beneficially owns more than 25% of the voting securities of a Fund may be presumed to "control" the Fund. The Funds understand that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. 59 71 AIM V.I. MONEY MARKET FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 66.74%* Glenbrook Life & Annuity Company -0- -0- 31.32%*
AIM V.I. VALUE FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY ------------ ---------------- ------------- -------------- Connecticut General Life Insurance Company -0- -0- 26.60%* Merrill Lynch Life Insurance Company -0- -0- 25.94%* Pruco Life Insurance Company of New Jersey -0- -0- 14.34% Glenbrook Life & Annuity Company -0- -0- 12.49%
A I M Advisors, Inc. provided the initial capitalization of the AIM V.I. Blue Chip Fund, the AIM V.I. Dent Demographic Trends Fund, the AIM V.I. Global Growth and Income Fund and the AIM V.I. Telecommunications Fund and, accordingly, as of the date of this Statement of Additional Information, owned all the outstanding shares of common stock of the Funds. Although the Funds expect that the sale of its shares to the public pursuant to the Prospectus will promptly reduce the percentage of such shares owned by A I M Advisors, Inc. to less than 1% of the total shares outstanding, as long as A I M Advisors, Inc. owns over 25% of the shares of the Fund that are outstanding, it may be presumed to be in "control" of the Fund, as defined in the 1940 Act. - -------- * A shareholder who beneficially owns more than 25% of the voting securities of a Fund may be presumed to "control" the Fund. The Funds understand that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. As of September 22, 1999, the directors and officers of the Company as a group owned beneficially less than 1% of the outstanding shares of the Company. OTHER INFORMATION The Prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement which the Funds have filed with the SEC under the Securities Act of 1933 and reference is hereby made to the Registration Statement for further information with respect to the Funds and the securities offered hereby. The Registration Statement is available for inspection by the public at the SEC in Washington, D.C. 60 72 APPENDIX A ----------------------------------------------------------------------------- DESCRIPTION OF CORPORATE BOND RATINGS Investment grade debt securities are those rating categories indicated by an asterisk (*). Moody's Investors Service, Inc.'s corporate bond ratings are as follows: *Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. *Aa -- Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. *A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. *Baa -- Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Standard and Poor's Ratings Services classifications are as follows: A-1 73 *AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. *AA -- Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. *A -- Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. *BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher categories. BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "C" the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB -- Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB --" rating. B -- Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely Impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB --" rating. CCC -- Debt rated "CCC" has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it's not likely to have the capacity to pay interest and repay principal. The "CCC" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "B" or "B --" rating. CC -- The rating "CC" is typically applied to debt subordinated to senior debt that is assigned an actual or implied "CCC" rating. C -- The rating "C" is typically applied to debt subordinated to senior debt which is assigned an actual or implied "CCC--" debt rating. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. C1 -- The rating "C1" is reserved for income bonds on which no interest is being paid. D -- Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus (-): The rating from "AA" to "CCC" maybe modified by the addition of a plus or minus sign to show relative standing within the major categories. Duff & Phelps fixed-income ratings are as follows: A-2 74 *AAA -- Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. *AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. *A+, A, A- -- Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress. *BBB+, BBB, BBB- -- Below average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles. BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+, B, B- -- Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in quality rating within this category or into a higher or lower quality rating grade. CCC -- Well below investment grade securities. May be in default or have considerable uncertainty as to timely payment of Interest, preferred dividends and/or principal. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. Fitch IBCA Inc.'s bond ratings are as follows: *AAA -- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. *AA -- Bonds considered to be Investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+". *A -- Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. *BBB -- Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB -- Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B -- Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC -- Bonds have certain Identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. A-3 75 CC -- Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C -- Bonds are in imminent default in payment of interest or principal. DDD, DD, and D -- Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA", "DDD", "DD", or "D" categories. A-4 76 APPENDIX B ----------------------------------------------------------------------------- DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES The following list includes certain common Agency Securities, as defined In the Prospectus, and does not purport to be exhaustive. EXPORT-IMPORT BANK CERTIFICATES -- are certificates of beneficial interest and participation certificates issued and guaranteed by the Export-Import Bank of the United States. FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS -- are bonds issued by a cooperatively owned, nationwide system of banks and associations supervised by the Farm Credit Administration, an independent agency of the U.S. Government. FEDERAL HOME LOAN BANK NOTES AND BONDS -- are notes and bonds issued by the Federal Home Loan Bank System. FHA DEBENTURES -- are debentures issued by the Federal Housing Authority of the U.S. Government. FHA INSURED NOTES -- are bonds issued by the Farmers Home Administration of the U.S. Government. FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS -- are bonds issued and guaranteed by FHLMC, a corporate instrumentality of the U.S. Government. The Federal Home Loan Banks own all the capital stock of FHLMC, which obtains its funds by selling mortgages (as well as participation interests in the mortgages) and by borrowing funds through the issuance of debentures and otherwise. FHLMC PARTICIPATION CERTIFICATES OR "FREDDIE MACS" -- represent undivided interests in specified groups of conventional mortgage loans (and/or participation interests in those loans) underwritten and owned by FHLMC. At least 95% of the aggregate principal balance of the whole mortgage loans and/or participations in a group formed by FHLMC typically consists of single-family mortgage loans, and not more than 5% consists of multi-family loans. FHLMC Participation Certificates are not guaranteed by, and do not constitute a debt or obligation of, the U.S. Government or any Federal Home Loan Bank. FHLMC Participation Certificates are issued in fully registered form only, in original unpaid principal balances of $25,000, $100,000, $200,000, $500,000, $1 million and $5 million. FHLMC guarantees to each registered holder of a Participation Certificate, to the extent of such holder's pro rata share (i) the timely payment of interest accruing at the applicable certificate rate on the unpaid principal balance outstanding on the mortgage loans, and (ii) collection of all principal on the mortgage loans without any offset or deductions. Pursuant to these guaranties, FHLMC indemnifies holders of Participation Certificates against any reduction in principal by reason of charges for property repairs, maintenance, and foreclosure. FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS -- are bonds issued and guaranteed by FNMA, a federally chartered and privately-owned corporation. FNMA PASS-THROUGH CERTIFICATES OR "FANNIE MAES" -- are mortgage pass-through certificates issued and guaranteed by FNMA. FNMA Certificates represent a fractional undivided ownership interest in a pool of mortgage loans either provided from FNMA's own portfolio or purchased from primary lenders. The mortgage loans included in the pool are conventional, insured by the Federal Housing Administration or guaranteed by the Veterans Administration. FNMA Certificates are not backed by, nor entitled to, the full faith and credit of the U.S. Government. Loans not provided from FNMA's own portfolio are purchased only from primary lenders that satisfy certain criteria developed by FNMA, including depth of mortgage origination experience, servicing experience and financial capacity. FNMA may purchase an entire loan pool from a single lender, and issue Certificates backed by that loan pool alone, or may package a pool made up of loans purchased from various lenders. B-1 77 Various types of mortgage loans, and loans with varying interest rates, may be included in a single pool, although each pool will consist of mortgage loans related to one-family or two-to-four family residential properties. Substantially all FNMA mortgage pools currently consist of fixed interest rate and growing equity mortgage loans, although FNMA mortgage pools may also consist of adjustable interest rate mortgage loans or other types of mortgage loans. Each mortgage loan must conform to FNMA's published requirements or guidelines with respect to maximum principal amount, loan-to-value ratio, loan term, underwriting standards and insurance coverage. All mortgage loans are held by FNMA as trustee pursuant to a trust indenture for the benefit of Certificate holders. The trust indenture gives FNMA responsibility for servicing and administering the loans in a pool. FNMA contracts with the lenders or other servicing institutions to perform all services and duties customary to the servicing of mortgages, as well as duties specifically prescribed by FNMA, all under FNMA supervision. FNMA may remove service providers for cause. The pass-through rate on FNMA Certificates is the lowest annual interest rate borne by an underlying mortgage loan in the pool, less a fee to FNMA as compensation for servicing and for FNMA's guarantee lenders servicing the underlying mortgage loans receive as compensation a portion of the fee paid to FNMA, the excess yields on pooled loans with coupon rates above the lowest rate borne by any mortgage loan in the pool and certain other amounts collected, such as late charges. The minimum size of a FNMA pool is $1 million of mortgage loans. Registered holders purchase Certificates in amounts not less than $25,000. FNMA Certificates are marketed by the servicing lender banks, usually through securities dealers. The lender of a single lender pool typically markets all Certificates based on that pool, and lenders of multiple lender pools market Certificates based on a pro rata interest in the aggregate pool. The amount of FNMA Certificates currently outstanding is limited. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR "GINNIE MAES" -- are mortgage-backed securities which represent a partial ownership interest in a pool of mortgage loans issued by lenders such as mortgage bankers, commercial banks and savings and loan associations. Each mortgage loan included in the pool is either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. A "pool" or group of such mortgages is assembled, and, after being approved by GNMA, is offered to investors through securities dealers. GNMA is a U.S. Government corporation within the Department of Housing and Urban Development. GNMA Certificates differ from bonds in that the principal is paid back monthly by the borrower over the term of the loan rather than returned in a lump sum at maturity. GNMA Certificates are called "modified pass-through" securities because they entitle the holder to receive its proportionate share of all interest and principal payments owed on the mortgage pool, net of fees paid to the issuer and GNMA, regardless of whether or not the mortgagor actually makes the payment. Payment of principal of and interest on GNMA Certificates of the "modified pass-through" type is guaranteed by GNMA and backed by the full faith and credit of the U.S. Government. The average life of a GNMA Certificate is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return on the greater part of principal invested far in advance of the maturity of the mortgages in the pool. Foreclosures impose little risk to principal investment because of the GNMA guarantee. As the prepayment rates of individual mortgage pools will vary widely, it is not possible to accurately predict the average life of a particular issue of GNMA Certificates. However, statistics published by the FHA indicate that the average life of a single family dwelling mortgage with 25- to 30-year maturity, the type of mortgage which backs the vast majority of GNMA Certificates, is approximately 12 years. It is therefore customary practice to treat GNMA Certificates as 30-year mortgage-backed securities which prepay fully in the twelfth year. B-2 78 As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates, the coupon rate of interest of GNMA Certificates is lower than the interest paid on the VA-guaranteed or FHA-insured mortgages underlying the Certificates. The yield which will be earned on GNMA Certificates may vary from their coupon rates for the following reasons: (i) Certificates may be issued at a premium or discount, rather than at par; (ii) Certificates may trade in the secondary market at a premium or discount after issuance; (iii) interest is earned and compounded monthly which has the effect of raising the effective yield earned on the Certificates; and (iv) the actual yield of each Certificate is affected by the prepayment of mortgages included in the mortgage pool underlying the Certificates and the rate at which principal so prepaid is reinvested. In addition, prepayment of mortgages included in the mortgage pool underlying a GNMA Certificate purchased at a premium may result in a loss to the Fund. Due to the large amount of GNMA Certificates outstanding and active participation in the secondary market by securities dealers and investors, GNMA Certificates are highly liquid instruments. Prices of GNMA Certificates are readily available from securities dealers and depend on, among other things, the level of market rates, the Certificate's coupon rate and the prepayment experience of the pool of mortgages backing each Certificate. GENERAL SERVICES ADMINISTRATION ("GSA") PARTICIPATION CERTIFICATES -- are participation certificates issued by the General Services Administration of the U.S. Government. MARITIME ADMINISTRATION BONDS -- are bonds issued and provided by the Department of Transportation of the U.S. Government. NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the provisions of Title IV of the Housing and Urban Development Act of 1968, as supplemented and extended by Title VII of the Housing and Urban Development Act of 1970, the payment of which is guaranteed by the U.S. Government. PUBLIC HOUSING NOTES AND BONDS -- are short-term project notes and long-term bonds issued by public housing and urban renewal agencies in connection with programs administered by the Department of Housing and Urban Development of the U.S. Government, the payment of which is secured by the U.S. Government. SBA DEBENTURES -- are debentures fully guaranteed as to principal and interest by the Small Business Administration of the U.S. Government. SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing Association. TITLE XI BONDS -- are bonds issued in accordance with the provisions of Title XI of the Merchant Marine Act of 1936, as amended, the payment of which is guaranteed by the U.S. Government. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by the Washington Metropolitan Area Transit Authority and are guaranteed by the Secretary of Transportation of the U.S. Government. B-3 79 APPENDIX C ------------------------------------------------------------------------------ DESCRIPTION OF MONEY MARKET OBLIGATIONS The following list does not purport to be an exhaustive list of all Money Market Obligations, and the Funds reserve the right to invest in Money Market Obligations other than those listed below: 1. GOVERNMENT OBLIGATIONS. U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes, and bonds issued by the U.S. Treasury. U.S. GOVERNMENT AGENCIES SECURITIES -- Certain federal agencies such as the Government National Mortgage Association have been established as instrumentalities of the U.S. Government to supervise and finance certain types of activities. Issues of these agencies, while not direct obligations of the U.S. Government, are either backed by the full faith and credit of the United States or are guaranteed by the Treasury or supported by the issuing agencies' right to borrow from the Treasury. FOREIGN GOVERNMENT OBLIGATIONS -- These are U.S. dollar denominated obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by the Fund's investment advisor to be of comparable quality to the other obligations in which the Fund may invest. Such securities also include debt obligations of supranational entities. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank. The percentage of the Fund's assets invested in securities Issued by foreign governments will vary depending on the relative yields of such securities, the economic and financial markets of the countries in which the investments are made and the interest rate climate of such countries. 2. BANK INSTRUMENTS. BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and accepted by a commercial bank. It is used by corporations to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument with a specific maturity. Certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market, prior to maturity. TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. EURODOLLAR OBLIGATIONS -- A Eurodollar obligation is a U.S. dollar-denominated obligation issued by a foreign branch of a domestic bank. YANKEE DOLLAR OBLIGATIONS -- A Yankee dollar obligation is a U.S. dollar-denominated obligation issued by a domestic branch of a foreign bank. 3. COMMERCIAL INSTRUMENTS. COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory notes issued by corporations and other entities. Maturities on these issues vary from a few days to nine months. C-1 80 VARIABLE RATE MASTER DEMAND NOTES -- Variable rate master demand notes are unsecured demand notes that permit Investment of fluctuating amounts of money at variable rates of interest pursuant to arrangements with issuers who meet the foregoing quality criteria as discussed in the Statement of Additional Information under "Investment Programs." The interest rate on a variable rate master demand note is periodically redetermined according to a prescribed formula. Although there is no secondary market in master demand notes, the payee may demand payment of the principal amount of the note on relatively short notice. All variable rate master demand notes acquired by the Money Market Fund will be payable within a prescribed notice period not to exceed seven days. 4. REPURCHASE AGREEMENTS. A repurchase agreement is a contractual undertaking whereby the seller of securities (limited to U.S. Government securities, including securities issued or guaranteed by the U.S. Treasury or the various agencies and instrumentalities of the U.S. Government) agrees to repurchase the securities at a specified price on a future date determined by negotiations. 5. TAXABLE MUNICIPAL SECURITIES. Taxable municipal securities are debt securities issued by or on behalf of states and their political subdivisions, the District of Columbia, and possessions of the United States, the interest on which is not exempt from federal income tax. C-2 81 FINANCIAL STATEMENTS FS 82 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 88.49% AIR FREIGHT - 0.35% Expeditors International of Washington, Inc. 1,000 $ 27,250 - --------------------------------------------------------------------- AIRLINES - 0.11% Alaska Air Group, Inc.(a) 200 8,350 - --------------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 1.20% Gentex Corp.(a) 1,500 42,000 - --------------------------------------------------------------------- Meritor Automotive, Inc. 1,200 30,600 - --------------------------------------------------------------------- Tower Automotive, Inc.(a) 800 20,350 - --------------------------------------------------------------------- 92,950 - --------------------------------------------------------------------- BANKS (REGIONAL) - 2.30% Bank United Corp. - Class A 1,000 40,187 - --------------------------------------------------------------------- Community First Bankshares, Inc. 1,500 35,812 - --------------------------------------------------------------------- First Republic Bank(a) 900 26,044 - --------------------------------------------------------------------- Southwest Bancorporation of Texas, Inc.(a) 2,300 41,400 - --------------------------------------------------------------------- Trustmark Corp. 1,500 34,312 - --------------------------------------------------------------------- 177,755 - --------------------------------------------------------------------- BIOTECHNOLOGY - 0.18% IDEXX Laboratories, Inc.(a) 600 13,987 - --------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 1.46% Hispanic Broadcasting Corp.(a) 1,300 98,637 - --------------------------------------------------------------------- Radio One, Inc.(a) 300 13,950 - --------------------------------------------------------------------- 112,587 - --------------------------------------------------------------------- BUILDING MATERIALS - 1.04% Elcor Corp. 900 39,319 - --------------------------------------------------------------------- NCI Building Systems, Inc.(a) 600 12,825 - --------------------------------------------------------------------- Simpson Manufacturing Co., Inc.(a) 600 28,500 - --------------------------------------------------------------------- 80,644 - --------------------------------------------------------------------- CHEMICALS (SPECIALTY) - 0.54% OM Group, Inc. 1,200 41,400 - --------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 5.05% Adtran, Inc.(a) 1,100 40,012 - --------------------------------------------------------------------- ANTEC Corp.(a) 900 28,856 - --------------------------------------------------------------------- Comverse Technology, Inc.(a) 1,150 86,825 - --------------------------------------------------------------------- Dycom Industries, Inc.(a) 900 50,400 - --------------------------------------------------------------------- Harmonic, Inc.(a) 1,000 57,437 - --------------------------------------------------------------------- Polycom, Inc.(a) 200 7,800 - --------------------------------------------------------------------- Proxim, Inc.(a) 900 52,200 - --------------------------------------------------------------------- Uniphase Corp.(a) 400 66,400 - --------------------------------------------------------------------- 389,930 - ---------------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (HARDWARE) - 1.51% Genesis Microchip, Inc.(a) 1,100 $ 25,987 - -------------------------------------------------------------------- National Instruments Corp.(a) 1,300 52,487 - -------------------------------------------------------------------- Visual Networks, Inc.(a) 1,200 38,400 - -------------------------------------------------------------------- 116,874 - -------------------------------------------------------------------- COMPUTERS (NETWORKING) - 1.70% Emulex Corp.(a) 700 77,831 - -------------------------------------------------------------------- International Network Services(a) 900 36,337 - -------------------------------------------------------------------- VeriSign, Inc.(a) 200 17,250 - -------------------------------------------------------------------- 131,418 - -------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 3.81% Cybex Computer Products Corp.(a) 1,100 30,662 - -------------------------------------------------------------------- DSP Communications, Inc.(a) 1,500 43,312 - -------------------------------------------------------------------- Jabil Circuit, Inc.(a) 900 40,612 - -------------------------------------------------------------------- Network Applicance, Inc.(a) 400 22,350 - -------------------------------------------------------------------- QLogic Corp.(a) 600 79,200 - -------------------------------------------------------------------- SanDisk Corp.(a) 1,200 54,000 - -------------------------------------------------------------------- Xircom, Inc.(a) 800 24,050 - -------------------------------------------------------------------- 294,186 - -------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 8.64% American Management Systems, Inc.(a) 500 16,031 - -------------------------------------------------------------------- Analytical Surveys, Inc.(a) 400 9,950 - -------------------------------------------------------------------- AVT Corp.(a) 900 34,087 - -------------------------------------------------------------------- Citrix Systems, Inc.(a) 1,000 56,500 - -------------------------------------------------------------------- Concord Communications, Inc.(a) 300 13,500 - -------------------------------------------------------------------- Electronics for Imaging, Inc.(a) 1,200 61,650 - -------------------------------------------------------------------- Gemstar International Group Ltd.(a) 900 58,725 - -------------------------------------------------------------------- InfoCure Corp.(a) 500 26,469 - -------------------------------------------------------------------- ISS Group, Inc.(a) 400 15,100 - -------------------------------------------------------------------- Jack Henry & Associates 400 15,700 - -------------------------------------------------------------------- Macromedia, Inc.(a) 700 24,675 - -------------------------------------------------------------------- Medical Manager Corp.(a) 900 39,825 - -------------------------------------------------------------------- Mercury Interactive Corp.(a) 900 31,837 - -------------------------------------------------------------------- Micromuse, Inc.(a) 500 24,937 - -------------------------------------------------------------------- Peregrine Systems, Inc.(a) 300 7,706 - -------------------------------------------------------------------- QRS Corp.(a) 300 23,400 - -------------------------------------------------------------------- Rational Software Corp.(a) 1,700 55,994 - -------------------------------------------------------------------- ScanSource, Inc.(a) 500 10,812 - -------------------------------------------------------------------- Transaction Systems Architects, Inc.-Class A(a) 600 23,400 - -------------------------------------------------------------------- USWeb Corp.(a) 1,500 33,281 - --------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-1 83
MARKET SHARES VALUE COMPUTERS (SOFTWARE & SERVICES) - CONTINUED Veritas Software Corp.(a) 650 $ 61,709 - ------------------------------------------------------------------ Verity, Inc.(a) 400 21,675 - ------------------------------------------------------------------ 666,963 - ------------------------------------------------------------------ CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.78% Action Performance Companies, Inc.(a) 500 16,500 - ------------------------------------------------------------------ Fossil, Inc.(a) 900 43,537 - ------------------------------------------------------------------ 60,037 - ------------------------------------------------------------------ CONSUMER FINANCE - 0.50% AmeriCredit Corp.(a) 1,000 16,000 - ------------------------------------------------------------------ Doral Financial Corp. 1,300 22,425 - ------------------------------------------------------------------ 38,425 - ------------------------------------------------------------------ DISTRIBUTORS (FOOD & HEALTH) - 0.40% Patterson Dental Co.(a) 900 31,275 - ------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 3.18% CommScope, Inc.(a) 1,000 30,750 - ------------------------------------------------------------------ Cree Research, Inc.(a) 700 53,856 - ------------------------------------------------------------------ Electro Scientific Industries, Inc.(a) 100 4,178 - ------------------------------------------------------------------ Oak Industries, Inc.(a) 800 34,950 - ------------------------------------------------------------------ Pinnacle Systems, Inc.(a) 1,300 43,712 - ------------------------------------------------------------------ Sammina Corp.(a) 600 45,525 - ------------------------------------------------------------------ Sawtek, Inc.(a) 600 27,525 - ------------------------------------------------------------------ SLI, Inc.(a) 200 5,400 - ------------------------------------------------------------------ 245,896 - ------------------------------------------------------------------ ELECTRONICS (DEFENSE) - 0.56% Aeroflex, Inc.(a) 2,200 43,450 - ------------------------------------------------------------------ ELECTRONICS (INSTRUMENTATION) - 2.40% Alpha Industries, Inc.(a) 2,550 121,444 - ------------------------------------------------------------------ Waters Corp.(a) 1,200 63,750 - ------------------------------------------------------------------ 185,194 - ------------------------------------------------------------------ ELECTRONICS (SEMICONDUCTORS) - 7.57% American Xtal Technology, Inc.(a) 600 14,288 - ------------------------------------------------------------------ ANADIGICS, Inc.(a) 1,100 40,700 - ------------------------------------------------------------------ Apex PC Solutions, Inc.(a) 650 13,325 - ------------------------------------------------------------------ Applied Micro Circuits Corp.(a) 900 74,025 - ------------------------------------------------------------------ Burr-Brown Corp.(a) 500 18,312 - ------------------------------------------------------------------ Dallas Semiconductor Corp. 500 25,250 - ------------------------------------------------------------------ Flextronics International, Ltd.(a) 700 38,850 - ------------------------------------------------------------------ Micrel, Inc.(a) 500 37,000 - ------------------------------------------------------------------ Microchip Technology, Inc.(a) 1,500 71,062 - ------------------------------------------------------------------ PMC-Sierra, Inc.(a) 800 47,150 - ------------------------------------------------------------------ SDL, Inc.(a) 900 45,956 - ------------------------------------------------------------------ Semtech Corp.(a) 900 46,912 - ------------------------------------------------------------------ TranSwitch Corp.(a) 600 28,425 - ------------------------------------------------------------------ Unitrode Corp.(a) 1,500 43,031 - ------------------------------------------------------------------ Vitesse Semiconductor Corp.(a) 600 40,463 - ------------------------------------------------------------------ 584,749 - ------------------------------------------------------------------
MARKET SHARES VALUE ENTERTAINMENT - 0.75% SFX Entertainment, Inc.-Class A(a) 900 $ 57,600 - ------------------------------------------------------------------ EQUIPMENT (SEMICONDUCTOR) - 1.73% Advanced Energy Industries, Inc.(a) 800 32,450 - ------------------------------------------------------------------ Asyst Technologies, Inc.(a) 900 26,944 - ------------------------------------------------------------------ Brooks Automation, Inc.(a) 400 10,825 - ------------------------------------------------------------------ Credence Systems Corp.(a) 700 25,988 - ------------------------------------------------------------------ Etec Systems, Inc.(a) 500 16,625 - ------------------------------------------------------------------ Novellus Systems, Inc.(a) 300 20,475 - ------------------------------------------------------------------ 133,307 - ------------------------------------------------------------------ FINANCIAL (DIVERSIFIED) - 0.75% NCO Group, Inc.(a) 600 22,800 - ------------------------------------------------------------------ SEI Investments Co. 400 35,300 - ------------------------------------------------------------------ 58,100 - ------------------------------------------------------------------ FOODS - 0.42% Hain Food Group, Inc. (The)(a) 1,200 24,750 - ------------------------------------------------------------------ United Natural Foods, Inc.(a) 300 7,425 - ------------------------------------------------------------------ 32,175 - ------------------------------------------------------------------ FOOTWEAR - 0.36% K-Swiss, Inc. 600 27,900 - ------------------------------------------------------------------ GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.40% Station Casinos, Inc.(a) 1,500 30,563 - ------------------------------------------------------------------ HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.09% Alpharma, Inc.-Class A 1,500 53,344 - ------------------------------------------------------------------ Medicis Pharmaceutical Corp.-Class A(a) 1,200 30,450 - ------------------------------------------------------------------ 83,794 - ------------------------------------------------------------------ HEALTH CARE (HOSPITAL MANAGEMENT) - 0.87% Health Management Associates, Inc.-Class A(a) 1,500 16,875 - ------------------------------------------------------------------ Province Healthcare Co.(a) 1,100 21,450 - ------------------------------------------------------------------ Universal Health Services, Inc.-Class B(a) 600 28,650 - ------------------------------------------------------------------ 66,975 - ------------------------------------------------------------------ HEALTH CARE (MANAGED CARE) - 0.55% Express Scripts, Inc.-Class A(a) 700 42,131 - ------------------------------------------------------------------ HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.12% Henry Schein, Inc.(a) 1,000 31,688 - ------------------------------------------------------------------ MiniMed, Inc.(a) 500 38,469 - ------------------------------------------------------------------ Osteotech, Inc.(a) 1,750 50,313 - ------------------------------------------------------------------ ResMed, Inc.(a) 800 26,550 - ------------------------------------------------------------------ Sybron International Corp.(a) 1,500 41,344 - ------------------------------------------------------------------ Syncor International Corp.(a) 500 18,000 - ------------------------------------------------------------------ VISX, Inc.(a) 700 55,431 - ------------------------------------------------------------------ Xomed Surgical Products, Inc.(a) 1,150 55,991 - ------------------------------------------------------------------ 317,786 - ------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-2 84
MARKET SHARES VALUE HEALTH CARE (SPECIALIZED SERVICES) - 1.88% Advance Paradigm, Inc.(a) 700 $ 42,700 - ----------------------------------------------------------------- Capital Senior Living Group(a) 800 8,000 - ----------------------------------------------------------------- Hooper Holmes, Inc. 1,800 36,675 - ----------------------------------------------------------------- OEC Medical Systems, Inc.(a) 400 9,800 - ----------------------------------------------------------------- Renal Care Group, Inc.(a) 900 23,288 - ----------------------------------------------------------------- Res-Care, Inc.(a) 200 4,550 - ----------------------------------------------------------------- Veterinary Centers of America, Inc.(a) 1,500 20,344 - ----------------------------------------------------------------- 145,357 - ----------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.80% FPIC Insurance Group, Inc.(a) 900 43,650 - ----------------------------------------------------------------- HCC Insurance Holdings, Inc. 800 18,150 - ----------------------------------------------------------------- 61,800 - ----------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.63% Hambrecht & Quist Group(a) 1,300 48,263 - ----------------------------------------------------------------- INVESTMENT MANAGEMENT - 1.27% Affiliated Managers Group, Inc.(a) 100 3,019 - ----------------------------------------------------------------- Eaton Vance Corp. 1,000 34,438 - ----------------------------------------------------------------- Knight/Trimark Group, Inc.-Class A(a) 1,000 60,313 - ----------------------------------------------------------------- 97,770 - ----------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 0.21% International Speedway Corp.-Class A 100 4,750 - ----------------------------------------------------------------- Speedway Motorsports, Inc.(a) 300 11,794 - ----------------------------------------------------------------- 16,544 - ----------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.25% Spartech Corp. 600 18,975 - ----------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.32% Astec Industries, Inc.(a) 600 24,450 - ----------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES - 0.35% Daisytek International Corp.(a) 1,649 26,899 - ----------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.75% Cal Dive International, Inc.(a) 600 17,925 - ----------------------------------------------------------------- Global Industries Ltd.(a) 1,700 21,781 - ----------------------------------------------------------------- Maverick Tube Corp.(a) 1,300 18,119 - ----------------------------------------------------------------- 57,825 - ----------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.70% Cabot Oil & Gas Corp.-Class A 600 11,175 - ----------------------------------------------------------------- Evergreen Resources, Inc.(a) 1,200 30,225 - ----------------------------------------------------------------- Stone Energy Corp.(a) 300 12,713 - ----------------------------------------------------------------- 54,113 - ----------------------------------------------------------------- PERSONAL CARE - 0.47% Steiner Leisure Ltd.(a) 1,200 36,375 - -----------------------------------------------------------------
MARKET SHARES VALUE PUBLISHING - 0.37% IDG Books Worldwide, Inc.-Class A(a) 1,200 $ 21,900 - ------------------------------------------------------------------ Meredith Corp. 200 6,925 - ------------------------------------------------------------------ 28,825 - ------------------------------------------------------------------ RAILROADS - 0.52% MotivePower Industries, Inc.(a) 2,150 39,775 - ------------------------------------------------------------------ RESTAURANTS - 1.72% CEC Entertainment, Inc.(a) 1,400 59,150 - ------------------------------------------------------------------ Foodmaker, Inc.(a) 1,100 31,213 - ------------------------------------------------------------------ Papa John's International, Inc.(a) 300 13,406 - ------------------------------------------------------------------ Sonic Corp.(a) 900 29,363 - ------------------------------------------------------------------ 133,132 - ------------------------------------------------------------------ RETAIL (BUILDING SUPPLIES) - 0.27% Fastenal Co. 400 20,975 - ------------------------------------------------------------------ RETAIL (COMPUTERS & ELECTRONICS) - 0.85% CDW Computer Centers, Inc.(a) 1,500 66,000 - ------------------------------------------------------------------ RETAIL (DISCOUNTERS) - 0.97% 99 Cents Only Stores(a) 575 28,714 - ------------------------------------------------------------------ Dollar Tree Stores, Inc.(a) 450 19,800 - ------------------------------------------------------------------ Family Dollar Stores, Inc. 1,100 26,400 - ------------------------------------------------------------------ 74,914 - ------------------------------------------------------------------ RETAIL (FOOD CHAINS) - 0.24% Wild Oats Markets, Inc.(a) 600 18,206 - ------------------------------------------------------------------ RETAIL (SPECIALTY) - 4.27% Cheap Tickets, Inc.(a) 100 3,650 - ------------------------------------------------------------------ Claire's Stores, Inc. 1,600 41,000 - ------------------------------------------------------------------ Cost Plus, Inc.(a) 950 43,225 - ------------------------------------------------------------------ Footstar, Inc.(a) 1,200 44,625 - ------------------------------------------------------------------ Hibbett Sporting Goods, Inc.(a) 1,200 26,400 - ------------------------------------------------------------------ Linens 'N Things, Inc.(a) 1,000 43,750 - ------------------------------------------------------------------ O'Reilly Automotive, Inc.(a) 1,200 60,450 - ------------------------------------------------------------------ Rent-A-Center, Inc.(a) 1,100 26,400 - ------------------------------------------------------------------ Rent-Way, Inc.(a) 700 17,238 - ------------------------------------------------------------------ Tuesday Morning Corp.(a) 900 22,950 - ------------------------------------------------------------------ 329,688 - ------------------------------------------------------------------ RETAIL (SPECIALTY - APPAREL) - 4.70% Abercrombie & Fitch Co.-Class A(a) 1,276 61,248 - ------------------------------------------------------------------ American Eagle Outfitters, Inc.(a) 1,500 68,250 - ------------------------------------------------------------------ AnnTaylor Stores Corp.(a) 1,300 58,500 - ------------------------------------------------------------------ Buckle, Inc. (The)(a) 850 24,438 - ------------------------------------------------------------------ Children's Place Retail Stores, Inc. (The)(a) 800 32,400 - ------------------------------------------------------------------ Men's Wearhouse, Inc. (The)(a) 2,133 54,392 - ------------------------------------------------------------------ Pacific Sunwear of California(a) 1,800 43,875 - ------------------------------------------------------------------ Wet Seal, Inc.-Class A(a) 700 20,038 - ------------------------------------------------------------------ 363,141 - ------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-3 85
MARKET SHARES VALUE SAVINGS & LOAN COMPANIES - 0.21% Queens County Bancorp, Inc. 500 $ 16,188 - ------------------------------------------------------------------ SERVICES (ADVERTISING/MARKETING) - 1.45% Acxiom Corp.(a) 1,100 27,431 - ------------------------------------------------------------------ Forrester Research, Inc.(a) 800 20,000 - ------------------------------------------------------------------ Metris Companies, Inc. 1,200 48,900 - ------------------------------------------------------------------ TMP Worldwide, Inc.(a) 250 15,875 - ------------------------------------------------------------------ 112,206 - ------------------------------------------------------------------ SERVICES (COMMERCIAL & CONSUMER) - 1.68% Bright Horizons Family Solutions, Inc.(a) 600 11,325 - ------------------------------------------------------------------ Cerner Corp.(a) 800 16,775 - ------------------------------------------------------------------ Championship Auto Racing Teams, Inc.(a) 200 5,988 - ------------------------------------------------------------------ Copart, Inc.(a) 900 19,125 - ------------------------------------------------------------------ G & K Services, Inc.-Class A 300 15,713 - ------------------------------------------------------------------ Iron Mountain, Inc.(a) 300 8,588 - ------------------------------------------------------------------ Metzler Group, Inc.(a) 400 11,050 - ------------------------------------------------------------------ Provant, Inc.(a) 500 7,781 - ------------------------------------------------------------------ Regis Corp. 1,750 33,579 - ------------------------------------------------------------------ 129,924 - ------------------------------------------------------------------ SERVICES (COMPUTER SYSTEMS) - 1.76% Critical Path, Inc.(a) 100 5,531 - ------------------------------------------------------------------ Insight Enterprises, Inc.(a) 2,050 50,738 - ------------------------------------------------------------------ Safeguard Scientifics, Inc.(a) 300 18,600 - ------------------------------------------------------------------ SunGard Data Systems, Inc.(a) 600 20,700 - ------------------------------------------------------------------ Sykes Enterprises, Inc.(a) 1,200 40,050 - ------------------------------------------------------------------ 135,619 - ------------------------------------------------------------------ SERVICES (DATA PROCESSING) - 4.29% Affiliated Computer Services, Inc.-Class A(a) 900 45,563 - ------------------------------------------------------------------ CheckFree Holdings Corp.(a) 800 22,050 - ------------------------------------------------------------------ Concord EFS, Inc.(a) 1,400 59,238 - ------------------------------------------------------------------ CSG Systems International, Inc.(a) 1,500 39,281 - ------------------------------------------------------------------ FactSet Research Systems, Inc. 350 19,819 - ------------------------------------------------------------------ Lason Holdings, Inc.(a) 200 9,925 - ------------------------------------------------------------------ MedQuist, Inc.(a) 1,100 48,125 - ------------------------------------------------------------------ National Computer Systems, Inc. 1,400 47,250 - ------------------------------------------------------------------ NOVA Corp.(a) 1,614 40,350 - ------------------------------------------------------------------ 331,601 - ------------------------------------------------------------------ SERVICES (FACILITIES & ENVIRONMENTAL) - 0.42% Cornell Corrections, Inc.(a) 100 1,644 - ------------------------------------------------------------------ Tetra Tech, Inc.(a) 1,875 30,938 - ------------------------------------------------------------------ 32,582 - ------------------------------------------------------------------ SPECIALTY PRINTING - 0.43% Valassis Communications, Inc.(a) 900 32,962 - ------------------------------------------------------------------
MARKET SHARES VALUE TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.85% Amdocs Ltd.(a) 900 $ 20,475 - ----------------------------------------------------------------------------- Powerwave Technologies, Inc.(a) 1,400 45,150 - ----------------------------------------------------------------------------- 65,625 - ----------------------------------------------------------------------------- TEXTILES (APPAREL) - 0.46% Quicksilver, Inc.(a) 1,350 35,183 - ----------------------------------------------------------------------------- TEXTILES (HOME FURNISHINGS) - 0.47% Mohawk Industries, Inc.(a) 1,200 36,450 - ----------------------------------------------------------------------------- TRUCKERS - 0.61% M.S. Carriers, Inc.(a) 300 8,897 - ----------------------------------------------------------------------------- Swift Transportation Co., Inc.(a) 1,750 38,500 - ----------------------------------------------------------------------------- 47,397 - ----------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $5,290,053) 6,832,415 - ----------------------------------------------------------------------------- FOREIGN STOCKS & OTHER EQUITY INTERESTS - 2.64% CANADA - 0.61% Biovail Corporation International (Health Care-Hospital Management)(a) 500 25,531 - ----------------------------------------------------------------------------- Cinar Films Inc.-Class B (Entertainment)(a) 100 2,450 - ----------------------------------------------------------------------------- Ritchie Bros. Auctioneers Inc. (Services-Commercial & Consumer)(a) 500 19,063 - ----------------------------------------------------------------------------- 47,044 - ----------------------------------------------------------------------------- FRANCE - 0.24% Business Objects S.A.-ADR (Computers-Software & Services)(a) 500 18,250 - ----------------------------------------------------------------------------- IRELAND - 0.62% Ryanair Holdings PLC-ADR (Airlines)(a) 900 47,700 - ----------------------------------------------------------------------------- ISRAEL - 0.62% Check Point Technologies Ltd. (Computers-Software & Services)(a) 900 48,263 - ----------------------------------------------------------------------------- NETHERLANDS - 0.27% Core Laboratories N.V. (Oil & Gas-Drilling Equipment)(a) 1,500 20,906 - ----------------------------------------------------------------------------- UNITED KINGDOM - 0.28% Select Appointments Holdings PLC-ADR (Services- Employment)(a) 900 21,600 - ----------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $166,346) 203,763 - -----------------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-4 86
PRINCIPAL MARKET AMOUNT VALUE REPURCHASE AGREEMENT(b) - 7.73% Dean Witter Reynolds, Inc., 4.85%, 07/01/99 (Cost $597,100)(c) $597,100 $ 597,100 - ----------------------------------------------------------------- TOTAL INVESTMENTS - 98.86% 7,633,278 - ----------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 1.14% 87,843 - ----------------------------------------------------------------- NET ASSETS - 100.00% $7,721,121 =================================================================
Notes to Schedule of Investments: (a) Non-income producing security. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repuchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (c) Joint repurchase agreement entered into 06/30/99 with a maturing value of $100,013,472. Collateralized by U.S. Government obligations. Investment Abbreviation: ADR - American Depositary Receipt See Notes to Financial Statements. AIM V.I. AGGRESSIVE GROWTH F UND FS-5 87 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, market value (cost $6,053,499) $ 7,633,278 - --------------------------------------------------------------------- Receivables for: Capital stock sold 19,385 - --------------------------------------------------------------------- Investments sold 97,177 - --------------------------------------------------------------------- Dividends and interest 232 - --------------------------------------------------------------------- Reimbursement from advisor 7,791 - --------------------------------------------------------------------- Investment for deferred compensation plan 4,109 - --------------------------------------------------------------------- Total assets 7,761,972 - --------------------------------------------------------------------- LIABILITIES: Payables For: Investments purchased 21,528 - --------------------------------------------------------------------- Deferred compensation plan 4,109 - --------------------------------------------------------------------- Accrued directors' fees 1,850 - --------------------------------------------------------------------- Accrued operating expenses 13,364 - --------------------------------------------------------------------- Total liabilities 40,851 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $ 7,721,121 ===================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 725,342 ===================================================================== Net asset value, offering and redemption price per share $10.64 =====================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $ 25,887 - --------------------------------------------------------------------- Dividends 2,493 - --------------------------------------------------------------------- Total investment income 28,380 - --------------------------------------------------------------------- EXPENSES: Advisory fees 23,307 - --------------------------------------------------------------------- Administrative services fees 18,696 - --------------------------------------------------------------------- Custodian fees 19,445 - --------------------------------------------------------------------- Directors' fees and expenses 4,076 - --------------------------------------------------------------------- Professional fees 15,926 - --------------------------------------------------------------------- Other 2,802 - --------------------------------------------------------------------- Total expenses 84,252 - --------------------------------------------------------------------- Less: Fees waived and reimbursed by advisor (49,897) - --------------------------------------------------------------------- Expenses paid indirectly (71) - --------------------------------------------------------------------- Net expenses 34,284 - --------------------------------------------------------------------- Net investment income (loss) (5,904) - --------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities (250,107) - --------------------------------------------------------------------- Futures contracts 19,210 - --------------------------------------------------------------------- (230,897) - --------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 906,569 - --------------------------------------------------------------------- Futures contracts (15,300) - --------------------------------------------------------------------- 891,269 - --------------------------------------------------------------------- Net gain from investment securities and futures contracts 660,372 - --------------------------------------------------------------------- Net increase in net assets resulting from operations $ 654,468 =====================================================================
See Notes to Financial Statements. AIM V.I. AGGRESSIVE GROWTH FUND FS-6 88 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ---------- ------------ OPERATIONS: Net investment income (loss) $ (5,904) $ 15,665 - -------------------------------------------------------------------------------- Net realized gain (loss) from investment securities and futures contracts (230,897) (395,537) - -------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities and futures contracts 891,269 688,510 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 654,468 308,638 - -------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (22,273) - -------------------------------------------------------------------------------- Net increase from capital stock transactions 2,667,550 4,112,738 - -------------------------------------------------------------------------------- Net increase in net assets 3,322,018 4,399,103 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 4,399,103 -- - -------------------------------------------------------------------------------- End of period $7,721,121 $4,399,103 ================================================================================ NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $6,776,466 $4,108,916 - -------------------------------------------------------------------------------- Undistributed net investment income (loss) (8,690) (2,786) - -------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and futures contracts (626,434) (395,537) - -------------------------------------------------------------------------------- Unrealized appreciation of investment securities and futures contracts 1,579,779 688,510 - -------------------------------------------------------------------------------- $7,721,121 $4,399,103 ================================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Aggressive Growth Fund (the "Fund"). The Fund's investment objective is to achieve long-term growth of capital. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset AIM V.I. AGGRESSIVE GROWTH FUND FS-7 89 value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $354,222 as of December 31, 1998, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.80% of the first $150 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $150 million. During the six months ended June 30, 1999, AIM waived expenses of $23,307 and reimbursed expenses of $26,590. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $18,696 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,860 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $71 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $71 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended June 30, 1999 was $5,285,080 and $2,535,794, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $1,700,157 - ------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (125,042) ========================================================================= Net unrealized appreciation of investment securities $1,575,115 =========================================================================
Cost of investments for tax purposes is $6,058,163. AIM V.I. AGGRESSIVE GROWTH FUND FS-8 90 NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 -------------------- ------------------- SHARES AMOUNT SHARES AMOUNT -------- ---------- ------- ---------- Sold 569,447 $5,544,171 464,162 $4,261,686 - ------------------------------------------------------------------------------- Issued as reinvestment of dividends -- -- 2,421 22,273 - ------------------------------------------------------------------------------- Reacquired (290,726) (2,876,621) (19,962) (171,221) - ------------------------------------------------------------------------------- 278,721 $2,667,550 446,621 $4,112,738 ===============================================================================
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998.
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Net asset value, beginning of period $ 9.85 $10.00 - -------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01) 0.04 - -------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.80 (0.14) - -------------------------------------------------------------------------------- Total from investment operations 0.79 (0.10) - -------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- (0.05) - -------------------------------------------------------------------------------- Net asset value, end of period $10.64 $ 9.85 ================================================================================ Total return(a) 8.02% (0.94)% ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $7,721 $4,399 ================================================================================ Ratio of expenses to average net assets(b) 1.18%(c) 1.16%(d) ================================================================================ Ratio of net investment income (loss) to average net assets(e) (0.20)%(c) 0.96%(d) ================================================================================ Portfolio turnover rate 52% 30% ================================================================================
(a) Total return is not annualized for periods less than one year. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements were 2.89% (annualized) and 4.62% (annualized) for 1999-1998. (c) Ratios are annualized and based on average net assets of $5,874,843. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratio of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursement were (1.92)% (annualized) and (2.50)% (annualized) for 1999- 1998. AIM V.I. AGGRESSIVE GROWTH FUND FS-9 91 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 29.33% AGRICULTURAL PRODUCTS - 0.48% Cargill, Inc., Notes, 6.875%, 05/01/28(a) (Acquired 03/12/99; Cost $149,703) $150,000 $ 139,551 - ----------------------------------------------------------------------------------------------------- AIRLINES - 0.76% Delta Air Lines, Inc., Deb., 10.375%, 12/15/22 100,000 124,234 - ----------------------------------------------------------------------------------------------------- Notes, 6.65%, 03/15/04 100,000 98,262 - ----------------------------------------------------------------------------------------------------- 222,496 - ----------------------------------------------------------------------------------------------------- AUTOMOBILES - 0.98% General Motors Acceptance Corp., Bonds, 6.15%, 04/05/07 300,000 287,506 - ----------------------------------------------------------------------------------------------------- BANKS (MAJOR REGIONAL) - 0.04% HSBC Holdings PLC (United Kingdom), Sub. Notes, 7.50%, 07/15/09 10,000 10,112 - ----------------------------------------------------------------------------------------------------- BANKS (MONEY CENTER) - 2.20% Bank of America Corp., Unsec. Sub. Notes, 7.125%, 03/01/09 200,000 200,814 - ----------------------------------------------------------------------------------------------------- First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 200,000 205,782 - ----------------------------------------------------------------------------------------------------- International Bank for Reconstruction and Development (The), Deb., 8.25%, 09/01/16 200,000 236,834 - ----------------------------------------------------------------------------------------------------- 643,430 - ----------------------------------------------------------------------------------------------------- BANKS (REGIONAL) - 1.03% HSBC USA, Inc., Unsec. Sub. Notes, 7.00%, 11/01/06 100,000 98,920 - ----------------------------------------------------------------------------------------------------- Mercantile Bancorp, Inc., Unsec. Sub. Notes, 7.30%, 06/15/07 200,000 202,486 - ----------------------------------------------------------------------------------------------------- 301,406 - ----------------------------------------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 1.86% Comcast Cable Communications, Unsec. Unsub. Notes, 6.20%, 11/15/08 100,000 93,307 - ----------------------------------------------------------------------------------------------------- CSC Holdings, Inc., Sr. Unsec. Deb., 7.625%, 07/15/18 50,000 47,329 - ----------------------------------------------------------------------------------------------------- 7.875%, 02/15/18 100,000 97,062 - ----------------------------------------------------------------------------------------------------- TCI Communications, Inc., Sr. Notes, 8.00%, 08/01/05 200,000 211,684 - ----------------------------------------------------------------------------------------------------- USA Networks, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 11/15/05 100,000 96,084 - ----------------------------------------------------------------------------------------------------- 545,466 - ----------------------------------------------------------------------------------------------------- CHEMICALS - 0.74% Airgas, Inc., Medium Term Notes, 7.14%, 03/08/04 50,000 48,056 - ----------------------------------------------------------------------------------------------------- Nova Gas Transmission Ltd. (Canada), Yankee Deb., 8.50%, 12/15/12 150,000 166,812 - ----------------------------------------------------------------------------------------------------- 214,868 - -----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE CHEMICALS (DIVERSIFIED) - 0.16% Monsanto Co., Deb., 6.50%, 12/01/18(a) (Acquired 12/04/98; Cost $49,791) $ 50,000 $ 45,202 - ----------------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 0.32% Lucent Technologies, Unsec. Deb., 6.45%, 03/15/29 100,000 92,029 - ----------------------------------------------------------------------------------------------------- CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.65% American Greetings Corp., Unsec. Notes, 6.10%, 08/01/28 200,000 190,706 - ----------------------------------------------------------------------------------------------------- CONSUMER FINANCE - 0.85% Beneficial Corp. - Series H Medium Term Notes, 6.94%, 12/15/06 250,000 249,265 - ----------------------------------------------------------------------------------------------------- ELECTRIC COMPANIES - 2.38% Cleveland Electric Illuminating Co. (The), Sr. Sec. Series D Notes, 7.43%, 11/01/09 50,000 50,376 - ----------------------------------------------------------------------------------------------------- CMS Energy Corp., Sr. Unsec. Notes, 8.125%, 05/15/02 150,000 152,974 - ----------------------------------------------------------------------------------------------------- Commonwealth Edison Co., First Mortgage Notes, 7.50%, 07/01/13 70,000 73,592 - ----------------------------------------------------------------------------------------------------- Niagara Mohawk Power Corp., First Mortgage Notes, 9.25%, 10/01/01 200,000 212,072 - ----------------------------------------------------------------------------------------------------- Series G Sr. Unsec. Notes, 7.75%, 10/01/08 200,000 206,000 - ----------------------------------------------------------------------------------------------------- 695,014 - ----------------------------------------------------------------------------------------------------- ENTERTAINMENT - 1.16% Time Warner, Inc., Deb., 9.125%, 01/15/13 145,000 165,852 - ----------------------------------------------------------------------------------------------------- 9.15%, 02/01/23 150,000 174,254 - ----------------------------------------------------------------------------------------------------- 340,106 - ----------------------------------------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 0.32% Associates Corp. of North America, Sr. Deb., 6.95%, 11/01/18 100,000 95,213 - ----------------------------------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.16% Beckman Coulter Inc., Sr. Unsec. Gtd. Notes, 7.45%, 03/04/08 50,000 47,617 - ----------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.38% Procter & Gamble Co. (The), Putable Deb., 8.00%, 09/01/24 100,000 111,698 - ----------------------------------------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 1.37% Sun Life Canada Capital Trust, Gtd. Notes, 8.526%, 05/29/49(a) (Acquired 03/29/99; Cost $104,510) 100,000 101,107 - ----------------------------------------------------------------------------------------------------- Torchmark Corp., Notes, 7.875%, 05/15/23 300,000 300,291 - ----------------------------------------------------------------------------------------------------- 401,398 - -----------------------------------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-10 92
PRINCIPAL MARKET AMOUNT VALUE INSURANCE (PROPERTY-CASUALTY) - 1.57% Florida Windstorm, Sr. Notes, 6.85%, 08/25/07(a) (Acquired 01/07/99; Cost $106,456) $100,000 $ 99,328 - ------------------------------------------------------------------------------ Sr. Sec. Bonds, 7.125%, 02/25/19(a) (Acquired 03/26/99; Cost $149,177) 150,000 148,418 - ------------------------------------------------------------------------------ Terra Nova Holdings Co. (United Kingdom), Sr. Yankee Sec. Gtd. Notes, 7.20%, 08/15/07 70,000 68,034 - ------------------------------------------------------------------------------ Unsec. Gtd. Notes, 7.00%, 05/15/08(a) (Acquired 02/25/99; Cost $146,335) 150,000 143,588 - ------------------------------------------------------------------------------ 459,368 - ------------------------------------------------------------------------------ INVESTMENT BANKING/BROKERAGE - 0.16% Merrill Lynch & Co., Unsec. Notes, 6.875%, 11/15/18 50,000 46,788 - ------------------------------------------------------------------------------ NATURAL GAS - 2.78% CMS Panhandle Holding Company, Sr. Notes, 6.125%, 03/15/04(a) (Acquired 06/08/99; Cost $194,612) 200,000 194,772 - ------------------------------------------------------------------------------ Enron Corp., Notes, 6.75%, 08/01/09 170,000 163,288 - ------------------------------------------------------------------------------ Sr. Sub. Deb., 8.25%, 09/15/12 200,000 212,070 - ------------------------------------------------------------------------------ Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes, 9.375%, 06/15/06 50,000 49,250 - ------------------------------------------------------------------------------ K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 100,000 98,793 - ------------------------------------------------------------------------------ National Fuel Gas Co., Series D Medium Term Notes, 6.303%, 05/27/08 100,000 95,927 - ------------------------------------------------------------------------------ 814,100 - ------------------------------------------------------------------------------ OIL & GAS (DRILLING & EQUIPMENT) - 0.67% NRG Energy, Inc., Sr. Unsec. Notes, 7.50%, 06/01/09 200,000 197,296 - ------------------------------------------------------------------------------ POWER PRODUCERS (INDEPENDENT) - 1.21% CE Generation LLC, Notes, 7.416%, 12/15/18(a) (Acquired 04/13/99; Cost $205,604) 200,000 194,372 - ------------------------------------------------------------------------------ MidAmerican Energy Holdings Co., Sr. Unsec. Bonds, 8.48%, 09/15/28 150,000 160,616 - ------------------------------------------------------------------------------ 354,988 - ------------------------------------------------------------------------------ RAILROADS - 0.62% CSX Corp. - Series C Medium Term Notes, 6.80%, 12/01/28 200,000 180,382 - ------------------------------------------------------------------------------ SERVICES (COMMERCIAL & CONSUMER) - 0.94% Laidlaw, Inc. (Canada), Yankee Deb., 6.70%, 05/01/08 100,000 90,817 - ------------------------------------------------------------------------------ Protection One, Inc., Sr. Unsec. Gtd. Notes, 7.375%, 08/15/05 200,000 184,996 - ------------------------------------------------------------------------------ 275,813 - ------------------------------------------------------------------------------ SOVEREIGN DEBT - 1.05% Province of Manitoba (Canada), Yankee Deb., 7.75%, 07/17/16 100,000 107,912 - ------------------------------------------------------------------------------ Province of Quebec (Canada), Series A Yankee Notes, 6.29%, 03/06/26 100,000 99,809 - ------------------------------------------------------------------------------ Series A Putable Yankee Notes, 5.735%, 03/02/26 100,000 99,638 - ------------------------------------------------------------------------------ 307,359 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 2.36% Centel Capital, Deb., 9.00%, 10/15/19 $200,000 $ 235,502 - ---------------------------------------------------------------------------- MCI Communications Corp., Putable Sr. Unsec. Deb., 7.125%, 06/15/27 200,000 202,114 - ---------------------------------------------------------------------------- Sr. Unsec. Notes, 6.50%, 04/15/10 100,000 96,126 - ---------------------------------------------------------------------------- Sprint Capital Corp., Sr. Unsec. Gtd. Notes, 6.125%, 11/15/08 70,000 65,548 - ---------------------------------------------------------------------------- 6.875%, 11/15/28 100,000 91,588 - ---------------------------------------------------------------------------- 690,878 - ---------------------------------------------------------------------------- TELEPHONE - 1.78% Cable & Wireless Communications PLC (United Kingdom), Yankee Notes, 6.75%, 12/01/08 200,000 191,890 - ---------------------------------------------------------------------------- Electric Lightwave, Inc., Notes, 6.05%, 05/15/04(a) (Acquired 04/21/99; Cost $199,854) 200,000 193,870 - ---------------------------------------------------------------------------- GTE California, Inc., Unsec. Deb., 6.75%, 05/15/27 70,000 65,823 - ---------------------------------------------------------------------------- SBC Communications, Inc., Deb., 7.375%, 07/15/43 70,000 68,674 - ---------------------------------------------------------------------------- 520,257 - ---------------------------------------------------------------------------- WASTE MANAGEMENT - 0.35% WMX Technologies, Inc., Unsec. Putable Notes, 7.10%, 08/01/26 100,000 101,310 - ---------------------------------------------------------------------------- Total U.S. Dollar Denominated Non-Convertible Bonds & Notes (Cost $8,944,326) 8,581,622 - ---------------------------------------------------------------------------- U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 2.18% COMMUNICATIONS EQUIPMENT - 0.42% Comverse Technology, Inc., Conv. Unsec. Sub. Deb., 4.50%, 07/01/05 66,000 123,337 - ---------------------------------------------------------------------------- COMPUTERS (HARDWARE) - 0.22% Candescent Technology Corp., Sr. Conv. Sub. Deb., 7.00%, 05/01/03(a) (Acquired 11/06/98-02/10/99; Cost $72,036) 83,000 64,740 - ---------------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 0.48% Exodus Communications, Inc., Conv. Sub. Notes, 5.00%, 03/15/06(a) (Acquired 02/25/99; Cost $30,000) 30,000 80,813 - ---------------------------------------------------------------------------- Veritas Software Corp., Conv. Unsec. Notes, 5.25%, 11/01/04 25,000 58,609 - ---------------------------------------------------------------------------- 139,422 - ---------------------------------------------------------------------------- HEALTH CARE (DRUGS - GENERIC & OTHER) - 0.21% Alpharma, Inc., Conv. Sr. Unsec. Sub. Notes, 3.00%, 06/01/06(a) (Acquired 05/27/99; Cost $50,000) 50,000 61,500 - ---------------------------------------------------------------------------- RETAIL (SPECIALTY) - 0.30% Amazon.com, Inc., Conv. Deb., 4.75%, 02/01/09(a) (Acquired 01/29/99- 02/18/99; Cost $47,342) 50,000 48,531 - ---------------------------------------------------------------------------- Conv. Sub. Deb., 4.75%, 02/01/09 40,000 38,825 - ---------------------------------------------------------------------------- 87,356 - ----------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-11 93
PRINCIPAL MARKET AMOUNT VALUE RETAIL (SPECIALTY-APPAREL) - 0.11% AnnTaylor Stores Corp., Conv. Gtd. Bond, 0.55%, 06/18/19(a) (Acquired 06/14/99; Cost $27,653) $ 50,000 $ 31,625 - ----------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.28% Global Telesystems Group, Conv. Notes, 8.75%, 06/30/00 20,000 81,400 - ----------------------------------------------------------------------------- TELEPHONE - 0.16% Telefonos de Mexico S.A. (Mexico), Conv. Yankee Notes, 4.25%, 06/15/04 47,000 47,999 - ----------------------------------------------------------------------------- Total U.S. Dollar Denominated Convertible Bonds & Notes (Cost $504,483) 637,379 - ----------------------------------------------------------------------------- SHARES DOMESTIC COMMON STOCKS - 36.57% AUTOMOBILES - 0.29% Ford Motor Co. 1,500 84,656 - ----------------------------------------------------------------------------- BANKS (MONEY CENTER) - 0.74% Bank of America Corp. 600 43,987 - ----------------------------------------------------------------------------- Chase Manhattan Corp. (The) 2,000 173,250 - ----------------------------------------------------------------------------- 217,237 - ----------------------------------------------------------------------------- BANKS (REGIONAL) - 0.25% Bank United Corp. - Class A 1,800 72,337 - ----------------------------------------------------------------------------- BEVERAGES (NON-ALCOHOLIC) - 0.03% PepsiCo, Inc. 200 7,737 - ----------------------------------------------------------------------------- BIOTECHNOLOGY - 0.42% Biogen, Inc.(b) 1,000 64,312 - ----------------------------------------------------------------------------- Genzyme Corp.(b) 1,200 58,200 - ----------------------------------------------------------------------------- Genzyme Surgical Products(b) 215 947 - ----------------------------------------------------------------------------- 123,459 - ----------------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 1.75% CBS Corp.(b) 3,500 152,031 - ----------------------------------------------------------------------------- Hispanic Broadcasting Corp.(b) 2,200 166,925 - ----------------------------------------------------------------------------- Univision Communications, Inc.(b) 2,900 191,400 - ----------------------------------------------------------------------------- 510,356 - ----------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 2.46% ADC Telecommunications, Inc.(b) 1,600 72,900 - ----------------------------------------------------------------------------- ANTEC Corp.(b) 2,900 92,981 - ----------------------------------------------------------------------------- Lucent Technologies, Inc. 4,905 330,781 - ----------------------------------------------------------------------------- Motorola, Inc. 1,000 94,750 - ----------------------------------------------------------------------------- Tellabs, Inc.(b) 1,900 128,369 - ----------------------------------------------------------------------------- 719,781 - ----------------------------------------------------------------------------- COMPUTERS (HARDWARE) - 1.22% Dell Computer Corp.(b) 2,600 96,200 - ----------------------------------------------------------------------------- International Business Machines Corp. 1,000 129,250 - ----------------------------------------------------------------------------- Sun Microsystems, Inc.(b) 1,900 130,862 - ----------------------------------------------------------------------------- 356,312 - -----------------------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (NETWORKING) - 0.76% 3Com Corp.(b) 1,100 $ 29,356 - ----------------------------------------------------------------------------- Cisco Systems, Inc.(b) 3,000 193,500 - ----------------------------------------------------------------------------- 222,856 - ----------------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 0.53% EMC Corp.(b) 2,800 154,000 - ----------------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 2.79% America Online, Inc. 2,900 320,450 - ----------------------------------------------------------------------------- Computer Associates International, Inc. 400 22,000 - ----------------------------------------------------------------------------- Concord Communications, Inc.(b) 1,200 54,000 - ----------------------------------------------------------------------------- InfoSpace.com, Inc.(b) 1,800 84,600 - ----------------------------------------------------------------------------- ISS Group, Inc.(b) 1,600 60,400 - ----------------------------------------------------------------------------- Microsoft Corp.(b) 1,900 171,356 - ----------------------------------------------------------------------------- USWeb Corp.(b) 4,600 102,062 - ----------------------------------------------------------------------------- 814,868 - ----------------------------------------------------------------------------- CONSUMER FINANCE - 0.17% SLM Holding Corp. 1,100 50,394 - ----------------------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 0.28% Cardinal Health, Inc. 1,250 80,156 - ----------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 0.46% General Electric Co. 1,200 135,600 - ----------------------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 0.48% Quanta Services, Inc.(b) 3,200 140,800 - ----------------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 0.60% Intel Corp. 2,400 142,800 - ----------------------------------------------------------------------------- Microchip Technology, Inc.(b) 700 33,162 - ----------------------------------------------------------------------------- 175,962 - ----------------------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR) - 0.23% Applied Materials, Inc.(b) 900 66,487 - ----------------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 1.78% American Express Co. 700 91,087 - ----------------------------------------------------------------------------- Citigroup, Inc. 2,250 106,875 - ----------------------------------------------------------------------------- Fannie Mae 1,700 116,237 - ----------------------------------------------------------------------------- FINOVA Group, Inc. 1,000 52,625 - ----------------------------------------------------------------------------- Freddie Mac 2,000 116,000 - ----------------------------------------------------------------------------- MGIC Investment Corp. 800 38,900 - ----------------------------------------------------------------------------- 521,724 - ----------------------------------------------------------------------------- FOODS - 0.42% Keebler Foods Co.(b) 1,400 42,525 - ----------------------------------------------------------------------------- Ralston-Ralston Purina Group 2,600 79,137 - ----------------------------------------------------------------------------- 121,662 - -----------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-12 94
MARKET SHARES VALUE HEALTH CARE (DIVERSIFIED) - 1.69% Abbott Laboratories 700 $ 31,850 - ------------------------------------------------------------------- American Home Products Corp. 2,400 138,000 - ------------------------------------------------------------------- Bristol-Myers Squibb Co. 1,200 84,525 - ------------------------------------------------------------------- Johnson & Johnson 900 88,200 - ------------------------------------------------------------------- Warner-Lambert Co. 2,200 152,625 - ------------------------------------------------------------------- 495,200 - ------------------------------------------------------------------- HEALTH CARE (DRUGS - GENERIC & OTHER) - 0.28% Barr Laboratories, Inc.(b) 300 11,962 - ------------------------------------------------------------------- Forest Laboratories, Inc.(b) 1,500 69,375 - ------------------------------------------------------------------- 81,337 - ------------------------------------------------------------------- HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 1.53% Lilly (Eli) & Co. 1,300 93,113 - ------------------------------------------------------------------- Merck & Co., Inc. 1,400 103,600 - ------------------------------------------------------------------- Pfizer, Inc. 1,300 142,675 - ------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 700 39,769 - ------------------------------------------------------------------- Schering-Plough Corp. 1,300 68,900 - ------------------------------------------------------------------- 448,057 - ------------------------------------------------------------------- HEALTH CARE (LONG TERM CARE) - 0.20% Sunrise Assisted Living, Inc.(b) 1,700 59,288 - ------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.09% Baxter International, Inc. 1,100 66,688 - ------------------------------------------------------------------- Becton, Dickinson & Co. 1,500 45,000 - ------------------------------------------------------------------- Guidant Corp. 2,500 128,594 - ------------------------------------------------------------------- Medtronic, Inc. 1,900 147,963 - ------------------------------------------------------------------- VISX, Inc.(b) 2,800 221,725 - ------------------------------------------------------------------- 609,970 - ------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 0.34% MAXIMUS, Inc.(b) 2,000 57,500 - ------------------------------------------------------------------- Omnicare, Inc. 1,600 20,200 - ------------------------------------------------------------------- Quintiles Transnational Corp.(b) 500 21,000 - ------------------------------------------------------------------- 98,700 - ------------------------------------------------------------------- HOUSEHOLD FURNISHING & APPLIANCES - 0.49% Ethan Allen Interiors, Inc. 2,900 109,475 - ------------------------------------------------------------------- Maytag Corp. 500 34,844 - ------------------------------------------------------------------- 144,319 - ------------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.15% Procter & Gamble, Co. (The) 500 44,625 - ------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 0.45% Equitable Companies, Inc. 1,300 87,100 - ------------------------------------------------------------------- Nationwide Financial Services, Inc. - Class A 1,000 45,250 - ------------------------------------------------------------------- 132,350 - -------------------------------------------------------------------
MARKET SHARES VALUE INSURANCE (MULTI-LINE) - 0.76% American International Group, Inc. 1,300 $ 152,181 - ------------------------------------------------------------------- CIGNA Corp. 800 71,200 - ------------------------------------------------------------------- 223,381 - ------------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.34% Everest Reinsurance Holdings, Inc. 1,000 32,625 - ------------------------------------------------------------------- Travelers Property Casualty Corp. - Class A 1,700 66,513 - ------------------------------------------------------------------- 99,138 - ------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 1.22% Goldman Sachs Group, Inc. (The) 450 32,513 - ------------------------------------------------------------------- Hambrecht & Quist Group(b) 1,600 59,400 - ------------------------------------------------------------------- Merrill Lynch & Co., Inc. 1,500 119,906 - ------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 1,400 143,500 - ------------------------------------------------------------------- 355,319 - ------------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.04% Federated Investors, Inc. - Class B 700 12,556 - ------------------------------------------------------------------- LODGING - HOTELS - 0.15% Carnival Corp. 900 43,650 - ------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.45% Tyco International Ltd. 1,400 132,650 - ------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.24% Superior TeleCom, Inc. 2,850 71,250 - ------------------------------------------------------------------- NATURAL GAS - 0.66% Enron Corp. 1,100 89,925 - ------------------------------------------------------------------- Williams Companies, Inc. (The) 2,400 102,150 - ------------------------------------------------------------------- 192,075 - ------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.21% Conoco, Inc. - Class A 2,200 61,325 - ------------------------------------------------------------------- OIL (INTERNATIONAL INTEGRATED) - 0.13% Exxon Corp. 500 38,563 - ------------------------------------------------------------------- PERSONAL CARE - 0.36% Avon Products, Inc. 800 44,400 - ------------------------------------------------------------------- Gillette Co. 1,500 61,500 - ------------------------------------------------------------------- 105,900 - ------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 0.56% AES Corp.(b) 2,100 122,063 - ------------------------------------------------------------------- MidAmerican Energy Holdings Co.(b) 1,200 41,550 - ------------------------------------------------------------------- 163,613 - ------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS - 0.19% Boston Properties, Inc. 900 32,288 - ------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc. 800 24,450 - ------------------------------------------------------------------- 56,738 - -----------------------------------------------------------------
AIM V.I. BALANCED FUND FS-13 95
MARKET SHARES VALUE RETAIL (BUILDING SUPPLIES) - 0.40% Home Depot, Inc. (The) 1,800 $ 115,988 - ----------------------------------------------------------------- RETAIL (FOOD CHAINS) - 0.39% Albertson's, Inc. 693 35,733 - ----------------------------------------------------------------- Safeway, Inc.(b) 1,600 79,200 - ----------------------------------------------------------------- 114,933 - ----------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 0.47% Dayton Hudson Corp. 2,100 136,500 - ----------------------------------------------------------------- RETAIL (SPECIALTY) - 0.34% Linens 'N Things, Inc.(b) 2,300 100,625 - ----------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 0.79% Omnicom Group, Inc. 500 40,000 - ----------------------------------------------------------------- Outdoor Systems, Inc.(b) 2,900 105,850 - ----------------------------------------------------------------- Young & Rubicam, Inc. 1,900 86,331 - ----------------------------------------------------------------- 232,181 - ----------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 1.32% Apollo Group, Inc. - Class A(b) 3,500 92,969 - ----------------------------------------------------------------- Avis Rent A Car, Inc.(b) 2,800 81,550 - ----------------------------------------------------------------- Hertz Corp. - Class A 2,300 142,600 - ----------------------------------------------------------------- Metzler Group, Inc.(b) 2,500 69,063 - ----------------------------------------------------------------- 386,182 - ----------------------------------------------------------------- SERVICES (DATA PROCESSING) - 0.57% Ceridian Corp.(b) 1,100 35,956 - ----------------------------------------------------------------- DST Systems, Inc.(b) 1,100 69,162 - ----------------------------------------------------------------- Paychex, Inc. 1,950 62,156 - ----------------------------------------------------------------- 167,274 - ----------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 1.53% AT&T Corp. 1,650 92,091 - ----------------------------------------------------------------- IXC Communications, Inc.(b) 1,800 70,762 - ----------------------------------------------------------------- MCI WorldCom, Inc.(b) 2,000 172,500 - ----------------------------------------------------------------- WinStar Communications, Inc.(b) 2,300 112,125 - ----------------------------------------------------------------- 447,478 - ----------------------------------------------------------------- TELEPHONE - 1.80% Bell Atlantic Corp. 1,400 91,525 - ----------------------------------------------------------------- McLeodUSA, Inc. - Class A(b) 1,100 60,500 - ----------------------------------------------------------------- Nextlink Communications, Inc. - Class A(b) 1,100 81,813 - ----------------------------------------------------------------- Qwest Communications International, Inc.(b) 5,800 191,763 - ----------------------------------------------------------------- SBC Communications, Inc. 1,300 75,400 - ----------------------------------------------------------------- Time Warner Telecom, Inc.(b) 900 26,100 - ----------------------------------------------------------------- 527,101 - ----------------------------------------------------------------- TOBACCO - 0.15% Philip Morris Companies, Inc. 1,100 44,206 - ----------------------------------------------------------------- TRUCKERS - 0.11% C.H. Robinson Worldwide, Inc. 900 33,075 - -----------------------------------------------------------------
MARKET SHARES VALUE WASTE MANAGEMENT - 0.28% Allied Waste Industries, Inc.(b) 2,700 $ 53,325 - ------------------------------------------------------------------ Republic Services, Inc.(b) 1,200 29,700 - ------------------------------------------------------------------ 83,025 - ------------------------------------------------------------------ WATER UTILITIES - 0.23% Azurix Corp.(b) 3,300 66,000 - ------------------------------------------------------------------ Total Domestic Common Stocks (Cost $9,292,386) 10,700,956 - ------------------------------------------------------------------ DOMESTIC PREFERRED STOCKS - 0.75% CHEMICALS (DIVERSIFIED) - 0.14% Monsanto Co., $2.60 Conv. Pfd. 1,000 40,125 - ------------------------------------------------------------------ COMPUTERS (SOFTWARE & SERVICES) - 0.16% PSINet, Inc., $3.375 Conv. Pfd. 1,000 48,250 - ------------------------------------------------------------------ PERSONAL CARE - 0.12% Estee Lauder Co., $3.805 Conv. Pfd. 400 34,500 - ------------------------------------------------------------------ SERVICES (COMMERCIAL & CONSUMER) - 0.08% United Rentals Trust I, $3.25 Conv. Pfd.(a) (Acquired 12/10/98; Cost $19,375) 500 23,125 - ------------------------------------------------------------------ TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.22 Global Telesystems Group, Inc., $3.625 Conv. (Acquired 05/05/99; Cost $54,136) 1,000 66,000 - ------------------------------------------------------------------ TELEPHONE - 0.03% Nextlink Communications, Inc., $3.25 Conv. Pfd. 100 9,113 - ------------------------------------------------------------------ Total Domestic Preferred Stocks (Cost $199,132) 221,113 - ------------------------------------------------------------------ PRINCIPAL AMOUNT NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS NOTES - 3.62%(c) AUSTRALIA - 0.21% New South Wales Treasury Corp. (Sovereign Debt), Gtd. Notes, 7.00%, 04/01/04 90,000 61,582 - ------------------------------------------------------------------ CANADA - 0.12% Clearnet Communications, Inc. (Telephone), Unsec. Sr. Disc. Notes, 5.303%, 02/15/09(d) 50,000 18,663 - ------------------------------------------------------------------ GMAC Canada Ltd. (Financial Diversified), Sr. Unsec. Gtd. Unsub. Notes, 6.50%, 03/23/04 10,000 15,794 - ------------------------------------------------------------------ 34,457 - ------------------------------------------------------------------ DENMARK - 0.36% Kingdom of Denmark (Sovereign Debt), Bonds, 7.00%, 12/15/04 670,000 104,486 - ------------------------------------------------------------------ GERMANY - 0.39% Bundesrepublik Deutschland (Sovereign Debt), Bonds, 7.25%, 10/21/02 50,000 57,218 - ------------------------------------------------------------------ Treuhandanstalt (Sovereign Debt), Gtd. Notes, 6.00%, 11/12/03 50,000 55,736 - ------------------------------------------------------------------ 112,954 - ------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-14 96
PRINCIPAL MARKET AMOUNT VALUE NETHERLANDS - 0.39% Dresdner Finance B.V. (Banks - Major Regional), Series 11 Gtd. Notes, 3.072%, 07/30/03 EUR 60,000 $ 61,695 - -------------------------------------------------------------------------------- Hypovereins Finance N.V. (Banks - Major Regional), Gtd. Series E Medium Term Notes, 6.00%, 03/12/07 DEM 25,000 13,859 - -------------------------------------------------------------------------------- Mannesmann Finance B.V. (Machinery - Diversified), Gtd. Unsec. Unsub. Notes, 4.75%, 05/27/09 EUR 10,000 9,850 - -------------------------------------------------------------------------------- Prudential Financial B.V. (Investment Banking/Brokerage), Sr. Unsec. Gtd. Bonds, 9.375%, 06/04/07 GBP 15,000 27,953 - -------------------------------------------------------------------------------- 113,357 - -------------------------------------------------------------------------------- NEW ZEALAND - 0.41% International Bank for Reconstruction & Development (Banks - Money Center), Unsec. Notes, 5.50%, 04/15/04NZD 200,000 100,248 - -------------------------------------------------------------------------------- New Zealand Government (Sovereign Debt), Bonds, 10.00%, 03/15/02 NZD 20,000 11,716 - -------------------------------------------------------------------------------- Bonds, 8.00%, 04/15/04 NZD 15,000 8,515 - -------------------------------------------------------------------------------- 120,479 - -------------------------------------------------------------------------------- SWEDEN - 0.63% AB Spintab (Banks - Regional), Series 161, Unsec. Deb., 7.50%, 06/15/04 SEK 600,000 77,548 - -------------------------------------------------------------------------------- Stadshypotek A.B. (Banks - Regional), Series 1562, Notes, 3.50%, 09/15/04 SEK 1,000,000 108,214 - -------------------------------------------------------------------------------- 185,762 - -------------------------------------------------------------------------------- UNITED KINGDOM - 0.87% European Investment Bank (Banks - Money Center), Unsec. Unsub. Notes, 7.625%, 12/07/07 GBP 30,000 52,512 - -------------------------------------------------------------------------------- Lloyds Bank PLC (Banks - Major Regional), Sub. Notes, 5.25%, 07/14/08 DEM 50,000 26,317 - -------------------------------------------------------------------------------- Merrill Lynch & Co. (Investment Banking/Brokerage), Sr. Unsec. Unsub. Notes, 7.375%, 12/17/07 GBP 55,000 90,810 - -------------------------------------------------------------------------------- National Power PLC (Electric Companies), Sr. Unsec. Unsub. Notes, 8.00%, 02/21/07 AUD 100,000 67,754 - -------------------------------------------------------------------------------- Union Bank Switzerland London, (Banks - Major Regional), Unsec. Sub. Notes, 7.375%, 11/26/04 GBP 10,000 16,456 - -------------------------------------------------------------------------------- 253,849 - -------------------------------------------------------------------------------- UNITED STATES - 0.24% General Electric Capital Corp. (Financial - Diversified), Sr. Unsec. Unsub. Notes, 6.00%, 02/05/03 GBP 20,000 31,524 - -------------------------------------------------------------------------------- Global Notes (Sovereign Debt), Unsec. Sr. Notes, 6.875%, 06/07/02 GBP 25,000 40,394 - -------------------------------------------------------------------------------- 71,918 - -------------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Non-Convertible Bonds & Notes (Cost $1,112,965) 1,058,844 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 0.29% FRANCE - 0.11% France Telecom (Telephone), Conv. Bonds, 2.00%, 01/01/04 FRF 183,680 $ 31,959 - -------------------------------------------------------------------------------- NETHERLANDS - 0.18% Koninklijke Ahold N.V. (Retail-Food Chains), Sub. Notes, 3.00%, 09/30/03 NLG 91,000 52,665 - -------------------------------------------------------------------------------- Total Non - U.S. Dollar Denominated Convertible Bonds & Notes (Cost $89,464) 84,624 - -------------------------------------------------------------------------------- SHARES FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.16% BERMUDA - 0.48% Global Crossing Ltd. (Telecommunications - Long Distance)(b) 3,329 141,899 - -------------------------------------------------------------------------------- CANADA - 0.24% AT&T Canada, Inc. (Telephone)(b) 900 57,656 - -------------------------------------------------------------------------------- Cadillac Fairview Corp. (Land Development)(b) 600 11,325 - -------------------------------------------------------------------------------- 68,981 - -------------------------------------------------------------------------------- CAYMAN ISLANDS - 0.03% Scottish Annuity & Life Holdings, Ltd. (Insurance - Life/Health) 800 8,600 - -------------------------------------------------------------------------------- FINLAND - 0.69% Fortum Corp. (Electric Companies) 2,100 10,150 - -------------------------------------------------------------------------------- Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 2,100 192,281 - -------------------------------------------------------------------------------- 202,431 - -------------------------------------------------------------------------------- FRANCE - 0.50% AXA (Insurance - Multi-Line) 340 41,453 - -------------------------------------------------------------------------------- AXA-ADR (Insurance - Multi-Line) 1,200 74,775 - -------------------------------------------------------------------------------- France Telecom S.A. - ADR (Communications Equipment) 400 30,800 - -------------------------------------------------------------------------------- 147,028 - -------------------------------------------------------------------------------- GERMANY - 0.18% DaimlerChrysler A.G. (Automobiles) 587 52,170 - -------------------------------------------------------------------------------- NETHERLANDS - 0.69% Equant N.V. (Computers - Networking)(b) 400 36,854 - -------------------------------------------------------------------------------- Equant N.V. - ADR (Computers - Networking)(b) 700 65,887 - -------------------------------------------------------------------------------- Libertel N.V. (Telecommunications - Cellular/Wireless)(b) 5,000 97,907 - -------------------------------------------------------------------------------- 200,648 - -------------------------------------------------------------------------------- SOUTH KOREA - 0.19% Korea Telecom Corp. - ADR (Telephone)(b) 1,384 55,360 - -------------------------------------------------------------------------------- UNITED KINGDOM - 0.16% SmithKline Beecham PLC - ADR (Health Care - Drugs - Major Pharmaceuticals) 700 46,244 - -------------------------------------------------------------------------------- Total Foreign Stocks (Cost $774,796) 923,361 - --------------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-15 97
PRINCIPAL MARKET AMOUNT VALUE U.S. GOVERNMENT AGENCY SECURITIES - 3.63% FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 2.14% Medium Term Notes, 6.18%, 03/15/01 $ 300,000 $ 301,956 - -------------------------------------------------------------------------------- Pass through certificates, 6.50%, 11/01/28 334,587 322,980 - -------------------------------------------------------------------------------- 624,936 - -------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 0.67% Pass through certificates, 6.50%, 03/15/29 203,735 196,095 - -------------------------------------------------------------------------------- PRIVATE EXPORT FUNDING COMPANY - 0.82% Debentures, 8.35%, 01/31/01 230,000 238,800 - -------------------------------------------------------------------------------- Total U.S. Government Agency Securities (Cost $1,086,449) 1,059,831 - -------------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 2.78% U.S. TREASURY BONDS - 0.62% 5.50%, 08/15/28 200,000 182,818 - -------------------------------------------------------------------------------- U.S. TREASURY NOTES - 2.16% 15.75%, 11/15/01 25,000 30,565 - -------------------------------------------------------------------------------- 5.75%, 04/30/03(e) 600,000 600,797 - -------------------------------------------------------------------------------- 631,362 - -------------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $843,726) 814,180 - -------------------------------------------------------------------------------- Total Investments, Excluding Repurchase Agreement (Cost $22,847,727) 24,081,910 - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 16.39%(f) Dean Witter Reynolds, Inc., 4.85%, 07/01/99(g) (Cost $4,794,569) 4,794,569 4,794,569 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS - 98.70% 28,876,479 - -------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 1.30% 381,361 - -------------------------------------------------------------------------------- NET ASSETS - 100.00% $29,257,840 - --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS: (a) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at 06/30/99 was $1,636,542 which represented 5.59% of the Fund's net assets. (b) Non-income producing security. (c) Foreign denominated security. Par value and coupon are denominated in currency of country indicated. (d) Discounted bond at purchase. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (e) A portion of the principal balance was pledged as collateral to cover margin requirements for open future contracts. See Note 8. (f) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (g) Joint repurchase agreement entered into 06/30/99 with a maturing value of $100,013,472. Collateralized by U.S. Government obligations. Investment Abbreviations: ADR - American Depositary Receipt AUD - Australian Dollar CAD - Canadian Dollars Conv. - Convertible Deb. - Debentures DEM - German Deutsche Mark Disc. - Discounted DKK - Danish Krone EUR - Euro FRF - French Franc GBP - British Pound Sterling Gtd. - Guaranteed NLG - Dutch Guilder NZD - New Zealand Dollar Pfd. - Preferred Sec. - Secured SEK - Swedish Krona Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated See Notes to Financial Statements. AIM V.I. BALANCED FUND FS-16 98 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, excluding repurchase agreement, at market value (cost $22,847,727) $24,081,910 - ------------------------------------------------------------------------------- Repurchase agreement (cost $4,794,569) 4,794,569 - ------------------------------------------------------------------------------- Receivables for: Investments sold 175,493 - ------------------------------------------------------------------------------- Capital stock sold 311,703 - ------------------------------------------------------------------------------- Dividends and interest 209,982 - ------------------------------------------------------------------------------- Forward currency contracts - closed 7,180 - ------------------------------------------------------------------------------- Forward currency contracts - open 5,851 - ------------------------------------------------------------------------------- Variation margin 68,750 - ------------------------------------------------------------------------------- Investment for deferred compensation plan 4,119 - ------------------------------------------------------------------------------- Other assets 29,534 - ------------------------------------------------------------------------------- Total assets 29,689,091 - ------------------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 374,205 - ------------------------------------------------------------------------------- Forward currency contracts - closed 907 - ------------------------------------------------------------------------------- Deferred compensation plan 4,119 - ------------------------------------------------------------------------------- Accrued advisory fees 29,120 - ------------------------------------------------------------------------------- Accrued directors' fees 2,100 - ------------------------------------------------------------------------------- Accrued operating expenses 20,800 - ------------------------------------------------------------------------------- Total liabilities 431,251 - ------------------------------------------------------------------------------- Net assets applicable to shares outstanding $29,257,840 =============================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ------------------------------------------------------------------------------- Outstanding 2,485,880 =============================================================================== Net asset value, offering and redemption price per share $ 11.77 ===============================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $ 347,458 - ---------------------------------------------------------------------------- Dividends (net of foreign withholding tax $799) 31,778 - ---------------------------------------------------------------------------- Total investment income 379,236 - ---------------------------------------------------------------------------- EXPENSES: Advisory fees 71,737 - ---------------------------------------------------------------------------- Administrative services fees 24,726 - ---------------------------------------------------------------------------- Custodian fees 17,985 - ---------------------------------------------------------------------------- Directors' fees and expenses 4,227 - ---------------------------------------------------------------------------- Professional fees 15,986 - ---------------------------------------------------------------------------- Other 7,869 - ---------------------------------------------------------------------------- Total expenses 142,530 - ---------------------------------------------------------------------------- Less: Expenses paid indirectly (44) - ---------------------------------------------------------------------------- Fees waived by advisor (29,276) - ---------------------------------------------------------------------------- Net expenses 113,210 - ---------------------------------------------------------------------------- Net investment income 266,026 - ---------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities (119,060) - ---------------------------------------------------------------------------- Foreign currencies (2,190) - ---------------------------------------------------------------------------- Forward contracts 2,411 - ---------------------------------------------------------------------------- Futures contracts 290,025 - ---------------------------------------------------------------------------- Option contracts (1,319) - ---------------------------------------------------------------------------- 169,867 - ---------------------------------------------------------------------------- Change in net unrealized appreciation of: Investment securities 652,827 - ---------------------------------------------------------------------------- Foreign currencies 5,788 - ---------------------------------------------------------------------------- Futures contracts 20,338 - ---------------------------------------------------------------------------- 678,953 - ---------------------------------------------------------------------------- Net gain from investment securities and futures contracts 848,820 - ---------------------------------------------------------------------------- Net increase in net assets resulting from operations $1,114,846 ============================================================================
See Notes to Financial Statements. AIM V.I. BALANCED FUND FS-17 99 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ---------------------- OPERATIONS: Net investment income $ 266,026 $ 105,191 - -------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, futures and option contracts 169,867 135,495 - -------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies and futures contracts 678,953 700,688 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 1,114,846 941,374 - -------------------------------------------------------------------------------- Dividends from net investment income -- (115,294) - -------------------------------------------------------------------------------- Distributions from net realized gains -- (20,295) - -------------------------------------------------------------------------------- Net increase from capital stock transactions 17,799,658 9,537,551 - -------------------------------------------------------------------------------- Net increase in net assets 18,914,504 10,343,336 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of period 10,343,336 -- - -------------------------------------------------------------------------------- End of period $29,257,840 $10,343,336 - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $27,336,079 $ 9,536,421 - -------------------------------------------------------------------------------- Undistributed net investment income 263,236 (2,790) - -------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, futures and options contracts 278,884 109,017 - -------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and futures contracts 1,379,641 700,688 - -------------------------------------------------------------------------------- $29,257,840 $10,343,336 - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Balanced Fund (the "Fund"). The Fund's investment objective is to achieve as high a total return to investors as possible, consistent with preservation of capital. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such AIM V.I. BALANCED FUND FS-18 100 exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. F. Put Options - The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The option's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. G. Bond Premiums - It is the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. H. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. I. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. AIM V.I. BALANCED FUND FS-19 101 Outstanding forward currency contracts at June 30, 1999 were as follows:
CONTRACT TO SETTLEMENT ----------------- UNREALIZED DATE DELIVER RECEIVE VALUE APPRECIATION ----------- -------------------------------- 7/22/99 SEK 1,500,000 180,690 176,956 3,734 8/26/99 NZD 50,000 27,380 26,502 878 10/6/99 GBP 175,000 277,333 276,094 1,239 ------------- ----- 485,403 479,552 5,851 ======= ======= =====
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of the first $150 million of the Fund's average daily net assets, plus 0.50% of the Fund's average daily net assets in excess of $150 million. During the six months ended June 30, 1999, AIM waived fees of $29,276. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $21,885 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,866 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $44 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $44 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended June 30, 1999 was $18,705,015 and $2,693,975, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $1,970,046 - ------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (735,863) - ------------------------------------------------------------------------- Net unrealized appreciation of investment securities $1,234,183 =========================================================================
Investments have the same cost for tax and financial statement purposes. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 were as follows:
JUNE 30, 1999 DECEMBER 31, 1998 ---------------------- ------------------- SHARES AMOUNT SHARES AMOUNT --------- ----------- ------- ---------- Sold 1,615,711 $18,469,709 954,695 $9,785,741 - ----------------------------------------------------------------------- Issued as reinvestment of distributions -- -- 12,578 135,589 - ----------------------------------------------------------------------- Reacquired (58,458) (670,051) (38,646) (383,779) - ----------------------------------------------------------------------- 1,557,253 $17,799,658 928,627 $9,537,551 =======================================================================
NOTE 8 - OPEN FUTURES CONTRACTS On June 30, 1999, $3,363,750 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts were as follows:
NUMBER OF UNREALIZED CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION --------- ----------------------------------- S&P 500 Index 11 September 99/Buy 140,113 ======================================================
NOTE 9 - CALL OPTION CONTRACTS WRITTEN Transactions in call options written during the period ended June 30, 1999 are summarized as follows:
CALL OPTION CONTRACTS ---------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- -------- Beginning of period -- $ -- - ------------------------------------------- Written 6 1,782 - ------------------------------------------- Closed (6) (1,782) - ------------------------------------------- End of period -- $ -- ===========================================
AIM V.I. BALANCED FUND FS-20 102 NOTE 10 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the period ended June 30, 1999 and the period May 1, 1998 (date operation commenced) through December 31, 1998.
JUNE 30, DECEMBER 31, 1999(a) 1998 -------- ------------ Net asset value, beginning of period $ 11.14 $ 10.00 - ------------------------------------------------------------------------- Income from investment operations: Net investment income 0.16 0.12 - ------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 0.47 1.18 - ------------------------------------------------------------------------- Total from investment operations 0.63 1.30 - ------------------------------------------------------------------------- Less Distributions: Dividends from net investment income -- (0.14) - ------------------------------------------------------------------------- Distributions from net realized gains -- (0.02) - ------------------------------------------------------------------------- Total Distributions -- (0.16) - ------------------------------------------------------------------------- Net asset value, end of period $ 11.77 $ 11.14 ========================================================================= Total return(b) 5.66% 13.02% ========================================================================= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $29,258 $10,343 ========================================================================= Ratio of expenses to average net assets(c) 1.18%(d) 1.18%(e) ========================================================================= Ratio of net investment income to average net assets(f) 2.78%(d) 3.71%(e) ========================================================================= Portfolio turnover rate 16% 9% =========================================================================
(a) Calculated using average shares outstanding. (b) Total return is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.49% (annualized) and 2.83% (annualized) for 1999-1998. (d) Ratios are annualized and based on average net assets of $19,288,525. (e) Annualized. (f) After fee waivers and/or expense reimbursements. Ratio of net investment income to average net assets prior to fee waivers and/or expense reimbursement were 2.47% (annualized) and 2.07% (annualized) for 1999-1998. AIM V.I. BALANCED FUND FS-21 103 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 91.53% AIRLINES - 0.26% Southwest Airlines Co. 65,500 $ 2,038,688 - ---------------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 0.74% Danaher Corp. 63,900 3,714,187 - ---------------------------------------------------------------------- SPX Corp.(a) 25,000 2,087,500 - ---------------------------------------------------------------------- 5,801,687 - ---------------------------------------------------------------------- BANKS (MAJOR REGIONAL) - 0.50% Northern Trust Corp. 40,000 3,880,000 - ---------------------------------------------------------------------- BANKS (REGIONAL) - 2.78% AmSouth Bancorporation 57,450 1,332,122 - ---------------------------------------------------------------------- Bank United Corp. - Class A 50,000 2,009,375 - ---------------------------------------------------------------------- Compass Bancshares, Inc. 65,000 1,771,250 - ---------------------------------------------------------------------- First Tennessee National Corp. 70,000 2,681,875 - ---------------------------------------------------------------------- Firstar Corp. 128,000 3,584,000 - ---------------------------------------------------------------------- Golden State Bancorp, Inc.(a) 78,000 1,716,000 - ---------------------------------------------------------------------- Mercantile Bankshares Corp. 26,000 919,750 - ---------------------------------------------------------------------- North Fork Bancorporation, Inc. 127,700 2,721,606 - ---------------------------------------------------------------------- Old Kent Financial Corp. 42,315 1,771,941 - ---------------------------------------------------------------------- TCF Financial Corp. 40,000 1,115,000 - ---------------------------------------------------------------------- Zions Bancorporation 33,200 2,108,200 - ---------------------------------------------------------------------- 21,731,119 - ---------------------------------------------------------------------- BIOTECHNOLOGY - 0.88% Biogen, Inc.(a) 102,200 6,572,738 - ---------------------------------------------------------------------- Celera Genomics(a) 17,150 277,616 - ---------------------------------------------------------------------- 6,850,354 - ---------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 3.37% Adelphia Communications Corp.(a) 50,000 3,181,250 - ---------------------------------------------------------------------- AT&T Corp. - Liberty Media Group - Class A(a) 154,000 5,659,500 - ---------------------------------------------------------------------- Chancellor Media Corp. - Class A(a) 73,072 4,028,094 - ---------------------------------------------------------------------- Cox Communications, Inc. - Class A(a) 24,000 883,500 - ---------------------------------------------------------------------- Hispanic Broadcasting Corp.(a) 47,100 3,573,713 - ---------------------------------------------------------------------- TCA Cable TV, Inc. 30,400 1,687,200 - ---------------------------------------------------------------------- Univision Communications, Inc.(a) 74,900 4,943,400 - ---------------------------------------------------------------------- USA Networks, Inc.(a) 59,600 2,391,450 - ---------------------------------------------------------------------- 26,348,107 - ---------------------------------------------------------------------- BUILDING MATERIALS - 0.23% Masco Corp. 62,400 1,801,800 - ----------------------------------------------------------------------
MARKET SHARES VALUE COMMUNICATIONS EQUIPMENT - 7.02% ADC Telecommunications, Inc.(a) 76,000 $ 3,462,750 - ---------------------------------------------------------------------- Comverse Technology, Inc.(a) 76,650 5,787,075 - ---------------------------------------------------------------------- Corning, Inc. 163,200 11,444,400 - ---------------------------------------------------------------------- General Instrument Corp.(a) 95,000 4,037,500 - ---------------------------------------------------------------------- Lucent Technologies, Inc. 196,185 13,230,226 - ---------------------------------------------------------------------- Motorola, Inc. 40,000 3,790,000 - ---------------------------------------------------------------------- QUALCOMM, Inc.(a) 25,700 3,687,950 - ---------------------------------------------------------------------- Scientific-Atlanta, Inc. 99,300 3,574,800 - ---------------------------------------------------------------------- Uniphase Corp.(a) 35,300 5,859,800 - ---------------------------------------------------------------------- 54,874,501 - ---------------------------------------------------------------------- COMPUTERS (HARDWARE) - 0.69% Apple Computer, Inc.(a) 50,500 2,338,781 - ---------------------------------------------------------------------- Comdisco, Inc. 118,600 3,039,125 - ---------------------------------------------------------------------- 5,377,906 - ---------------------------------------------------------------------- COMPUTERS (NETWORKING) - 0.28% VeriSign, Inc.(a) 25,300 2,182,125 - ---------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 2.58% Adaptec, Inc.(a) 102,200 3,608,938 - ---------------------------------------------------------------------- EMC Corp.(a) 178,000 9,790,000 - ---------------------------------------------------------------------- Lexmark International Group, Inc.(a) 102,400 6,764,800 - ---------------------------------------------------------------------- 20,163,738 - ---------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 9.46% America Online, Inc. 38,000 4,199,000 - ---------------------------------------------------------------------- At Home Corp.(a) 50,000 2,696,872 - ---------------------------------------------------------------------- BMC Software, Inc.(a) 204,600 11,048,400 - ---------------------------------------------------------------------- Citrix Systems, Inc.(a) 153,400 8,667,100 - ---------------------------------------------------------------------- Compuware Corp.(a) 254,600 8,099,462 - ---------------------------------------------------------------------- Electronic Arts, Inc.(a) 51,000 2,766,750 - ---------------------------------------------------------------------- Electronics for Imaging, Inc.(a) 97,300 4,998,787 - ---------------------------------------------------------------------- Intuit, Inc.(a) 55,000 4,956,875 - ---------------------------------------------------------------------- Lycos, Inc.(a) 61,000 5,604,375 - ---------------------------------------------------------------------- Novell, Inc.(a) 96,800 2,565,200 - ---------------------------------------------------------------------- RealNetworks, Inc.(a) 29,000 1,997,375 - ---------------------------------------------------------------------- Siebel Systems, Inc.(a) 30,000 1,991,250 - ---------------------------------------------------------------------- Sterling Software, Inc.(a) 63,600 1,697,325 - ---------------------------------------------------------------------- Synopsys, Inc.(a) 77,000 4,249,437 - ---------------------------------------------------------------------- Verio, Inc.(a) 35,000 2,432,500 - ---------------------------------------------------------------------- Veritas Software Corp.(a) 63,200 6,000,050 - ---------------------------------------------------------------------- 73,970,758 - ----------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-22 104
MARKET SHARES VALUE CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.07% Action Performance Companies, Inc.(a) 16,000 $ 528,000 - ------------------------------------------------------------------- CONSUMER FINANCE - 2.38% Capital One Financial Corp. 121,800 6,782,737 - ------------------------------------------------------------------- Countrywide Credit Industries, Inc. 32,500 1,389,375 - ------------------------------------------------------------------- Providian Financial Corp. 86,300 8,069,050 - ------------------------------------------------------------------- SLM Holding Corp. 51,050 2,338,728 - ------------------------------------------------------------------- 18,579,890 - ------------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 0.20% Patterson Dental Co.(a) 7,300 253,675 - ------------------------------------------------------------------- U.S. Foodservice(a) 31,200 1,329,900 - ------------------------------------------------------------------- 1,583,575 - ------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 3.82% American Power Conversion Corp.(a) 254,600 5,123,825 - ------------------------------------------------------------------- Conexant Systems, Inc.(a) 57,000 3,309,562 - ------------------------------------------------------------------- Sanmina Corp.(a) 48,300 3,664,762 - ------------------------------------------------------------------- Solectron Corp.(a) 153,400 10,229,862 - ------------------------------------------------------------------- Symbol Technologies, Inc. 133,875 4,936,641 - ------------------------------------------------------------------- Vishay Intertechnology, Inc.(a) 125,000 2,625,000 - ------------------------------------------------------------------- 29,889,652 - ------------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 0.86% PE Corp-PE Biosystems Group 40,000 4,590,000 - ------------------------------------------------------------------- Waters Corp.(a) 40,000 2,125,000 - ------------------------------------------------------------------- 6,715,000 - ------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 7.13% Altera Corp.(a) 134,400 4,947,600 - ------------------------------------------------------------------- Analog Devices, Inc.(a) 151,600 7,608,425 - ------------------------------------------------------------------- Atmel Corp.(a) 48,400 1,267,475 - ------------------------------------------------------------------- Cypress Semiconductor Corp.(a) 96,200 1,587,300 - ------------------------------------------------------------------- Linear Technology Corp. 102,000 6,859,500 - ------------------------------------------------------------------- LSI Logic Corp.(a) 100,700 4,644,787 - ------------------------------------------------------------------- Maxim Integrated Products, Inc.(a) 76,600 5,093,900 - ------------------------------------------------------------------- Microchip Technology, Inc.(a) 69,100 3,273,612 - ------------------------------------------------------------------- National Semiconductor Corp.(a) 105,000 2,657,812 - ------------------------------------------------------------------- PMC-Sierra, Inc.(a) 153,000 9,017,437 - ------------------------------------------------------------------- Vitesse Semiconductor Corp.(a) 43,100 2,906,556 - ------------------------------------------------------------------- Xilinx, Inc.(a) 102,200 5,850,950 - ------------------------------------------------------------------- 55,715,354 - ------------------------------------------------------------------- ENTERTAINMENT - 0.49% SFX Entertainment, Inc. - Class A(a) 60,000 3,840,000 - ------------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR) - 1.67% Applied Materials, Inc.(a) 43,900 3,243,112 - ------------------------------------------------------------------- KLA-Tencor Corp.(a) 59,200 3,840,600 - -------------------------------------------------------------------
MARKET SHARES VALUE EQUIPMENT (SEMICONDUCTOR) - CONTINUED Novellus Systems, Inc.(a) 22,000 $ 1,501,500 - --------------------------------------------------------------------- Teradyne, Inc.(a) 62,600 4,491,550 - --------------------------------------------------------------------- 13,076,762 - --------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 0.66% FINOVA Group, Inc. 54,600 2,873,325 - --------------------------------------------------------------------- MGIC Investment Corp. 46,633 2,267,530 - --------------------------------------------------------------------- 5,140,855 - --------------------------------------------------------------------- FOODS - 0.24% Keebler Foods Co.(a) 61,600 1,871,100 - --------------------------------------------------------------------- FOOTWEAR - 0.51% Nike, Inc. - Class B 63,200 4,001,350 - --------------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.34% Mandalay Resort Group(a) 91,600 1,935,050 - --------------------------------------------------------------------- MGM Grand, Inc.(a) 15,200 744,800 - --------------------------------------------------------------------- 2,679,850 - --------------------------------------------------------------------- HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.68% Alpharma, Inc. - Class A 44,750 1,591,422 - --------------------------------------------------------------------- Forest Laboratories, Inc.(a) 22,400 1,036,000 - --------------------------------------------------------------------- Jones Pharma Inc. 120,500 4,744,687 - --------------------------------------------------------------------- Medicis Pharmaceutical Corp. - Class A(a) 64,050 1,625,269 - --------------------------------------------------------------------- MedImmune, Inc.(a) 30,000 2,032,500 - --------------------------------------------------------------------- Mylan Laboratories, Inc. 30,400 805,600 - --------------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 38,100 1,335,881 - --------------------------------------------------------------------- 13,171,359 - --------------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT) - 0.57% Health Management Associates, Inc. - Class A(a) 109,002 1,226,272 - --------------------------------------------------------------------- Universal Health Services, Inc. - Class B(a) 68,400 3,266,100 - --------------------------------------------------------------------- 4,492,372 - --------------------------------------------------------------------- HEALTH CARE (MANAGED CARE) - 0.73% Express Scripts, Inc. - Class A(a) 71,600 4,309,425 - --------------------------------------------------------------------- Trigon Healthcare, Inc.(a) 38,300 1,393,162 - --------------------------------------------------------------------- 5,702,587 - --------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.31% Bausch & Lomb, Inc. 51,100 3,909,150 - --------------------------------------------------------------------- Biomet, Inc. 114,200 4,539,450 - --------------------------------------------------------------------- Guidant Corp. 79,200 4,073,850 - --------------------------------------------------------------------- Henry Schein, Inc.(a) 34,985 1,108,587 - --------------------------------------------------------------------- Stryker Corp. 50,600 3,042,325 - --------------------------------------------------------------------- Sybron International Corp.(a) 51,400 1,416,712 - --------------------------------------------------------------------- 18,090,074 - --------------------------------------------------------------------- HOMEBUILDING - 0.11% Clayton Homes, Inc. 78,525 898,130 - ---------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-23 105
MARKET SHARES VALUE HOUSEHOLD FURNISHING & APPLIANCES - 0.66% Leggett & Platt, Inc. 102,200 $ 2,842,437 - --------------------------------------------------------------- Maytag Corp. 33,800 2,355,438 - --------------------------------------------------------------- 5,197,875 - --------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.25% Dial Corp. (The) 53,000 1,970,937 - --------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 0.80% AFLAC, Inc. 47,200 2,259,700 - --------------------------------------------------------------- Provident Companies, Inc. 76,600 3,064,000 - --------------------------------------------------------------- Torchmark Corp. 28,000 955,500 - --------------------------------------------------------------- 6,279,200 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 2.55% Bear Stearns Companies, Inc. 60,000 2,805,000 - --------------------------------------------------------------- Lehman Brothers Holdings, Inc. 27,000 1,680,750 - --------------------------------------------------------------- Schwab (Charles) Corp. 117,500 12,910,312 - --------------------------------------------------------------- TD Waterhouse Group, Inc.(a) 100,000 2,506,245 - --------------------------------------------------------------- 19,902,307 - --------------------------------------------------------------- INVESTMENT MANAGEMENT - 1.09% Federated Investors, Inc. - Class B 105,400 1,890,613 - --------------------------------------------------------------- Franklin Resources, Inc. 60,000 2,437,500 - --------------------------------------------------------------- T. Rowe Price Associates, Inc. 109,800 4,213,575 - --------------------------------------------------------------- 8,541,688 - --------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 1.59% Callaway Golf Co. 106,700 1,560,488 - --------------------------------------------------------------- Harley-Davidson, Inc. 120,000 6,525,000 - --------------------------------------------------------------- Hasbro, Inc. 50,000 1,396,875 - --------------------------------------------------------------- Mattel, Inc. 104,000 2,749,500 - --------------------------------------------------------------- Speedway Motorsports, Inc.(a) 5,600 220,150 - --------------------------------------------------------------- 12,452,013 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.15% Pentair, Inc. 25,500 1,166,625 - --------------------------------------------------------------- NATURAL GAS - 0.31% El Paso Energy Corp. 68,000 2,392,750 - --------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 3.15% Baker Hughes, Inc. 105,000 3,517,500 - --------------------------------------------------------------- BJ Services Co.(a) 102,000 3,002,625 - --------------------------------------------------------------- Cooper Cameron Corp.(a) 125,000 4,632,812 - --------------------------------------------------------------- Diamond Offshore Drilling, Inc. 40,000 1,135,000 - --------------------------------------------------------------- Global Industries Ltd.(a) 143,000 1,832,188 - --------------------------------------------------------------- Rowan Companies, Inc.(a) 115,000 2,120,313 - --------------------------------------------------------------- Smith International, Inc.(a) 85,000 3,692,188 - --------------------------------------------------------------- Transocean Offshore, Inc. 50,000 1,312,500 - --------------------------------------------------------------- Varco International, Inc.(a) 140,000 1,531,250 - --------------------------------------------------------------- Weatherford International, Inc.(a) 50,000 1,831,250 - --------------------------------------------------------------- 24,607,626 - ---------------------------------------------------------------
MARKET SHARES VALUE OIL & GAS (EXPLORATION & PRODUCTION) - 0.41% Apache Corp. 67,000 $ 2,613,000 - ------------------------------------------------------------------ Santa Fe Snyder Corp.(a) 80,000 610,000 - ------------------------------------------------------------------ 3,223,000 - ------------------------------------------------------------------ PUBLISHING - 0.69% Reader's Digest Association, Inc. - Class A 60,000 2,385,000 - ------------------------------------------------------------------ The McGraw-Hill Companies, Inc. 56,200 3,031,288 - ------------------------------------------------------------------ 5,416,288 - ------------------------------------------------------------------ RAILROADS - 0.90% Kansas City Southern Industries, Inc. 110,000 7,019,375 - ------------------------------------------------------------------ RESTAURANTS - 1.53% Brinker International, Inc.(a) 102,200 2,778,563 - ------------------------------------------------------------------ Outback Steakhouse, Inc.(a) 99,800 3,923,388 - ------------------------------------------------------------------ Papa John's International, Inc.(a) 31,100 1,389,781 - ------------------------------------------------------------------ Starbucks Corp.(a) 103,200 3,876,450 - ------------------------------------------------------------------ 11,968,182 - ------------------------------------------------------------------ RETAIL (BUILDING SUPPLIES) - 0.51% Lowe's Companies, Inc. 70,000 3,968,125 - ------------------------------------------------------------------ RETAIL (COMPUTERS & ELECTRONICS) - 2.34% Best Buy Co., Inc.(a) 116,000 7,830,000 - ------------------------------------------------------------------ CDW Computer Centers, Inc.(a) 103,000 4,532,000 - ------------------------------------------------------------------ Circuit City Stores-Circuit City Group 63,400 5,896,200 - ------------------------------------------------------------------ 18,258,200 - ------------------------------------------------------------------ RETAIL (DEPARTMENT STORES) - 0.83% Federated Department Stores, Inc.(a) 30,000 1,588,125 - ------------------------------------------------------------------ Kohl's Corp.(a) 64,000 4,940,000 - ------------------------------------------------------------------ 6,528,125 - ------------------------------------------------------------------ RETAIL (DISCOUNTERS) - 1.95% Consolidated Stores Corp.(a) 100,200 2,705,400 - ------------------------------------------------------------------ Dollar General Corp. 83,300 2,415,700 - ------------------------------------------------------------------ Dollar Tree Stores, Inc.(a) 92,475 4,068,900 - ------------------------------------------------------------------ Family Dollar Stores, Inc. 145,600 3,494,400 - ------------------------------------------------------------------ Ross Stores, Inc. 51,400 2,589,275 - ------------------------------------------------------------------ 15,273,675 - ------------------------------------------------------------------ RETAIL (FOOD CHAINS) - 0.37% Kroger Co.(a) 103,400 2,888,738 - ------------------------------------------------------------------ RETAIL (SPECIALTY) - 2.62% Bed Bath & Beyond, Inc.(a) 140,000 5,390,000 - ------------------------------------------------------------------ eToys, Inc.(a) 32,500 1,324,375 - ------------------------------------------------------------------ Linens 'N Things, Inc.(a) 66,600 2,913,750 - ------------------------------------------------------------------ Payless ShoeSource, Inc.(a) 25,000 1,337,500 - ------------------------------------------------------------------ Staples, Inc.(a) 306,781 9,491,022 - ------------------------------------------------------------------ 20,456,647 - ------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-24 106
MARKET SHARES VALUE RETAIL (SPECIALTY-APPAREL) - 2.08% Abercrombie & Fitch Co. - Class A(a) 50,000 $ 2,400,000 - --------------------------------------------------------------------- Gap, Inc. (The) 38,963 1,962,736 - --------------------------------------------------------------------- Intimate Brands, Inc. 65,730 3,113,959 - --------------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 117,625 2,999,438 - --------------------------------------------------------------------- Talbots, Inc. 25,800 983,625 - --------------------------------------------------------------------- TJX Companies, Inc. 144,300 4,806,994 - --------------------------------------------------------------------- 16,266,752 - --------------------------------------------------------------------- SAVINGS & LOAN COMPANIES - 0.91% Astoria Financial Corp. 50,000 2,196,875 - --------------------------------------------------------------------- Dime Bancorp, Inc. 129,800 2,612,225 - --------------------------------------------------------------------- GreenPoint Financial Corp. 70,000 2,296,875 - --------------------------------------------------------------------- 7,105,975 - --------------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 2.44% Interpublic Group of Companies, Inc. 25,500 2,208,938 - --------------------------------------------------------------------- Lamar Advertising Co.(a) 116,000 4,748,750 - --------------------------------------------------------------------- Omnicom Group, Inc. 127,300 10,184,000 - --------------------------------------------------------------------- TMP Worldwide, Inc.(a) 30,000 1,905,000 - --------------------------------------------------------------------- 19,046,688 - --------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 1.81% Apollo Group, Inc. - Class A(a) 65,500 1,739,844 - --------------------------------------------------------------------- ChoicePoint, Inc.(a) 31,500 2,114,438 - --------------------------------------------------------------------- Cintas Corp. 77,100 5,180,156 - --------------------------------------------------------------------- Convergys Corp.(a) 37,800 727,650 - --------------------------------------------------------------------- Galileo International, Inc. 40,000 2,137,500 - --------------------------------------------------------------------- Viad Corp. 74,100 2,292,469 - --------------------------------------------------------------------- 14,192,057 - --------------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS) - 0.68% Ciber, Inc.(a) 49,300 942,863 - --------------------------------------------------------------------- Policy Management Systems Corp.(a) 29,100 873,000 - --------------------------------------------------------------------- SunGard Data Systems, Inc.(a) 102,200 3,525,900 - --------------------------------------------------------------------- 5,341,763 - --------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 4.25% Affiliated Computer Services, Inc. - Class A(a) 51,500 2,607,188 - --------------------------------------------------------------------- Ceridian Corp.(a) 108,400 3,543,325 - --------------------------------------------------------------------- Concord EFS, Inc.(a) 229,800 9,723,413 - --------------------------------------------------------------------- CSG Systems International, Inc.(a) 109,300 2,862,294 - --------------------------------------------------------------------- DST Systems, Inc.(a) 30,300 1,905,113 - --------------------------------------------------------------------- Equifax, Inc. 44,100 1,573,819 - --------------------------------------------------------------------- Fiserv, Inc.(a) 192,225 6,019,045 - --------------------------------------------------------------------- National Data Corp. 48,000 2,052,000 - --------------------------------------------------------------------- Paychex, Inc. 92,962 2,963,164 - --------------------------------------------------------------------- 33,249,361 - ---------------------------------------------------------------------
MARKET SHARES VALUE SPECIALTY PRINTING - 0.25% Valassis Communications, Inc.(a) 52,500 $ 1,922,813 - ------------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.72% Crown Castle International Corp.(a) 130,000 2,705,626 - ------------------------------------------------------------------------------- Metromedia Fiber Network, Inc. - Class A(a) 81,000 2,910,938 - ------------------------------------------------------------------------------- 5,616,564 - ------------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.80% Global TeleSystems Group, Inc.(a) 77,000 6,237,000 - ------------------------------------------------------------------------------- TELEPHONE - 0.99% CenturyTel, Inc. 114,900 4,567,275 - ------------------------------------------------------------------------------- Cincinnati Bell, Inc. 37,800 942,638 - ------------------------------------------------------------------------------- NTL Inc.(a) 25,500 2,197,781 - ------------------------------------------------------------------------------- 7,707,694 - ------------------------------------------------------------------------------- TEXTILES (APPAREL) - 0.91% Jones Apparel Group, Inc.(a) 127,800 4,385,138 - ------------------------------------------------------------------------------- Tommy Hilfiger Corp.(a) 36,900 2,712,150 - ------------------------------------------------------------------------------- 7,097,288 - ------------------------------------------------------------------------------- TEXTILES (HOME FURNISHINGS) - 0.16% Shaw Industries, Inc.(a) 77,000 1,270,500 - ------------------------------------------------------------------------------- WASTE MANAGEMENT - 0.27% Waste Management, Inc. 38,775 2,084,156 - ------------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $475,881,299) 715,646,680 - ------------------------------------------------------------------------------- FOREIGN STOCKS - 1.54% FINLAND - 0.89% Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 75,800 6,940,437 - ------------------------------------------------------------------------------- FRANCE - 0.05% Coflexip S.A.-ADR Manufacturing (Specialized) 10,100 439,350 - ------------------------------------------------------------------------------- ISRAEL - 0.26% Check Point Software Technologies Ltd. (Computers - Software & Services)(a) 37,500 2,010,938 - ------------------------------------------------------------------------------- NETHERLANDS - 0.26% ASM Lithography Holding N.V. (Electronics - Semiconductors)(a) 34,000 2,018,750 - ------------------------------------------------------------------------------- UNITED KINGDOM - 0.08% Stolt Comex Seaway, S.A. (Oil & Gas - Exploration & Production)(a) 40,000 435,000 - ------------------------------------------------------------------------------- Stolt Comex Seaway, S.A.-ADR (Oil & Gas - Exploration & Production)(a) 20,000 215,000 - ------------------------------------------------------------------------------- 650,000 - ------------------------------------------------------------------------------- Total Foreign Stocks (Cost $5,915,783) 12,059,475 - -------------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-25 107
PRINCIPAL MARKET AMOUNT VALUE TIME DEPOSIT - 4.48% CIBC Oppenheimer Corp., 5.50%, 07/01/99 (Cost $35,000,000) $35,000,000 $ 35,000,000 - -------------------------------------------------------------------------- REPURCHASE AGREEMENT(b) - 2.30% CIBC Oppenheimer Corp., 5.00%, 07/01/99(c) (Cost $17,964,962) 17,964,962 17,964,962 - -------------------------------------------------------------------------- TOTAL INVESTMENTS - 99.85% 780,671,117 ========================================================================== OTHER ASSETS LESS LIABILITIES - 0.15% 1,157,305 ========================================================================== NET ASSETS - 100.00% $781,828,422 ==========================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements is taken into possession by the Fund upon entering into the repurchase agreement. The Collateral is marked to market daily to insure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (c) Joint repurchase agreement entered into 06/30/99 with a maturing value of $50,006,945. Collateralized by U.S. Government obligations. Abbreviation: ADR - American Depositary Receipt See Notes to Financial Statements. AIM V.I. CAPITAL APPRECIATION FUND FS-26 108 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, at market value (cost $534,762,044) $780,671,117 - ---------------------------------------------------------------------- Receivables for: Investments sold 3,247,035 - ---------------------------------------------------------------------- Capital stock sold 121,724 - ---------------------------------------------------------------------- Dividends and interest 209,154 - ---------------------------------------------------------------------- Investment for deferred compensation plan 25,924 - ---------------------------------------------------------------------- Other assets 3,586 - ---------------------------------------------------------------------- Total assets 784,278,540 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 1,013,059 - ---------------------------------------------------------------------- Capital stock reacquired 979,481 - ---------------------------------------------------------------------- Deferred compensation plan 25,924 - ---------------------------------------------------------------------- Options written (Premiums received $55,014) 48,138 - ---------------------------------------------------------------------- Accrued advisory fees 378,472 - ---------------------------------------------------------------------- Accrued directors' fees 2,600 - ---------------------------------------------------------------------- Accrued administrative services fees 1,543 - ---------------------------------------------------------------------- Accrued operating expenses 901 - ---------------------------------------------------------------------- Total liabilities 2,450,118 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $781,828,422 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 28,331,017 - ---------------------------------------------------------------------- Net asset value, offering and redemption price per share $ 27.60 ======================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $ 1,528,477 - ----------------------------------------------------------------------------- Dividends (net of $11,410 foreign withholding tax) 1,130,620 - ----------------------------------------------------------------------------- Total investment income 2,659,097 - ----------------------------------------------------------------------------- EXPENSES: Advisory fees 2,192,484 - ----------------------------------------------------------------------------- Administrative services fees 81,413 - ----------------------------------------------------------------------------- Custodian fees 40,019 - ----------------------------------------------------------------------------- Directors' fees and expenses 6,556 - ----------------------------------------------------------------------------- Other 56,683 - ----------------------------------------------------------------------------- Total expenses 2,377,155 - ----------------------------------------------------------------------------- Less: Expenses paid indirectly (653) - ----------------------------------------------------------------------------- Net expenses 2,376,502 - ----------------------------------------------------------------------------- Net investment income 282,595 - ----------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS: Net realized gain from: Investment securities 10,924,678 - ----------------------------------------------------------------------------- Option contracts 56,376 - ----------------------------------------------------------------------------- 10,981,054 - ----------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 55,741,424 - ----------------------------------------------------------------------------- Foreign currencies (59) - ----------------------------------------------------------------------------- Option contracts 6,877 - ----------------------------------------------------------------------------- 55,748,242 - ----------------------------------------------------------------------------- Net gain from investment securities, foreign currencies and option contracts 66,729,296 - ----------------------------------------------------------------------------- Net increase in net assets resulting from operations $67,011,891 =============================================================================
See Notes to Financial Statements. AIM V.I. CAPITAL APPRECIATION FUND FS-27 109 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ----------------------- OPERATIONS: Net investment income $ 282,595 $ 631,581 - ------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies and option contracts 10,981,054 22,808,693 - ------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies and option contracts 55,748,242 78,385,559 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 67,011,891 101,825,833 - ------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (922,615) - ------------------------------------------------------------------------------- Distributions to shareholders from net realized gains -- (16,345,246) - ------------------------------------------------------------------------------- Net increase from capital stock transactions 67,568,528 39,909,953 - ------------------------------------------------------------------------------- Net increase in net assets 134,580,419 124,467,925 - ------------------------------------------------------------------------------- NET ASSETS: Beginning of year 647,248,003 522,780,078 - ------------------------------------------------------------------------------- End of year $781,828,422 $647,248,003 =============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $501,871,979 $434,303,451 - ------------------------------------------------------------------------------- Undistributed net investment income 982,957 700,362 - ------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, futures and option contracts 33,057,595 22,076,541 - ------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, futures and option contracts 245,915,891 190,167,649 - ------------------------------------------------------------------------------- $781,828,422 $647,248,003 ===============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Capital Appreciation Fund (the "Fund"). The Fund's investment objective is to seek capital appreciation through investments in common stocks, with emphasis on medium-sized and smaller emerging growth companies. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may AIM V.I. CAPITAL APPRECIATION FUND FS-28 110 occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $24,338 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $3,785 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. AIM V.I. CAPITAL APPRECIATION FUND FS-29 111 NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $653 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $653 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during six months ended June 30, 1999 was $303,472,725 and $210,334,406, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $254,151,392 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (8,651,958) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $245,499,434 ===========================================================================
Cost of investments for tax purposes is $535,171,683. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 ------------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------ Sold 7,045,261 $ 179,792,985 4,333,736 $ 99,858,597 - ------------------------------------------------------------------------------- Issued as reinvestment of distributions -- -- 740,474 17,267,861 - ------------------------------------------------------------------------------- Reacquired (4,403,773) (112,224,457) (3,416,071) (77,216,505) - ------------------------------------------------------------------------------- 2,641,488 $ 67,568,528 1,658,139 $ 39,909,953 - -------------------------------------------------------------------------------
NOTE 8 - CALL OPTION CONTRACTS WRITTEN Transactions in call options written during the six months ended June 30, 1999 are summarized as follows:
CALL OPTION CONTRACTS -------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------ Beginning of period -- $ -- - ------------------------------------------ Written 803 123,950 - ------------------------------------------ Closed (383) (45,713) - ------------------------------------------ Expired (165) (23,223) - ------------------------------------------ End of period 255 $ 55,014 ==========================================
Open call option contracts written at June 30, 1999 were as follows:
JUNE 30, CONTRACT STRIKE NUMBER OF PREMIUMS 1999 UNREALIZED ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION - --------------------- -------------------------------------------------- Nike Inc. - Class B Aug 99 $70 255 $55,014 $48,137 $6,877 - -----------------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-30 112 NOTE 9 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the year ended January 31, 1995.
JUNE 30, DECEMBER 31, JANUARY 31, --------- -------------------------------------- ----------- 1999 1998 1997 1996 1995 1995 --------- -------- -------- -------- -------- ----------- Net asset value, beginning of period $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58 - ---------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.02 0.03 0.02 0.04 0.05 - ---------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 2.39 4.12 2.58 2.89 4.46 (0.54) - ---------------------------------------------------------------------------------------------- Total from investment operations 2.40 4.14 2.61 2.91 4.50 (0.49) - ---------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- (0.04) (0.02) (0.03) -- (0.04) - ---------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.65) (0.27) -- -- -- - ---------------------------------------------------------------------------------------------- Total distributions -- (0.69) (0.29) (0.03) -- (0.04) - ---------------------------------------------------------------------------------------------- Net asset value, end of period $ 27.60 $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05 ============================================================================================== Total return(a) 9.53% 19.30% 13.51% 17.58% 37.38% (3.91)% ============================================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $ 781,828 $647,248 $522,642 $370,063 $212,152 $88,177 ============================================================================================== Ratio of expenses to average net assets 0.67%(b) 0.67% 0.68% 0.73% 0.75%(c) 0.84% ============================================================================================== Ratio of net investment income to average net assets 0.08%(b) 0.11% 0.18% 0.18% 0.39%(c) 0.46% ============================================================================================== Portfolio turnover rate 32% 83% 65% 59% 37% 81% ==============================================================================================
(a) Total returns are not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $716,051,232. (c) Annualized. AIM V.I. CAPITAL APPRECIATION FUND FS-31 113 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE COMMON STOCK & OTHER EQUITY INTERESTS - 91.38% AEROSPACE/DEFENSE - 0.67% HEICO Corp. 800 $ 19,400 - -------------------------------------------------------------------- Kroll-O'Gara Co. (The)(a) 600 13,237 - -------------------------------------------------------------------- 32,637 - -------------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 0.98% Dura Automotive Systems, Inc.(a) 700 23,275 - -------------------------------------------------------------------- Keystone Automotive Industries, Inc.(a) 800 13,900 - -------------------------------------------------------------------- Stoneridge, Inc.(a) 800 10,800 - -------------------------------------------------------------------- 47,975 - -------------------------------------------------------------------- BANKS (REGIONAL) - 2.13% Banco Santandr Puerto Rico 600 10,837 - -------------------------------------------------------------------- Bank United Corp. - Class A 700 28,131 - -------------------------------------------------------------------- Colonial BancGroup, Inc. (The) 1,900 26,481 - -------------------------------------------------------------------- Independence Community Bank Corp. 1,600 21,600 - -------------------------------------------------------------------- North Fork Bancorporation, Inc. 800 17,050 - -------------------------------------------------------------------- 104,099 - -------------------------------------------------------------------- BEVERAGES (ALCOHOLIC) - 0.54% Canandaigua Brands, Inc. - Class A(a) 500 26,219 - -------------------------------------------------------------------- BIOTECHNOLOGY - 0.72% IDEXX Laboratories, Inc.(a) 800 18,650 - -------------------------------------------------------------------- Pharmaceutical Product Development, Inc.(a) 600 16,425 - -------------------------------------------------------------------- 35,075 - -------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 3.23% Citadel Communications Corp.(a) 600 21,712 - -------------------------------------------------------------------- Cox Radio, Inc. - Class A(a) 500 27,125 - -------------------------------------------------------------------- Emmis Communications Corp.(a) 400 19,750 - -------------------------------------------------------------------- Entercom Communications Corp.(a) 600 25,650 - -------------------------------------------------------------------- Hispanic Broadcasting Corp.(a) 300 22,762 - -------------------------------------------------------------------- Metro Networks, Inc.(a) 400 21,350 - -------------------------------------------------------------------- Univision Communications, Inc.(a) 300 19,800 - -------------------------------------------------------------------- 158,149 - -------------------------------------------------------------------- BUILDING MATERIALS - 0.36% TJ International, Inc. 300 9,300 - -------------------------------------------------------------------- White Cap Industries, Inc.(a) 700 8,269 - -------------------------------------------------------------------- 17,569 - -------------------------------------------------------------------- CHEMICALS (SPECIALTY) - 0.56% W.R. Grace & Co.(a) 1,500 27,562 - --------------------------------------------------------------------
MARKET SHARES VALUE COMMUNICATIONS EQUIPMEN - 3.09% Comverse Technology, Inc.(a) 550 $ 41,525 - -------------------------------------------------------------------- Digital Microwave Corp.(a) 1,000 12,750 - -------------------------------------------------------------------- General Instrument Corp.(a) 700 29,750 - -------------------------------------------------------------------- Gilat Satellite Networks Ltd.(a) 400 21,000 - -------------------------------------------------------------------- NorthEast Optic Network, Inc.(a) 1,100 16,569 - -------------------------------------------------------------------- PairGain Technologies, Inc.(a) 1,300 14,950 - -------------------------------------------------------------------- REMEC, Inc.(a) 900 14,512 - -------------------------------------------------------------------- 151,056 - -------------------------------------------------------------------- COMPUTERS (HARDWARE) - 0.31% Bell & Howell Co.(a) 400 15,125 - -------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 1.53% Actel Corp.(a) 1,000 14,750 - -------------------------------------------------------------------- DSP Communications, Inc.(a) 1,000 28,875 - -------------------------------------------------------------------- Jabil Circuit, Inc.(a) 400 18,050 - -------------------------------------------------------------------- QLogic Corp.(a) 100 13,200 - -------------------------------------------------------------------- 74,875 - -------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 6.10% AppNet Systems, Inc.(a) 400 5,375 - -------------------------------------------------------------------- Avant! Corp.(a) 800 10,100 - -------------------------------------------------------------------- Best Software, Inc.(a) 650 10,481 - -------------------------------------------------------------------- Dendrite International, Inc.(a) 500 18,062 - -------------------------------------------------------------------- Eclipsys Corp.(a) 100 2,394 - -------------------------------------------------------------------- Genesys Tellecommunications Laboratories, Inc.(a) 400 10,000 - -------------------------------------------------------------------- HNC Software, Inc.(a) 300 9,244 - -------------------------------------------------------------------- InfoCure Corp.(a) 900 47,644 - -------------------------------------------------------------------- Lycos, Inc.(a) 200 18,375 - -------------------------------------------------------------------- Mentor Graphics Corp.(a) 1,500 19,219 - -------------------------------------------------------------------- Mercury Interactive Corp.(a) 400 14,150 - -------------------------------------------------------------------- Peregrine Systems, Inc.(a) 1,000 25,687 - -------------------------------------------------------------------- Rational Software Corp.(a) 600 19,762 - -------------------------------------------------------------------- Structural Dynamics Research Corp.(a) 1,200 22,275 - -------------------------------------------------------------------- Symantec Corp.(a) 1,300 33,150 - -------------------------------------------------------------------- Transaction Systems Architects, Inc. - Class A(a) 500 19,500 - -------------------------------------------------------------------- Unigraphics Solutions, Inc.(a) 700 13,169 - -------------------------------------------------------------------- 298,587 - -------------------------------------------------------------------- CONSUMER FINANCE - 0.96% American Capital Strategies, Ltd. 200 3,650 - -------------------------------------------------------------------- AmeriCredit Corp.(a) 1,500 24,000 - -------------------------------------------------------------------- Cash America International, Inc. 1,500 19,312 - -------------------------------------------------------------------- 46,962 - --------------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-32 114
MARKET SHARES VALUE DISTRIBUTORS (FOOD & HEALTH) - 0.39% Performance Food Group Co.(a) 700 $ 19,031 - -------------------------------------------------------- ELECTRIC COMPANIES - 0.50% Avista Corp. 1,500 24,375 - -------------------------------------------------------- ELECTRICAL EQUIPMENT - 4.17% Conexant Systems, Inc.(a) 500 29,031 - -------------------------------------------------------- Cree Research, Inc.(a) 500 38,469 - -------------------------------------------------------- DII Group, Inc.(a) 600 22,387 - -------------------------------------------------------- Oak Industries, Inc.(a) 500 21,844 - -------------------------------------------------------- PCD, Inc.(a) 300 3,300 - -------------------------------------------------------- Pinnacle Systems, Inc.(a) 600 20,175 - -------------------------------------------------------- Sawtek, Inc.(a) 500 22,937 - -------------------------------------------------------- SCI Systems, Inc.(a) 400 19,000 - -------------------------------------------------------- SLI, Inc.(a) 1,000 27,000 - -------------------------------------------------------- 204,143 - -------------------------------------------------------- ELECTRONICS (DEFENSE) - 0.61% Aeroflex, Inc.(a) 1,500 29,625 - -------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 2.14% Alpha Industries, Inc.(a) 700 33,337 - -------------------------------------------------------- Methode Electronics, Inc. - Class A 500 11,437 - -------------------------------------------------------- Quanta Services, Inc.(a) 1,100 48,400 - -------------------------------------------------------- Varian, Inc.(a) 300 4,050 - -------------------------------------------------------- Varian Medical Systems, Inc. 300 7,575 - -------------------------------------------------------- 104,799 - -------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 1.76% Micrel, Inc.(a) 300 22,200 - -------------------------------------------------------- Microchip Technology, Inc.(a) 800 37,900 - -------------------------------------------------------- Unitrode Corp.(a) 900 25,819 - -------------------------------------------------------- 85,919 - -------------------------------------------------------- ENTERTAINMENT - 1.28% LodgeNet Entertainment Corp.(a) 400 5,575 - -------------------------------------------------------- Loews Cineplex Entertainment Corp.(a) 1,300 14,137 - -------------------------------------------------------- Pixar, Inc.(a) 400 17,250 - -------------------------------------------------------- SFX Entertainment, Inc. - Class A(a) 400 25,600 - -------------------------------------------------------- 62,562 - -------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR) - 0.39% DuPont Photomasks, Inc.(a) 100 4,787 - -------------------------------------------------------- Teradyne, Inc.(a) 200 14,350 - -------------------------------------------------------- 19,137 - -------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 1.00% FINOVA Group, Inc. 400 21,050 - -------------------------------------------------------- MicroFinancial, Inc. 700 10,019 - -------------------------------------------------------- SEI Investments Co. 200 17,650 - -------------------------------------------------------- 48,719 - --------------------------------------------------------
MARKET SHARES VALUE FOODS - 1.14% American Italian Pasta Co. - Class A(a) 850 $ 25,819 - -------------------------------------------------------------------- Keebler Foods Co.(a) 500 15,187 - -------------------------------------------------------------------- United Natural Foods, Inc.(a) 600 14,850 - -------------------------------------------------------------------- 55,856 - -------------------------------------------------------------------- HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.13% Alpharma, Inc. - Class A 700 24,894 - -------------------------------------------------------------------- Barr Laboratories, Inc.(a) 600 23,925 - -------------------------------------------------------------------- Jones Pharma, Inc. 400 15,750 - -------------------------------------------------------------------- Mylan Laboratories, Inc. 1,500 39,750 - -------------------------------------------------------------------- 104,319 - -------------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT) - 0.62% Health Management Associates, Inc. - Class A(a) 900 10,125 - -------------------------------------------------------------------- LifePoint Hospitals, Inc.(a) 1,500 20,156 - -------------------------------------------------------------------- 30,281 - -------------------------------------------------------------------- HEALTH CARE (MANAGED CARE) - 0.25% Express Scripts, Inc.-Class A(a) 200 12,037 - -------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.39% Cyberonics, Inc.(a) 600 7,500 - -------------------------------------------------------------------- Henry Schein, Inc.(a) 1,000 31,687 - -------------------------------------------------------------------- Lifecore Biomedical, Inc.(a) 600 6,900 - -------------------------------------------------------------------- Sybron International Corp.(a) 800 22,050 - -------------------------------------------------------------------- 68,137 - -------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 3.10% Advance Paradigm, Inc.(a) 400 24,400 - -------------------------------------------------------------------- Cairage Services, Inc., Gtd. Conv. Pfd., 7.00%(a) (Acquired 05/27/99; Cost $20,000)(b) 400 22,150 - -------------------------------------------------------------------- Capital Senior Living Corp.(a) 800 8,000 - -------------------------------------------------------------------- CareInsite, Inc.(a) 100 4,725 - -------------------------------------------------------------------- Omnicare, Inc. 800 10,100 - -------------------------------------------------------------------- Orthodontic Centers of America, Inc.(a) 1,600 22,600 - -------------------------------------------------------------------- Renal Care Group, Inc.(a) 600 15,525 - -------------------------------------------------------------------- Renex Corp.(a) 300 1,631 - -------------------------------------------------------------------- United Payors & United Providers, Inc.(a) 1,100 25,506 - -------------------------------------------------------------------- Ventana Medical Systems, Inc.(a) 900 17,213 - -------------------------------------------------------------------- 151,850 - -------------------------------------------------------------------- HOUSEHOLD FURNISHING & APPLIANCES - 0.49% Service Experts, Inc.(a) 1,100 24,131 - -------------------------------------------------------------------- HOUSEWARES - 0.34% Windmere-Durable Holdings, Inc.(a) 1,000 16,875 - -------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 1.20% Nationwide Financial Services, Inc. -Class A 400 18,100 - -------------------------------------------------------------------- Scottish Annuity & Life Holdings, Ltd. 1,200 12,900 - -------------------------------------------------------------------- UICI(a) 1,000 27,625 - -------------------------------------------------------------------- 58,625 - --------------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-33 115
MARKET SHARES VALUE INSURANCE (MULTI-LINE) - 0.30% Century Business Services, Inc.(a) 1,000 $ 14,500 - --------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 1.06% CNA Surety Corp. 800 12,250 - --------------------------------------------------------------- HCC Insurance Holdings, Inc. 900 20,419 - --------------------------------------------------------------- Radian Group, Inc. 393 19,183 - --------------------------------------------------------------- 51,852 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.38% Hambrecht & Quist Group(a) 500 18,563 - --------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.86% Affiliated Managers Group, Inc.(a) 800 24,150 - --------------------------------------------------------------- Knight/Trimark Group, Inc. - Class A(a) 300 18,094 - --------------------------------------------------------------- 42,244 - --------------------------------------------------------------- LODGING-HOTELS - 0.32% Prime Hospitality Corp.(a) 1,300 15,600 - --------------------------------------------------------------- MACHINERY (DIVERSIFIED) - 0.45% Applied Power, Inc. - Class A 800 21,850 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.32% Spartech Corp. 500 15,813 - --------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 1.58% Alpine Group, Inc. (The)(a) 1,000 16,063 - --------------------------------------------------------------- American Bank Note Holographics, Inc.(a) 1,000 2,750 - --------------------------------------------------------------- Armor Holdings, Inc.(a) 1,500 15,656 - --------------------------------------------------------------- Howmet International, Inc.(a) 100 1,719 - --------------------------------------------------------------- Mettler-Toledo International, Inc.(a) 1,100 27,294 - --------------------------------------------------------------- Superior TeleCom, Inc. 550 13,750 - --------------------------------------------------------------- 77,232 - --------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES - 0.33% School Specialty, Inc.(a) 1,000 16,063 - --------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 2.18% BJ Services Co.(a) 800 23,550 - --------------------------------------------------------------- Cooper Cameron Corp.(a) 400 14,825 - --------------------------------------------------------------- Key Energy Group, Inc.(a) 8,000 28,500 - --------------------------------------------------------------- Newpark Resources, Inc.(a) 1,500 13,313 - --------------------------------------------------------------- Transocean Offshore, Inc. 1,000 26,250 - --------------------------------------------------------------- 106,438 - --------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 2.16% Anadarko Petroleum Corp. 400 14,725 - --------------------------------------------------------------- Apache Corp. 600 23,400 - --------------------------------------------------------------- Basin Exploration, Inc.(a) 1,100 22,069 - --------------------------------------------------------------- Devon Energy Corp. 800 28,600 - --------------------------------------------------------------- Newfield Exploration Co.(a) 600 17,063 - --------------------------------------------------------------- 105,857 - ---------------------------------------------------------------
MARKET SHARES VALUE PAPER & FOREST PRODUCTS - 0.68% Potlatch Corp. 300 $ 13,181 - ------------------------------------------------------------------ Rayonier, Inc. 400 19,925 - ------------------------------------------------------------------ 33,106 - ------------------------------------------------------------------ PERSONAL CARE - 1.18% Chattem, Inc.(a) 900 28,631 - ------------------------------------------------------------------ Playtex Products, Inc.(a) 500 7,781 - ------------------------------------------------------------------ Steiner Leisure Ltd.(a) 700 21,219 - ------------------------------------------------------------------ 57,631 - ------------------------------------------------------------------ PUBLISHING - 0.37% IDG Books Worldwide, Inc. - Class A(a) 1,000 18,250 - ------------------------------------------------------------------ RAILROADS - 0.54% MotivePower Industries, Inc.(a) 1,000 18,500 - ------------------------------------------------------------------ Westinghouse Air Brake Co. 300 7,781 - ------------------------------------------------------------------ 26,281 - ------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS - 1.51% AMRESCO Capital Trust, Inc. 550 5,225 - ------------------------------------------------------------------ Apartment Investment & Management Co. - Class A 600 25,650 - ------------------------------------------------------------------ Colonial Properties Trust 600 16,950 - ------------------------------------------------------------------ Correctional Properties Trust 1,000 15,750 - ------------------------------------------------------------------ Manufactured Home Communities, Inc. 400 10,400 - ------------------------------------------------------------------ 73,975 - ------------------------------------------------------------------ RESTAURANTS - 1.33% CEC Entertainment, Inc.(a) 750 31,688 - ------------------------------------------------------------------ Dave & Buster's, Inc.(a) 1,000 29,000 - ------------------------------------------------------------------ Luby's, Inc. 300 4,500 - ------------------------------------------------------------------ 65,188 - ------------------------------------------------------------------ RETAIL (COMPUTERS & ELECTRONICS) - 0.45% CDW Computer Centers, Inc.(a) 500 22,000 - ------------------------------------------------------------------ RETAIL (DISCOUNTERS) - 0.29% Family Dollar Stores, Inc. 600 14,400 - ------------------------------------------------------------------ RETAIL (FOOD CHAINS) - 1.02% BJ's Wholesale Club, Inc.(a) 800 24,050 - ------------------------------------------------------------------ Wild Oats Markets, Inc.(a) 850 25,792 - ------------------------------------------------------------------ 49,842 - ------------------------------------------------------------------ RETAIL (SPECIALTY) - 4.98% Claire's Stores, Inc. 300 7,688 - ------------------------------------------------------------------ CSK Auto Corp.(a) 1,000 27,000 - ------------------------------------------------------------------ Electronics Boutique Holdings Corp.(a) 300 4,275 - ------------------------------------------------------------------ Footstar, Inc.(a) 400 14,875 - ------------------------------------------------------------------ General Nutrition Companies, Inc.(a) 1,200 27,975 - ------------------------------------------------------------------ Hibbett Sporting Goods, Inc.(a) 800 17,600 - ------------------------------------------------------------------ Linens 'N Things, Inc.(a) 700 30,625 - ------------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-34 116
MARKET SHARES VALUE RETAIL (SPECIALTY) - (CONTINUED) Lithia Motors, Inc. - Class A(a) 600 $ 12,300 - ----------------------------------------------------------- Michaels Stores, Inc.(a) 900 27,563 - ----------------------------------------------------------- Rainbow Rentals, Inc.(a) 600 6,900 - ----------------------------------------------------------- Rent-A-Center, Inc.(a) 800 19,200 - ----------------------------------------------------------- Rent-Way, Inc.(a) 876 21,572 - ----------------------------------------------------------- Zale Corp.(a) 650 26,000 - ----------------------------------------------------------- 243,573 - ----------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 1.18% AnnTaylor Stores Corp.(a) 400 18,000 - ----------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 1,100 28,050 - ----------------------------------------------------------- Wet Seal, Inc. - Class A(a) 400 11,450 - ----------------------------------------------------------- 57,500 - ----------------------------------------------------------- SAVINGS & LOAN COMPANIES - 0.59% Allied Capital Corp. 1,200 28,800 - ----------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 3.83% ACNielsen Corp.(a) 800 24,200 - ----------------------------------------------------------- Acxiom Corp.(a) 920 22,943 - ----------------------------------------------------------- Forrester Research, Inc.(a) 200 5,000 - ----------------------------------------------------------- HA-LO Industries, Inc.(a) 1,650 16,294 - ----------------------------------------------------------- Lamar Advertising Co.(a) 550 22,516 - ----------------------------------------------------------- Nielsen Media Research(a) 933 27,290 - ----------------------------------------------------------- Penton Media, Inc. 600 14,550 - ----------------------------------------------------------- Snyder Communications, Inc.(a) 700 22,925 - ----------------------------------------------------------- TeleTech Holdings, Inc.(a) 900 9,113 - ----------------------------------------------------------- Young & Rubicam, Inc. 500 22,719 - ----------------------------------------------------------- 187,550 - ----------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 5.64% Central Parking Corp. 700 23,975 - ----------------------------------------------------------- Copart, Inc.(a) 800 17,000 - ----------------------------------------------------------- F.Y.I., Inc.(a) 600 18,825 - ----------------------------------------------------------- INSpire Insurance Solutions, Inc.(a) 1,000 14,500 - ----------------------------------------------------------- Iron Mountain, Inc.(a) 1,050 30,056 - ----------------------------------------------------------- Jones Lang LaSalle Inc.(a) 300 8,944 - ----------------------------------------------------------- MAXIMUS, Inc.(a) 700 20,125 - ----------------------------------------------------------- Pegasus Systems, Inc.(a) 500 18,719 - ----------------------------------------------------------- Pre-Paid Legal Services, Inc.(a) 900 24,469 - ----------------------------------------------------------- Primark Corp.(a) 700 19,644 - ----------------------------------------------------------- Regis Corp. 1,250 23,984 - ----------------------------------------------------------- Stamps.com(a) 300 5,250 - ----------------------------------------------------------- Stewart Enterprises, Inc. - Class A 1,100 16,019 - ----------------------------------------------------------- Sylvan Learning Systems, Inc.(a) 900 24,469 - ----------------------------------------------------------- Trammell Crow Co.(a) 600 9,863 - ----------------------------------------------------------- 275,842 - -----------------------------------------------------------
MARKET SHARES VALUE SERVICES (COMPUTER SYSTEMS) - 2.01% Insight Enterprises, Inc.(a) 675 $ 16,706 - ----------------------------------------------------------------- Policy Management Systems Corp.(a) 500 15,000 - ----------------------------------------------------------------- Safeguard Scientifics, Inc.(a) 200 12,400 - ----------------------------------------------------------------- SunGard Data Systems, Inc.(a) 800 27,600 - ----------------------------------------------------------------- Sykes Enterprises, Inc.(a) 800 26,700 - ----------------------------------------------------------------- 98,406 - ----------------------------------------------------------------- SERVICES (DATA PROCESSING) - 2.79% BISYS Group, Inc.(a) 650 38,025 - ----------------------------------------------------------------- CSG Systems International, Inc.(a) 700 18,331 - ----------------------------------------------------------------- Lason Holdings, Inc.(a) 500 24,813 - ----------------------------------------------------------------- MedQuist, Inc.(a) 600 26,250 - ----------------------------------------------------------------- National Data Corp. 400 17,100 - ----------------------------------------------------------------- 4Front Technologies, Inc.(a) 1,200 11,850 - ----------------------------------------------------------------- 136,369 - ----------------------------------------------------------------- SERVICES (EMPLOYMENT) - 1.30% Heidrick & Sttuggles International, Inc.(a) 1,600 30,400 - ----------------------------------------------------------------- Korn/Ferry International(a) 1,000 17,000 - ----------------------------------------------------------------- Labor Ready, Inc.(a) 500 16,250 - ----------------------------------------------------------------- 63,650 - ----------------------------------------------------------------- SERVICES (FACILITIES & ENVIRONMENTAL) - 2.20% Casella Waste Systems, Inc.(a) 1,100 28,600 - ----------------------------------------------------------------- Cornell Corrections, Inc.(a) 1,100 18,081 - ----------------------------------------------------------------- Tetra Tech, Inc.(a) 900 14,850 - ----------------------------------------------------------------- Wackenhut Corrections Corp.(a) 1,100 21,794 - ----------------------------------------------------------------- Waste Connections, Inc.(a) 800 24,400 - ----------------------------------------------------------------- 107,725 - ----------------------------------------------------------------- SPECIALTY PRINTING - 0.56% World Color Press, Inc.(a) 1,000 27,500 - ----------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.80% Powerwave Technologies, Inc.(a) 800 25,800 - ----------------------------------------------------------------- Western Wireless Corp. - Class A(a) 500 13,500 - ----------------------------------------------------------------- 39,300 - ----------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 2.60% CapRock Communications Corp.(a) 400 16,200 - ----------------------------------------------------------------- ITC DeltaCom, Inc.(a) 900 25,200 - ----------------------------------------------------------------- IXC Communications, Inc.(a) 900 35,381 - ----------------------------------------------------------------- Network Plus Corp.(a) 1,600 33,400 - ----------------------------------------------------------------- Viatel, Inc.(a) 300 16,838 - ----------------------------------------------------------------- 127,019 - -----------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-35 117
MARKET SHARES VALUE WASTE MANAGEMENT - 1.51% Catalytica, Inc.(a) 1,700 $ 23,800 - --------------------------------------------------------------------------------- Safety-Kleen Corp.(a) 1,400 25,375 - --------------------------------------------------------------------------------- U.S. Liquids, Inc.(a) 1,000 20,875 - --------------------------------------------------------------------------------- Waste Industries, Inc.(a) 200 3,575 - --------------------------------------------------------------------------------- 73,625 - --------------------------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $3,948,620) 4,469,855 - --------------------------------------------------------------------------------- FOREIGN STOCKS - 1.81% BERMUDA - 0.32% Annuity and Life Reassurance (Holdings), Ltd. (Insurance - Life/Health) 700 15,706 - --------------------------------------------------------------------------------- CANADA - 0.67% Biovail Corp. International (Health Care - Drugs - Generic & Other)(a) 300 15,319 - --------------------------------------------------------------------------------- Celestica Inc. (Electronics-Semiconductors)(a) 400 17,325 - --------------------------------------------------------------------------------- 32,644 - --------------------------------------------------------------------------------- IRELAND - 0.54% Ryanair Holdings PLC-ADR (Airlines)(a) 500 26,500 - --------------------------------------------------------------------------------- ISRAEL - 0.22% Check Point Software Technologies Ltd. (Computers - Software & Services)(a) 200 10,725 - --------------------------------------------------------------------------------- UNITED KINGDOM - 0.06% Stolt Comex Seaway, S.A. (Oil & Gas - Exploration & Production)(a) 250 2,719 - --------------------------------------------------------------------------------- Total Foreign Stocks (Cost $69,988) 88,294 - --------------------------------------------------------------------------------- Total Investments, Excluding Repurchase Agreements (Cost $4,018,608) 4,558,149 - --------------------------------------------------------------------------------- PRINCIPAL AMOUNT REPURCHASE AGREEMENT - 15.01%(c) Dean Witter Reynolds, Inc., 4.85%, 07/01/99(d) (Cost $734,156) $ 734,156 734,156 - --------------------------------------------------------------------------------- TOTAL INVESTMENTS - 108.20% 5,292,305 ================================================================================= LIABILITIES LESS OTHER ASSETS - (8.20%) (400,974) ================================================================================= NET ASSETS - 100.00% $4,891,331 =================================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of this security has been determined in accordance with procedures established by the board of Directors. The market value at 06/30/99 represents 0.45% of the Fund's net assets. (c) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (d) Joint repurchase agreement entered into 6/30/99 with a maturing value of $100,013,472. Collateralized by U.S. Government obligations. Investment Abbreviations: ADR - American Depositary Receipt Conv. - Convertible Gtd - Guaranteed Pfd - Preferred See Notes to Financial Statements. AIM V.I. CAPITAL DEVELOPMENT FUND FS-36 118 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, excluding Repurchase Agreement, at market value (cost $4,018,608) $ 4,558,149 - ---------------------------------------------------------------------- Repurchase Agreement (cost $734,156) 734,156 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 14,995 - ---------------------------------------------------------------------- Dividends and interest 1,072 - ---------------------------------------------------------------------- Investments sold 68,687 - ---------------------------------------------------------------------- Reimbursement from advisor 4,967 - ---------------------------------------------------------------------- Investment for deferred compensation plan 4,108 - ---------------------------------------------------------------------- Total assets 5,386,134 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 479,625 - ---------------------------------------------------------------------- Deferred compensation plan 4,108 - ---------------------------------------------------------------------- Accrued directors' fees 1,844 - ---------------------------------------------------------------------- Accrued operating expenses 9,226 - ---------------------------------------------------------------------- Total liabilities 494,803 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $ 4,891,331 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 521,151 ====================================================================== Net asset value, offering and redemption price per share $ 9.39 ======================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $ 10,230 - -------------------------------------------------------------------- Dividends (net of $26 foreign withholding tax) 5,882 - -------------------------------------------------------------------- Total investment income 16,112 - -------------------------------------------------------------------- EXPENSES: Advisory fees 13,222 - -------------------------------------------------------------------- Administrative services fees 18,686 - -------------------------------------------------------------------- Custodian fees 19,706 - -------------------------------------------------------------------- Directors' fees and expenses 3,648 - -------------------------------------------------------------------- Professional fees 11,251 - -------------------------------------------------------------------- Other 2,666 - -------------------------------------------------------------------- Total expenses 69,179 - -------------------------------------------------------------------- Less: Fees waived and reimbursed by advisor (48,201) - -------------------------------------------------------------------- Expenses paid indirectly (59) - -------------------------------------------------------------------- Net expenses 20,919 - -------------------------------------------------------------------- Net investment income (loss) (4,807) - -------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities (77,077) - -------------------------------------------------------------------- Option contracts (1,254) - -------------------------------------------------------------------- Foreign currencies (30) - -------------------------------------------------------------------- (78,361) - -------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 244,592 - -------------------------------------------------------------------- Foreign currencies (4) - -------------------------------------------------------------------- 244,588 - -------------------------------------------------------------------- Net gain from investment securities and futures contracts 166,227 - -------------------------------------------------------------------- Net increase in net assets resulting from operations $161,420 ====================================================================
See Notes to Financial Statements. AIM V.I. CAPITAL DEVELOPMENT FUND FS-37 119 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 (Unaudited) JUNE 30, DECEMBER 31, OPERATIONS: 1999 1998 ---------- ------------ Net investment income (loss) $ (4,807) $ 8,126 - --------------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies and futures contracts (78,361) (254,021) - --------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities and foreign currencies 244,588 294,948 - --------------------------------------------------------------------------------- Net increase in net assets resulting from operations 161,420 49,053 - --------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (12,074) - --------------------------------------------------------------------------------- Net increase from capital stock transactions 1,557,443 3,135,489 - --------------------------------------------------------------------------------- Net increase in net assets 1,718,863 3,172,468 - --------------------------------------------------------------------------------- NET ASSETS: Beginning of period 3,172,468 -- - --------------------------------------------------------------------------------- End of period $4,891,331 $3,172,468 ================================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $4,692,073 $3,134,630 - --------------------------------------------------------------------------------- Undistributed net investment income (loss) (7,868) (3,061) - --------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and futures contracts (332,410) (254,049) - --------------------------------------------------------------------------------- Unrealized appreciation of investment securities 539,536 294,948 - --------------------------------------------------------------------------------- $4,891,331 $3,172,468 =================================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Capital Development Fund (the "Fund"). The Fund's investment objective is long-term capital appreciation. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. a. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or, absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities AIM V.I. CAPITAL DEVELOPMENT FUND FS-38 120 occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $204,323 as of December 31, 1998, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. F. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of the first $350 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $350 million. During the six months ended June 30, 1999, AIM waived advisory fees and reimbursed expenses of $48,201. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $18,686 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $59 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $59 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. AIM V.I. CAPITAL DEVELOPMENT FUND FS-39 121 NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended June 30, 1999 was $3,786,427 and $2,277,019, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $ 641,969 - ----------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (107,928) - ----------------------------------------------------------------------- Net unrealized appreciation of investment securities $ 534,041 =======================================================================
Cost of investments for tax purposes is $4,024,108. NOTE 7 - CALL OPTION CONTRACTS Transactions in call options written during the period ended June 30, 1999 are summarized as follows:
CALL OPTION CONTRACTS ------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED ---------------- Beginning of Period - $ - - --------------------------------------- Written 9 912 - --------------------------------------- Closed (7) (756) - --------------------------------------- Expired (2) (156) - --------------------------------------- End of Period - $ - =======================================
NOTE 8 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 as follows:
JUNE 30, DECEMBER 31, 1999 1998 ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT ------- ---------- ------- ---------- Sold 197,937 $1,740,318 403,978 $3,617,838 - -------------------------------------------------------------------- Issued as reinvestment of distributions - - 1,426 12,074 - -------------------------------------------------------------------- Reacquired (21,236) (182,875) (60,954) (494,423) - -------------------------------------------------------------------- 176,701 $1,557,443 344,450 $3,135,489 ====================================================================
NOTE 9 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, and the period May 1, 1998 (date operations commenced) through December 31, 1998.
JUNE 30, DECEMBER 31, 1999(a) 1998 -------- ------------ Net asset value, beginning of period $ 9.21 $10.00 - ----------------------------------------------------- ------ ------ Income from investment operations: Net investment income (0.01) 0.03 (a) - ----------------------------------------------------- ------ ------ Net gains (losses) on securities (both realized and unrealized) 0.19 (0.78) - ----------------------------------------------------- ------ ------ Total from investment operations 0.18 (0.75) - ----------------------------------------------------- ------ ------ Less distributions: Dividends from net investment income - (0.04) - ----------------------------------------------------- ------ ------ Net asset value, end of period $ 9.39 $ 9.21 ===================================================== ====== ====== Total return(b) 1.95% (7.51)% ===================================================== ====== ====== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $4,891 $3,172 ===================================================== ====== ====== Ratio of expenses to average net assets(c) 1.19%(d) 1.21% ===================================================== ====== ====== Ratio of net investment income (loss) to average net assets(e) (0.27)%(d) 0.62% ===================================================== ====== ====== Portfolio turnover rate 49% 45% ===================================================== ====== ======
(a) Calculated using average shares outstanding. (b) Total returns is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements were 3.92% (annualized) and 5.80% (annualized) for 1999-1998 respectively. (d) Ratios are annualized and based on average net assets of $3,555,211. (e) After fee waivers and/or expense reimbursements. Ratio of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursement were (3.01)% (annualized) and (3.97)% (annualized) for 1999- 1998 respectively. AIM V.I. CAPITAL DEVELOPMENT FUND FS-40 122 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
PRINCIPAL MARKET AMOUNT(a) VALUE U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 65.23% AGRICULTURAL PRODUCTS - 0.52% Cargill, Inc., Notes, 6.875%, 05/01/28 (Acquired 03/12/99; Cost $499,010)(b) $ 500,000 $ 465,170 - ------------------------------------------------------------------------------- AIR FREIGHT - 0.46% Atlas Air, Inc., Sr. Unsec. Notes, 10.75%, 08/01/05 400,000 411,000 - ------------------------------------------------------------------------------- AIRLINES - 3.22% Airplanes Pass Through Trust, Series D Gtd. Sub. Bonds, 10.875%, 03/15/19 300,000 289,093 - ------------------------------------------------------------------------------- Delta Air Lines, Inc., Deb., 9.00%, 05/15/16 825,000 900,537 - ------------------------------------------------------------------------------- 10.375%, 12/15/22 600,000 745,404 - ------------------------------------------------------------------------------- Dunlop Stand Aero Holdings, Sr. Notes, 11.875%, 05/15/09 (Acquired 05/07/99; Cost $458,008)(b) 460,000 469,200 - ------------------------------------------------------------------------------- United Air Lines, Inc., Pass Through Ctfs., 9.56%, 10/19/18 425,000 476,467 - ------------------------------------------------------------------------------- 2,880,701 - ------------------------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 0.85% Advance Stores Co., Inc., Series B Sr. Unsec. Gtd. Sub. Notes, 10.25%, 04/15/08 390,000 374,400 - ------------------------------------------------------------------------------- Exide Corp., Sr. Notes, 10.00%, 04/15/05 380,000 383,800 - ------------------------------------------------------------------------------- 758,200 - ------------------------------------------------------------------------------- AUTOMOBILES - 0.51% General Motors Corp., Deb., 8.80%, 03/01/21 400,000 455,816 - ------------------------------------------------------------------------------- BANKS (MAJOR REGIONAL) - 0.58% Regions Financial Corp., Sub. Notes, 7.75%, 09/15/24 500,000 518,815 - ------------------------------------------------------------------------------- BANKS (MONEY CENTER) - 2.54% Deutsche Bank Financial, Unsec. Gtd. Sub. Deb., 6.70%, 12/13/06 750,000 735,382 - ------------------------------------------------------------------------------- First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 800,000 823,128 - ------------------------------------------------------------------------------- HSBC Holdings PLC (United Kingdom), Sub. Notes, 7.50%, 07/15/09 700,000 707,826 - ------------------------------------------------------------------------------- 2,266,336 - ------------------------------------------------------------------------------- BANKS (REGIONAL) - 0.33% Mercantile Bancorp, Inc., Sub. Notes, 6.375%, 01/15/04 300,000 295,059 - ------------------------------------------------------------------------------- BEVERAGES (NON-ALCOHOLIC) - 0.49% Coca-Cola Enterprises, Inc., Putable Notes, 8.35%, 06/20/20(c) 2,000,000 442,300 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE BROADCASTING (TELEVISION, RADIO & CABLE) - 4.91% Comcast Cable Communications, Notes, 8.50%, 05/01/27 $ 500,000 $ 557,455 - -------------------------------------------------------------------------------- CSC Holdings, Inc., Sr. Unsec. Notes, 7.875%, 12/15/07 500,000 503,760 - -------------------------------------------------------------------------------- Deb., 7.875%, 02/15/18 400,000 388,248 - -------------------------------------------------------------------------------- Deb., 7.625%, 07/15/18 1,000,000 946,580 - -------------------------------------------------------------------------------- Fox Family Worldwide, Inc., Sr. Unsec. Disc. Notes 10.25%, 11/01/07(d) 840,000 529,200 - -------------------------------------------------------------------------------- Knology Holdings, Inc., Sr. Disc. Notes, 11.875%, 10/15/07(d) 1,000,000 582,500 - -------------------------------------------------------------------------------- Liberty Media Group, Deb., 7.875%, 07/15/09(b) 400,000 397,616 - -------------------------------------------------------------------------------- USA Networks, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 11/15/05 500,000 480,421 - -------------------------------------------------------------------------------- 4,385,780 - -------------------------------------------------------------------------------- CHEMICALS - 1.59% Airgas, Inc., Medium Term Notes, 7.14%, 03/08/04 750,000 720,840 - -------------------------------------------------------------------------------- Nova Gas Transmission Ltd. (Canada), Yankee Deb., 8.50%, 12/15/12 500,000 556,040 - -------------------------------------------------------------------------------- Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes, 11.75%, 08/15/06 185,000 143,375 - -------------------------------------------------------------------------------- 1,420,255 - -------------------------------------------------------------------------------- CHEMICALS (SPECIALTY) - 0.45% Rohm and Hass Co., Deb., 7.85%, 07/15/29(b) 400,000 399,708 - -------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 0.47% Dialog Corp. PLC (United Kingdom), Series A Sr. Sub. Yankee Notes, 11.00%, 11/15/07 350,000 318,500 - -------------------------------------------------------------------------------- Northern Telecom (Canada), Yankee Notes, 6.00%, 09/01/03 100,000 98,701 - -------------------------------------------------------------------------------- 417,201 - -------------------------------------------------------------------------------- COMPUTERS (NETWORKING) - 0.57% Exodus Communications, Sr. Unsec. Notes, 11.25%, 07/01/08 480,000 507,600 - -------------------------------------------------------------------------------- CONSUMER FINANCE - 0.90% GMAC, Notes, 9.00%, 10/15/02 750,000 806,775 - -------------------------------------------------------------------------------- ELECTRIC COMPANIES - 2.52% Cleveland Electric Illumination, Series D Sr. Sec. Notes, 7.88%, 11/01/17 500,000 512,468 - -------------------------------------------------------------------------------- El Paso Electric Co., Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 500,000 539,250 - -------------------------------------------------------------------------------- Series E Sec. First Mortgage Bonds, 9.40%, 05/01/11 150,000 168,647 - --------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-41 123
PRINCIPAL MARKET AMOUNT VALUE ELECTRIC COMPANIES - (CONTINUED) Niagara Mohawk Power Corp., Series G Sr. Unsec. Notes, 7.75%, 10/01/08 $1,000,000 $ 1,030,000 - ------------------------------------------------------------------------------- 2,250,365 - ------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 0.19% Electronic Retailing Systems International, Inc., Sr. Disc. Notes, 13.25%, 02/01/04(d) 590,000 168,150 - ------------------------------------------------------------------------------- ENTERTAINMENT - 1.44% Ascent Entertainment Group, Sr. Sec. Disc. Notes, 11.875%, 12/15/04(d) 350,000 253,750 - ------------------------------------------------------------------------------- Time Warner, Inc., Deb., 9.125%, 01/15/13 900,000 1,029,429 - ------------------------------------------------------------------------------- 1,283,179 - ------------------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 2.41% Associates Corp. of North America, Series B Sr. Deb., 7.95%, 02/15/10 750,000 794,235 - ------------------------------------------------------------------------------- Finova Capital Corp., Unsec. Notes, 7.40%, 05/06/06 750,000 758,325 - ------------------------------------------------------------------------------- Sumitomo Bank International Finance N.V. (Netherlands), Gtd. Sub. Notes, 8.50%, 06/15/09 600,000 604,931 - ------------------------------------------------------------------------------- 2,157,491 - ------------------------------------------------------------------------------- FOODS - 1.58% AmeriServe Food Distributors, Inc., Sr. Unsec. Gtd. Notes, 8.875%, 10/15/06 115,000 106,375 - ------------------------------------------------------------------------------- ConAgra, Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,307,774 - ------------------------------------------------------------------------------- 1,414,149 - ------------------------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.44% Venetian Casino Resort LLC, Sec. Gtd. Mortgage Notes, 12.25%, 11/15/04 400,000 394,000 - ------------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.33% ALARIS Medical, Inc., Sr. Unsec. Gtd. Sub. Notes, 9.75%, 12/01/06 300,000 295,500 - ------------------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 0.46% Team Health, Inc., Sr. Sub. Notes, 12.00%, 03/15/09 (Acquired 03/05/99; Cost $400,000)(b) 400,000 408,000 - ------------------------------------------------------------------------------- HOMEBUILDING - 0.55% D.R. Horton, Inc., Sr. Unsec. Gtd. Notes, 8.00%, 02/01/09 520,000 494,000 - ------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.44% Procter & Gamble Co. (The), Putable Deb., 8.00%, 09/01/24 350,000 390,943 - ------------------------------------------------------------------------------- HOUSEWARES - 0.54% Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes, 11.00%, 05/01/05 500,000 482,500 - ------------------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 1.15% Americo Life, Inc., Sr. Sub. Notes, 9.25%, 06/01/05 75,000 76,125 - ------------------------------------------------------------------------------- Torchmark Corp., Notes, 7.875%, 05/15/23 950,000 950,922 - ------------------------------------------------------------------------------- 1,027,047 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE IRON & STEEL - 0.40% Acme Metals, Inc., Sr. Unsec. Gtd. Notes, 10.875%, 12/15/07(e) $ 588,000 $ 67,620 - ------------------------------------------------------------------------------- GS Industries, Inc., Sr. Gtd. Notes, 12.00%, 09/01/04 350,000 290,500 - ------------------------------------------------------------------------------- 358,120 - ------------------------------------------------------------------------------- LODGING-HOTELS - 1.34% Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes, 12.50%, 03/15/07 390,000 345,150 - ------------------------------------------------------------------------------- John Q. Hammons Hotels, Inc., Sec. First Mortgage Notes, 9.75%, 10/01/05 550,000 526,625 - ------------------------------------------------------------------------------- Stena Line A.B. (Sweden), Sr. Yankee Notes, 10.625%, 06/01/08 430,000 325,725 - ------------------------------------------------------------------------------- 1,197,500 - ------------------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.60% Elgin National Industries, Series B Sr. Unsec. Gtd. Notes, 11.00%, 11/01/07 240,000 238,800 - ------------------------------------------------------------------------------- Glenoit Corp., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 04/15/07 340,000 300,900 - ------------------------------------------------------------------------------- 539,700 - ------------------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.44% MMI Products, Inc., Sr. Unsec. Sub. Notes, 11.25%, 04/15/07 380,000 391,400 - ------------------------------------------------------------------------------- METALS MINING - 0.97% Centaur Mining & Exploration Ltd. (Australia), Sr. Gtd. Yankee Notes, 11.00%, 12/01/07 550,000 507,375 - ------------------------------------------------------------------------------- Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%, 11/01/05 370,000 356,147 - ------------------------------------------------------------------------------- 863,522 - ------------------------------------------------------------------------------- NATURAL GAS - 2.38% Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 500,000 467,460 - ------------------------------------------------------------------------------- Enron Corp., Sr. Sub. Deb., 6.75%, 07/01/05 450,000 444,578 - ------------------------------------------------------------------------------- Notes, 6.75%, 08/01/09 750,000 720,390 - ------------------------------------------------------------------------------- K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 500,000 493,965 - ------------------------------------------------------------------------------- 2,126,393 - ------------------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.55% NRG Energy, Inc., Sr. Unsec. Notes, 7.50%, 06/01/09 500,000 493,240 - ------------------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.90% Chesapeake Energy Corp., Series B Sr. Unsec. Gtd. Notes, 9.625%, 05/01/05 175,000 164,500 - ------------------------------------------------------------------------------- Queen Sand Resources, Inc., Sr. Unsec. Gtd. Notes, 12.50%, 07/01/08 240,000 152,400 - ------------------------------------------------------------------------------- Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%, 06/01/07 500,000 488,080 - ------------------------------------------------------------------------------- 804,980 - -------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-42 124
PRINCIPAL MARKET AMOUNT VALUE OIL & GAS (REFINING & MARKETING) - 0.33% Texas Petrochemical Corp., Sr. Unsec. Sub. Notes, 11.125%, 07/01/06 $ 330,000 $ 295,350 - ------------------------------------------------------------------------------- PERSONAL CARE - 1.08% Alberto-Culver Corp., Unsec. Deb., 6.375%, 06/15/28 1,000,000 963,800 - ------------------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 1.33% AES Corp., Sr. Notes, 8.00%, 12/31/08 750,000 708,750 - ------------------------------------------------------------------------------- MidAmerican Energy Holdings Co., Sr. Unsec. Bonds, 8.48%, 09/15/28 450,000 481,847 - ------------------------------------------------------------------------------- 1,190,597 - ------------------------------------------------------------------------------- PUBLISHING (NEWSPAPERS) - 1.85% News America Holdings, Inc., Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 845,333 - ------------------------------------------------------------------------------- Putable Bonds, 7.43%, 10/01/26 500,000 506,450 - ------------------------------------------------------------------------------- United News & Media PLC (United Kingdom), Yankee Notes, 7.75%, 07/01/09 300,000 299,448 - ------------------------------------------------------------------------------- 1,651,231 - ------------------------------------------------------------------------------- RAILROADS - 1.92% CSX Corp., Sr. Unsec. Putable Deb., 6.95%, 05/01/27 300,000 301,128 - ------------------------------------------------------------------------------- 7.25%, 05/01/27 750,000 755,025 - ------------------------------------------------------------------------------- Norfolk Southern Corp., Putable Bonds, 7.05%, 05/01/37 650,000 661,778 - ------------------------------------------------------------------------------- 1,717,931 - ------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS - 1.58% Glenborough Properties, Series B Sr. Unsec. Notes, 7.625%, 03/15/05 800,000 713,142 - ------------------------------------------------------------------------------- Spieker Properties LP, Unsec. Deb., 7.35%, 12/01/17 750,000 696,840 - ------------------------------------------------------------------------------- 1,409,982 - ------------------------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 0.30% Plainwell, Inc., Series B Sr. Unsec. Sub. Notes, 11.00%, 03/01/08 330,000 265,650 - ------------------------------------------------------------------------------- RETAIL (SPECIALTY) - 1.64% CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes, 9.625%, 06/01/08 370,000 348,725 - ------------------------------------------------------------------------------- CSK Auto Inc., Series A Sr. Gtd. Sub. Notes, 11.00%, 11/01/06 260,000 269,100 - ------------------------------------------------------------------------------- Neff Corp., Sr. Unsec. Gtd. Sub. Notes, 10.25%, 06/01/08 330,000 339,900 - ------------------------------------------------------------------------------- Rent-A-Center, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 08/15/08 500,000 503,750 - ------------------------------------------------------------------------------- 1,461,475 - ------------------------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 0.83% Big 5 Corp., Series B Sr. Unsec. Notes, 10.875%, 11/15/07 500,000 510,000 - ------------------------------------------------------------------------------- J Crew Operating Corp., Sr. Sub. Notes, 10.375%, 10/15/07 240,000 236,400 - ------------------------------------------------------------------------------- 746,400 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE SAVINGS & LOAN COMPANIES - 0.91% Sovereign Bancorp, Inc., Sub. Notes, 8.00%, 03/15/03 $ 800,000 $ 809,832 - ------------------------------------------------------------------------------ SERVICES (ADVERTISING/MARKETING) - 0.35% MDC Corporation, Inc. (Canada), Sr. Unsec. Sub. Yankee Notes, 10.50%, 12/01/06 300,000 313,500 - ------------------------------------------------------------------------------ SERVICES (COMMERCIAL & CONSUMER) - 0.68% Hydrochem Industrial Service, Series B Sr. Sec. Gtd. Sub. Notes, 10.375%, 08/01/07 170,000 153,850 - ------------------------------------------------------------------------------ Laidlaw, Inc. (Canada), Yankee Deb., 6.70%, 05/01/08 500,000 454,085 - ------------------------------------------------------------------------------ 607,935 - ------------------------------------------------------------------------------ SERVICES (EMPLOYMENT) - 0.41% MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.375%, 01/15/08 380,000 370,500 - ------------------------------------------------------------------------------ SHIPPING - 0.31% Pegasus Shipping Hellas Co. (Bermuda), Series A Sr. Sec. Gtd. Mortgage Notes, 11.875%, 11/15/04 500,000 277,500 - ------------------------------------------------------------------------------ SOVEREIGN DEBT - 2.57% Province of Manitoba (Canada), Yankee Bonds, 7.75%, 07/17/16 700,000 755,384 - ------------------------------------------------------------------------------ Province of Quebec (Canada), Series A Putable Yankee Notes, 5.735%, 03/02/26 750,000 747,285 - ------------------------------------------------------------------------------ Series A Yankee Notes, 6.29%, 03/06/26 800,000 798,472 - ------------------------------------------------------------------------------ 2,301,141 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.95% Clearnet Communications Inc. (Canada), Sr. Yankee Unsec. Disc. Notes, 14.75%, 12/15/05(d) 110,000 100,650 - ------------------------------------------------------------------------------ Nextel Communications, Inc., Sr. Unsec. Notes, 12.00%, 11/01/08 560,000 638,400 - ------------------------------------------------------------------------------ PageMart Wireless, Inc., Sr. Sub. Disc. Notes, 11.25%, 02/01/08(d) 750,000 311,250 - ------------------------------------------------------------------------------ Powertel, Inc., Sr. Unsec. Notes, 11.125%, 06/01/07 670,000 693,450 - ------------------------------------------------------------------------------ 1,743,750 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 4.28% Bell Canada (Canada), Yankee Deb., 9.50%, 10/15/10 350,000 414,561 - ------------------------------------------------------------------------------ Call-Net Enterprises, Inc. (Canada), Sr. Unsec. Disc. Yankee Notes, 8.94%, 08/15/08(d) 290,000 163,850 - ------------------------------------------------------------------------------ Centel Capital, Deb., 9.00%, 10/15/19 320,000 376,803 - ------------------------------------------------------------------------------ Econophone, Inc., Sr. Unsec. Notes, 13.50%, 07/15/07 750,000 800,625 - ------------------------------------------------------------------------------ Esprit Telecom Group PLC (United Kingdom), Sr. Unsec. Yankee Notes, 11.50%, 12/15/07 350,000 381,500 - ------------------------------------------------------------------------------ MCI Communications Corp., Putable Sr. Unsec. Deb., 7.125%, 06/15/27 1,000,000 1,010,570 - ------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-43 125
PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (LONG DISTANCE) - (CONTINUED) Tele1 Europe A.B. (Sweden), Sr. Notes, 13.00%, 05/15/09(f) $ 400,000 $ 420,000 - ----------------------------------------------------------------------------- Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%, 05/15/08(f) 250,000 260,000 - ----------------------------------------------------------------------------- 3,827,909 - ----------------------------------------------------------------------------- TELEPHONE - 2.79% Cable & Wireless Communications PLC (United Kingdom), Yankee Notes, 6.75%, 03/06/08 750,000 720,870 - ----------------------------------------------------------------------------- ESAT Telecom Group PLC (Ireland), Sr. Yankee Disc. Notes, 12.50%, 02/01/07(d) 470,000 336,050 - ----------------------------------------------------------------------------- NTL Communications Corp., Series B Sr. Unsec. Notes, 11.50%, 10/01/08 440,000 487,300 - ----------------------------------------------------------------------------- SBC Communications, Inc., Deb., 7.375%, 07/15/43 750,000 735,795 - ----------------------------------------------------------------------------- Worldwide Fiber, Inc., Sr. Notes, 12.50%, 12/15/05 (Acquired 01/28/99; Cost $215,250)(b) 210,00 212,625 - ----------------------------------------------------------------------------- 2,492,640 - ----------------------------------------------------------------------------- TRUCKERS - 0.45% Travelcenters of America, Inc., Sr. Unsec. Gtd. Sub. Deb., 10.25%, 04/01/07 400,000 402,000 - ----------------------------------------------------------------------------- TRUCKS & PARTS - 0.13% Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%, 11/15/06 110,000 117,700 - ----------------------------------------------------------------------------- WASTE MANAGEMENT - 1.52% Browning-Ferris, Deb., 9.25%, 05/01/21 350,000 346,343 - ----------------------------------------------------------------------------- WMX Technologies, Inc., Unsec. Putable Notes, 7.10%, 08/01/26 1,000,000 1,013,100 - ----------------------------------------------------------------------------- 1,359,443 - ----------------------------------------------------------------------------- Total U.S. Dollar Denominated Non-Convertible Bonds & Notes (Cost $60,805,603) 58,297,161 - ----------------------------------------------------------------------------- U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 1.76% RETAIL (SPECIALTY) - 0.54% Amazon.com Inc., Conv. Deb., 4.75%, 02/01/09, (Acquired 01/29/99; Cost $501,875)(b) 500,000 485,312 - ----------------------------------------------------------------------------- SHIPPING - 0.65% Hutchison Delta Finance (Cayman Islands), Conv. Unsec. Notes, 7.00%, 11/08/02 500,000 580,000 - ----------------------------------------------------------------------------- TELEPHONE - 0.57% Bell Atlantic Financial Services, Inc., Conv. Bonds, 4.25%, 09/15/05 500,000 511,099 - ----------------------------------------------------------------------------- Total U.S. Dollar Denominated Convertible Bonds & Notes (Cost $1,584,375) 1,576,411 - -----------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(g) VALUE NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 17.99% CANADA - 8.40% Bank of Montreal (Banks-Money Center), Sub. Deb., 7.92%, 07/31/12 CAD 850,000 $ 639,793 - ------------------------------------------------------------------------------- Bell Mobility Cellular, Inc. (Telecommunications- (Cellular/Wireless), Deb., 6.55%, 06/02/08 CAD 750,000 503,597 - ------------------------------------------------------------------------------- Canadian Oil Debco Inc. (Oil & Gas-Exploration & Production), Deb., 11.00%, 10/31/00 CAD 450,000, 327,231 - ------------------------------------------------------------------------------- Canadian Pacific Ltd. (Manufacturing-Diversified), Unsec. Notes, 5.85%, 03/30/09 CAD 500,000 330,550 - ------------------------------------------------------------------------------- Clearnet Communications Inc. (Telecommunications- Cellular/Wireless), Sr. Disc. Notes, 11.75%, 08/13/07(d) CAD 1,500,000 687,139 - ------------------------------------------------------------------------------- 10.40%, 05/15/08(d) CAD 1,600,000 651,510 - ------------------------------------------------------------------------------- GMAC Canada Ltd. (Financial Diversified), Sr. Unsec. Gtd. Unsub. Notes, 6.50%, 03/23/04 GBP 400,000 631,749 - ------------------------------------------------------------------------------- Loblaw Co. Ltd. (Retail-Food Chains), Unsec. Notes, 6.45%, 03/01/39 CAD 650,000 421,646 - ------------------------------------------------------------------------------- Microcell Telecommunications, Sr. Yankee Unsec. Disc. Notes, 11.125%, 10/15/07(d) CAD 1,000,000 419,070 - ------------------------------------------------------------------------------- NAV Canada (Services-Commercial & Consumer), Bonds, 7.40%, 06/01/27 CAD 1,000,000 784,554 - ------------------------------------------------------------------------------- Poco Petroleums Ltd. (Oil & Gas-Exploration & Production), Unsec. Deb., 6.60%, 09/11/07 CAD 750,000 486,261 - ------------------------------------------------------------------------------- Telegobe Canada, Inc. (Telephone), Unsec. Deb., 8.35%, 06/20/03 CAD 850,000 625,712 - ------------------------------------------------------------------------------- TransCanada Pipelines (Natural Gas), Series Q Deb., 10.625%, 10/20/09 CAD 500,000 442,694 - ------------------------------------------------------------------------------- Unsec. Notes, 8.55%, 02/01/06 CAD 280,000 211,510 - ------------------------------------------------------------------------------- Westcoast Energy, Inc. (Natural Gas), Unsec. Series V Deb., 6.45%, 12/18/06 (Acquired 12/03/96; Cost $369,585)(b) CAD 500,000 345,792 - ------------------------------------------------------------------------------- 7,508,808 - ------------------------------------------------------------------------------- GERMANY - 0.67% International Bank for Reconstruction & Development (Banks-Money Center), Unsec. Global Bonds, 7.125%, 04/12/05 DEM 1,000,000 600,713 - ------------------------------------------------------------------------------- NETHERLANDS - 2.50% Dresdner Finance B.V. (Banks-Major Regional), Series 11 Gtd. Notes, 3.072%, 07/30/03 EUR 650,000 668,365 - ------------------------------------------------------------------------------- Hypovereins Finance N.V. (Banks-Major Regional), Gtd. Series E Medium Term Notes, 6.00%, 03/12/07 DEM 210,000 116,420 - -------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-44 126
PRINCIPAL MARKET AMOUNT(g) VALUE NETHERLANDS - (CONTINUED) KPNQWest B.V. (Telecommunications-Long Distance), Sr. Unsec. Notes, 7.125%, 06/01/09 (Acquired 05/25/99; Cost $683,257)(b) EUR 650,000 $ 669,890 - ----------------------------------------------------------------------------------- Mannesmann Finance B.V. (Machinery Diversified), Gtd. Unsec. Unsub. Notes, 4.75%, 05/27/09 EUR 250,000 246,260 - ----------------------------------------------------------------------------------- Prudential Financial B.V. (Investment Banking/Brokerage), Sr. Unsec. Gtd. Bonds, 9.375%, 06/04/07 GBP 285,000 531,110 - ----------------------------------------------------------------------------------- 2,232,045 - ----------------------------------------------------------------------------------- NEW ZEALAND - 0.89% Inter-American Development Bank, (Banks-Money Center), Unsec. Bonds, 5.75%, 04/15/04 NZD 1,000,000 506,404 - ----------------------------------------------------------------------------------- International Bank for Reconstruction & Development (Banks-Money Center), Sr. Unsec. Notes, 6.77%, 08/20/07(c) NZD 1,000,000 288,989 - ----------------------------------------------------------------------------------- 795,393 - ----------------------------------------------------------------------------------- SWEDEN - 1.34% AB Spintab (Banks-Regional), Series 161 Unsec. Deb., 7.50%, 06/15/04 SEK 3,400,000 439,437 - ----------------------------------------------------------------------------------- Stadshypotek A.B. (Banks-Regional), Series 1562 Notes, 3.50%, 09/15/04 SEK 7,000,000 757,500 - ----------------------------------------------------------------------------------- 1,196,937 - ----------------------------------------------------------------------------------- UNITED KINGDOM - 3.48% European Investment Bank (Banks-Money Center), Unsec. Unsub. Notes, 7.625%, 12/07/07 GBP 375,000 656,404 - ----------------------------------------------------------------------------------- Lloyds Bank PLC (Banks-Major Regional), Sub. Notes, 5.25%, 07/14/08 DEM 850,000 447,391 - ----------------------------------------------------------------------------------- Merrill Lynch & Co. (Investment Banking/Brokerage), Sr. Unsec. Unsub. Notes, 7.375%, 12/17/07 GBP 270,000 445,795 - ----------------------------------------------------------------------------------- National Power PLC (Electric Companies), Sr. Unsec. Unsub. Notes, 8.00%, 02/21/07 AUD 500,000 338,771 - ----------------------------------------------------------------------------------- Sutton Bridge Financial Ltd. (Financial- Diversified), Gtd. Eurobonds, 8.625%, 06/30/22 (Acquired 05/29/97; Cost $733,585)(b) GBP 450,000 812,449 - ----------------------------------------------------------------------------------- Union Bank Switzerland London, (Banks-Major Regional), Unsec. Sub. Notes, 7.375%, 11/26/04 GBP 250,000 411,393 - ----------------------------------------------------------------------------------- 3,112,203 - ----------------------------------------------------------------------------------- UNITED STATES - 0.71% General Electric Capital Corp. (Financial- Diversified), Sr. Unsec. Unsub. Notes, 6.00%, 02/05/03 GBP 400,000 630,472 - ----------------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Non- Convertible Bonds & Notes (Cost $16,923,716) 16,076,571 - -----------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(g) VALUE NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 1.25% LUXEMBOURG - 0.61% Daimler-Benz A.G. (Automobiles), Series WW Conv. Gtd. Unsub. Eurobonds, 4.125%, 07/05/03 DEM 570,000 $ 549,651 - ----------------------------------------------------------------------------- UNITED KINGDOM - 0.64% Telewest Communications PLC (Leisure Time- Products), Sr. Unsec. Conv. Notes, 5.25%, 02/19/07 GBP 350,000 571,159 - ----------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Convertible Bonds & Notes (Cost $1,052,352) 1,120,810 - ----------------------------------------------------------------------------- NON-U.S. DOLLAR DENOMINATED GOVERNMENT BONDS & NOTES - 6.36% AUSTRALIAN DOLLAR - 1.07% New South Wales Treasury Corp., Gtd., Notes, 7.00%, 04/01/04 AUD 1,400,000 957,938 - ----------------------------------------------------------------------------- BRITISH POUND STERLING - 0.81% Federal National Mortgage Association, 6.875%, 06/07/02 GBP 450,000 727,085 - ----------------------------------------------------------------------------- CANADIAN DOLLAR - 1.67% British Columbia Municipal Finance Authority, Bonds, 7.75%, 12/01/05 CAD 500,000 373,292 - ----------------------------------------------------------------------------- Ontario Province, Unsec. Sr. Unsub. Notes, 8.00%, 03/11/03 CAD 750,000 545,405 - ----------------------------------------------------------------------------- Province of Ontario, Sr. Unsub. Notes, 6.25%, 12/03/08 NZD 1,000,000 481,050 - ----------------------------------------------------------------------------- Quebec (Province of), Deb., 9.375%, 01/16/23 CAD 100,000 93,285 - ----------------------------------------------------------------------------- 1,493,032 - ----------------------------------------------------------------------------- DANISH KRONE - 0.68% Kingdom of Denmark, Bonds, 7.00%, 12/15/04 DKK 3,900,000 608,202 - ----------------------------------------------------------------------------- EURO - 1.94% Bundesrepublik Deutschland, Series 92 Bonds, 7.25%, 10/21/02 EUR 520,000 595,069 - ----------------------------------------------------------------------------- Treuhandanstalt, Gtd. Notes, 6.00%, 11/12/03 EUR 1,020,000 1,137,014 - ----------------------------------------------------------------------------- 1,732,083 - ----------------------------------------------------------------------------- NEW ZEALAND DOLLAR - 0.19% New Zealand Government, Bonds, 10.00%, 03/15/02 NZD 145,000 84,942 - ----------------------------------------------------------------------------- 8.00%, 04/15/04 NZD 145,000 82,309 - ----------------------------------------------------------------------------- 167,251 - ----------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Government Bonds & Notes (Cost $5,914,805) 5,685,591 - -----------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-45 127
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS - 1.88% BANKS (REGIONAL) - 1.84% First Republic Capital Corp., Series A-$105 Pfd. (Acquired 05/26/99; Cost $750,000)(b) 750 $ 750,469 - ------------------------------------------------------------------------------ Societe Generale (France) 2,150 378,679 - ------------------------------------------------------------------------------ Westpac Banking Corp., STRYPES Trust-$3.135 Conv. Pfd. 16,000 518,000 - ------------------------------------------------------------------------------ 1,647,148 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.04% Nextel Communications, Inc.-Class A(h) 742 37,239 - ------------------------------------------------------------------------------ Total Common Stocks & Other Equity Interests (Cost $1,535,880) 1,684,387 - ------------------------------------------------------------------------------ WARRANTS - 0.08% BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00% Knology Holdings, Inc., expiring 10/15/07 (Acquired 03/12/98; Cost $0)(b)(i) 1,000 2,250 - ------------------------------------------------------------------------------ Wireless One, Inc., expiring 10/19/00(i) 420 4 - ------------------------------------------------------------------------------ 2,254 - ------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 0.00% Electronic Retailing Systems International, Inc., expiring 02/01/04(i) 590 2,950 - ------------------------------------------------------------------------------ METAL FABRICATORS - 0.00% Gulf States Steel, Inc., expiring 04/15/03(i) 230 2 - ------------------------------------------------------------------------------ PERSONAL CARE - 0.00% IHF Capital, Inc., Series I, expiring 11/14/99(i) 150 75 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02% Clearnet Communications Inc. (Canada), expiring 09/15/05(i) 891 7,573 - ------------------------------------------------------------------------------ Loral Space & Communications, Ltd., expiring 01/15/07(i) 580 6,090 - ------------------------------------------------------------------------------ 13,663 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 0.02% Versatel Telecom International N.V. (Netherlands), expiring 05/15/08(i) 250 12,563 - ------------------------------------------------------------------------------ TELEPHONE - 0.04% Esat Telecom Group PLC, expiring 02/01/07(i) 470 37,835 - ------------------------------------------------------------------------------ Total Warrants (Cost $7,590) 69,342 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE U.S. TREASURY SECURITIES - 1.18% U.S. TREASURY NOTES - 1.18% 6.875%, 02/15/08 (Cost $1,045,625) $1,000,000 $ 1,053,450 - ----------------------------------------------------------------- REPURCHASE AGREEMENT - 1.53%(j) Dean Witter Reynolds, Inc., 4.85%, 07/01/99 (Cost $1,369,762)(k) 1,369,762 1,369,762 - ----------------------------------------------------------------- TOTAL INVESTMENTS - 97.26% 86,933,485 - ----------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 2.74% 2,444,967 - ----------------------------------------------------------------- NET ASSETS - 100.00% $89,378,452 =================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Principal amount is in U.S. Dollars, except as indicated by note (g). (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at 06/30/99 was $2,327,856 which represents 2.60% of the Fund's net assets. (c) Zero coupon bond issued at a discount. The interest rate shown represents the rate of original issue discount. (d) Discounted bond at purchase. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (e) Defaulted security. Currently, the issuer is partially in default with respect to interest payments. (f) Consist of more than one class of Securities traded together as a unit. In addition to the debt obligations listed, each unit contains warrants that enable the holder to purchase common stock in the issuer at a predetermined price per share of common stock. (g) Foreign denominated security. Par value and coupon rate are denominated in currency of country indicated. (h) Non-income producing security. (i) Non-income producing security acquired as part of a unit with or in exchange for other securities. (j) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (k) Joint repurchase agreement entered into 06/30/99 with a maturing value of $100,013,472. Collateralized by U.S. Government obligations. Investment Abbreviations: ADR - American Depositary Receipt AUD - Australian Dollar CAD - Canadian Dollars Conv. - Convertible Ctfs. - Certificates Deb. - Debentures DEM - German Deutsche Mark DKK - German Deutsche Mark Disc. - Discounted EUR - Euro Currency GBP - British Pound Sterling Gtd. - Guaranteed NZD - New Zealand Dollar Pfd. - Preferred PRIDES - Preferred Redemption Increase Dividend Equity Security Sec. - Secured SEK - Swedish Krona Sr. - Senior STRYPES - Structured Yield Product Exchangeable for Stock Sub. - Subordinated Unsec. - Unsecured See Notes to Financial Statements. AIM V.I. DIVERSIFIED INCOME FUND FS-46 128 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, at market value (cost $90,239,708) $86,933,485 - --------------------------------------------------------------------- Receivables for: Investments sold 1,620,809 - --------------------------------------------------------------------- Forward currency contracts 161,031 - --------------------------------------------------------------------- Forward currency contracts closed 91,609 - --------------------------------------------------------------------- Capital stock sold 979,208 - --------------------------------------------------------------------- Dividends and interest 1,568,379 - --------------------------------------------------------------------- Investment for deferred compensation plan 22,399 - --------------------------------------------------------------------- Other assets 509 - --------------------------------------------------------------------- Total assets 91,377,429 - --------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 1,896,723 - --------------------------------------------------------------------- Forward currency contracts closed 7,668 - --------------------------------------------------------------------- Capital stock reacquired 5,018 - --------------------------------------------------------------------- Deferred compensation plan 22,399 - --------------------------------------------------------------------- Accrued advisory fees 43,428 - --------------------------------------------------------------------- Accrued directors' fees 1,940 - --------------------------------------------------------------------- Accrued operating expenses 21,801 - --------------------------------------------------------------------- Total liabilities 1,998,977 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $89,378,452 - --------------------------------------------------------------------- CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 8,335,306 - --------------------------------------------------------------------- Net asset value, offering and redemption price per share $ 10.72 =====================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $ 3,609,242 - ------------------------------------------------------------------------------- Dividends (net of $1,894 foreign withholding tax) 50,934 - ------------------------------------------------------------------------------- Total investment income 3,660,176 - ------------------------------------------------------------------------------- EXPENSES: Advisory fees 275,191 - ------------------------------------------------------------------------------- Administrative services fees 25,752 - ------------------------------------------------------------------------------- Custodian fees 21,199 - ------------------------------------------------------------------------------- Directors' fees and expenses 4,228 - ------------------------------------------------------------------------------- Other 28,887 - ------------------------------------------------------------------------------- Total expenses 355,257 - ------------------------------------------------------------------------------- Less: Expenses paid directly (598) - ------------------------------------------------------------------------------- Net expenses 354,659 - ------------------------------------------------------------------------------- Net investment income 3,305,517 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS: Net realized gain (loss) from: Investment securities (2,114,642) - ------------------------------------------------------------------------------- Foreign currencies (32,829) - ------------------------------------------------------------------------------- Forward currency contracts 474,201 - ------------------------------------------------------------------------------- (1,673,270) - ------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities (3,392,196) - ------------------------------------------------------------------------------- Foreign currencies (13,695) - ------------------------------------------------------------------------------- Forward currency contracts 24,953 - ------------------------------------------------------------------------------- (3,380,938) - ------------------------------------------------------------------------------- Net gain (loss) on investment securities, foreign currencies and forward currency contracts (5,054,208) - ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(1,748,691) ===============================================================================
See Notes to Financial Statements. AIM V.I. DIVERSIFIED INCOME FUND FS-47 129 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ OPERATIONS: Net investment income $ 3,305,517 $ 6,761,255 - ----------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies and forward currency contracts (1,673,270) (884,777) - ----------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies and forward currency contracts (3,380,938) (2,586,149) - ----------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (1,748,691) 3,290,329 - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income - (4,724,444) - ----------------------------------------------------------------------------- Distributions to shareholders from net realized gains - (1,507,363) - ----------------------------------------------------------------------------- Net increase (decrease) from capital stock transactions (5,318,210) 10,068,179 - ----------------------------------------------------------------------------- Net increase (decrease) in net assets (7,066,901) 7,126,701 - ----------------------------------------------------------------------------- NET ASSETS: Beginning of year 96,445,353 89,318,652 - ----------------------------------------------------------------------------- End of year $89,378,452 $96,445,353 ============================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $85,405,215 $90,723,425 - ----------------------------------------------------------------------------- Undistributed net investment income 9,110,667 5,805,150 - ----------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies and forward currency contracts (1,984,869) (311,599) - ----------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities, foreign currencies and forward currency contracts (3,152,561) 228,377 - ----------------------------------------------------------------------------- $89,378,452 $96,445,353 =============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Diversified Income Fund (the "Fund"). The Fund's investment objective is to seek to achieve a high level of current income. The Fund will seek to achieve its objective by investing primarily in a diversified portfolio of foreign and U.S. government and corporate debt securities, including lower rated high yield debt securities (commonly known as "junk bonds"). These high yield bonds may involve special risks in addition to the risks associated with investment in higher rated debt securities. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. Also, the secondary market in which high yield bonds are traded may be less liquid than the market for higher grade bonds. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations--Debt obligations are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Equity securities which are listed or traded on an exchange or the NASDAQ National Market System are valued at the last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, at the closing bid price on that day. Securities traded in the over-the-counter market, except (i) securities priced by the pricing service, (ii) securities for which representative exchange prices are available, and (iii) securities reported in the NASDAQ National Market System, are valued at prices obtained from an electronic quotation reporting system, if such prices are available, or from established market makers. Securities for which market quotations are either not readily AIM V.I. DIVERSIFIED INCOME FUND FS-48 130 available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Fund's officers in accordance with methods which are specifically authorized by the Board of Directors. Short- term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities as well as corporate bonds and U.S. Government securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. It is the policy of the Fund not to amortize premiums on bonds for financial reporting purposes. Realized gains or losses from securities transactions are recorded on the identified cost basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - For federal income tax purposes, each portfolio in the Company is taxed as a separate entity. It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $299,947 as of December 31, 1998, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Foreign Currency Translation - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. Outstanding forward currency contracts at June 30, 1999 were as follows:
CONTRACT TO UNREALIZED SETTLEMENT ---------------------------- APPRECIATION DATE DELIVER RECEIVE VALUE (DEPRECIATION) - ---------- ---------- ----------- ----------- -------------- 08/10/99 AUD 350,000 $ 234,626 $ 231,470 $ 3,156 08/04/99 CAD 8,000,000 5,482,945 5,432,000 50,945 08/04/99 CAD 1,000,000 686,518 679,000 7,518 10/08/99 EUR 1,300,000 1,359,384 1,350,216 9,168 08/31/99 GBP 2,000,000 3,194,000 3,153,906 40,094 10/06/99 GBP 1,400,000 2,218,664 2,208,755 9,909 08/26/99 NZD 800,000 438,080 424,027 14,053 08/26/99 NZD 300,000 160,305 159,010 1,295 07/22/99 SEK 10,000,000 1,204,602 1,179,709 24,893 ----------- ----------- -------- $14,979,124 $14,818,093 $161,031 =========== =========== ========
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of the first $250 million of the Fund's average daily net assets, plus 0.55% of such Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $25,752 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,946 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $598 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $598 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did AIM V.I. DIVERSIFIED INCOME FUND FS-49 131 not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended June 30, 1999 was $35,860,638 and $36,892,301, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $ 1,228,417 - -------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (4,534,640) - -------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities $(3,306,223) ==========================================================================
Investments have the same cost for tax and financial statement purposes. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 ----------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ------------ Sold 1,370,512 $14,814,183 2,291,048 $ 26,553,679 - ----------------------------------------------------------------------------- Issued as reinvestment of distributions - - 569,635 6,231,807 - ----------------------------------------------------------------------------- Reacquired (1,854,175) (20,132,393) (1,956,150) (22,717,307) - ----------------------------------------------------------------------------- (483,663) $(5,318,210) 904,533 $ 10,068,179 =============================================================================
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the year ended January 31, 1995.
DECEMBER 31, JUNE 30, ---------------------------------- JANUARY 31, 1999 1998 1997 1996 1995 1995 -------- ------- ------- ------- ------- ----------- Net asset value, beginning of period $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46 - ------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.43 0.75 0.73 0.73 0.69 0.76 - ------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.65) (0.35) 0.24 0.28 0.94 (1.42) - ------------------------------------------------------------------------------------------- Total from investment operations (0.22) 0.40 0.97 1.01 1.63 (0.66) - ------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income - (0.57) (0.01) (0.68) (0.75) (0.68) - ------------------------------------------------------------------------------------------- Distributions from net realized capital gains - (0.18) -- -- -- -- - ------------------------------------------------------------------------------------------- Total distributions - (0.75) (0.01) (0.68) (0.75) (0.68) - ------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.72 $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12 =========================================================================================== Total return(a) (2.01)% 3.58% 9.39% 10.19% 18.11% (6.35)% =========================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $89,378 $96,445 $89,319 $63,624 $44,630 $25,271 =========================================================================================== Ratio of expenses to average net assets 0.77%(b) 0.77% 0.80% 0.86% 0.88%(c) 0.91%(d) =========================================================================================== Ratio of net investment income to average net assets 7.21%(b) 6.99% 6.90% 7.09% 7.65%(c) 8.07%(d) =========================================================================================== Portfolio turnover rate 40% 50% 52% 76% 72% 100% ===========================================================================================
(a) Total returns are not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $92,490,410. (c) Annualized. (d) After fee waivers and/or expense reimbursement. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.03% and 7.95%, respectively. AIM V.I. DIVERSIFIED INCOME FUND FS-50 132 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 51.31% BROADCASTING (TELEVISION, RADIO & CABLE) - 1.32% United GlobalCom, Inc. - Class A(a) 2,900 $ 196,112 - ------------------------------------------------------------------- Univision Communications, Inc.(a) 6,100 402,600 - ------------------------------------------------------------------- 598,712 - ------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 4.61% ANTEC Corp.(a) 4,000 128,250 - ------------------------------------------------------------------- Copper Mountain Networks, Inc.(a) 1,100 84,975 - ------------------------------------------------------------------- Juniper Networks, Inc.(a) 800 119,200 - ------------------------------------------------------------------- Lucent Technologies, Inc. 9,700 654,144 - ------------------------------------------------------------------- NorthPoint Communications Group, Inc.(a) 4,900 178,850 - ------------------------------------------------------------------- Tellabs, Inc.(a) 4,200 283,762 - ------------------------------------------------------------------- 1,449,181 - ------------------------------------------------------------------- COMPUTERS (NETWORKING) - 2.18% Cisco Systems, Inc.(a) 2,000 129,000 - ------------------------------------------------------------------- Redback Networks, Inc.(a) 3,500 439,469 - ------------------------------------------------------------------- Rhythms NetConnections, Inc.(a) 2,000 116,750 - ------------------------------------------------------------------- 685,219 - ------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 0.41% Clarent Corp. 3,700 55,500 - ------------------------------------------------------------------- Covad Communications Group, Inc.(a) 1,350 71,972 - ------------------------------------------------------------------- 127,472 - ------------------------------------------------------------------- ELECTRIC COMPANIES - 12.41% Allegheny Energy, Inc. 7,300 234,056 - ------------------------------------------------------------------- BEC Energy 3,400 140,250 - ------------------------------------------------------------------- Carolina Power & Light Co. 4,400 188,375 - ------------------------------------------------------------------- DQE, Inc. 7,000 280,875 - ------------------------------------------------------------------- Edison International 13,000 347,750 - ------------------------------------------------------------------- Energy East Corp. 10,400 270,400 - ------------------------------------------------------------------- FirstEnergy Corp. 4,500 139,500 - ------------------------------------------------------------------- FPL Group, Inc. 5,600 305,900 - ------------------------------------------------------------------- IPALCO Enterprises, Inc. 4,000 84,750 - ------------------------------------------------------------------- New Century Energies, Inc. 4,500 174,656 - ------------------------------------------------------------------- NiSource, Inc. 9,200 237,475 - ------------------------------------------------------------------- Pinnacle West Capital Corp. 7,400 297,850 - ------------------------------------------------------------------- Public Service Co. of New Mexico 6,800 135,150 - ------------------------------------------------------------------- Sierra Pacific Resources 3,700 134,587 - ------------------------------------------------------------------- Southern Co. 11,600 307,400 - ------------------------------------------------------------------- Teco Energy, Inc. 12,300 279,825 - ------------------------------------------------------------------- Texas Utilities Co. 5,240 216,150 - ------------------------------------------------------------------- Unicom Corp. 3,400 131,112 - ------------------------------------------------------------------- 3,906,061 - -------------------------------------------------------------------
MARKET SHARES VALUE ELECTRONICS (INSTRUMENTATION) - 0.91% Quanta Services, Inc.(a) 6,500 $ 286,000 - ------------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.60% Superior TeleCom, Inc. 7,556 188,900 - ------------------------------------------------------------------------- NATURAL GAS - 3.68% Enron Corp. 2,800 228,900 - ------------------------------------------------------------------------- Public Service Co. of North Carolina, Inc. 3,200 93,600 - ------------------------------------------------------------------------- Williams Companies, Inc. (The) 19,600 834,225 - ------------------------------------------------------------------------- 1,156,725 - ------------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 1.29% AES Corp.(a) 3,300 191,812 - ------------------------------------------------------------------------- MidAmerican Energy Holdings Co.(a) 6,200 214,675 - ------------------------------------------------------------------------- 406,487 - ------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS - 1.25% Alexandria Real Estate Equities, Inc. 4,700 146,875 - ------------------------------------------------------------------------- Boston Properties, Inc. 4,300 154,263 - ------------------------------------------------------------------------- Crescent Real Estate Equities, Co. 2,300 54,625 - ------------------------------------------------------------------------- Golf Trust of America, Inc. 1,600 39,100 - ------------------------------------------------------------------------- 394,863 - ------------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 1.20% Convergys Corp.(a) 14,800 284,900 - ------------------------------------------------------------------------- Metzler Group, Inc.(a) 3,400 93,925 - ------------------------------------------------------------------------- 378,825 - ------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.44% Phone.com, Inc.(a) 2,500 140,000 - ------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 6.06% AT&T Corp. 5,400 301,388 - ------------------------------------------------------------------------- Global TeleSystems Group, Inc.(a) 1,800 145,800 - ------------------------------------------------------------------------- IXC Communications, Inc.(a) 6,000 235,875 - ------------------------------------------------------------------------- MCI WorldCom, Inc.(a) 9,987 861,379 - ------------------------------------------------------------------------- WinStar Communications, Inc.(a) 7,436 362,505 - ------------------------------------------------------------------------- 1,906,947 - ------------------------------------------------------------------------- TELEPHONE - 13.93% Ameritech Corp. 11,400 837,900 - ------------------------------------------------------------------------- Bell Atlantic Corp. 4,600 300,725 - ------------------------------------------------------------------------- BellSouth Corp. 6,800 318,750 - ------------------------------------------------------------------------- CenturyTel, Inc. 11,400 453,150 - ------------------------------------------------------------------------- Cincinnati Bell, Inc. 15,000 374,063 - ------------------------------------------------------------------------- GTE Corp. 3,200 242,400 - -------------------------------------------------------------------------
AIM V.I. GLOBAL UTILITIES FUND FS-51 133
MARKET SHARES VALUE TELEPHONE - (continued) McLeodUSA, Inc. - Class A(a) 3,600 $ 198,000 - ------------------------------------------------------------------------------- Nextlink Communications, Inc. - Class A(a) 1,900 141,313 - ------------------------------------------------------------------------------- Qwest Communications International, Inc.(a) 14,400 476,100 - ------------------------------------------------------------------------------- SBC Communications, Inc. 14,000 812,000 - ------------------------------------------------------------------------------- Time Warner Telecom, Inc.(a) 7,900 229,100 - ------------------------------------------------------------------------------- 4,383,501 - ------------------------------------------------------------------------------- WATER UTILITIES - 0.44% Azurix Corp.(a) 6,900 138,000 - ------------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $9,126,533) 16,146,893 - ------------------------------------------------------------------------------- FOREIGN STOCKS & OTHER EQUITY INTERESTS - 18.18% AUSTRALIA - 0.26% Telstra Corp. Ltd. (Telephone) 14,380 82,293 - ------------------------------------------------------------------------------- AUSTRIA - 0.45% Oesterreichische Elektrizitaetswirtschafts A.G. - Class A (Electric Companies) 970 141,155 - ------------------------------------------------------------------------------- BELGIUM - 0.41% Electrabel S.A. (Electric Companies) 400 129,031 - ------------------------------------------------------------------------------- BERMUDA - 0.66% Global Crossing Ltd. (Telecommunications - Long Distance)(a) 4,885 208,224 - ------------------------------------------------------------------------------- CANADA - 1.40% AT&T Canada, Inc. (Telephone)(a) 2,700 172,969 - ------------------------------------------------------------------------------- BCT.Telus Communications, Inc. (Telephone) 4,955 119,048 - ------------------------------------------------------------------------------- BCT.Telus Communications, Inc. - Class A (Telephone) 1,652 39,066 - ------------------------------------------------------------------------------- Westcoast Energy, Inc. (Natural Gas) 5,500 108,625 - ------------------------------------------------------------------------------- 439,708 - ------------------------------------------------------------------------------- DENMARK - 0.49% Tele Danmark A.S. - ADR (Telephone) 6,000 154,500 - ------------------------------------------------------------------------------- ESTONIA - 0.11% AS Eesti Telekom - GDR (Telecommunications- Cellular/Wireless) (Acquired 02/11/99; Cost $30,811)(b) 1,670 33,150 - ------------------------------------------------------------------------------- FINLAND - 1.54% Fortum Corp. (Electric Companies) 6,300 30,451 - ------------------------------------------------------------------------------- Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 4,400 402,875 - ------------------------------------------------------------------------------- Sonera Group Oyj (Telecommunications - Cellular/Wireless) 2,300 50,252 - ------------------------------------------------------------------------------- 483,578 - -------------------------------------------------------------------------------
MARKET SHARES VALUE FRANCE - 1.30% France Telecom S.A. - ADR (Communications Equipment) 3,500 $ 269,500 - ------------------------------------------------------------------------------- Suez Lyonnaise des Eaux (Manufacturing - Diversified) 500 90,126 - ------------------------------------------------------------------------------- Vivendi (Consumer Services) 600 48,572 - ------------------------------------------------------------------------------- 408,198 - ------------------------------------------------------------------------------- GERMANY - 0.73% RWE A.G. (Electric Companies) 2,425 112,189 - ------------------------------------------------------------------------------- Viag A.G. (Manufacturing - Diversified) 250 118,004 - ------------------------------------------------------------------------------- 230,193 - ------------------------------------------------------------------------------- GREECE - 0.09% Panafon Hellenic Telecom S.A. - GDR (Telecommunications - Cellular/Wireless) (Acquired 11/20/98; Cost $21,696)(a)(b) 1,200 29,100 - ------------------------------------------------------------------------------- HUNGARY - 0.27% Magyar Tavkozlesi Rt - ADR (Telecommunications - Long Distance) 3,100 85,250 - ------------------------------------------------------------------------------- ITALY - 0.77% AEM S.p.A. (Electric Companies) (Acquired 07/17/98; Cost $52,035)(b) 55,000 98,062 - ------------------------------------------------------------------------------- Societa Nordelettrica S.p.A. (Electric Companies) 49,000 143,923 - ------------------------------------------------------------------------------- 241,985 - ------------------------------------------------------------------------------- JAPAN - 0.59% Nippon Telegraph & Telephone Corp. (Telecommunications - Long Distance) 90 104,919 - ------------------------------------------------------------------------------- Nippon Telegraph & Telephone Corp. - ADR (Telecommu- nications - Long Distance) 1,300 81,413 - ------------------------------------------------------------------------------- 186,332 - ------------------------------------------------------------------------------- NETHERLANDS - 1.71% Equant N.V. (Computers - Networking)(a) 300 27,641 - ------------------------------------------------------------------------------- Equant N.V. - ADR (Computers - Networking)(a) 1,000 94,124 - ------------------------------------------------------------------------------- Koninklijke KPN N.V. (Telecommunications - Long Dis- tance) 6 281 - ------------------------------------------------------------------------------- Libertel N.V. (Telecommunications - Cellular/Wireless)(a) 7,800 152,734 - ------------------------------------------------------------------------------- TNT Post Group N.V. (Air Freight) 287 6,847 - ------------------------------------------------------------------------------- TNT Post Group N.V. - ADR (Air Freight) 3,045 73,080 - ------------------------------------------------------------------------------- United Pan-Europe Communications N.V. (Broadcasting- Television, Radio & Cable)(a) 3,400 184,313 - ------------------------------------------------------------------------------- 539,020 - ------------------------------------------------------------------------------- NEW ZEALAND - 0.19% Contact Energy Ltd. (Electric Companies)(a) 37,000 59,944 - -------------------------------------------------------------------------------
AIM V.I. GLOBAL UTILITIES FUND FS-52 134
MARKET SHARES VALUE PORTUGAL - 0.62% Electricidade de Portugal, S.A. (Electric Companies) 2,900 $ 52,183 - ------------------------------------------------------------------------------- Electricidade de Portugal, S.A. - ADR (Electric Com- panies) 4,000 143,500 - -------------------------------------------------------------------------------- 195,683 - -------------------------------------------------------------------------------- SOUTH KOREA - 0.55% Korea Telecom Corp. - ADR (Telephone)(a) 4,312 172,480 - -------------------------------------------------------------------------------- SPAIN - 1.53% Autopistas Concesionaria Espanola S.A. (Services - Commercial & Consumer) 3,900 45,620 - -------------------------------------------------------------------------------- Autopistas, Concesionaria Espanola S.A. Bonus Rts, expiring 07/12/99 3,900 2,252 - -------------------------------------------------------------------------------- Endesa S.A. (Electric Companies) 3,100 66,070 - -------------------------------------------------------------------------------- Telefonica S.A. - ADR (Telephone)(a) 2,497 367,365 - -------------------------------------------------------------------------------- 481,307 - -------------------------------------------------------------------------------- SWITZERLAND - 0.60% Swisscom A.G. (Telephone) 500 188,042 - -------------------------------------------------------------------------------- UNITED KINGDOM - 3.91% Hyder PLC (Water Utilities) 4,519 53,779 - -------------------------------------------------------------------------------- National Grid Group PLC (Electric Companies) 10,313 71,770 - -------------------------------------------------------------------------------- Orange PLC (Telephone)(a) 6,500 95,284 - -------------------------------------------------------------------------------- PowerGen PLC (Electric Companies) 31,485 339,457 - -------------------------------------------------------------------------------- PowerGen PLC - ADR (Electric Companies) 3,800 162,925 - -------------------------------------------------------------------------------- Scottish Power PLC (Electric Companies) 15,950 137,774 - -------------------------------------------------------------------------------- United Utilities PLC (Water Utilities) 15,459 187,871 - -------------------------------------------------------------------------------- Yorkshire Water PLC (Water Utilities) 26,174 181,942 - -------------------------------------------------------------------------------- 1,230,802 - -------------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $4,143,158) 5,719,975 - -------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS - 2.31% COMPUTERS (SOFTWARE & SERVICES) - 0.92% PSINet, Inc., $3.375 Conv. Pfd. 6,000 289,500 - -------------------------------------------------------------------------------- NATURAL GAS - 1.06% El Paso Energy Cap Trust, Inc. - $2.375 Conv. Pfd. 6,700 331,650 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.16% WinStar Communications, Inc. - $3.50 Conv. Pfd. 900 50,400 - -------------------------------------------------------------------------------- TELEPHONE - 0.17% NEXTLINK Communications - $3.25 Conv. Pfd. (Acquired 03/26/98; Cost $30,000)(b) 600 54,675 - -------------------------------------------------------------------------------- Total Convertible Preferred Stocks (Cost $727,923) 726,225 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 2.06% COMPUTERS (HARDWARE) - 1.02% Candescent Technology Corp., Sr. Conv. Sub. Deb., 7.00%, 05/01/03(b) (Acquired 04/17/98; Cost $396,154) $ 412,000 321,360 - -------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 1.04% Global Telesystems Group, Conv. Notes, 8.75%, 06/30/00 $ 80,000 $ 325,600 - -------------------------------------------------------------------------------- Total U.S. Dollar Denominated Convertible Bonds & Notes (Cost $541,078) 646,960 - -------------------------------------------------------------------------------- U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 10.50% BROADCASTING (TELEVISION, RADIO & CABLE) - 0.78% Comcast Cable Communications, Unsec. Unsub. Notes, 6.20%, 11/15/08 150,000 139,960 - -------------------------------------------------------------------------------- Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 100,000 104,750 - -------------------------------------------------------------------------------- 244,710 - -------------------------------------------------------------------------------- CONSUMER FINANCE - 0.26% GMAC, Notes, 9.00%, 10/15/02 75,000 80,677 - -------------------------------------------------------------------------------- ELECTRIC COMPANIES - 2.79% Cleveland Electric Illuminating Co. (The), Sr. Sec. Series D Notes, 7.43%, 11/01/09 150,000 151,130 - -------------------------------------------------------------------------------- Commonwealth Edison Co., First Mortgage Notes, 7.50%, 07/01/13 130,000 136,670 - -------------------------------------------------------------------------------- El Paso Electric Co., Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 75,000 80,888 - -------------------------------------------------------------------------------- Series E. Sec. First Mortgage Bonds, 9.40%, 05/01/11 100,000 112,431 - -------------------------------------------------------------------------------- Texas - New Mexico Power, Sec. Sr. Notes, 6.25%, 01/15/09 250,000 223,168 - -------------------------------------------------------------------------------- Western Resources, Inc., Sr. Unsec. Notes, 6.25%, 08/15/03 75,000 73,667 - -------------------------------------------------------------------------------- Sr. Unsec. Notes, 7.125%, 08/01/09 100,000 99,484 - -------------------------------------------------------------------------------- 877,438 - -------------------------------------------------------------------------------- NATURAL GAS - 2.58% Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 100,000 93,492 - -------------------------------------------------------------------------------- Enron Corp., Sr. Sub. Deb., 8.25%, 09/15/12 400,000 424,140 - -------------------------------------------------------------------------------- K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 250,000 246,983 - -------------------------------------------------------------------------------- PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 47,103 - -------------------------------------------------------------------------------- 811,718 - -------------------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.32% Tennessee Gas Pipeline Co., Unsec. Bonds, 7.00%, 03/15/27 100,000 99,996 - -------------------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 1.16% AES Corp. Sr. Notes, 8.00%, 12/31/08 100,000 94,500 - -------------------------------------------------------------------------------- Sr. Sub. Notes, 10.25%, 07/15/06 75,000 77,250 - -------------------------------------------------------------------------------- Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 78,686 - -------------------------------------------------------------------------------- Indiana Michigan Power, Sec. Lease Obligation Bonds, 9.82%, 12/07/22 93,396 115,105 - -------------------------------------------------------------------------------- 365,541 - --------------------------------------------------------------------------------
AIM V.I. GLOBAL UTILITIES FUND FS-53 135 PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 1.23% AT&T Corp., Sr. Notes, 7.75%, 03/01/07 $ 150,000 $ 158,997 - -------------------------------------------------------------------------------- Sprint Capital Corp., Sr. Unsec. Gtd. Notes, 6.875%, 11/15/28 250,000 228,970 - -------------------------------------------------------------------------------- 387,967 - -------------------------------------------------------------------------------- TELEPHONE - 1.38% GTE Florida, Inc., Unsec. Deb., 6.86%, 02/01/28 250,000 238,400 - -------------------------------------------------------------------------------- SBC Communications, Inc., Deb., 7.375/%, 07/15/43 200,000 196,212 - -------------------------------------------------------------------------------- 434,612 - -------------------------------------------------------------------------------- Total U.S. Dollar Denominated Non-Convertible Bonds & Notes (Cost $3,454,799) 3,302,659 - -------------------------------------------------------------------------------- NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 1.74%(c) FRANCE - 0.33% France Telecom (Telephone), Conv. Bonds, 2.00%, 01/01/04 FRF 603,520 105,008 - -------------------------------------------------------------------------------- UNITED KINGDOM - 1.41% National Grid Co. PLC (Electric Companies), Conv. Bonds, 4.25%, 02/17/08 GBP 240,000 444,030 - -------------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Convertible Bonds & Notes (Cost $504,278) 549,038 - -------------------------------------------------------------------------------- NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 2.06%(c) CANADA - 2.06% Bell Canada (Telecommunications-Cellular/Wireless), Series EW Deb., 8.80%, 08/17/05 CAD 50,000 38,815 - -------------------------------------------------------------------------------- Unsec. Deb., 10.875%, 10/11/04 50,000 40,674 - -------------------------------------------------------------------------------- Canadian Oil Debco Inc. (Oil & Gas-Exploration & Production), Deb., 11.00%, 10/31/00 100,000 72,718 - -------------------------------------------------------------------------------- Clearnet Communications, Inc. (Telephone), Unsec. Sr. Disc. Notes, 5.303%, 02/15/09(d) 300,000 111,978 - -------------------------------------------------------------------------------- Ontario Hydro (Electric Companies), Sr. Unsec. Gtd. Notes, 9.00%, 06/24/02 200,000 147,936 - -------------------------------------------------------------------------------- Telegobe Canada, Inc. (Telephone), Unsec. Deb., 8.35%, 06/20/03 100,000 73,613 - -------------------------------------------------------------------------------- TransCanada Pipelines (Natural Gas), Series Q Deb., 10.625%, 10/20/09 125,000 110,674 - -------------------------------------------------------------------------------- Unsec. Notes 8.55%, 02/01/06 70,000 52,878 - -------------------------------------------------------------------------------- 649,286 - -------------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Non-Convertible Bonds & Notes (Cost $676,147) 649,286 - -------------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 0.97% U.S. TREASURY BONDS - 0.48% 7.625%, 02/15/25 130,000 152,997 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE U.S. TREASURY NOTES - 0.49% 6.625%, 06/30/01 $ 150,000 $ 153,045 - -------------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $292,052) 306,042 - -------------------------------------------------------------------------------- Total Investments Excluding Repurchase Agreements (Cost $19,465,968) 28,047,078 - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 10.55%(e) Dean Witter Reynolds, Inc., 4.85%, 07/01/99 (Cost $3,318,890)(f) 3,318,890 3,318,890 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS - 99.68% 31,365,968 ================================================================================ OTHER ASSETS LESS LIABILITIES - 0.32% 101,134 ================================================================================ NET ASSETS - 100.00% $31,467,102 ================================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at 06/30/99 was $536,347 which represented 1.70% of the Fund's net assets. (c) Foreign denominated security. Par value and coupon are denominated in currency indicated. (d) Step bond issued at a discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (e) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (f) Joint repurchase agreement entered into 06/30/99 with a maturing value of $100,013,472. Collaterized by U.S. Government agency obligations. INVESTMENT ABBREVIATIONS: ADR - American Depositary Receipt CAD - Canadian Dollars Conv. - Convertible Deb. - Debentures FRF - French Franc GBP - British Pound Sterling GDR - Global Depositary Receipt Gtd. - Guaranteed Pfd. - Preferred Rts. - Rights Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated See Notes to Financial Statements. AIM V.I. GLOBAL UTILITIES FUND FS-54 136 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, excluding repurchase agreement, at market value (cost $19,465,968) $28,047,078 - --------------------------------------------------------------------- Repurchase agreement (cost $3,318,890) 3,318,890 - --------------------------------------------------------------------- Foreign currencies, at value (cost $2,497) 2,468 - --------------------------------------------------------------------- Receivables for: Capital stock sold 13,801 - --------------------------------------------------------------------- Dividends and interest 151,883 - --------------------------------------------------------------------- Investments sold 77,241 - --------------------------------------------------------------------- Investment for deferred compensation plan 18,795 - --------------------------------------------------------------------- Total assets 31,630,156 - --------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 114,946 - --------------------------------------------------------------------- Capital stock reacquired 736 - --------------------------------------------------------------------- Deferred compensation plan 18,795 - --------------------------------------------------------------------- Accrued advisory fees 16,492 - --------------------------------------------------------------------- Accrued directors' fees 2,300 - --------------------------------------------------------------------- Accrued operating expenses 9,776 - --------------------------------------------------------------------- Total liabilities 163,054 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $31,467,102 ===================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 1,693,285 ===================================================================== Net asset value, offering and redemption price per share $18.58 =====================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Dividends (net of $10,360 foreign withholding tax) $ 227,227 - --------------------------------------------------------------------- Interest 239,546 - --------------------------------------------------------------------- Total investment income 466,773 - --------------------------------------------------------------------- EXPENSES: Advisory fees 93,074 - --------------------------------------------------------------------- Administrative services fees 25,132 - --------------------------------------------------------------------- Custodian fees 13,139 - --------------------------------------------------------------------- Directors' fees and expenses 4,392 - --------------------------------------------------------------------- Professional fees 16,778 - --------------------------------------------------------------------- Other 5,014 - --------------------------------------------------------------------- Total expenses 157,529 - --------------------------------------------------------------------- Less: Expenses paid indirectly (149) - --------------------------------------------------------------------- Net expenses 157,380 - --------------------------------------------------------------------- Net investment income 309,393 - --------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment securities 1,031,157 - --------------------------------------------------------------------- Foreign currencies (15,492) - --------------------------------------------------------------------- 1,015,665 - --------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 678,940 - --------------------------------------------------------------------- Foreign currencies (329) - --------------------------------------------------------------------- 678,611 - --------------------------------------------------------------------- Net gain on investment securities and foreign currencies 1,694,276 - --------------------------------------------------------------------- Net increase in net assets resulting from operations $2,003,669 =====================================================================
See Notes to Financial Statements. AIM V.I. GLOBAL UTILITIES FUND FS-55 137 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ---------------------- OPERATIONS: Net investment income $ 309,393 $ 610,580 - ------------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies, futures and option contracts 1,015,665 (59,962) - ------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies and option contracts 678,611 3,278,654 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 2,003,669 3,829,272 - ------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (450,038) - ------------------------------------------------------------------------------- Distributions from net realized gains -- (187,121) - ------------------------------------------------------------------------------- Net increase from capital stock transactions 1,329,805 2,862,654 - ------------------------------------------------------------------------------- Net increase in net assets 3,333,474 6,054,767 - ------------------------------------------------------------------------------- NET ASSETS: Beginning of year 28,133,628 22,078,861 - ------------------------------------------------------------------------------- End of year $31,467,102 $28,133,628 =============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $21,028,498 $19,698,693 - ------------------------------------------------------------------------------- Undistributed net investment income 917,531 608,138 - ------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies, futures and option contracts 940,214 (75,451) - ------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and option contracts 8,580,859 7,902,248 - ------------------------------------------------------------------------------- $31,467,102 $28,133,628 ===============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Global Utilities Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income, and as a secondary objective the Fund seeks to achieve capital appreciation, by investing primarily in the common and preferred stocks of public utility companies (either domestic or foreign). Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or, absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New AIM V.I. GLOBAL UTILITIES FUND FS-56 138 York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Realized gains or losses from securities transactions are recorded on the identified cost basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $50,716 as of December 31, 1998, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $25,132 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,878 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $149 under an expense offset arrangement. The effect of this arrangement resulted in a reduction of the Fund's total expenses of $149 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. AIM V.I. GLOBAL UTILITIES FUND FS-57 139 NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended June 30, 1999 was $5,558,483 and $4,925,822, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $9,101,958 - ------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (520,858) - ------------------------------------------------------------------------- Net unrealized appreciation of investment securities $8,581,100 =========================================================================
Cost of investments for tax purposes is $22,784,868. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999, and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31 1999 1998 --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ---------- Sold 284,859 $ 5,094,149 516,028 $8,375,181 - ----------------------------------------------------------------------- Issued as reinvestment of distributions -- -- 37,858 637,159 - ----------------------------------------------------------------------- Reacquired (211,751) (3,764,344) (380,439) (6,149,686) - ----------------------------------------------------------------------- 73,108 $ 1,329,805 173,447 $2,862,654 =======================================================================
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995.
DECEMBER 31, JUNE 30, ------------------------------------ JANUARY 31, 1999 1998 1997 1996 1995 1995 -------- ------- ------- ------- ------ ----------- Net asset value, beginning of period $ 17.36 $ 15.26 $ 12.55 $11.64 $9.69 $10.00 - ------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.17 0.35 0.32 0.40 0.29 0.27 - ------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.05 2.15 2.40 0.99 1.98 (0.33) - ------------------------------------------------------------------------------------------------- Total from investment operations 1.22 2.50 2.72 1.39 2.27 (0.06) - ------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- (0.28) -- (0.41) (0.31) (0.25) - ------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.12) (0.01) (0.07) (0.01) -- - ------------------------------------------------------------------------------------------------- Total distributions -- (0.40) (0.01) (0.48) (0.32) (0.25) - ------------------------------------------------------------------------------------------------- Net asset value, end of period $ 18.58 $ 17.36 $ 15.26 $12.55 $11.64 $ 9.69 ================================================================================================= Total return(a) 7.03% 16.49% 21.63% 12.07% 23.73% (0.56)% ================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $31,467 $28,134 $22,079 $13,576 $8,394 $2,958 ================================================================================================= Ratio of expenses to average net assets 1.10%(b) 1.11% 1.28% 1.40%(c) 1.47%(c)(d) 1.31%(d)(e) ================================================================================================= Ratio of net investment income to average net assets 2.16%(b) 2.46% 2.81% 3.56%(c) 3.76%(c)(d) 4.39%(d)(e) ================================================================================================= Portfolio turnover rate 19% 32% 28% 47% 58% 69% =================================================================================================
(a) Totals returns are not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $28,875,556. (c) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.55%, 3.42% for 1996 and 2.44% (annualized) and 2.79% (annualized) for 1995, respectively. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 2.80% (annualized) and 2.90% (annualized), respectively. AIM V.I. GLOBAL UTILITIES FUND FS-58 140 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE U.S. GOVERNMENT AGENCY SECURITIES - 66.71% FEDERAL FARM CREDIT BANK - 3.42% Medium term notes 5.96%, 07/14/03 $ 200,000 $ 198,264 - --------------------------------------------------------------------------- 5.80%, 06/17/05 1,000,000 976,500 - --------------------------------------------------------------------------- 6.22%, 06/17/08 1,000,000 967,270 - --------------------------------------------------------------------------- 2,142,034 - --------------------------------------------------------------------------- FEDERAL HOME LOAN BANK - 3.76% Debentures 8.375%, 10/25/99 150,000 151,402 - --------------------------------------------------------------------------- 6.00%, 06/27/00 250,000 251,322 - --------------------------------------------------------------------------- 5.97%, 12/11/00 1,000,000 1,005,390 - --------------------------------------------------------------------------- 7.31%, 07/06/01 500,000 514,630 - --------------------------------------------------------------------------- 8.17%, 12/16/04 400,000 434,696 - --------------------------------------------------------------------------- 2,357,440 - --------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") - 15.53% Debentures 6.13%, 08/19/99 150,000 150,230 - --------------------------------------------------------------------------- 6.45%, 04/29/09 1,000,000 968,140 - --------------------------------------------------------------------------- Pass through certificates 6.00%, 11/01/08 to 08/01/10 634,467 616,023 - --------------------------------------------------------------------------- 6.50%, 12/01/08 to 08/01/28 4,281,855 4,168,791 - --------------------------------------------------------------------------- 7.00%, 11/01/10 to 01/01/26 1,077,769 1,083,565 - --------------------------------------------------------------------------- 10.50%, 08/01/19 133,744 146,449 - --------------------------------------------------------------------------- 8.50%, 09/01/20 to 12/01/26 2,478,522 2,607,400 - --------------------------------------------------------------------------- 9,740,598 - --------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 24.45% Debentures 8.25%, 12/18/00 500,000 518,540 - --------------------------------------------------------------------------- 7.50%, 02/11/02 1,350,000 1,398,695 - --------------------------------------------------------------------------- 7.55%, 04/22/02 400,000 415,920 - --------------------------------------------------------------------------- 8.50%, 02/01/05 500,000 508,495 - --------------------------------------------------------------------------- 5.75%, 06/15/05 500,000 488,240 - --------------------------------------------------------------------------- Medium term notes 7.375%, 03/28/05 300,000 315,618 - --------------------------------------------------------------------------- Pass through certificates 7.50%, 11/01/09 to 07/01/27 1,854,019 1,884,348 - --------------------------------------------------------------------------- 6.50%, 10/01/10 to 06/01/23 1,339,149 1,321,331 - --------------------------------------------------------------------------- 7.00%, 07/01/11 to 01/01/28 3,901,856 3,902,272 - --------------------------------------------------------------------------- 6.00%, 10/01/13 to 12/01/13 2,905,216 2,806,235 - --------------------------------------------------------------------------- 8.50%, 09/01/24 to 02/01/25 1,239,484 1,296,508 - ---------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - CONTINUED STRIPS(a) 7.37%, 10/09/19 $1,800,000 $ 480,888 - --------------------------------------------------------------------------- 15,337,090 - --------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 15.37% Pass through certificates 9.50%, 08/15/03 to 09/15/16 48,748 52,836 - --------------------------------------------------------------------------- 9.00%, 09/15/08 to 10/15/16 108,246 115,790 - --------------------------------------------------------------------------- 11.00%, 10/15/15 25,893 28,668 - --------------------------------------------------------------------------- 10.50%, 09/15/17 to 11/15/19 22,036 24,177 - --------------------------------------------------------------------------- 10.00%, 06/15/19 758,368 826,621 - --------------------------------------------------------------------------- 6.50%, 12/15/23 389,627 378,059 - --------------------------------------------------------------------------- 8.00%, 07/15/24 to 07/15/26 2,674,834 2,759,791 - --------------------------------------------------------------------------- 7.50%, 05/15/27 to 08/15/28 2,129,593 2,155,684 - --------------------------------------------------------------------------- 7.00%, 04/15/28 to 06/15/28 3,332,751 3,296,754 - --------------------------------------------------------------------------- 9,638,380 - --------------------------------------------------------------------------- PRIVATE EXPORT FUNDING COMPANY - 0.49% Debentures 7.30%, 01/31/02 300,000 309,078 - --------------------------------------------------------------------------- STUDENT LOAN MARKETING ASSOCIATION - 0.48% Debentures 5.55%, 12/15/99 150,000 150,146 6.50%, 08/01/02 150,000 151,926 - --------------------------------------------------------------------------- 302,072 - --------------------------------------------------------------------------- TENNESSEE VALLEY AUTHORITY - 3.21% Debentures 6.375%, 06/15/05 2,000,000 2,014,400 - --------------------------------------------------------------------------- Total U.S. Government Agency Securities (Cost $42,220,968) 41,841,092 - --------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 17.54% U.S. TREASURY BONDS & NOTES - 16.16% 6.125%, 12/31/01 500,000 506,010 - --------------------------------------------------------------------------- 6.00%, 07/31/02 300,000 303,138 - --------------------------------------------------------------------------- 5.25%, 08/15/03 3,500,000 3,439,100 - --------------------------------------------------------------------------- 4.75%, 02/15/04 3,000,000 2,883,990 - --------------------------------------------------------------------------- 5.50%, 02/15/08 1,000,000 973,220 - --------------------------------------------------------------------------- 6.875%, 08/15/25 500,000 541,110 - --------------------------------------------------------------------------- 6.125%, 11/15/27 1,500,000 1,488,120 - --------------------------------------------------------------------------- 10,134,688 - ---------------------------------------------------------------------------
AIM V.I. GOVERNMENT SECURITIES FUND FS-59 141
PRINCIPAL MARKET AMOUNT VALUE U.S. TREASURY STRIPS(a) - 1.38% 5.378%, 05/15/06 $ 750,000 $ 499,717 - --------------------------------------------------------------------------------- 6.80%, 11/15/18 1,250,000 367,838 - --------------------------------------------------------------------------------- 867,555 - --------------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $11,373,618) 11,002,243 - --------------------------------------------------------------------------------- Total Investments Excluding, Repurchase Agreement (Cost $53,594,586) 52,843,335 - --------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 14.98%(b) CIBC Oppenheimer, 5.00%, 07/01/99(c) (Cost $9,393,793) 9,393,793 9,393,793 - --------------------------------------------------------------------------------- TOTAL INVESTMENTS - 99.23% 62,237,128 - --------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES--0.77% 484,344 - --------------------------------------------------------------------------------- NET ASSETS - 100.00% $62,721,472 =================================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) STRIPS are traded on a discount basis. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (c) Joint repurchase agreement entered into 06/30/99 with a maturing value of $50,006,945. Collateralized by U.S. Government obligations. Abbreviation: STRIPS - Separately Traded Registered Interest and Principal Security See Notes to Financial Statements. AIM V.I. GOVERNMENT SECURITIES FUND FS-60 142 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, excluding repurchase agreement, at market value (cost $53,594,586) $ 52,843,335 - ---------------------------------------------------------------------- Repurchase agreement (cost $9,393,793) 9,393,793 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 75,519 - ---------------------------------------------------------------------- Interest 494,448 - ---------------------------------------------------------------------- Paydowns 6,232 - ---------------------------------------------------------------------- Investment for deferred compensation plan 21,978 - ---------------------------------------------------------------------- Other assets 545 - ---------------------------------------------------------------------- Total assets 62,835,850 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 26,992 - ---------------------------------------------------------------------- Deferred compensation plan 21,978 - ---------------------------------------------------------------------- Accrued advisory fees 25,063 - ---------------------------------------------------------------------- Accrued administrative services fees 10,690 - ---------------------------------------------------------------------- Accrued directors' fees and expenses 3,700 - ---------------------------------------------------------------------- Accrued operating expenses 25,955 - ---------------------------------------------------------------------- Total liabilities 114,378 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $ 62,721,472 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 5,730,208 ====================================================================== Net asset value, offering and redemption price per share $10.95 ======================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $ 2,067,019 - ----------------------------------------------------------------------------- EXPENSES: Advisory fees 148,812 - ----------------------------------------------------------------------------- Administrative services fees 40,450 - ----------------------------------------------------------------------------- Custodian fees 10,579 - ----------------------------------------------------------------------------- Directors' fees and expenses 6,062 - ----------------------------------------------------------------------------- Interest expense 12,190 - ----------------------------------------------------------------------------- Professional fees 17,827 - ----------------------------------------------------------------------------- Other 10,199 - ----------------------------------------------------------------------------- Total expenses 246,119 - ----------------------------------------------------------------------------- Net investment income 1,820,900 - ----------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain (loss) from investment securities (1,110,342) - ----------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities (1,934,302) - ----------------------------------------------------------------------------- Net gain (loss) on investment securities (3,044,644) - ----------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(1,223,744) =============================================================================
See Notes to Financial Statements. AIM V.I. GOVERNMENT SECURITIES FUND FS-61 143 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ OPERATIONS: Net investment income $ 1,820,900 $ 2,530,613 - ------------------------------------------------------------------------------ Net realized gain (loss) from investment securities (1,110,342) 241,993 - ------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities (1,934,302) 445,919 - ------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations (1,223,744) 3,218,525 - ------------------------------------------------------------------------------ Dividends from net investment income -- (1,611,964) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 5,760,535 22,778,324 - ------------------------------------------------------------------------------ Net increase in net assets 4,536,791 24,384,885 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of year 58,184,681 33,799,796 - ------------------------------------------------------------------------------ End of year $62,721,472 $58,184,681 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $60,518,530 $54,757,995 - ------------------------------------------------------------------------------ Undistributed net investment income 4,309,645 2,488,745 - ------------------------------------------------------------------------------ Undistributed net realized gain (loss) from investment securities (1,355,452) (245,110) - ------------------------------------------------------------------------------ Unrealized appreciation (depreciation) of investment securities (751,251) 1,183,051 - ------------------------------------------------------------------------------ $62,721,472 $58,184,681 ==============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Government Securities Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the United States Government. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - Debt obligations that are issued or guaranteed by the U.S. Government, its agencies, authorities, and instrumentalities are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate, maturity and seasoning differential. Securities for which market prices are not provided by the pricing service are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations are either not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. The Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage security held in the portfolio to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar AIM V.I. GOVERNMENT SECURITIES FUND FS-62 144 security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be reinvested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Realized gains or losses from securities transactions are recorded on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - For federal income tax purposes, each portfolio in the Company is taxed as a separate entity. It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $180,497 as of December 31, 1998, which expires, if not previously utilized, through the year 2004. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% of the first $250 million of the Fund's average daily net assets, plus 0.45% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $22,486 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Fund's shares. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,908 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - BORROWINGS Reverse repurchase agreements involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase such securities at an agreed-upon price and date. Proceeds from reverse repurchase agreements are treated as borrowings. The agreements are collateralized by the underlying securities and are carried at the amount at which the securities will subsequently be repurchased as specified in the agreements. The maximum amount outstanding during the six months ended June 30, 1999 was $3,221,250 while borrowings averaged $1,010,663 per day with a weighted average interest rate of 2.40%. No borrowings existed at June 30, 1999. The Fund will limit its borrowings from banks, reverse repurchase agreements and dollar roll transactions to an aggregate of 33 1/3% of its total assets at the time of investment. The Fund will not purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets. The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended June 30, 1999 was $13,351,944 and $13,474,325, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $ 258,523 - -------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,046,025) - -------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities $ (787,502) ==========================================================================
Cost of investments for tax purposes is $63,024,630. AIM V.I. GOVERNMENT SECURITIES FUND FS-63 145 NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold 2,015,202 $ 22,281,052 3,062,093 $ 34,224,621 - ------------------------------------------------------------------------------ Issued as reinvestment of dividends -- -- 144,183 1,611,964 - ------------------------------------------------------------------------------ Reacquired (1,490,564) (16,520,517) (1,168,506) (13,058,261) - ------------------------------------------------------------------------------ 524,638 $ 5,760,535 2,037,770 $ 22,778,324 ==============================================================================
NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the year ended January 31, 1995.
JANUARY JUNE 30, DECEMBER 31, 31, -------- ---------------------------------- ------- 1999(a) 1998(a) 1997 1996 1995 1995 -------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24 - ------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.34 0.63 0.59 0.58 0.54 0.53 - ------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (0.57) 0.20 0.22 (0.35) 0.74 (0.88) - ------------------------------------------------------------------------------------------ Total from investment operations (0.23) 0.83 0.81 0.23 1.28 (0.35) - ------------------------------------------------------------------------------------------ Less distributions: Dividends from net investment income -- (0.32) (0.01) (0.53) (0.50) (0.50) - ------------------------------------------------------------------------------------------ Net asset value, end of period $ 10.95 $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 ========================================================================================== Total return(b) (2.06)% 7.73% 8.16% 2.29% 13.84% (3.42)% ========================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $62,721 $58,185 $33,800 $24,527 $19,545 $12,887 ========================================================================================== Ratio of expenses (exclusive of interest expense) to average net assets 0.79%(c) 0.76% 0.87% 0.91% 1.19%(d) 0.95%(e) ========================================================================================== Ratio of net investment income to average net assets 6.12%(c) 5.70% 5.85% 5.80% 5.78%(d) 5.51%(f) ========================================================================================== Ratio of interest expense to average net assets 0.04% N/A N/A N/A N/A N/A ========================================================================================== Portfolio turnover rate 25% 78% 66% 32% 41% 29% ==========================================================================================
(a) Calculated using average shares outstanding. (b) Total returns are not annualized for periods less than one year. (c) Ratios are annualized and based on average net assets of $60,017,920. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.10% for January 1995. (f) After fee waivers and/or expense reimbursements. Ratios of net investment income to average net assets prior to fee waivers and/or expense reimbursements was 5.35% for January 1995. AIM V.I. GOVERNMENT SECURITIES FUND FS-64 146 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 88.78% BANKS (REGIONAL) - 0.16% North Fork Bancorporation, Inc. 35,200 $ 750,200 - ------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 5.34% AT&T Corp.-Liberty Media Group-Class A(a) 120,200 4,417,350 - ------------------------------------------------------------------- Cablevision Systems Corp.-Class A(a) 9,900 693,000 - ------------------------------------------------------------------- Clear Channel Communications, Inc.(a) 89,925 6,199,205 - ------------------------------------------------------------------- Comcast Corp.-Class A 153,800 5,911,687 - ------------------------------------------------------------------- Cox Communications, Inc.-Class A(a) 99,000 3,644,437 - ------------------------------------------------------------------- Infinity Broadcasting Corp.-Class A(a) 157,600 4,688,600 - ------------------------------------------------------------------- 25,554,279 - ------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 5.82% General Instrument Corp.(a) 72,000 3,060,000 - ------------------------------------------------------------------- Lucent Technologies, Inc. 197,804 13,339,390 - ------------------------------------------------------------------- Motorola, Inc. 55,000 5,211,250 - ------------------------------------------------------------------- QUALCOMM, Inc.(a) 22,200 3,185,700 - ------------------------------------------------------------------- Tellabs, Inc.(a) 45,000 3,040,312 - ------------------------------------------------------------------- 27,836,652 - ------------------------------------------------------------------- COMPUTERS (HARDWARE) - 4.09% International Business Machines Corp. 98,000 12,666,500 - ------------------------------------------------------------------- Sun Microsystems, Inc.(a)(b) 100,000 6,887,500 - ------------------------------------------------------------------- 19,554,000 - ------------------------------------------------------------------- COMPUTERS (NETWORKING) - 2.07% Cisco Systems, Inc.(a)(b) 153,300 9,887,850 - ------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 1.28% EMC Corp.(a)(b) 44,000 2,420,000 - ------------------------------------------------------------------- Lexmark International Group, Inc.(a) 56,000 3,699,500 - ------------------------------------------------------------------- 6,119,500 - ------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 10.52% America Online, Inc.(b) 135,000 14,917,500 - ------------------------------------------------------------------- Citrix Systems, Inc.(a) 64,400 3,638,600 - ------------------------------------------------------------------- Compuware Corp.(a) 102,500 3,260,781 - ------------------------------------------------------------------- Microsoft Corp.(a) 105,800 9,541,837 - ------------------------------------------------------------------- Novell, Inc.(a) 5,500 145,750 - ------------------------------------------------------------------- Unisys Corp.(a) 305,000 11,875,937 - ------------------------------------------------------------------- Veritas Software Corp.(a) 6,100 579,119 - ------------------------------------------------------------------- Yahoo!, Inc.(a) 37,000 6,373,250 - ------------------------------------------------------------------- 50,332,774 - -------------------------------------------------------------------
MARKET SHARES VALUE CONSUMER FINANCE - 0.55% Capital One Financial Corp. 36,000 $ 2,004,750 - ------------------------------------------------------------------- Providian Financial Corp. 6,700 626,450 - ------------------------------------------------------------------- 2,631,200 - ------------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 0.04% AmeriSource Health Corp.-Class A(a) 7,800 198,900 - ------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 2.46% General Electric Co. 50,000 5,650,000 - ------------------------------------------------------------------- Sanmina Corp.(a)(b) 51,600 3,915,150 - ------------------------------------------------------------------- Symbol Technologies, Inc. 60,450 2,229,094 - ------------------------------------------------------------------- 11,794,244 - ------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 3.72% Analog Devices, Inc.(a) 60,000 3,011,250 - ------------------------------------------------------------------- Intel Corp.(b)(c) 36,000 2,142,000 - ------------------------------------------------------------------- LSI Logic Corp.(a) 20,900 964,012 - ------------------------------------------------------------------- Texas Instruments, Inc. 40,000 5,800,000 - ------------------------------------------------------------------- Xilinx, Inc.(a) 103,000 5,896,750 - ------------------------------------------------------------------- 17,814,012 - ------------------------------------------------------------------- ENTERTAINMENT - 1.80% Time Warner, Inc. 117,000 8,599,500 - ------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 3.78% American Express Co. 15,000 1,951,875 - ------------------------------------------------------------------- Fannie Mae 91,500 6,256,312 - ------------------------------------------------------------------- Freddie Mac 170,000 9,860,000 - ------------------------------------------------------------------- 18,068,187 - ------------------------------------------------------------------- FOOTWEAR - 0.46% Nike, Inc.-Class B 35,000 2,215,937 - ------------------------------------------------------------------- HEALTH CARE (DIVERSIFIED) - 6.64% Abbott Laboratories 98,600 4,486,300 - ------------------------------------------------------------------- Bristol-Myers Squibb Co. 125,000 8,804,687 - ------------------------------------------------------------------- Johnson & Johnson 68,500 6,713,000 - ------------------------------------------------------------------- Warner-Lambert Co. 170,000 11,793,750 - ------------------------------------------------------------------- 31,797,737 - ------------------------------------------------------------------- HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 2.99% Lilly (Eli) & Co. 62,000 4,440,750 - ------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 143,000 8,124,187 - ------------------------------------------------------------------- Schering-Plough Corp. 32,500 1,722,500 - ------------------------------------------------------------------- 14,287,437 - -------------------------------------------------------------------
AIM V.I. GROWTH FUND FS-65 147
MARKET SHARES VALUE HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.29% Bausch & Lomb, Inc. 46,400 $ 3,549,600 - --------------------------------------------------------------------------- Becton, Dickinson & Co. 79,900 2,397,000 - --------------------------------------------------------------------------- Boston Scientific Corp.(a) 60,000 2,636,250 - --------------------------------------------------------------------------- Guidant Corp. 300,000 15,431,250 - --------------------------------------------------------------------------- Medtronic, Inc. 78,026 6,076,275 - --------------------------------------------------------------------------- 30,090,375 - --------------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 1.40% American International Group, Inc. 57,360 6,714,705 - --------------------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.63% Knight/Trimark Group, Inc.-Class A(a) 50,000 3,015,625 - --------------------------------------------------------------------------- LODGING-HOTELS - 0.88% Carnival Corp. 87,200 4,229,200 - --------------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 4.41% Tyco International Ltd. 175,000 16,581,250 - --------------------------------------------------------------------------- United Technologies Corp. 63,000 4,516,313 - --------------------------------------------------------------------------- 21,097,563 - --------------------------------------------------------------------------- NATURAL GAS - 0.51% Enron Corp. 30,000 2,452,500 - --------------------------------------------------------------------------- RAILROADS - 0.03% Kansas City Southern Industries, Inc. 2,300 146,769 - --------------------------------------------------------------------------- RETAIL (BUILDING SUPPLIES) - 3.26% Home Depot, Inc. (The) 97,000 6,250,438 - --------------------------------------------------------------------------- Lowe's Companies, Inc. 165,000 9,353,438 - --------------------------------------------------------------------------- 15,603,876 - --------------------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS) - 1.67% Best Buy Co., Inc.(a) 68,000 4,590,000 - --------------------------------------------------------------------------- Tandy Corp. 70,000 3,421,250 - --------------------------------------------------------------------------- 8,011,250 - --------------------------------------------------------------------------- RETAIL (DISCOUNTERS) - 0.26% Dollar Tree Stores, Inc.(a) 28,800 1,267,200 - --------------------------------------------------------------------------- RETAIL (FOOD CHAINS) - 1.41% Kroger Co.(a) 200,200 5,593,088 - --------------------------------------------------------------------------- Safeway, Inc.(a) 23,600 1,168,200 - --------------------------------------------------------------------------- 6,761,288 - --------------------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 2.21% Dayton Hudson Corp. 70,000 4,550,000 - --------------------------------------------------------------------------- Wal-Mart Stores, Inc. 125,000 6,031,250 - --------------------------------------------------------------------------- 10,581,250 - ---------------------------------------------------------------------------
MARKET SHARES VALUE RETAIL (SPECIALTY) - 2.41% Office Depot, Inc.(a) 232,750 $ 5,135,047 - --------------------------------------------------------------------------- Staples, Inc.(a) 161,000 4,980,938 - --------------------------------------------------------------------------- Tiffany & Co. 14,600 1,408,900 - --------------------------------------------------------------------------- 11,524,885 - --------------------------------------------------------------------------- RETAIL (SPECIALTY - APPAREL) - 1.32% Gap, Inc. (The) 54,000 2,720,250 - --------------------------------------------------------------------------- Intimate Brands, Inc. 75,895 3,595,526 - --------------------------------------------------------------------------- 6,315,776 - --------------------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 2.10% Outdoor Systems, Inc.(a) 275,000 10,037,500 - --------------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 2.47% Affiliated Computer Services, Inc.-Class A(a) 29,100 1,473,188 - --------------------------------------------------------------------------- Ceridian Corp.(a) 69,400 2,268,513 - --------------------------------------------------------------------------- CSG Systems International, Inc.(a) 67,900 1,778,131 - --------------------------------------------------------------------------- First Data Corp. 100,000 4,893,750 - --------------------------------------------------------------------------- Fiserv, Inc.(a) 45,225 1,416,108 - --------------------------------------------------------------------------- 11,829,690 - --------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 4.73% MCI WorldCom, Inc.(a)(b) 262,243 22,618,459 - --------------------------------------------------------------------------- TEXTILES (APPAREL) - 1.07% Tommy Hilfiger Corp.(a) 70,000 5,145,000 - --------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $285,708,730) 424,885,320 - --------------------------------------------------------------------------- FOREIGN STOCKS & OTHER EQUITY INTERESTS - 4.65% CANADA - 1.45% Nortel Networks Corp. (Communications Equipment) 80,000 6,945,000 - --------------------------------------------------------------------------- FINLAND - 1.69% Nokia Oyj A.B.-Class A (Communications Equipment) 13,600 1,191,374 - --------------------------------------------------------------------------- Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 75,000 6,867,187 - --------------------------------------------------------------------------- 8,058,561 - --------------------------------------------------------------------------- NETHERLANDS - 1.51% Koninklijke (Royal) Philips Electronics N.V.-ADR (Electrical Equipment) 26,680 2,691,345 - --------------------------------------------------------------------------- Koninklijke (Royal) Phillips Electronics N.V.- (Electrical Equipment) 46,000 4,534,537 - --------------------------------------------------------------------------- 7,225,882 - --------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $15,507,956) 22,229,443 - ---------------------------------------------------------------------------
AIM V.I. GROWTH FUND FS-66 148
OPTIONS PURCHASED - 0.00% NUMBER OF EXERCISE EXPIRATION CONTRACTS PRICE DATE MARKET VALUE ELECTRONICS (SEMICONDUCTORS) - 0.00% Intel Corp. (Cost $37,080) 360 $52.50 Jul-99 $ 12,375 - -------------------------------------------------------------------------- PRINCIPAL AMOUNT TIME DEPOSIT - 4.67% CIBC Oppenheimer Corp., 5.50%, 07/01/99 (Cost $22,363,210) $22,363,210 22,363,210 - --------------------------------------------------------------------------- REPURCHASE AGREEMENT - 2.72%(d) Greenwich Capital Markets, Inc., 5.00%, 07/01/99 (Cost $13,000,037)(e) 13,000,037 13,000,037 - --------------------------------------------------------------------------- TOTAL INVESTMENTS - 100.82% 482,490,385 =========================================================================== LIABILITIES LESS OTHER ASSETS - (0.82%) (3,903,545) =========================================================================== NET ASSETS - 100.00% $478,586,840 ===========================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) A portion of this security is subject to call options. (c) A portion of this security is subject to put options. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreements entered into 06/30/99 with a maturing value of $100,013,889. Collaterialized by U.S. Government obligations. Investment Abbreviation: ADR - American Depositary Receipt See Notes to Financial Statements. AIM V.I. GROWTH FUND FS-67 149 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments at market value (cost $336,617,013) $482,490,385 - ---------------------------------------------------------------------- Cash 375,509 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 1,052,941 - ---------------------------------------------------------------------- Investments sold 1,028,734 - ---------------------------------------------------------------------- Dividends and interest 124,730 - ---------------------------------------------------------------------- Investment for deferred compensation plan 23,806 - ---------------------------------------------------------------------- Other assets 2,757 - ---------------------------------------------------------------------- Total assets 485,098,862 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 22,080 - ---------------------------------------------------------------------- Investments purchased 816,068 - ---------------------------------------------------------------------- Deferred compensation plan 23,806 - ---------------------------------------------------------------------- Options written (Premiums received $4,998,568) 5,344,875 - ---------------------------------------------------------------------- Accrued advisory fees 231,912 - ---------------------------------------------------------------------- Accrued administrative services fees 8,675 - ---------------------------------------------------------------------- Accrued directors' fees 2,350 - ---------------------------------------------------------------------- Accrued operating expenses 62,256 - ---------------------------------------------------------------------- Total liabilities 6,512,022 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $478,586,840 ====================================================================== CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 17,139,556 ====================================================================== Net asset value, offering and redemption price per share $27.92 ======================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Dividends (net of $22,717 foreign withholding tax) $ 923,851 - ------------------------------------------------------------------------- Interest 619,632 - ------------------------------------------------------------------------- Total investment income 1,543,483 - ------------------------------------------------------------------------- EXPENSES: Advisory fees 1,301,868 - ------------------------------------------------------------------------- Administrative services fees 46,972 - ------------------------------------------------------------------------- Custodian fees 29,321 - ------------------------------------------------------------------------- Directors' fees and expenses 3,039 - ------------------------------------------------------------------------- Other 53,727 - ------------------------------------------------------------------------- Total expenses 1,434,927 - ------------------------------------------------------------------------- Less: Expenses paid indirectly (1,229) - ------------------------------------------------------------------------- Net expenses 1,433,698 - ------------------------------------------------------------------------- Net investment income 109,785 - ------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTIONS CONTRACTS: Net realized gain (loss) from: Investment securities 25,571,787 - ------------------------------------------------------------------------- Foreign currencies (94,199) - ------------------------------------------------------------------------- Options contracts (687,809) - ------------------------------------------------------------------------- 24,789,779 - ------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 25,471,680 - ------------------------------------------------------------------------- Foreign currencies (6,813) - ------------------------------------------------------------------------- Options contracts (47,752) - ------------------------------------------------------------------------- 25,417,115 - ------------------------------------------------------------------------- Net gain from investment securities, foreign currencies and options contracts 50,206,894 - ------------------------------------------------------------------------- Net increase in net assets resulting from operations $50,316,679 =========================================================================
See Notes to Financial Statements. AIM V.I. GROWTH FUND FS-68 150 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ----------------------- OPERATIONS: Net investment income $ 109,785 $ 1,230,060 - ------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, futures and options contracts 24,789,779 22,257,031 - ------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies, futures and options contracts 25,417,115 68,057,550 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 50,316,679 91,544,641 - ------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (1,180,373) - ------------------------------------------------------------------------------- Distributions to shareholders from net realized gains -- (22,129,920) - ------------------------------------------------------------------------------- Net increase from capital stock transactions 56,355,410 44,828,633 - ------------------------------------------------------------------------------- Net increase in net assets 106,672,089 113,062,981 - ------------------------------------------------------------------------------- NET ASSETS: Beginning of year 371,914,751 258,851,770 - ------------------------------------------------------------------------------- End of year $478,586,840 $371,914,751 =============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $285,154,071 $228,798,661 - ------------------------------------------------------------------------------- Undistributed net investment income 1,399,293 1,289,508 - ------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, futures and options contracts 46,508,913 21,719,134 - ------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, futures and options contracts 145,524,563 120,107,448 - ------------------------------------------------------------------------------- $478,586,840 $371,914,751 ===============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Growth Fund (the "Fund"). The Fund's investment objective is to seek growth of capital principally through investment in common stocks of seasoned and better capitalized companies considered by AIM to have strong earnings momentum. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency AIM V.I. GROWTH FUND FS-69 151 exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. F. Put options - The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The option's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. G. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. H. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. AIM V.I. GROWTH FUND FS-70 152 NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $23,029 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $2,252 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $1,229 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $1,229 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended June 30, 1999 was $279,182,690 and $221,208,463, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $146,386,829 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,143,479) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $145,243,350 ===========================================================================
Cost of investments for tax purposes is $337,247,035. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, 1999 DECEMBER 31, 1998 ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ----------- Sold 3,733,983 $ 98,563,168 2,345,258 $52,301,342 - ----------------------------------------------------------------------------- Issued as reinvestment of distributions -- -- 1,005,621 23,310,293 - ----------------------------------------------------------------------------- Reacquired (1,591,689) (42,207,758) (1,407,943) (30,783,002) - ----------------------------------------------------------------------------- 2,142,294 $ 56,355,410 1,942,936 $44,828,633 =============================================================================
NOTE 8 - CALL OPTIONS CONTRACTS WRITTEN Transactions in call options written during the six months ended June 30, 1999 are summarized as follows:
CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------- Beginning of period 1,197 $ 739,850 - ------------------------------------------- Written 6,900 6,352,045 - ------------------------------------------- Closed (1,730) (1,353,477) - ------------------------------------------- Exercised (1,040) (605,070) - ------------------------------------------- Expired (157) (134,780) - ------------------------------------------- End of period 5,170 $ 4,998,568 ===========================================
Open call options held at June 30, 1999 were as follows:
JUNE 30, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUM 1999 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - ---------------------- -------------------------------------------------------- American Online Inc. Oct. 1999 $105 540 $1,128,703 $1,036,125 $ 92,578 - ------------------------------------------------------------------------------------------ American Online Inc. Jan. 2000 120 810 1,346,525 1,549,125 (202,600) - ------------------------------------------------------------------------------------------ Cisco Systems, Inc. Oct. 1999 60 900 639,878 821,250 (181,372) - ------------------------------------------------------------------------------------------ EMC Corp. Oct. 1999 60 440 224,177 206,250 17,927 - ------------------------------------------------------------------------------------------ Intel Corp. Oct. 1999 60 360 156,055 204,750 (48,695) - ------------------------------------------------------------------------------------------ MCI Worldcom, Inc. Sept. 1999 90 1,100 710,576 556,875 153,701 - ------------------------------------------------------------------------------------------ Sanmina Corp. Oct. 1999 80 300 231,292 232,500 (1,208) - ------------------------------------------------------------------------------------------ Sun Microsystems, Inc. Oct. 1999 65 720 561,362 738,000 (176,638) - ------------------------------------------------------------------------------------------ 5,170 $4,998,568 $5,344,875 $(346,307) ==========================================================================================
AIM V.I. GROWTH FUND FS-71 153 NOTE 9 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the year ended January 31, 1995.
DECEMBER 31, JANUARY 31, -------------------------------------- ----------- JUNE 30, 1999 1998 1997 1996 1995 1995 -------- -------- -------- -------- -------- ----------- Net asset value, beginning of period $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59 - --------------------------------------------------------------------------------------------- Income from investment operations: Net investment income -- 0.08 0.08 0.07 0.09 0.06 - --------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 3.12 6.57 4.27 2.52 3.65 (0.88) - --------------------------------------------------------------------------------------------- Total from investment operations 3.12 6.65 4.35 2.59 3.74 (0.82) - --------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- (0.09) (0.09) (0.06) (0.01) (0.06) - --------------------------------------------------------------------------------------------- Distributions from net realized gains -- (1.59) (0.68) (0.72) -- -- - --------------------------------------------------------------------------------------------- Total distributions -- (1.68) (0.77) (0.78) (0.01) (0.06) - --------------------------------------------------------------------------------------------- Net asset value, end of period $ 27.92 $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71 ============================================================================================= Total return(a) 12.58% 34.12% 26.87% 18.09% 34.89% (7.11)% ============================================================================================= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $478,587 $371,915 $258,852 $178,638 $102,600 $45,497 ============================================================================================= Ratio of expenses to average net assets 0.69%(b) 0.72% 0.73% 0.78% 0.84%(c) 0.95% ============================================================================================= Ratio of net investment income to average net assets 0.05%(b) 0.41% 0.54% 0.79% 0.95%(c) 0.71% ============================================================================================= Portfolio turnover rate 56% 133% 132% 143% 125% 179% =============================================================================================
(a) Total returns are not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $416,718,726. (c) Annualized. AIM V.I. GROWTH FUND FS-72 154 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE COMMON STOCKS - 89.49% AUTOMOBILES - 0.96% Ford Motor Co. 300,000 $ 16,931,250 - ----------------------------------------------------------------------- BANKS (MONEY CENTER) - 3.26% Chase Manhattan Corp. (The) 665,000 57,605,625 - ----------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 1.98% AT&T Corp. - Liberty Media Group-Class A(a) 250,000 9,187,500 - ----------------------------------------------------------------------- Broadcast.com, Inc.(a) 49,500 6,611,344 - ----------------------------------------------------------------------- Comcast Corp. - Class A 500,000 19,218,750 - ----------------------------------------------------------------------- 35,017,594 - ----------------------------------------------------------------------- CHEMICALS (DIVERSIFIED) - 1.17% Monsanto Co. 525,000 20,704,687 - ----------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 5.51% Corning, Inc. 175,000 12,271,875 - ----------------------------------------------------------------------- Lucent Technologies, Inc. 440,000 29,672,500 - ----------------------------------------------------------------------- Motorola, Inc. 200,000 18,950,000 - ----------------------------------------------------------------------- Nokia Oyj A.B.-Class A-ADR (Finland) 210,000 19,228,125 - ----------------------------------------------------------------------- QUALCOMM, Inc.(a) 120,000 17,220,000 - ----------------------------------------------------------------------- 97,342,500 - ----------------------------------------------------------------------- COMPUTERS (HARDWARE) - 5.39% Dell Computer Corp.(a) 375,000 13,875,000 - ----------------------------------------------------------------------- International Business Machines Corp. 400,000 51,700,000 - ----------------------------------------------------------------------- Sun Microsystems, Inc.(a) 430,000 29,616,250 - ----------------------------------------------------------------------- 95,191,250 - ----------------------------------------------------------------------- COMPUTERS (NETWORKING) - 2.26% Cisco Systems, Inc.(a) 620,000 39,990,000 - ----------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 1.54% EMC Corp.(a) 350,000 19,250,016 - ----------------------------------------------------------------------- Lexmark International Group, Inc.(a) 120,000 7,927,500 - ----------------------------------------------------------------------- 27,177,516 - ----------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 8.18% America Online, Inc. 200,000 22,100,000 - ----------------------------------------------------------------------- Microsoft Corp.(a) 870,000 78,463,125 - ----------------------------------------------------------------------- Novell, Inc.(a) 1,290,000 34,185,000 - ----------------------------------------------------------------------- Unisys Corp.(a) 250,000 9,734,375 - ----------------------------------------------------------------------- 144,482,500 - ----------------------------------------------------------------------- CONSUMER FINANCE - 1.06% Providian Financial Corp. 200,000 18,700,000 - -----------------------------------------------------------------------
MARKET SHARES VALUE DISTRIBUTORS (FOOD & HEALTH) - 0.55% Cardinal Health, Inc. 150,000 $ 9,618,750 - ----------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 2.43% General Electric Co. 380,000 42,940,000 - ----------------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 1.27% Linear Technology Corp. 140,000 9,415,000 - ----------------------------------------------------------------------------- Texas Instruments, Inc. 90,000 13,050,000 - ----------------------------------------------------------------------------- 22,465,000 - ----------------------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR) - 1.25% Applied Materials, Inc.(a) 125,000 9,234,375 - ----------------------------------------------------------------------------- Teradyne, Inc.(a) 180,000 12,915,000 - ----------------------------------------------------------------------------- 22,149,375 - ----------------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 5.39% American Express Co. 240,000 31,230,000 - ----------------------------------------------------------------------------- Citigroup, Inc. 352,500 16,743,750 - ----------------------------------------------------------------------------- Fannie Mae 325,000 22,221,875 - ----------------------------------------------------------------------------- Freddie Mac 430,000 24,940,000 - ----------------------------------------------------------------------------- 95,135,625 - ----------------------------------------------------------------------------- FOOTWEAR - 0.54% Nike, Inc. - Class B 150,000 9,496,875 - ----------------------------------------------------------------------------- HEALTH CARE (DIVERSIFIED) - 5.46% American Home Products Corp. 240,000 13,800,000 - ----------------------------------------------------------------------------- Bristol-Myers Squibb Co. 500,000 35,218,750 - ----------------------------------------------------------------------------- Johnson & Johnson 130,000 12,740,000 - ----------------------------------------------------------------------------- Warner-Lambert Co. 500,000 34,687,500 - ----------------------------------------------------------------------------- 96,446,250 - ----------------------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.13% Lilly (Eli) & Co. 155,000 11,101,875 - ----------------------------------------------------------------------------- Pfizer, Inc. 300,000 32,925,000 - ----------------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 230,000 13,066,875 - ----------------------------------------------------------------------------- Schering-Plough Corp. 300,000 15,900,000 - ----------------------------------------------------------------------------- 72,993,750 - ----------------------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT) - 0.39% Columbia/HCA Healthcare Corp. 300,000 6,843,750 - ----------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.56% Guidant Corp. 500,000 25,718,750 - ----------------------------------------------------------------------------- Medtronic, Inc. 250,000 19,468,750 - ----------------------------------------------------------------------------- 45,187,500 - -----------------------------------------------------------------------------
AIM V.I. GROWTH AND INCOME FUND FS-73 155
MARKET SHARES VALUE HEALTH CARE (SPECIALIZED SERVICES) - 0.32% Omnicare, Inc. 451,700 $ 5,702,712 - ----------------------------------------------------------------------- HOUSEHOLD FURNISHING & APPLIANCES - 0.40% Maytag Corp. 100,000 6,968,750 - ----------------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.45% Colgate-Palmolive Co. 80,000 7,900,000 - ----------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 2.92% American International Group, Inc. 440,000 51,507,500 - ----------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 5.12% Goldman Sachs Group, Inc. (The) 120,000 8,670,000 - ----------------------------------------------------------------------- Merrill Lynch & Co., Inc. 130,000 10,391,875 - ----------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 160,000 16,400,000 - ----------------------------------------------------------------------- Schwab (Charles) Corp. 500,000 54,937,500 - ----------------------------------------------------------------------- 90,399,375 - ----------------------------------------------------------------------- LODGING-HOTELS - 0.82% Carnival Corp. 300,000 14,550,000 - ----------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 6.10% Tyco International Ltd. 1,000,000 94,750,000 - ----------------------------------------------------------------------- United Technologies Corp. 180,000 12,903,750 - ----------------------------------------------------------------------- 107,653,750 - ----------------------------------------------------------------------- NATURAL GAS - 0.60% Enron Corp. 130,000 10,627,500 - ----------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.96% Halliburton Co. 200,000 9,050,000 - ----------------------------------------------------------------------- Schlumberger Ltd. 125,000 7,960,938 - ----------------------------------------------------------------------- 17,010,938 - ----------------------------------------------------------------------- OIL (INTERNATIONAL INTEGRATED) - 1.21% Mobil Corp. 215,000 21,285,000 - ----------------------------------------------------------------------- RAILROADS - 0.54% Kansas City Southern Industries, Inc. 150,000 9,571,875 - ----------------------------------------------------------------------- RETAIL (BUILDING SUPPLIES) - 0.68% Home Depot, Inc. (The) 50,000 3,221,875 - ----------------------------------------------------------------------- Lowe's Companies, Inc. 155,000 8,786,563 - ----------------------------------------------------------------------- 12,008,438 - ----------------------------------------------------------------------- RETAIL (FOOD CHAINS) - 1.21% Kroger Co.(a) 500,000 13,968,750 - ----------------------------------------------------------------------- Safeway, Inc.(a) 150,000 7,425,000 - ----------------------------------------------------------------------- 21,393,750 - ----------------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 4.45% Costco Companies, Inc.(a) 100,000 8,006,250 - ----------------------------------------------------------------------- Dayton Hudson Corp. 530,000 34,450,000 - ----------------------------------------------------------------------- Wal-Mart Stores, Inc. 750,000 36,187,500 - ----------------------------------------------------------------------- 78,643,750 - -----------------------------------------------------------------------
MARKET SHARES VALUE RETAIL (SPECIALTY) - 0.57% Amazon.com, Inc.(a) 80,000 $ 10,010,000 - ----------------------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 0.82% Abercrombie & Fitch Co.-Class A(a) 300,000 14,400,000 - ----------------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 1.29% Concord EFS, Inc.(a) 193,300 8,179,006 - ----------------------------------------------------------------------------- First Data Corp. 300,000 14,681,250 - ----------------------------------------------------------------------------- 22,860,256 - ----------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 3.89% AT&T Corp. 150,000 8,371,875 - ----------------------------------------------------------------------------- Global TeleSystems Group, Inc.(a) 100,000 8,100,000 - ----------------------------------------------------------------------------- MCI WorldCom, Inc.(a) 605,000 52,181,250 - ----------------------------------------------------------------------------- 68,653,125 - ----------------------------------------------------------------------------- TELEPHONE - 0.49% SBC Communications, Inc. 150,000 8,700,000 - ----------------------------------------------------------------------------- TOBACCO - 1.37% Philip Morris Companies, Inc. 600,000 24,112,500 - ----------------------------------------------------------------------------- Total Common Stocks (Cost $1,159,408,793) 1,580,379,016 - ----------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS - 2.62% BROADCASTING (TELEVISION, RADIO & CABLE) - 0.85% MediaOne Group, Inc.-$2.25 Conv. Pfd. 100,000 14,981,250 - ----------------------------------------------------------------------------- ENTERTAINMENT - 1.56% Houston Industries, Inc.-$3.22 Conv. Pfd. 230,600 27,499,050 - ----------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.21% Global Telesystems Group, Inc., -$3.625 Conv. Pfd. (Acquired 06/11/99; Cost $3,742,815)(b) 58,000 3,828,000 - ----------------------------------------------------------------------------- Total Convertible Preferred Stocks (Cost $33,793,293) 46,308,300 - ----------------------------------------------------------------------------- PRINCIPAL AMOUNT CONVERTIBLE BONDS & NOTES - 2.78% COMPUTERS (HARDWARE) - 0.26% Candescent Technology Corp., Conv. Sr. Sub. Deb., 7.00%, 05/01/03 (Acquired 04/17/98; Cost $5,875,401)(b) $ 6,000,000 4,680,000 - ----------------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 0.60% Veritas Software Corp., Conv. Unsec. Notes, 5.25%, 11/01/04 4,500,000 10,549,688 - ----------------------------------------------------------------------------- RETAIL (BUILDING SUPPLIES) - 0.48% Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 3,000,000 8,392,500 - -----------------------------------------------------------------------------
AIM V.I. GROWTH AND INCOME FUND FS-74 156
PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 1.44% Global Telesystems Group, Conv. Sr. Sub. Deb., 8.75%, 06/30/00 $ 500,000 $ 2,035,000 - -------------------------------------------------------------------------- Sr. Sec. Sub. Conv. Notes, 8.75%, 06/30/00 (Acquired 02/05/98; Cost $1,950,812)(b) 1,500,000 6,105,000 - -------------------------------------------------------------------------- Conv. Sr. Sub. Deb., 5.75%, 07/01/10 11,000,000 17,325,000 - -------------------------------------------------------------------------- 25,465,000 - -------------------------------------------------------------------------- Total Convertible Bonds & Notes (Cost $31,116,876) 49,087,188 - -------------------------------------------------------------------------- TIME DEPOSIT - 4.53% CIBC Oppenheimer Corp., 5.50%, 07/01/99 (Cost $80,000,000) 80,000,000 80,000,000 - -------------------------------------------------------------------------- REPURCHASE AGREEMENT - 1.40%(c) Chase Securities Inc., 5.00%, 07/01/99 (Cost $24,718,696)(d) 24,718,696 24,718,696 - -------------------------------------------------------------------------- TOTAL INVESTMENTS - 100.82% 1,780,493,200 - -------------------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS - (0.82%) (14,532,689) - -------------------------------------------------------------------------- NET ASSETS - 100.00% $1,765,960,511 ==========================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with the procedures established by the Board of Directors. The aggregate market value of these securities at 06/30/99 was $14,613,000 which represented 0.83% of the Fund's net assets. (c) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (d) Joint repurchase agreements entered into 06/30/99 with a maturing value of $200,027,778. Collateralized by U.S. Government obligations. Investment Abbreviations: ADR- American Depositary Receipt Conv.- Convertible Deb.- Debentures Pfd.- Preferred Sec.- Secured Sr.- Senior Sub.- Subordinated Unsec.- Unsecured See Notes to Financial Statements. AIM V.I. GROWTH AND INCOME FUND FS-75 157 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, at market value (cost $1,329,037,658) $1,780,493,200 - ------------------------------------------------------------------------ Receivables for: Capital stock sold 1,149,282 - ------------------------------------------------------------------------ Dividends and interest 1,381,249 - ------------------------------------------------------------------------ Investment for deferred compensation plan 22,564 - ------------------------------------------------------------------------ Other assets 13,616 ======================================================================== Total assets 1,783,059,911 ======================================================================== LIABILITIES: Payables for: Investments purchased 15,382,671 - ------------------------------------------------------------------------ Capital stock reacquired 544,962 - ------------------------------------------------------------------------ Deferred compensation plan 22,564 - ------------------------------------------------------------------------ Accrued advisory fees 820,149 - ------------------------------------------------------------------------ Accrued director's fees 13,181 - ------------------------------------------------------------------------ Accrued administrative services fees 222,713 - ------------------------------------------------------------------------ Accrued operating expenses 93,160 - ------------------------------------------------------------------------ Total liabilities 17,099,400 - ------------------------------------------------------------------------ Net assets applicable to shares outstanding $1,765,960,511 ======================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ------------------------------------------------------------------------ Outstanding 64,889,801 ======================================================================== Net asset value, offering and redemption price per share $27.21 ========================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Dividends (net of $16,291 foreign withholding tax) $ 5,928,208 - ------------------------------------------------------------------------------ Interest 2,546,431 ============================================================================== Total investment income 8,474,639 ============================================================================== EXPENSES: Advisory fees 4,462,314 - ------------------------------------------------------------------------------ Administrative services fees 588,532 - ------------------------------------------------------------------------------ Custodian fees 76,249 - ------------------------------------------------------------------------------ Directors' fees and expenses 7,866 - ------------------------------------------------------------------------------ Other 363,148 ============================================================================== Total expenses 5,498,109 ============================================================================== Less: Expenses paid indirectly (2,450) - ------------------------------------------------------------------------------ Net expenses 5,495,659 ============================================================================== Net investment income 2,978,980 ============================================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities 62,660,690 - ------------------------------------------------------------------------------ Foreign currencies 915 - ------------------------------------------------------------------------------ Option contracts (368,390) - ------------------------------------------------------------------------------ 62,293,215 - ------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of: Investment securities 138,812,320 - ------------------------------------------------------------------------------ Foreign currencies (7,963) - ------------------------------------------------------------------------------ Option contracts 1,110,542 ============================================================================== 139,914,899 ============================================================================== Net gain from investment securities, foreign currencies, and option contracts 202,208,114 ============================================================================== Net increase in net assets resulting from operations $205,187,094 ==============================================================================
See Notes to Financial Statements. AIM V.I. GROWTH AND INCOME FUND FS-76 158 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 --------------------------- OPERATIONS: Net investment income $ 2,978,980 $ 12,149,523 - ------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, futures and option contracts 62,293,215 5,086,770 - ------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies, futures and option contracts 139,914,899 224,324,487 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 205,187,094 241,560,780 - ------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (4,873,870) - ------------------------------------------------------------------------------- Distributions to shareholders from net realized gains -- (12,029,125) - ------------------------------------------------------------------------------- Net increase from capital stock transactions 298,714,648 398,288,439 - ------------------------------------------------------------------------------- Net increase in net assets 503,901,742 622,946,224 - ------------------------------------------------------------------------------- NET ASSETS: Beginning of year 1,262,058,769 639,112,545 - ------------------------------------------------------------------------------- End of year $1,765,960,511 $1,262,058,769 =============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $1,234,705,540 $ 935,990,892 - ------------------------------------------------------------------------------- Undistributed net investment income 14,976,348 11,997,368 - ------------------------------------------------------------------------------- Undistributed net realized gain on sales from investment securities, foreign currencies, futures and option contracts 64,825,596 2,532,381 - ------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and option contracts 451,453,027 311,538,128 - ------------------------------------------------------------------------------- $1,765,960,511 $1,262,058,769 ===============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Growth and Income Fund (the "Fund"). The Fund's investment objective is to seek growth of capital, with current income as a secondary objective. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. AIM V.I. GROWTH AND INCOME FUND FS-77 159 Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Realized gains or losses from securities transactions are recorded on the identified cost basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. The Fund will not write a covered call option if, immediately thereafter, the aggregate value of the securities underlying all such options, determined as of the dates such options were written, would exceed 25% of the net assets of the Fund. H. Put options -- The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the options' underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The options' underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six AIM V.I. GROWTH AND INCOME FUND FS-78 160 months ended June 30, 1999, AIM was paid $31,750 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $3,238 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $2,450 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $2,450 during the six months ended June 30, 1999. NOTE 4 - BANK BORROWINGS Reverse repurchase agreements involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase such securities at an agreed- upon price and date. Proceeds from reverse repurchase agreements are treated as borrowings. The agreements are collateralized by the underlying securities and are carried at the amount at which the securities will subsequently be repurchased as specified in the agreements. The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 5 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended June 30, 1999 was $1,106,698,112 and $874,927,098, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $456,638,797 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (9,303,482) =========================================================================== Net unrealized appreciation of investment securities $447,335,315 ===========================================================================
Cost of investments for tax purposes is $1,333,157,885. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
June 30, December 31, 1999 1998 -------------------------- ------------------------ Shares Amount Shares Amount ----------- ------------- ---------- ------------ Sold 12,959,806 $329,487,675 19,890,074 $409,625,526 - ----------------------------------------------------------------------------- Issued as reinvestment of distributions -- -- 751,578 16,902,995 - ----------------------------------------------------------------------------- Reacquired (1,201,029) (30,773,027) (1,379,171) (28,240,082) ============================================================================= 11,758,777 $298,714,648 19,262,481 $398,288,439 =============================================================================
NOTE 8 - CALL OPTION CONTRACTS WRITTEN Transactions in call options written during the year ended June 30, 1999 are summarized as follows:
CALL OPTION CONTRACTS ------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED ---------------- Beginning of year 2,667 $617,471 - -------------------------------------- Written 850 465,834 - -------------------------------------- Closed (2,417) (921,610) - -------------------------------------- Exercised (1,100) (161,695) ====================================== End of year -- $ -- ======================================
AIM V.I. GROWTH AND INCOME FUND FS-79 161 NOTE 9 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995.
December 31, June 30, ----------------------------------------- January 31, 1999(a) 1998 1997 1996 1995 1995 ---------- ---------- -------- -------- ------- ----------- Net asset value, beginning of period $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98 $10.00 - ------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.05 0.26(a) 0.13 0.16 0.14 0.11 - ------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) 3.41 4.95 3.74 2.36 3.11 (0.02) ====================================================================================================== Total from investment operations 3.46 5.21 3.87 2.52 3.25 0.09 ====================================================================================================== Less distributions: Dividends from net investment income -- (0.09) (0.01) (0.14) (0.14) (0.11) - ------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (0.24) (0.02) (0.03) (0.41) -- ====================================================================================================== Total distributions -- (0.33) (0.03) (0.17) (0.55) (0.11) ====================================================================================================== Net asset value, end of period $ 27.21 $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98 ====================================================================================================== Total return(b) 14.57% 27.68% 25.72% 19.95% 32.65% 0.90% ====================================================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $1,765,961 $1,262,059 $639,113 $209,332 $38,567 $7,380 ====================================================================================================== Ratio of expenses to average net assets 0.75%(c) 0.65% 0.69% 0.78% 0.78%(d) 1.07%(d)(e) ====================================================================================================== Ratio of net investment income to average net assets 0.41%(c) 1.34% 1.15% 2.05% 1.92%(d) 1.95%(d)(e) ====================================================================================================== Portfolio turnover rate 61% 140% 135% 148% 145% 96% ======================================================================================================
(a) Calculated using average shares outstanding. (b) Total returns are not annualized for periods less than one year. (c) Ratios are annualized and based on average net assets of $1,478,931,561. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.72% (annualized) and 1.30% (annualized), respectively. AIM V.I. GROWTH AND INCOME FUND FS-80 162 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE CORPORATE BONDS & NOTES - 92.51% AEROSPACE/DEFENSE - 2.80% Precision Partners, Inc., Sr. Sub. Mortgage Notes, 12.00%, 03/15/09(a) (Acquired 05/13/99; Cost $498,125) $500,000 $ 477,500 - ------------------------------------------------------------------------------- BUILDING MATERIALS - 0.42% Imperial Home Decor Group, Series B Sr. Unsec. Gtd. Sub. Notes, 11.00%, 03/15/08 100,000 72,500 - ------------------------------------------------------------------------------- CHEMICAL (SPECIALTY) - 2.07% ZSC Specialty Chemicals PLC (United Kingdom), Sr. Notes, 11.00%, 07/01/09(a) (Acquired 06/24/99; Cost $350,000) 350,000 353,500 - ------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 1.69% GST Telecom, Sr. Disc. Notes, 10.50%, 05/01/08(a)(b) (Acquired 04/28/99; Cost $309,068) 500,000 288,750 - ------------------------------------------------------------------------------- COMPUTERS (NETWORKING) - 3.20% Convergent Communications, Series B Sr. Unsec. Notes, 13.00%, 04/01/08(c) 250,000 228,750 - ------------------------------------------------------------------------------- Exodus Communications, Sr. Unsec. Notes, 11.25%, 07/01/08 300,000 317,250 - ------------------------------------------------------------------------------- 546,000 - ------------------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 2.01% Metal Management, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.00%, 05/15/08 425,000 344,250 - ------------------------------------------------------------------------------- CONSTRUCTION (CEMENT & AGGREGATES) - 2.90% Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%, 06/01/08 550,000 495,000 - ------------------------------------------------------------------------------- CONTAINERS & PACKAGING (PAPER) - 0.46% BPC Holding Corp., Series B Sr. Sec. Notes, 12.50%, 06/15/06 80,000 78,400 - ------------------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 3.32% Ono Finance PLC (United Kingdom), Notes, 13.00%, 05/01/09(c) 550,000 567,875 - ------------------------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES - 3.08% Resort at Summerlin/RAS Co., Sr. Unsec. Sub. PIK Notes, 13.00%, 12/15/07 118,000 107,970 - ------------------------------------------------------------------------------- Venetian Casino Resort LLC, Gtd. Mortgage Notes, 12.25%, 11/15/04 425,000 418,625 - ------------------------------------------------------------------------------- 526,595 - ------------------------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER) - 2.45% Biovail Corp., Sr. Notes, 10.875%, 11/15/05 400,000 418,000 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.64% Alaris Medical, Inc., Sr. Disc. Notes, 11.125%, 08/01/08(b) $200,000 $ 109,500 - ------------------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 2.39% Team Health, Inc., Sr. Sub. Notes, 12.00%, 03/15/09(a) (Acquired 03/05/99-03/16/99; Cost $400,000) 400,000 408,000 - ------------------------------------------------------------------------------- HOUSEHOLD FURN. & APPLIANCES - 2.06% Falcon Products, Inc., Sr. Sub. Notes, 11.375%, 06/15/09(a) (Acquired 06/14/99; Cost $350,000) 350,000 351,750 - ------------------------------------------------------------------------------- HOUSEWARES - 2.49% Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes, 11.00%, 05/01/05 440,000 424,600 - ------------------------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 2.41% Marvel Enterprises, Inc., Sr. Notes, 12.00%, 06/15/09(a) (Acquired 02/17/99; Cost $395,000) 395,000 411,788 - ------------------------------------------------------------------------------- LODGING-HOTELS - 5.63% American Skiing Co., Series B Sr. Sub. Notes, 12.00%, 07/15/06 300,000 232,500 - ------------------------------------------------------------------------------- Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes, 12.50%, 03/15/07 90,000 79,650 - ------------------------------------------------------------------------------- Majestic Star Casino LLC, Sec. Bonds, 10.875%, 07/01/06(a) (Acquired 06/15/99; Cost $491,300) 500,000 497,500 - ------------------------------------------------------------------------------- Stena Line A.B. (Sweden), Sr. Unsec. Yankee Notes, 10.625%, 06/01/08 200,000 151,500 - ------------------------------------------------------------------------------- 961,150 - ------------------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 2.09% Comstock Resources, Inc., Sr. Notes, 11.25%, 05/01/07(a) (Acquired 04/26/99; Cost $348,184) 350,000 357,000 - ------------------------------------------------------------------------------- PHOTOGRAPHY/IMAGING - 2.62% Polariod Corp., Sr. Unsec. Notes, 11.50%, 02/15/06 420,000 447,300 - ------------------------------------------------------------------------------- RETAIL (SPECIALTY) - 3.06% Vista Eyecare, Inc., Series B Sr. Unsec. Gtd. Notes, 12.75%, 10/15/05 525,000 522,375 - ------------------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 2.09% Avis Rent A Car, Inc., Sr. Sub. Notes, 11.00%, 05/01/09(a) (Acquired 06/25/99; Cost $350,000) 350,000 357,000 - ------------------------------------------------------------------------------- SHIPPING - 0.63% Millenium Seacarriers, First Priority Ship Mortgage Notes, 12.00%, 07/15/05(c) 100,000 52,500 - ------------------------------------------------------------------------------- Pegasus Shipping Hellas Co. (Bermuda), Series A Sr. Sec. Gtd. Mortgage Notes, 11.875%, 11/15/04 100,000 55,500 - ------------------------------------------------------------------------------- 108,000 - -------------------------------------------------------------------------------
AIM V.I. HIGH YIELD FUND FS-81 163
PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 14.33% Clearnet Communications, Inc. (Canada), Sr. Disc. Yankee Notes, 10.125%, 05/01/09(b) $550,000 $ 314,875 - -------------------------------------------------------------------------------- Dobson Communications Corp., Sr. Notes, 11.75%, 04/15/07 200,000 210,500 - -------------------------------------------------------------------------------- GST Equipment Funding, Sr. Sec. Notes, 13.25%, 05/01/07 400,000 425,000 - -------------------------------------------------------------------------------- Jazztel PLC (United Kingdom), Sr. Notes, 14.00%, 04/01/09(a)(c) (Acquired 03/31/99; Cost $450,000) 450,000 443,250 - -------------------------------------------------------------------------------- KMC Telecom Holdings, Inc., Sr. Notes, 13.50%, 05/15/09(a) (Acquired 05/19/99; Cost $500,000) 500,000 502,500 - -------------------------------------------------------------------------------- Nextel Communications, Inc., Sr. Unsec. Notes, 12.00%, 11/01/08 225,000 256,500 - -------------------------------------------------------------------------------- Spectrasite Holdings, Inc., Sr. Disc. Notes, 11.25%, 04/15/09(a)(b) (Acquired 04/13/99; Cost $40,559) 70,000 40,250 - -------------------------------------------------------------------------------- 12.00%, 07/15/08(a)(b) (Acquired 06/23/98-02/24/99; Cost $253,665) 400,000 254,000 - -------------------------------------------------------------------------------- 2,446,875 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 9.50% DTI Holdings, Inc., Unsec. Sr. Disc. Notes, 12.50%, 03/01/08(b)(c) 500,000 187,500 - -------------------------------------------------------------------------------- Econophone, Inc., Sr. Unsec. Notes, 13.50%, 07/15/07 300,000 320,250 - -------------------------------------------------------------------------------- Sr. Unsec. Disc. Notes, 11.00%, 02/15/08(b) 50,000 27,000 - -------------------------------------------------------------------------------- Long Distance Direct, Inc., Sr. Notes, 12.25%, 04/15/08(c) 140,000 91,350 - -------------------------------------------------------------------------------- Tele1 Europe A.B. (Netherlands), Sr. Notes, 13.00%, 05/15/09 650,000 682,500 - -------------------------------------------------------------------------------- Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%, 05/01/08(c) 300,000 313,500 - -------------------------------------------------------------------------------- 1,622,100 - -------------------------------------------------------------------------------- TELEPHONE - 8.57% Firstworld Communications, Sr. Unsec. Disc. Notes, 13.00%, 04/15/08(b)(c) 350,000 187,250 - -------------------------------------------------------------------------------- Logix Communications, Sr. Unsec. Notes, 12.25%, 06/15/08 550,000 501,875 - -------------------------------------------------------------------------------- Nextlink Communications, Inc., Sr. Disc. Unsec. Notes, 12.25%, 06/01/09(b) 500,000 295,000 - -------------------------------------------------------------------------------- U.S. Xchange LLC, Sr. Unsec. Notes, 15.00%, 07/01/08 460,000 479,550 - -------------------------------------------------------------------------------- 1,463,675 - -------------------------------------------------------------------------------- TEXTILES (APPAREL) - 7.22% Panolam Industry International, Sr. Sub. Notes, 11.50%, 02/15/09(a) (Acquired 02/15/99; Cost $420,000) 420,000 430,500 - -------------------------------------------------------------------------------- St. John Knits International, Inc., Sr. Unsec. Sub. Notes, 12.50%, 07/01/09(a) (Acquired 06/30/99; Cost $345,156) 350,000 345,156 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE Supreme International Corp., Sr. Sub. Unsec. Gtd. Notes, 12.25%, 04/01/06(a) (Acquired 03/31/99; Cost $444,834) $450,000 $ 456,750 - --------------------------------------------------------------------------- 1,232,406 - --------------------------------------------------------------------------- TRUCKS & PARTS - 2.38% HDA Parts System, Inc., Sr. Sub. Notes, 12.00%, 08/01/05(a) (Acquired 07/28/98-03/17/99; Cost $391,274) 400,000 406,000 - --------------------------------------------------------------------------- Total Corporate Bonds & Notes (Cost $15,838,107) 15,797,889 - --------------------------------------------------------------------------- SHARES WARRANTS--0.26% COMPUTERS (NETWORKING) - 0.00% Convergent Communications, expiring 04/01/08(d) 1,000 10 - --------------------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.00% Resort At Summerlin/RAS Co., expiring 12/15/07(d) 100 1 - --------------------------------------------------------------------------- METAL FABRICATORS - 0.00% Gulf States Steel, Inc., expiring 04/15/03(d) 60 1 - --------------------------------------------------------------------------- SHIPPING - 0.00% Millenium Seacarriers, expiring 07/15/03(d) 100 125 - --------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.07% Jazztel PLC (United Kingdom), expiring 04/01/09(d) 2,250 11,812 - --------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.09% DTI Holdings, Inc., expiring 03/01/08(d) 2,500 300 - --------------------------------------------------------------------------- Long Distance Direct, Inc., expiring 04/13/08(d) 140 350 - --------------------------------------------------------------------------- Versatel Telecom B.V. (Netherlands), expiring 05/15/08(d) 300 15,075 - --------------------------------------------------------------------------- 15,725 - --------------------------------------------------------------------------- TELEPHONE - 0.10% Firstworld Communications, expiring 04/15/08(d) 350 17,500 - --------------------------------------------------------------------------- Total Warrants (Cost $3,701) 45,174 - --------------------------------------------------------------------------- PRINCIPAL AMOUNT REPURCHASE AGREEMENT - 5.14%(e) Dean Witter Reynolds, Inc., 4.85%, 07/01/99(f) (Cost $877,929) $877,929 877,929 =========================================================================== TOTAL INVESTMENTS - 97.91% 16,720,992 =========================================================================== OTHER ASSETS LESS LIABILITIES - 2.09% 356,072 =========================================================================== NET ASSETS - 100.00% $17,077,064 ===========================================================================
AIM V.I. HIGH YIELD FUND FS-82 164 NOTES TO SCHEDULE OF INVESTMENTS: (a) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The market value of these securities at 06/30/99 was $6,381,194 which represented 37.37% of the Fund's net assets. (b) Step bond issued at a discount. Interest rate shown represents the coupon rate at which the bond will accrue at a specified future date. (c) Consists of more than one class of securities traded together as a unit. In addition to the debt obligations listed, each unit contains warrants that enable the holder to purchase common stock in the issuer at a predetermined price per share of common stock. (d) Non-income producing security. (e) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (f) Joint repurchase agreement entered into 6/30/99 with a maturing value of $100,013,472. Collateralized by U.S. Government obligations. Investment Abbreviations: Deb.- Debentures Disc.- Discounted Gtd.- Guaranteed PIK- Payment in Kind Sec.- Secured Sr.- Senior Sub.- Subordinated Unsec.- Unsecured See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND FS-83 165 STATEMENT OF ASSETS AND LIABILITIES June 30 , 1999 (Unaudited) ASSETS: Investments, at market value (cost $16,719,737) $ 16,720,992 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 74,172 - ---------------------------------------------------------------------- Interest 376,233 - ---------------------------------------------------------------------- Investments sold 267,287 - ---------------------------------------------------------------------- Investment for deferred compensation plan 4,116 - ---------------------------------------------------------------------- Other assets 3,403 - ---------------------------------------------------------------------- Total assets 17,446,203 - ---------------------------------------------------------------------- LIABILITIES: Payables For: Investments purchased 345,156 - ---------------------------------------------------------------------- Deferred compensation plan 4,116 - ---------------------------------------------------------------------- Accrued advisory fees 7,935 - ---------------------------------------------------------------------- Accrued operating expenses 11,932 - ---------------------------------------------------------------------- Total liabilities 369,139 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $ 17,077,064 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 1,819,998 ====================================================================== Net asset value, offering and redemption price per share $ 9.38 ======================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $700,543 - -------------------------------------------------------------------------- EXPENSES: Advisory fees 37,529 - -------------------------------------------------------------------------- Administrative services fees 22,784 - -------------------------------------------------------------------------- Custodian fees 11,055 - -------------------------------------------------------------------------- Directors' fees and expenses 2,222 - -------------------------------------------------------------------------- Professional fees 12,033 - -------------------------------------------------------------------------- Other 4,305 - -------------------------------------------------------------------------- Total expenses 89,928 - -------------------------------------------------------------------------- Less: Expenses paid indirectly (1,036) - -------------------------------------------------------------------------- Fees waived by advisor (22,557) - -------------------------------------------------------------------------- Net expenses 66,335 - -------------------------------------------------------------------------- Net investment income 634,208 - -------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain (loss) from investment securities (328,379) - -------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities 327,005 - -------------------------------------------------------------------------- Net gain (loss) from investment securities (1,374) - -------------------------------------------------------------------------- Net increase in net assets resulting from operations $632,834 ==========================================================================
See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND FS-84 166 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ OPERATIONS: Net investment income $634,208 $ 323,361 - ---------------------------------------------------------------------------- Net realized gain (loss) from investment securities (328,379) (367,230) - ---------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities 327,005 (325,750) - ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 632,834 (369,619) - ---------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (330,305) - ---------------------------------------------------------------------------- Net increase from capital stock transactions 8,477,929 8,666,225 - ---------------------------------------------------------------------------- Net increase in net assets 9,110,763 7,966,301 - ---------------------------------------------------------------------------- NET ASSETS: Beginning of period 7,966,301 -- - ---------------------------------------------------------------------------- End of period $17,077,064 $7,966,301 ============================================================================ NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $17,139,995 $8,662,066 - ---------------------------------------------------------------------------- Undistributed net investment income 631,423 (2,785) - ---------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities (695,609) (367,230) - ---------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities 1,255 (325,750) - ---------------------------------------------------------------------------- $17,077,064 $7,966,301 ============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. High Yield Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income by investing primarily in publicly traded non-investment grade debt securities. The Fund will also consider the possibility of capital growth when it purchases and sells securities. Debt securities of less than investment grade are considered "high risk" securities (commonly referred to as junk bonds). These bonds may involve special risks in addition to the risks associated with investment in higher rated debt securities. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. Also, the secondary market in which high yield bonds are traded may be less liquid than the market for higher grade bonds. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - Debt securities (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Equity securities which are listed or traded on an exchange or the NASDAQ National Market System are valued at the last sales price on the exchange where principally traded or, lacking any sales on a particular day, at the closing bid price on that day. Securities traded in the over-the-counter market, except (i) securities priced by the pricing service, (ii) securities for which representative exchange prices are available, and (iii) securities reported in the NASDAQ National Market System, are valued at prices otained from an electronic quotation reporting system, if such prices are available, or from established market makers. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. AIM V.I. HIGH YIELD FUND FS-85 167 B. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $247,108 as of December 31, 1998, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% of the first $200 million of the Fund's average daily net assets, plus 0.55% of the Fund's average daily net assets of the next $300 million, plus 0.50% of the Fund's average daily net assets of the next $500 million, plus 0.45% of the Fund's average daily net assets in excess of $1 billion. During the six months ended June 30, 1999, AIM waived fees of $22,557. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $18,730 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,860 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $1,036 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $1,036 during the six months ended June 30, 1999. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended June 30, 1999 was $15,809,115 and $7,391,443, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $458,871 - ----------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (457,616) - ----------------------------------------------------------------------- Net unrealized appreciation of investment securities $1,255 ======================================================================= Investments have the same cost for tax and financial statements.
AIM V.I. HIGH YIELD FUND FS-86 168 NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the period May 1, 1998 (date operations commenced) through December 31, 1998 were as follows:
JUNE 30, 1999 DECEMBER 31, 1998 ---------------------- ------------------- SHARES AMOUNT SHARES AMOUNT --------- ----------- ------- ---------- Sold 1,140,490 $10,500,348 910,186 $8,767,632 - ----------------------------------------------------------------------- Issued as reinvestment of dividends -- -- 37,577 330,305 - ----------------------------------------------------------------------- Reacquired (222,167) (2,022,419) (46,088) (431,712) ======================================================================= 918,323 $ 8,477,929 901,675 $8,666,225 =======================================================================
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999 and period May 1, 1998 (date operations commenced) through December 31, 1998.
JUNE 30, 1999 1998 -------- ------ Net asset value, beginning of period $ 8.84 $10.00 - ----------------------------------------------------------------------------- Income from investment operations: Net investment income 0.35 0.39 - ----------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.19 (1.15) - ----------------------------------------------------------------------------- Total from investment operations 0.54 (0.76) - ----------------------------------------------------------------------------- Less dividends from net investment income -- (0.40) - ----------------------------------------------------------------------------- Net asset value, end of period $ 9.38 $ 8.84 ============================================================================= Total return(a) 6.11% (7.61)% ============================================================================= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $17,077 $7,966 ============================================================================= Ratio of expenses to average net assets(b) 1.12%(c) 1.13%(d) ============================================================================= Ratio of net investment income to average net assets(e) 10.56%(c) 9.75%(d) ============================================================================= Portfolio turnover rate 65% 39% =============================================================================
(a) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.50% (annualized) and 2.50% (annualized) for 1999-1998. (c) Ratios are annualized and based on average net assets of $12,108,624. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratio of net investment income to average net assets prior to fee waivers and/or expense reimbursements was 10.19% (annualized) and 8.36% (annualized) for 1999- 1998. AIM V.I. HIGH YIELD FUND FS-87 169 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE FOREIGN STOCKS & OTHER EQUITY INTERESTS - 88.75% ARGENTINA - 0.36% Telefonica de Argentina S.A.-ADR (Telephone) 29,300 $ 919,286 - ------------------------------------------------------------------------------- AUSTRALIA - 1.11% AMP Ltd. (Insurance-Life/Health) 120,800 1,318,883 - ------------------------------------------------------------------------------- Brambles Industries Ltd. (Air Freight) 34,000 894,533 - ------------------------------------------------------------------------------- Cable & Wireless Optus, Ltd. (Telephone)(a) 268,000 609,435 - ------------------------------------------------------------------------------- 2,822,851 - ------------------------------------------------------------------------------- BELGIUM - 0.54% UCB S.A. (Manufacturing-Diversified) 32,000 1,368,637 - ------------------------------------------------------------------------------- BRAZIL - 0.69% Embratel Participacoes S.A. - ADR (Telephone) 14,100 195,637 - ------------------------------------------------------------------------------- Petroleo Brasileiro S.A.-Petrobras, Pfd. (Oil & Gas- Exploration & Production) 7,013 1,085,337 - ------------------------------------------------------------------------------- Tele Centro Sul Participacoes S.A. - ADR (Telephone) 2,821 156,514 - ------------------------------------------------------------------------------- Telecomunicacoes Brasileiras S.A.-ADR (Telephone)(a) 14,100 881 - ------------------------------------------------------------------------------- Telesp Participacoes S.A.-ADR (Telephone) 14,100 322,537 - ------------------------------------------------------------------------------- 1,760,906 - ------------------------------------------------------------------------------- CANADA - 6.21% ATI Technologies, Inc. (Computers-Hardware) 78,100 1,264,123 - ------------------------------------------------------------------------------- BCE, Inc. (Telephone) 57,300 2,790,143 - ------------------------------------------------------------------------------- Bombardier Inc. (Aerospace/Defense) 42,600 650,492 - ------------------------------------------------------------------------------- CGI Group, Inc. (Services-Computer Systems)(a) 31,000 652,189 - ------------------------------------------------------------------------------- Imasco Ltd. (Manufacturing-Diversified) 28,600 770,560 - ------------------------------------------------------------------------------- JDS Fitel, Inc. (Manufacturing-Specialized)(a) 16,400 1,374,550 - ------------------------------------------------------------------------------- Loblaw Co. Ltd. (Retail-Specialty) 24,000 608,347 - ------------------------------------------------------------------------------- Nortel Networks Corp. (Communications Equipment) 47,617 4,133,751 - ------------------------------------------------------------------------------- Rogers Communications, Inc. (Telecommunications- Cellular/Wireless)(a) 61,000 979,063 - ------------------------------------------------------------------------------- Shaw Communications, Inc. (Broadcasting-Television, Radio & Cable) 33,600 1,329,406 - ------------------------------------------------------------------------------- Toronto-Dominion Bank (Banks-Regional) 28,100 1,272,939 - ------------------------------------------------------------------------------- 15,825,563 - ------------------------------------------------------------------------------- FINLAND - 3.05% Nokia Oyj A.B.-Class A (Communications Equipment) 72,400 6,342,312 - ------------------------------------------------------------------------------- Sonera Group Oyj (Telecommunications- Cellular/Wireless) 65,250 1,425,629 - ------------------------------------------------------------------------------- 7,767,941 - -------------------------------------------------------------------------------
MARKET SHARES VALUE FRANCE - 12.01% Accor S.A. (Lodging-Hotels) 8,500 $ 2,133,084 - ------------------------------------------------------------------------------- Alstom (Engineering & Construction)(a) 40,000 1,257,332 - ------------------------------------------------------------------------------- Altran Technologies, S.A. (Services-Commercial & Consumer) 5,300 1,398,318 - ------------------------------------------------------------------------------- Axa (Insurance-Multi-Line) 20,300 2,474,976 - ------------------------------------------------------------------------------- Banque Nationale de Paris (Banks-Major Regional) 39,300 3,272,608 - ------------------------------------------------------------------------------- Cap Gemini Sogeti S.A. (Computers-Software & Services) 13,000 2,041,825 - ------------------------------------------------------------------------------- Carrefour S.A. (Retail-Food Chains) 22,800 3,348,419 - ------------------------------------------------------------------------------- Danone (Foods) 4,600 1,185,190 - ------------------------------------------------------------------------------- Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 10,400 1,525,206 - ------------------------------------------------------------------------------- Pinault-Printemps-Redoute S.A. (Retail-General Merchandise) 17,800 3,052,555 - ------------------------------------------------------------------------------- Promodes (Retail-Food Chains) 3,650 2,394,316 - ------------------------------------------------------------------------------- Societe Television Francaise 1 (Broadcasting- Television, Radio & Cable) 6,600 1,537,243 - ------------------------------------------------------------------------------- Total Fina S.A.-Class B (Oil & Gas-Refining & Marketing) 19,000 2,449,633 - ------------------------------------------------------------------------------- Vivendi (Consumer Services) 31,200 2,525,753 - ------------------------------------------------------------------------------- 30,596,458 - ------------------------------------------------------------------------------- GERMANY - 3.84% DaimlerChrsyler A.G. (Automobiles) 36,564 3,165,317 - ------------------------------------------------------------------------------- EM.TV & Merchandising A.G. (Broadcasting-Television, Radio & Cable) 650 914,400 - ------------------------------------------------------------------------------- Mannesmann A.G. (Machinery-Diversified) 33,500 4,995,782 - ------------------------------------------------------------------------------- Porsche A.G., Pfd. (Automobiles) 300 704,930 - ------------------------------------------------------------------------------- 9,780,429 - ------------------------------------------------------------------------------- HONG KONG - 3.47% China Telecom Ltd. (Telecommunications- Cellular/Wireless)(a) 840,000 2,333,153 - ------------------------------------------------------------------------------- Cosco Pacific Ltd. (Financial-Diversified) 2,788,000 2,299,797 - ------------------------------------------------------------------------------- Dao Heng Bank Group Ltd. (Banks-Regional)(a) 338,000 1,516,047 - ------------------------------------------------------------------------------- Hutchison Whampoa Ltd. (Retail-Food Chains) 254,000 2,299,835 - ------------------------------------------------------------------------------- Ng Fung Hong Ltd. (Foods) 460,000 382,414 - ------------------------------------------------------------------------------- 8,831,246 - ------------------------------------------------------------------------------- INDONESIA - 0.69% Gulf Indonesia Resources Ltd. (Oil-International Integrated) 152,300 1,751,450 - -------------------------------------------------------------------------------
AIM V.I. INTERNATIONAL EQUITY FUND FS-88 170
MARKET SHARES VALUE IRELAND - 2.06% Allied Irish Banks PLC (Banks-Regional) 176,500 $ 2,336,948 - ---------------------------------------------------------------------------- Bank of Ireland (Banks-Major Regional) 104,100 1,756,523 - ---------------------------------------------------------------------------- CRH PLC (Construction-Cement & Aggregates) 65,000 1,151,433 - ---------------------------------------------------------------------------- 5,244,904 - ---------------------------------------------------------------------------- ITALY - 2.15% Banca Popolare di Brescia (Banks-Regional) 79,000 3,382,893 - ---------------------------------------------------------------------------- Credito Italiano S.p.A. (Banks-Major Regional) 229,400 1,007,148 - ---------------------------------------------------------------------------- San Paolo-IMI S.p.A. (Banks-Major Regional) 79,460 1,080,967 - ---------------------------------------------------------------------------- 5,471,008 - ---------------------------------------------------------------------------- JAPAN - 15.26% Advantest Corp. (Electronics-Instrumentation) 21,400 2,353,204 - ---------------------------------------------------------------------------- Aiwa Co., Ltd. (Electronics Component Distributors)(a) 37,000 1,223,646 - ---------------------------------------------------------------------------- Alps Electric Co., Ltd. (Electronics-Component Distributors)(a) 103,000 2,414,262 - ---------------------------------------------------------------------------- Hirose Electric Co. Ltd. (Electronics-Component Distributors) 19,000 1,973,047 - ---------------------------------------------------------------------------- Hoya Corp.(Manufacturing-Specialized) 23,000 1,298,801 - ---------------------------------------------------------------------------- Ibiden Co., Ltd. (Electronics-Component Distributors)(a) 72,000 1,190,575 - ---------------------------------------------------------------------------- Kirin Brewery Co., Ltd. (Beverages-Alcoholic) 189,000 2,265,812 - ---------------------------------------------------------------------------- Matsushita Communication Industrial Co., Ltd. (Telephone) 32,000 2,288,549 - ---------------------------------------------------------------------------- Murata Manufacturing Co., Ltd. (Electronics- Component Distributors) 33,000 2,171,807 - ---------------------------------------------------------------------------- NEC Corp. (Computers-Hardware) 181,000 2,252,212 - ---------------------------------------------------------------------------- Nippon Telegraph & Telephone Corp. (Telecommunications-Long Distance) 1,970 2,296,569 - ---------------------------------------------------------------------------- NTT Data Corp. (Computers-Software & Services) 1,780 1,415,759 - ---------------------------------------------------------------------------- NTT Mobile Communications Network, Inc. (Telecommunications-Cellular/Wireless) 1,600 2,169,492 - ---------------------------------------------------------------------------- Okuma Corp. (Hardware & Tools) 286,000 1,328,913 - ---------------------------------------------------------------------------- Ricoh Corp. Ltd. (Office Equipment & Supplies)(a) 158,000 2,176,337 - ---------------------------------------------------------------------------- Rohm Co. (Electronics-Component Distributors) 7,000 1,096,734 - ---------------------------------------------------------------------------- Sharp Corp. (Electrical Equipment)(a) 84,000 993,138 - ---------------------------------------------------------------------------- Sony Corp. (Electronics-Component Distributors) 25,300 2,729,764 - ---------------------------------------------------------------------------- Takeda Chemical Industries (Health Care-Drugs- Generic & Other) 53,000 2,458,289 - ---------------------------------------------------------------------------- Tokyo Electron Ltd. (Electronics-Semiconductors) 20,000 1,357,586 - ---------------------------------------------------------------------------- Ushio, Inc. (Electronics-Component Distributors) 111,000 1,422,489 - ---------------------------------------------------------------------------- 38,876,985 - ----------------------------------------------------------------------------
MARKET SHARES VALUE MEXICO - 3.99% Cifra S.A. de C.V. (Retail-General Merchandise)(a) 772,000 $ 1,412,265 - ------------------------------------------------------------------------------- Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 70,000 1,356,250 - ------------------------------------------------------------------------------- Fomento Economico Mexicano, S.A. de C.V.-ADR (Beverages-Non-Alcoholic) 59,020 2,353,422 - ------------------------------------------------------------------------------- Grupo Modelo S.A. de C.V.-Series C (Beverages- Alcoholic) 387,000 1,103,370 - ------------------------------------------------------------------------------- Grupo Televisa S.A.-GDR (Entertainment)(a) 47,500 2,128,594 - ------------------------------------------------------------------------------- Kimberly-Clark de Mexico, S.A. de C.V.-Class A (Paper & Forest Products) 171,000 703,211 - ------------------------------------------------------------------------------- Telefonos de Mexico S.A.-ADR (Telephone) 13,700 1,107,131 - ------------------------------------------------------------------------------- 10,164,243 - ------------------------------------------------------------------------------- NETHERLANDS - 5.17% AEGON N.V. (Insurance Brokers) 6,800 493,018 - ------------------------------------------------------------------------------- Equant N.V. (Computers-Networking)(a) 16,000 1,474,170 - ------------------------------------------------------------------------------- Getronics N.V. (Computers-Software & Services) 42,500 1,633,759 - ------------------------------------------------------------------------------- Koninklijke Ahold N.V. (Retail-Food Chains) 85,000 2,925,873 - ------------------------------------------------------------------------------- Koninklijke (Royal) Philips Electronics N.V. (Household Furniture & Appliances) 14,260 1,405,706 - ------------------------------------------------------------------------------- Libertel N.V.(Telecommunications- Cellular/Wireless)(a) 52,000 1,018,233 - ------------------------------------------------------------------------------- Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit (Publishing) 56,800 2,268,351 - ------------------------------------------------------------------------------- Wolters Kluwer N.V. (Specialty Printing) 49,400 1,965,189 - ------------------------------------------------------------------------------- 13,184,299 - ------------------------------------------------------------------------------- NORWAY - 0.17% Merkantildata A.S.A (Services-Commercial & Consumer) 44,000 424,325 - ------------------------------------------------------------------------------- PHILIPPINES - 0.53% Philippine Long Distance Telephone Co. (Telephone) 24,260 739,595 - ------------------------------------------------------------------------------- Philippine Long Distance Telephone Co.-ADR (Telephone) 20,600 620,575 - ------------------------------------------------------------------------------- 1,360,170 - ------------------------------------------------------------------------------- PORTUGAL - 0.29% Jeronimo Martins & Filho, S.A. (Retail-General Merchandise) 22,500 742,728 - ------------------------------------------------------------------------------- SINGAPORE - 1.39% Development Bank of Singapore Ltd. (Banks-Major Regional) 106,000 1,295,417 - ------------------------------------------------------------------------------- Keppel Corp. Ltd. (Engineering & Construction) 331,000 1,127,967 - ------------------------------------------------------------------------------- Singapore Press Holdings Ltd. (Publishing- Newspapers) 66,000 1,124,559 - ------------------------------------------------------------------------------- 3,547,943 - -------------------------------------------------------------------------------
AIM V.I. INTERNATIONAL EQUITY FUND FS-89 171
MARKET SHARES VALUE SOUTH KOREA - 1.73% Korea Electric Power Corp.-ADR (Electric Companies) 58,900 $ 1,207,450 - ------------------------------------------------------------------------------- Korea Telecom Corp.-ADR (Telephone)(a) 42,000 1,680,000 - ------------------------------------------------------------------------------- Pohang Iron & Steel Co. Ltd. -ADR (Iron & Steel) 45,500 1,529,937 - ------------------------------------------------------------------------------- 4,417,387 - ------------------------------------------------------------------------------- SPAIN - 2.12% Banco Popular Espanol S.A. (Banks-Major Regional) 17,500 1,257,976 - ------------------------------------------------------------------------------- Corp. Financiera Reunida, S.A. (Investment Management)(a) 49,400 632,323 - ------------------------------------------------------------------------------- Endesa S.A. (Electric Companies) 49,200 1,048,590 - ------------------------------------------------------------------------------- Telefonica S.A. (Telephone) 51,200 2,464,733 - ------------------------------------------------------------------------------- 5,403,622 - ------------------------------------------------------------------------------- SWEDEN - 3.44% Electrolux A.B. (Household Furniture & Appliances) 113,000 2,369,629 - ------------------------------------------------------------------------------- Hennes & Mauritz A.B. (Retail-Specialty-Apparel) 125,976 3,116,657 - ------------------------------------------------------------------------------- NetCom A.B. (Telecommunications- Cellular/Wireless)(a) 36,000 1,212,971 - ------------------------------------------------------------------------------- Svenska Handelsbanken A.B. (Banks-Major Regional) 119,500 1,435,985 - ------------------------------------------------------------------------------- WM-Data A.B.-Class B (Computers-Software & Services) 16,500 629,812 - ------------------------------------------------------------------------------- 8,765,054 - ------------------------------------------------------------------------------- SWITZERLAND - 4.16% ABB A.G. (Electrical Equipment) 1,600 2,365,799 - ------------------------------------------------------------------------------- Adecco S.A. (Services-Commercial & Consumer) 2,600 1,392,350 - ------------------------------------------------------------------------------- Compagnie Financiere Richemont A.G. (Tobacco)(a) 685 1,316,715 - ------------------------------------------------------------------------------- Julius Baer Holding A.G. (Banks-Major Regional) 230 655,031 - ------------------------------------------------------------------------------- UBS A.G. (Bank-Major Regional) 7,107 2,119,992 - ------------------------------------------------------------------------------- Zurich Allied A.G. (Insurance-Multi-Line) 4,850 2,756,284 - ------------------------------------------------------------------------------- 10,606,171 - ------------------------------------------------------------------------------- THAILAND - 0.69% Siam Commercial Bank (Banks-Regional), Conv. Pfd. 846,000 1,204,475 - ------------------------------------------------------------------------------- Siam Commercial Bank (Banks-Regional), Wts. expiring 05/10/12(a) 846,000 544,881 - ------------------------------------------------------------------------------- 1,749,356 - -------------------------------------------------------------------------------
MARKET SHARES VALUE UNITED KINGDOM - 13.63% Airtours PLC (Services-Commercial & Consumer) 82,450 $ 655,008 - ------------------------------------------------------------------------------- Barclays PLC (Banks-Major Regional) 125,000 3,637,197 - ------------------------------------------------------------------------------- British Sky Broadcasting Group PLC (Broadcasting- Television, Radio & Cable) 250,000 2,319,058 - ------------------------------------------------------------------------------- British Telecommunications PLC (Communications Equipment) 144,730 2,425,029 - ------------------------------------------------------------------------------- Compass Group PLC (Services-Commercial & Consumer) 156,000 1,546,680 - ------------------------------------------------------------------------------- Dixons Group PLC (Retail-Specialty) 94,000 1,755,785 - ------------------------------------------------------------------------------- General Electric Co. PLC (Manufacturing-Diversified) 262,600 2,678,083 - ------------------------------------------------------------------------------- Granada Group PLC (Leisure Time-Products) 83,500 1,549,131 - ------------------------------------------------------------------------------- Hays PLC (Services-Commercial & Consumer) 278,800 2,937,780 - ------------------------------------------------------------------------------- Invensys PLC (Electronics-Component-Distributors)(a) 200,000 946,538 - ------------------------------------------------------------------------------- Logica PLC (Computer Software & Services) 92,500 972,507 - ------------------------------------------------------------------------------- Misys PLC (Services-Commercial & Consumer) 189,500 1,621,938 - ------------------------------------------------------------------------------- Orange PLC (Telephone)(a) 172,000 2,521,369 - ------------------------------------------------------------------------------- Provident Financial PLC (Consumer Finance) 89,543 1,244,168 - ------------------------------------------------------------------------------- Railtrack Group PLC (Shipping) 78,644 1,607,795 - ------------------------------------------------------------------------------- Shell Transport & Trading Co. (Oil-International Integrated)(a) 159,000 1,192,342 - ------------------------------------------------------------------------------- Stagecoach Holdings PLC (Shipping) 145,000 519,394 - ------------------------------------------------------------------------------- Vodafone Airtouch PLC (Telecommunications- Cellular/Wireless) 130,000 2,561,406 - ------------------------------------------------------------------------------- WPP Group PLC (Services-Advertising/Marketing) 240,000 2,029,580 - ------------------------------------------------------------------------------- 34,720,788 - ------------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $176,596,674) 226,103,750 - -------------------------------------------------------------------------------
AIM V.I. INTERNATIONAL EQUITY FUND FS-90 172 PRINCIPAL MARKET AMOUNT VALUE FOREIGN CONVERTIBLE BONDS & NOTES - 0.46%(b) HONG KONG - 0.09% Cosco Treasury Co. Ltd. (Shipping), Conv. Gtd. Bonds, 1.00%, 03/13/03 $ 246,000 $ 223,764 - -------------------------------------------------------------------------------- UNITED KINGDOM - 0.37% Airtours PLC (Services-Commercial & Consumer), Conv. Sub. Notes 5.75%, 01/05/04(b) GBP 71,000 136,115 - -------------------------------------------------------------------------------- 5.75%, 01/05/04 (Acquired 12/09/98; Cost $706,386)(b)(c) GBP 427,000 818,608 - -------------------------------------------------------------------------------- 954,723 - -------------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Convertible Bonds & Notes (Cost $1,004,923) 1,178,487 - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 6.00%(d) Greenwich Capital Markets, Inc., 5.00%, 07/01/99 (Cost $15,279,556) 15,279,556 15,279,556 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS - 95.21% 242,561,793 - -------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 4.79% 12,200,329 - -------------------------------------------------------------------------------- NET ASSETS - 100.00% $ 254,762,122 ================================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Foreign denominated security. Par value and coupon are denominated in currency indicated. (c) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The market value at 06/30/99 represented 0.32% of the Fund's net assets. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 06/30/99 with a maturing value of $100,013,889. Collaterized by U.S. Government agency obligations. Investment Abbreviations: Conv. - Convertible GBP - British Pound Sterling Gtd. - Guaranteed Pfd. - Preferred Sub. - Subordinated Wts. - Warrants See Notes to Financial Statements. AIM V.I. INTERNATIONAL EQUITY FUND FS-91 173 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, at market value (cost $192,881,153) $242,561,793 - ---------------------------------------------------------------------- Foreign currencies, at value (cost $3,683,106) 3,662,179 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 552,339 - ---------------------------------------------------------------------- Investments sold 9,617,179 - ---------------------------------------------------------------------- Dividends and interest 687,449 - ---------------------------------------------------------------------- Investment for deferred compensation plan 23,434 - ---------------------------------------------------------------------- Other assets 1,891 - ---------------------------------------------------------------------- Total assets 257,106,264 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 108,321 - ---------------------------------------------------------------------- Investments purchased 2,012,321 - ---------------------------------------------------------------------- Deferred compensation plan 23,434 - ---------------------------------------------------------------------- Accrued advisory fees 153,586 - ---------------------------------------------------------------------- Accrued directors' fees 2,071 - ---------------------------------------------------------------------- Accrued operating expenses 44,409 - ---------------------------------------------------------------------- Total liabilities 2,344,142 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $254,762,122 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 12,430,719 ====================================================================== Net asset value, offering and redemption price per share $ 20.49 ======================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Dividends (net of $224,168 foreign withholding tax) $ 1,686,138 - ---------------------------------------------------------------------------- Interest 352,033 - ---------------------------------------------------------------------------- Total investment income 2,038,171 - ---------------------------------------------------------------------------- EXPENSES: Advisory fees 895,775 - ---------------------------------------------------------------------------- Administrative services fees 37,240 - ---------------------------------------------------------------------------- Custodian fees 119,929 - ---------------------------------------------------------------------------- Directors' fees and expenses 4,732 - ---------------------------------------------------------------------------- Other 42,157 - ---------------------------------------------------------------------------- Total expenses 1,099,833 - ---------------------------------------------------------------------------- Net investment income 938,338 - ---------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities 16,439,375 - ---------------------------------------------------------------------------- Foreign currencies (37,086) - ---------------------------------------------------------------------------- 16,402,289 - ---------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities (6,437,619) - ---------------------------------------------------------------------------- Foreign currencies (130,169) - ---------------------------------------------------------------------------- (6,567,788) - ---------------------------------------------------------------------------- Net gain from investment securities and foreign currencies 9,834,501 - ---------------------------------------------------------------------------- Net increase in net assets resulting from operations $10,772,839 ============================================================================
See Notes to Financial Statements. AIM V.I. INTERNATIONAL EQUITY FUND FS-92 174 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ------------ ------------ OPERATIONS: Net investment income $ 938,338 $ 1,852,329 - ----------------------------------------------------------------------------- Net realized gain from investment securities and foreign currencies 16,402,289 13,261,554 - ----------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (6,567,788) 15,969,669 - ----------------------------------------------------------------------------- Net increase in net assets resulting from operations 10,772,839 31,083,552 - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (1,910,166) - ----------------------------------------------------------------------------- Net increase from capital stock transactions 3,674,971 118,341 - ----------------------------------------------------------------------------- Net increase in net assets 14,447,810 29,291,727 - ----------------------------------------------------------------------------- NET ASSETS: Beginning of year 240,314,312 211,022,585 - ----------------------------------------------------------------------------- End of year $254,762,122 $240,314,312 ============================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $174,074,005 $170,399,034 - ----------------------------------------------------------------------------- Undistributed net investment income 2,872,698 1,934,360 - ----------------------------------------------------------------------------- Undistributed net realized gain from investment securities and foreign currencies 28,228,091 11,825,802 - ----------------------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 49,587,328 56,155,116 - ----------------------------------------------------------------------------- $254,762,122 $240,314,312 =============================================================================
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to AIM V.I. International Equity Fund (the "Fund"). The Fund's investment objective is to seek to provide long-term growth of capital by investing in a diversified portfolio of international equity securities the issuers of which are considered by AIM to have strong earnings momentum. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New AIM V.I. INTERNATIONAL EQUITY FUND FS-93 175 York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. C. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. D. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Realized gains or losses are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on an accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. E. Federal Income Taxes - The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of the first $250 million of the Fund's average daily net assets, plus 0.70% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $33,156 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,642 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. AIM V.I. INTERNATIONAL EQUITY FUND FS-94 176 NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended June 30, 1999 was $123,451,148 and $127,292,161, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $53,414,192 - -------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (3,989,832) - -------------------------------------------------------------------------- Net unrealized appreciation of investment securities $49,424,360 ==========================================================================
Cost of investments for tax purposes is $193,137,434. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold 2,154,168 $ 42,787,625 2,410,075 $ 46,643,002 - ------------------------------------------------------------------------------ Issued as reinvestment of distributions -- -- 101,067 1,910,166 - ------------------------------------------------------------------------------ Reacquired (1,973,022) (39,112,654) (2,581,125) (48,434,827) - ------------------------------------------------------------------------------ 181,146 $ 3,674,971 (69,983) $ 118,341 - ------------------------------------------------------------------------------
NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999 and each of the years in the three- year period ended December 31, 1998, the eleven months ended December 31, 1995, and the year ended January 31, 1995.
DECEMBER 31, JUNE 30, ------------------------------------- JANUARY 31, 1999 1998 1997 1996 1995 1995 -------- -------- -------- -------- ------- ----------- Net asset value, beginning of period $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49 - ---------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.07 0.15 0.10 0.07 0.07 0.06 - ---------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.80 2.50 1.03 2.67 2.58 (1.49) - ---------------------------------------------------------------------------------------------- Total from investment operations 0.87 2.65 1.13 2.74 2.65 (1.43) - ---------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- (0.16) (0.08) (0.04) (0.02) (0.03) - ---------------------------------------------------------------------------------------------- Distributions from net realized gains -- -- (0.28) -- -- -- - ---------------------------------------------------------------------------------------------- Total distributions -- (0.16) (0.36) (0.04) (0.02) (0.03) - ---------------------------------------------------------------------------------------------- Net asset value, end of period $ 20.49 $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 ============================================================================================== Total return(a) 4.43% 15.49% 6.94% 20.05% 24.04% (11.48)% ============================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $254,762 $240,314 $211,023 $165,738 $82,257 $55,019 ============================================================================================== Ratio of expenses to average net assets 0.92%(b) 0.91% 0.93% 0.96% 1.15%(c) 1.27%(d) ============================================================================================== Ratio of net investment income (loss) to average net assets 0.79%(b) 0.80% 0.68% 0.78% 0.75%(c) 0.60%(e) ============================================================================================== Portfolio turnover rate 65% 76% 57% 59% 67% 64% ==============================================================================================
(a) Total returns are not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $240,852,908. (c) Annualized. (d) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.28% and 0.59%. AIM V.I. INTERNATIONAL EQUITY FUND FS-95 177 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
PAR (000) VALUE COMMERCIAL PAPER - 40.56%(a) ASSET-BACKED SECURITIES - COMMERCIAL LOANS/LEASES - 1.31% Centric Capital Corp. 4.81%, 10/04/99 $ 1,000 $ 987,307 - ---------------------------------------------------------------------------- ASSET-BACKED SECURITIES - MULTI-PURPOSE - 22.14% Bavaria TRR Corp. 5.12%, 07/27/99 2,000 1,992,604 - ---------------------------------------------------------------------------- Clipper Receivables Corp. 4.96%, 08/09/99 3,000 2,983,880 - ---------------------------------------------------------------------------- Edison Asset Securitization, LLC 4.85%, 07/30/99 2,000 1,992,186 - ---------------------------------------------------------------------------- 4.81%, 09/09/99 1,155 1,144,198 - ---------------------------------------------------------------------------- Enterprise Funding Corp. 5.08%, 07/28/99 1,246 1,241,253 - ---------------------------------------------------------------------------- Falcon Asset Securitization Corp. 4.81%, 09/20/99 1,500 1,483,766 - ---------------------------------------------------------------------------- Park Avenue Receivables Corp. 5.05%, 08/12/99 2,916 2,898,820 - ---------------------------------------------------------------------------- Quincy Capital Corp. 4.93%, 08/03/99 3,000 2,986,443 - ---------------------------------------------------------------------------- 16,723,150 - ---------------------------------------------------------------------------- ASSET-BACKED SECURITIES - TRADE RECEIVABLES - 3.97% Asset Securitization Cooperative Corp. 5.10%, 03/10/00 3,000 2,998,622 - ---------------------------------------------------------------------------- BANKS - DOMESTIC - 1.31% First Chicago Financial Corp. 4.85%, 09/13/99 1,000 990,031 - ---------------------------------------------------------------------------- CHEMICALS (SPECIALTY) - 2.62% Henkel Corp. 4.84%, 09/08/99 2,000 1,981,447 - ---------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 2.62% Siemens Capital Corp. 4.78%, 09/30/99 2,000 1,975,834 - ---------------------------------------------------------------------------- FINANCE - MULTIPLE INDUSTRY - 2.62% General Electric Capital Corp. 4.81%, 09/07/99 2,000 1,981,829 - ---------------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 3.97% Credit Suisse First Boston, Inc. 4.82%, 07/08/99 3,000 2,997,188 - ---------------------------------------------------------------------------- Total Commercial Paper 30,635,408 - ----------------------------------------------------------------------------
PAR (000) VALUE MASTER NOTE AGREEMENTS - 11.92%(b) Citicorp Securities, Inc. 6.25%, 07/26/99(c) $ 3,000 $ 3,000,000 - ---------------------------------------------------------------------------- Merrill Lynch Mortgage Capital Inc. 6.28%, 08/16/99(d) 3,000 3,000,000 - ---------------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 6.10%, 11/22/99(e) 3,000 3,000,000 - ---------------------------------------------------------------------------- Total Master Note Agreements 9,000,000 - ---------------------------------------------------------------------------- Total Investments, excluding Repurchase Agreements 39,635,408 - ---------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 48.30%(f) Bear, Stearns & Co., Inc., 5.00%(g) 3,000 3,000,000 - ---------------------------------------------------------------------------- CIBC Oppenheimer Corp. 4.95%, 07/01/99(h) 18,000 18,000,000 - ---------------------------------------------------------------------------- Dean Witter Reynolds Inc. 4.85%, 07/01/99(i) 15,483 15,482,598 - ---------------------------------------------------------------------------- Total Repurchase Agreements 36,482,598 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS - 100.78% 76,118,006(j) - ---------------------------------------------------------------------------- OTHER LIABILITIES LESS ASSETS - (0.78%) (592,443) - ---------------------------------------------------------------------------- NET ASSETS - 100.00% $75,525,563 - ----------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS: (a) Some commercial paper is traded on a discount basis. In such cases, the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (b) The investments in master note agreements are through participation in joint accounts with other mutual funds, private accounts, and certain nonregistered investment companies managed by the investment advisor or its affiliates. (c) The Portfolio may demand prepayment of notes purchased under the Master Note Purchase Agreement upon 3 business days notice to the issuer. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on 06/30/99. (d) The Portfolio may demand prepayment of notes purchased under the Master Note Purchase Agreement upon one business day notice to the issuer. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on 06/30/99. (e) The Portfolio may demand prepayment of notes purchased under the Master Note Purchase Agreement upon 3 days notice to the issuer. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on 06/30/99. (f) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102 % of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (g) Open repurchase agreement entered into 10/05/98. Either party may terminate the agreement upon demand. Interest rates, par and collateral are redetermined daily. Collateralized by U.S. Government obligations, with an aggregate market value at 6/30/99 of $355,207,230. (h) Joint repurchase agreement entered into 06/30/99 with a maturing value of $300,041,250. Collateralized by U.S. Government and Treasury obligations. (i) Joint repurchase agreement entered into 06/30/99 with a maturing value of $100,013,472. Collateralized by U.S. Government and Treasury obligations. (j) Also represents cost for federal income tax purposes. AIM V.I. MONEY MARKET FUND FS-96 178 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, excluding repurchase agreements, at value (cost $39,635,408) $ 39,635,408 - -------------------------------------------------------------------------- Repurchase agreements (cost $36,482,598) 36,482,598 - -------------------------------------------------------------------------- Receivables for: Capital stock sold 281,279 - -------------------------------------------------------------------------- Interest receivable 49,973 - -------------------------------------------------------------------------- Investment for deferred compensation plan 22,508 - -------------------------------------------------------------------------- Other assets 282 - -------------------------------------------------------------------------- Total assets 76,472,048 - -------------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 867,634 - -------------------------------------------------------------------------- Deferred compensation plan 22,508 - -------------------------------------------------------------------------- Accrued advisory fees 26,282 - -------------------------------------------------------------------------- Accrued directors' fees 2,640 - -------------------------------------------------------------------------- Accrued operating expenses 27,421 - -------------------------------------------------------------------------- Total liabilities 946,485 - -------------------------------------------------------------------------- Net assets applicable to shares outstanding $ 75,525,563 ========================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - -------------------------------------------------------------------------- Outstanding 75,525,506 ========================================================================== Net asset value, offering and redemption price per share $ 1.00 ==========================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Interest $1,787,611 - -------------------------------------------------------------------------- EXPENSES: Advisory fees 145,126 - -------------------------------------------------------------------------- Administrative services fees 23,409 - -------------------------------------------------------------------------- Custodian fees 12,436 - -------------------------------------------------------------------------- Directors' fees and expenses 4,471 - -------------------------------------------------------------------------- Other 24,891 - -------------------------------------------------------------------------- Total expenses 210,333 - -------------------------------------------------------------------------- Net investment income 1,577,278 - -------------------------------------------------------------------------- Net increase in net assets resulting from operations $1,577,278 ==========================================================================
See Notes to Financial Statements. AIM V.I. MONEY MARKET FUND FS-97 179 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ OPERATIONS: Net investment income $ 1,577,278 $ 3,115,776 - --------------------------------------------------------------------------- Net increase in net assets resulting from operations 1,577,278 3,115,776 - --------------------------------------------------------------------------- Dividends to shareholders from net investment income (1,577,278) (3,115,776) - --------------------------------------------------------------------------- Net increase from capital stock transactions 11,435,240 5,455,702 - --------------------------------------------------------------------------- Net increase in net assets 11,435,240 5,455,702 - --------------------------------------------------------------------------- NET ASSETS: Beginning of year 64,090,323 58,634,621 - --------------------------------------------------------------------------- End of year $75,525,563 $64,090,323 - --------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $75,525,506 $64,090,266 - --------------------------------------------------------------------------- Undistributed net realized gain from investment securities 57 57 - --------------------------------------------------------------------------- $75,525,563 $64,090,323 - ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Money Market Fund (the "Fund"). The Fund's investment objective is to seek to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - The Fund's securities are valued on the basis of amortized cost which approximates market value. This method values a security at its cost on the date of purchase and thereafter, assumes a constant amortization to maturity of any discount or premiums. B. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and discounts on investments, is recorded as earned from settlement date and is recorded on the accrual basis. Distributions to shareholders are declared and paid daily. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.40% of the first $250 million of the Fund's average daily net assets, plus 0.35% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six AIM V.I. MONEY MARKET FUND FS-98 180 months ended June 30, 1999, AIM was paid $23,409 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $1,923 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ------------ Sold 56,765,797 $56,765,797 100,181,770 $100,181,770 - ------------------------------------------------------------------------------- Issued as reinvestment of dividends 1,577,278 1,577,278 3,115,776 3,115,776 - ------------------------------------------------------------------------------- Reacquired (46,907,835) (46,907,835) (97,841,844) (97,841,844) - ------------------------------------------------------------------------------- 11,435,240 $11,435,240 5,455,702 $ 5,455,702 ===============================================================================
NOTE 6 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the year ended January 31, 1995.
DECEMBER 31, JUNE 30, ---------------------------------- JANUARY 31, 1999 1998 1997 1996 1995 1995 -------- ------- ------- ------- ------- ----------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.02 0.05 0.05 0.05 0.05 0.04 - ------------------------------------------------------------------------------------------ Less distributions: Dividends from net investment income (0.02) (0.05) (0.05) (0.05) (0.05) (0.04) - ------------------------------------------------------------------------------------------ Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========================================================================================== Total return 2.18% 5.06% 5.14% 4.97% 5.22% 3.98% ========================================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $75,526 $64,090 $58,635 $63,529 $65,506 $31,017 ========================================================================================== Ratio of expenses to average net assets 0.58%(a) 0.58% 0.59% 0.55% 0.53%(b) 0.63%(c) ========================================================================================== Ratio of net investment income to average net assets 4.35%(a) 4.94% 5.01% 4.84% 5.40%(b) 4.14%(c) ==========================================================================================
(a) Ratios are annualized and based on average daily net assets of $73,164,059. (b) Annualized. (c) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average daily net assets prior to fee waivers and/or expense reimbursements were 0.70% and 4.07%, respectively. AIM V.I. MONEY MARKET FUND FS-99 181 SCHEDULE OF INVESTMENTS June 30, 1999 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 83.78% AUTOMOBILES - 1.01% Ford Motor Co. 317,100 $ 17,896,331 - ------------------------------------------------------------------ BANKS (MONEY CENTER) - 2.33% Chase Manhattan Corp. (The) 475,000 41,146,875 - ------------------------------------------------------------------ BROADCASTING (TELEVISION, RADIO & CABLE) - 5.28% Cablevision Systems Corp. - Class A(a) 45,000 3,150,000 - ------------------------------------------------------------------ Comcast Corp. - Class A 700,000 26,906,250 - ------------------------------------------------------------------ Cox Communications, Inc.(a)(b) 806,000 29,670,875 - ------------------------------------------------------------------ MediaOne Group, Inc.(a) 451,000 33,543,125 - ------------------------------------------------------------------ 93,270,250 - ------------------------------------------------------------------ CHEMICALS (DIVERSIFIED) - 1.09% Monsanto Co. 490,000 19,324,375 - ------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT - 1.45% Comverse Technology, Inc.(a) 80,000 6,040,000 - ------------------------------------------------------------------ Lucent Technologies, Inc. 130,000 8,766,875 - ------------------------------------------------------------------ Motorola, Inc. 114,900 10,886,775 - ------------------------------------------------------------------ 25,693,650 - ------------------------------------------------------------------ COMPUTERS (HARDWARE) - 5.17% Dell Computer Corp.(a) 110,000 4,070,000 - ------------------------------------------------------------------ Gateway, Inc.(a) 325,000 19,175,000 - ------------------------------------------------------------------ International Business Machines Corp. 360,000 46,530,000 - ------------------------------------------------------------------ Sun Microsystems, Inc.(a)(b) 312,000 21,489,000 - ------------------------------------------------------------------ 91,264,000 - ------------------------------------------------------------------ COMPUTERS (NETWORKING) - 0.11% Cisco Systems, Inc.(a)(b) 30,000 1,935,000 - ------------------------------------------------------------------ COMPUTERS (PERIPHERALS) - 0.85% EMC Corp.(a)(b) 80,000 4,400,000 - ------------------------------------------------------------------ Lexmark International Group, Inc.(a) 162,000 10,702,125 - ------------------------------------------------------------------ 15,102,125 - ------------------------------------------------------------------ COMPUTERS (SOFTWARE & SERVICES) - 6.12% BMC Software, Inc.(a) 500,000 27,000,000 - ------------------------------------------------------------------ Microsoft Corp.(a) 462,000 41,666,625 - ------------------------------------------------------------------ Unisys Corp.(a) 1,012,400 39,420,325 - ------------------------------------------------------------------ 108,086,950 - ------------------------------------------------------------------ CONSUMER FINANCE - 0.47% Providian Financial Corp. 88,000 8,228,000 - ------------------------------------------------------------------ DISTRIBUTORS (FOOD & HEALTH) - 0.36% Cardinal Health, Inc. 99,925 6,407,691 - ------------------------------------------------------------------
MARKET SHARES VALUE ELECTRICAL EQUIPMENT - 2.01% General Electric Co. 265,000 $ 29,945,000 - ------------------------------------------------------------------ Solectron Corp.(a) 84,500 5,635,094 - ------------------------------------------------------------------ 35,580,094 - ------------------------------------------------------------------ ELECTRONICS (INSTRUMENTATION) - 0.10% Waters Corp.(a) 31,800 1,689,375 - ------------------------------------------------------------------ ELECTRONICS (SEMICONDUCTORS) - 0.16% Texas Instruments, Inc. 19,400 2,813,000 - ------------------------------------------------------------------ ENTERTAINMENT - 2.17% Time Warner, Inc. 521,200 38,308,200 - ------------------------------------------------------------------ EQUIPMENT (SEMICONDUCTOR) - 0.13% Teradyne, Inc.(a) 32,400 2,324,700 - ------------------------------------------------------------------ FINANCIAL (DIVERSIFIED) - 4.91% American Express Co. 115,000 14,964,375 - ------------------------------------------------------------------ Associates First Capital Corp. - Class A 560,000 24,815,000 - ------------------------------------------------------------------ Citigroup, Inc. 147,750 7,018,125 - ------------------------------------------------------------------ Fannie Mae 248,000 16,957,000 - ------------------------------------------------------------------ Freddie Mac 395,000 22,910,000 - ------------------------------------------------------------------ 86,664,500 - ------------------------------------------------------------------ HEALTH CARE (DIVERSIFIED) - 3.46% Bristol-Myers Squibb Co. 450,000 31,696,875 - ------------------------------------------------------------------ Warner-Lambert Co. 426,000 29,553,750 - ------------------------------------------------------------------ 61,250,625 - ------------------------------------------------------------------ HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 3.77% Merck & Co., Inc. 90,000 6,660,000 - ------------------------------------------------------------------ Pharmacia & Upjohn, Inc. 1,055,000 59,937,188 - ------------------------------------------------------------------ 66,597,188 - ------------------------------------------------------------------ HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.61% Guidant Corp.(b) 1,084,700 55,794,256 - ------------------------------------------------------------------ Medtronic, Inc. 103,000 8,021,125 - ------------------------------------------------------------------ 63,815,381 - ------------------------------------------------------------------ HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.58% Colgate-Palmolive Co. 284,000 28,045,000 - ------------------------------------------------------------------ INSURANCE (MULTI-LINE) - 3.59% American International Group, Inc.(b) 490,000 57,360,625 - ------------------------------------------------------------------ Hartford Financial Services Group, Inc. (The) 103,900 6,058,669 - ------------------------------------------------------------------ 63,419,294 - ------------------------------------------------------------------ INSURANCE (PROPERTY - CASUALTY) - 0.49% Progressive Corp. 36,000 5,220,000 - ------------------------------------------------------------------ XL Capital Ltd. 60,000 3,390,000 - ------------------------------------------------------------------ 8,610,000 - ------------------------------------------------------------------
AIM V.I. VALUE FUND FS-100 182
MARKET SHARES VALUE INVESTMENT BANKING/BROKERAGE - 0.74% Morgan Stanley, Dean Witter, Discover & Co. 127,000 $ 13,017,500 - ---------------------------------------------------------------------- LODGING - HOTELS - 1.44% Carnival Corp. 525,000 25,462,500 - ---------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 2.94% Tyco International Ltd. 539,300 51,098,675 - ---------------------------------------------------------------------- United Technologies Corp. 11,900 853,081 - ---------------------------------------------------------------------- 51,951,756 - ---------------------------------------------------------------------- PERSONAL CARE - 1.73% Avon Products, Inc. 552,000 30,636,000 - ---------------------------------------------------------------------- PUBLISHING - 0.27% Dow Jones & Co., Inc. 90,000 4,775,625 - ---------------------------------------------------------------------- RESTAURANTS - 1.85% McDonald's Corp. 490,000 20,243,125 - ---------------------------------------------------------------------- Tricon Global Restaurants, Inc.(a) 230,000 12,448,750 - ---------------------------------------------------------------------- 32,691,875 - ---------------------------------------------------------------------- RETAIL (BUILDING SUPPLIES) - 1.51% Lowe's Companies, Inc. 470,000 26,643,125 - ---------------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS) - 2.90% Best Buy Co., Inc.(a) 760,000 51,300,000 - ---------------------------------------------------------------------- RETAIL (FOOD CHAINS) - 3.45% Albertson's, Inc. 21,700 1,118,906 - ---------------------------------------------------------------------- Kroger Co.(a) 1,070,000 29,893,125 - ---------------------------------------------------------------------- Safeway, Inc.(a) 605,000 29,947,500 - ---------------------------------------------------------------------- 60,959,531 - ---------------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 4.95% Costco Companies, Inc.(a) 234,000 18,734,625 - ---------------------------------------------------------------------- Dayton Hudson Corp. 773,900 50,303,500 - ---------------------------------------------------------------------- Wal-Mart Stores, Inc. 380,000 18,335,000 - ---------------------------------------------------------------------- 87,373,125 - ---------------------------------------------------------------------- RETAIL (SPECIALTY - APPAREL) - 0.02% Gap, Inc. (The) 7,200 362,700 - ---------------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 1.79% Omnicom Group, Inc. 395,000 31,600,000 - ---------------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS) - 0.39% SunGard Data Systems, Inc.(a) 200,000 6,900,000 - ---------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 1.51% Equifax, Inc. 73,900 2,637,306 - ---------------------------------------------------------------------- First Data Corp. 490,500 24,003,844 - ---------------------------------------------------------------------- 26,641,150 - ---------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.66% Nextel Communications, Inc. - Class A(a) 584,300 29,324,556 - ----------------------------------------------------------------------
MARKET SHARES VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 5.57% AT & T Corp.(b) 307,000 $ 17,134,438 - ---------------------------------------------------------------------------- MCI WorldCom, Inc.(a)(b) 942,413 81,283,121 - ---------------------------------------------------------------------------- 98,417,559 - ---------------------------------------------------------------------------- WASTE MANAGEMENT - 0.84% Waste Management, Inc. 275,000 14,781,250 - ---------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $1,084,486,897) 1,480,310,856 - ---------------------------------------------------------------------------- FOREIGN STOCKS - 5.60% FINLAND - 4.47% Nokia Oyj A.B. - Class A (Communications Equipment) 2,000 175,202 - ---------------------------------------------------------------------------- Nokia Oyj A.B.-ADR (Communications Equipment) 860,000 78,743,750 - ---------------------------------------------------------------------------- 78,918,952 - ---------------------------------------------------------------------------- UNITED KINGDOM - 1.13% Vodafone Airtouch PLC-ADR (Telecommunications - Cellular/Wireless) 80,000 15,760,000 - ---------------------------------------------------------------------------- WPP Group PLC (Services - Advertising/Marketing) 491,400 4,155,600 - ---------------------------------------------------------------------------- 19,915,600 - ---------------------------------------------------------------------------- Total Foreign Stocks (Cost $45,499,184) 98,834,552 - ---------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE TIME DEPOSITS - 9.34% CIBC Oppenheimer Corp. 5.50%, 07/01/99 $85,000,000 $ 85,000,000 - ---------------------------------------------------------------------------- SBC Warburg Dillon Read, Inc., 5.75%, 07/01/99 80,000,000 80,000,000 - ---------------------------------------------------------------------------- Total Time Deposits (Cost $165,000,000) 165,000,000 - ---------------------------------------------------------------------------- REPURCHASE AGREEMENT - 1.28% BankOne Capital Markets, Inc., 5.10%, 07/01/99 (Cost $22,632,014) 22,632,014 22,632,014 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS - 100.00% 1,766,777,422 - ---------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 0.00% 44,196 - ---------------------------------------------------------------------------- NET ASSETS - 100.00% $1,766,821,618 ============================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) A portion of this security is subject to call options written. See Note 7. (c) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (d) Joint repurchase agreement entered into 06/30/99 with a maturing value of $125,017,708. Collateralized by U.S. Government obligations. Investment Abbreviations: ADR - American Depositary Receipt See Notes to Financial Statements. AIM V.I. VALUE FUND FS-101 183 STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (Unaudited) ASSETS: Investments, at market value (cost $1,317,618,095) $1,766,777,422 - ------------------------------------------------------------------------ Receivables for: Investments sold 12,102,819 - ------------------------------------------------------------------------ Capital stock sold 2,640,126 - ------------------------------------------------------------------------ Dividends and interest 450,940 - ------------------------------------------------------------------------ Forward currency contracts 2,031,444 - ------------------------------------------------------------------------ Forward currency contracts closed 83,807 - ------------------------------------------------------------------------ Investment for deferred compensation plan 27,330 - ------------------------------------------------------------------------ Other assets 11,196 - ------------------------------------------------------------------------ Total assets 1,784,125,084 - ------------------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 14,603,161 - ------------------------------------------------------------------------ Fund shares reacquired 151,081 - ------------------------------------------------------------------------ Deferred compensation 27,330 - ------------------------------------------------------------------------ Options written (Premiums received $2,213,895) 1,379,594 - ------------------------------------------------------------------------ Accrued advisory fees 829,758 - ------------------------------------------------------------------------ Accrued directors' fees 3,500 - ------------------------------------------------------------------------ Accrued operating expenses 309,042 - ------------------------------------------------------------------------ Total liabilities 17,303,466 - ------------------------------------------------------------------------ Net assets applicable to shares outstanding $1,766,821,618 ======================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ------------------------------------------------------------------------ Outstanding 58,819,385 - ------------------------------------------------------------------------ Net asset value, offering and redemption price per share $30.04 ========================================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 1999 (Unaudited) INVESTMENT INCOME: Dividends (net of $71,503 foreign withholding tax) $ 3,783,138 - ------------------------------------------------------------------------------- Interest 3,926,143 - ------------------------------------------------------------------------------- Total investment income 7,709,281 - ------------------------------------------------------------------------------- EXPENSES: Advisory fees 4,377,401 - ------------------------------------------------------------------------------- Administrative services fees 710,092 - ------------------------------------------------------------------------------- Custodian fees 85,853 - ------------------------------------------------------------------------------- Directors' fees and expenses 8,494 - ------------------------------------------------------------------------------- Other 70,563 - ------------------------------------------------------------------------------- Total expenses 5,252,403 - ------------------------------------------------------------------------------- Net investment income 2,456,878 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FORWARD CURRENCY CONTRACTS AND OPTION CONTRACTS: Net realized gain from: Investment securities 70,778,592 - ------------------------------------------------------------------------------- Foreign currencies 25,406 - ------------------------------------------------------------------------------- Forward currency contracts 4,108,353 - ------------------------------------------------------------------------------- Option contracts 888 - ------------------------------------------------------------------------------- 74,913,239 - ------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 118,075,061 - ------------------------------------------------------------------------------- Foreign currencies (1,292) - ------------------------------------------------------------------------------- Forward currency contracts 1,706,836 - ------------------------------------------------------------------------------- Option contracts 826,782 - ------------------------------------------------------------------------------- 120,607,387 - ------------------------------------------------------------------------------- Net gain on investment securities, foreign currencies, forward currency contracts and option contracts 195,520,626 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations $197,977,504 ===============================================================================
See Notes to Financial Statements. AIM V.I. VALUE FUND FS-102 184 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 1999 and the year ended December 31, 1998 (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 --------------------------- OPERATIONS: Net investment income $ 2,456,878 $ 6,184,686 - ------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, forward currency contracts, futures and option contracts 74,913,239 30,475,488 - ------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies, forward currency contracts, futures and option contracts 120,607,387 230,113,292 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 197,977,504 266,773,466 - ------------------------------------------------------------------------------- Distributions to shareholders from net investment income -- (5,622,957) - ------------------------------------------------------------------------------- Distributions to shareholders from net realized gains -- (49,732,413) - ------------------------------------------------------------------------------- Net increase from capital stock transactions 347,460,569 319,123,956 - ------------------------------------------------------------------------------- Net increase in net assets 545,438,073 530,542,052 - ------------------------------------------------------------------------------- NET ASSETS: Beginning of year 1,221,383,545 690,841,493 - ------------------------------------------------------------------------------- End of year $1,766,821,618 $1,221,383,545 =============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $1,202,963,289 $ 855,502,720 - ------------------------------------------------------------------------------- Undistributed net investment income 8,648,047 6,191,169 - ------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, forward currency contracts, futures and option contracts 103,187,240 28,274,001 - ------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, forward currency contracts, futures and option contracts 452,023,042 331,415,655 - ------------------------------------------------------------------------------- $1,766,821,618 $1,221,383,545 ===============================================================================
See Notes to Financial Statements. AIM V.I. VALUE FUND FS-103 185 NOTES TO FINANCIAL STATEMENTS June 30, 1999 (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of sixteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Value Fund (the "Fund"). The Fund's investment objective is to achieve long-term growth of capital by investing primarily in equity securities judged by the Fund's investment advisor to be undervalued relative to the investment advisor's appraisal of the current or projected earnings of the companies issuing the securities or relative to current market values of assets owned by the companies issuing the securities or relative to the equity market generally. Income is a secondary objective. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are either not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Such distributions are declared and paid annually. C. Federal Income Taxes - The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash, and/or by securing a standby letter of credit from a major commercial bank, as collateral, for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contract may not correlate with changes in the securities being hedged. E. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse AIM V.I. VALUE FUND FS-104 186 changes in the relationship between currencies. The Fund may also enter into a currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. Outstanding forward currency contracts at June 30, 1999 were as follows:
SETTLEMENT CONTRACT TO CURRENCY ---------------------- UNREALIZED DATE DELIVER RECEIVE VALUE APPRECIATION ---------- ------- -------------------------------- 7/19/99 EUR 7,000,000 $ 7,460,170 $ 7,224,486 $235,684 7/20/99 EUR 33,850,000 36,238,808 34,938,165 1,300,643 7/21/99 EUR 6,000,000 6,369,120 6,193,344 175,776 7/22/99 EUR 8,500,000 9,011,330 8,774,561 236,769 7/20/99 GBP 1,000,000 1,613,800 1,576,440 37,360 8/17/99 GBP 1,100,000 1,779,651 1,734,439 45,212 ------------------------------------------------------------- $62,472,879 $60,441,435 $2,031,444 =============================================================
G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to pay certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the six months ended June 30, 1999, AIM was paid $41,414 for accounting and administrative services rendered by AIM. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Fund's shares. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the six months ended June 30, 1999, the Fund incurred legal fees of $12,358 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $975,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the six months ended June 30, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. AIM V.I. VALUE FUND FS-105 187 NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended June 30, 1999 was $629,720,326 and $340,754,303, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of June 30, 1999 is as follows: Aggregate unrealized appreciation of investment securities $459,463,096 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (14,453,490) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $445,009,606 ===========================================================================
Cost of investments for tax purposes is $1,321,767,816. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the six months ended June 30, 1999 and the year ended December 31, 1998 were as follows:
JUNE 30, DECEMBER 31, 1999 1998 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold 15,084,473 $427,699,890 13,690,852 $321,377,374 - ------------------------------------------------------------------------------ Issued as reinvestment of distributions -- -- 2,225,788 55,355,370 - ------------------------------------------------------------------------------ Reacquired (2,800,711) (80,239,321) (2,542,811) (57,608,788) - ------------------------------------------------------------------------------ 12,283,762 $347,460,569 13,373,829 $319,123,956 ==============================================================================
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN Transactions in call option contracts written during the six months ended June 30, 1999 are summarized as follows:
CALL OPTION CONTRACTS -------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------ Beginning of period 200 $ 83,771 - ----------------------------------------------------------------------------- Written 4,200 2,705,005 - ----------------------------------------------------------------------------- Exercised (849) (573,993) - ----------------------------------------------------------------------------- Expired (1) (888) - ----------------------------------------------------------------------------- End of period 3,550 $2,213,895 - -----------------------------------------------------------------------------
Open call option contracts written at June 30, 1999 were as follows:
UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUMS JUNE 30, 1999 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - ----- --------------------- -------- -------------------------- American International Group, Inc. Aug. 99 $ 130 250 $ 194,953 $ 35,935 $ 159,018 - ------------------------------------------------------------------------------------------- AT&T Corp. Oct. 99 60 365 167,712 104,938 62,774 - ------------------------------------------------------------------------------------------- Cisco Systems, Inc. Oct. 99 55 300 250,804 376,875 (126,071) - ------------------------------------------------------------------------------------------- Cox Communications, Inc. Sep. 99 45 880 493,224 77,000 416,224 - ------------------------------------------------------------------------------------------- EMC Corp. Jul. 99 57.50 200 122,096 28,750 93,346 - ------------------------------------------------------------------------------------------- Guidant Corp. Jul. 99 75 180 103,524 2,250 101,274 - ------------------------------------------------------------------------------------------- MCI WorldCom, Inc. Sep. 99 90 109.5 689,093 554,344 134,749 - ------------------------------------------------------------------------------------------- Sun Microsystems, Inc. Jul. 99 62.50 280 192,489 199,500 (7,011) - ------------------------------------------------------------------------------------------- $2,213,895 $1,379,592 $ 834,303 ===========================================================================================
AIM V.I. VALUE FUND FS-106 188 NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during six months ended June 30, 1999, each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the year ended January 31, 1995.
JUNE 30, DECEMBER 31, ---------- ---------------------------------------- JANUARY 31, 1999(A) 1998 1997 1996 1995 1995 ---------- ---------- -------- -------- -------- ----------- Net asset value, beginning of period $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17 - ------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.05 0.09 0.08 0.30 0.11 0.10 - ------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 3.74 6.59 4.05 2.09 4.18 (0.35) - ------------------------------------------------------------------------------------------------- Total from investment operations 3.79 6.68 4.13 2.39 4.29 (0.25) - ------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- (0.13) (0.19) (0.10) (0.01) (0.09) - ------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (1.13) (0.59) (0.92) -- -- - ------------------------------------------------------------------------------------------------- Total distributions -- (1.26) (0.78) (1.02) (0.01) (0.09) - ------------------------------------------------------------------------------------------------- Net asset value, end of period $ 30.04 $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 - ------------------------------------------------------------------------------------------------- Total return(b) 14.44% 32.41% 23.69% 15.02% 36.25% (2.03)% - ------------------------------------------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period (000s omitted) $1,766,822 $1,221,384 $690,841 $369,735 $257,212 $109,257 - ------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 0.73%(c) 0.66% 0.70% 0.73% 0.75%(d) 0.82% - ------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 0.34%(c) 0.68% 1.05% 2.00% 1.11%(d) 1.17% - ------------------------------------------------------------------------------------------------- Portfolio turnover rate 26% 100% 127% 129% 145% 143% =================================================================================================
(a) Calculated using average shares outstanding. (b) Total returns are not annualized for periods less than one year. (c) Ratios are annualized and based on average net assets of $1,450,392,564. (d) Annualized. AIM V.I. VALUE FUND FS-107 189 ANNUAL REPORT FINANCIALS DATED DECEMBER 31, 1998 FS 190 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Aggressive Growth Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations, the statement of changes in net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Aggressive Growth Fund, as of December 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. AGGRESSIVE GROWTH FUND FS-108 191 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE COMMON STOCKS - 82.28% AEROSPACE/DEFENSE - 0.36% AAR Corp. 500 $ 11,938 - ----------------------------------------------------------------- Aviation Sales Co.(a) 100 4,063 - ----------------------------------------------------------------- 16,001 - ----------------------------------------------------------------- AIR FREIGHT - 0.19% Expeditors International of Washington, Inc. 200 8,400 - ----------------------------------------------------------------- AIRLINES - 0.61% ASA Holdings, Inc. 100 3,050 - ----------------------------------------------------------------- Atlantic Coast Airlines Holdings(a) 500 12,500 - ----------------------------------------------------------------- Ryanair Holdings PLC-ADR (Ireland)(a) 300 11,325 - ----------------------------------------------------------------- 26,875 - ----------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 0.64% Danaher Corp. 200 10,862 - ----------------------------------------------------------------- Gentex Corp.(a) 500 10,000 - ----------------------------------------------------------------- Tower Automotive, Inc.(a) 300 7,482 - ----------------------------------------------------------------- 28,344 - ----------------------------------------------------------------- BANKS (REGIONAL) - 2.09% Bank United Corp. - Class A 200 7,850 - ----------------------------------------------------------------- Centennial Bancorp(a) 300 5,625 - ----------------------------------------------------------------- Centura Banks, Inc. 100 7,438 - ----------------------------------------------------------------- Community First Bankshares, Inc. 600 12,638 - ----------------------------------------------------------------- First Republic Bank(a) 300 7,518 - ----------------------------------------------------------------- First Washington Bancorp, Inc. 200 4,800 - ----------------------------------------------------------------- Provident Bankshares Corp. 200 4,975 - ----------------------------------------------------------------- Silicon Valley Bancshares(a) 200 3,406 - ----------------------------------------------------------------- Southwest Bancorp. of Texas, Inc.(a) 500 8,938 - ----------------------------------------------------------------- Sterling Bancshares, Inc. 300 4,462 - ----------------------------------------------------------------- Trustmark Corp. 200 4,525 - ----------------------------------------------------------------- Westamerica Bancorp. 200 7,350 - ----------------------------------------------------------------- Zions Bancorp. 200 12,475 - ----------------------------------------------------------------- 92,000 - ----------------------------------------------------------------- BIOTECHNOLOGY - 0.78% Curative Health Services, Inc.(a) 200 6,700 - ----------------------------------------------------------------- IDEXX Laboratories, Inc.(a) 700 18,834 - ----------------------------------------------------------------- PathoGenesis Corp.(a) 100 5,800 - ----------------------------------------------------------------- Pharmaceutical Product Development, Inc.(a) 100 3,006 - ----------------------------------------------------------------- 34,340 - -----------------------------------------------------------------
MARKET SHARES VALUE BROADCASTING (TELEVISION, RADIO & CABLE) - 1.26% Chancellor Media Corp.(a) 200 $ 9,575 - --------------------------------------------------------------------- Heftel Broadcasting Corp.(a) 800 39,400 - --------------------------------------------------------------------- Jacor Communications, Inc.(a) 100 6,437 - --------------------------------------------------------------------- 55,412 - --------------------------------------------------------------------- BUILDING MATERIALS - 0.13% NCI Building Systems, Inc.(a) 200 5,625 - --------------------------------------------------------------------- CHEMICALS (SPECIALTY) - 0.33% OM Group, Inc. 400 14,600 - --------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 2.12% Brightpoint, Inc.(a) 2,200 30,250 - --------------------------------------------------------------------- Comverse Technology, Inc.(a) 500 35,500 - --------------------------------------------------------------------- Dycom Industries, Inc.(a) 200 11,425 - --------------------------------------------------------------------- REMEC, Inc.(a) 400 7,200 - --------------------------------------------------------------------- Tekelec(a) 300 4,968 - --------------------------------------------------------------------- VideoServer, Inc.(a) 200 3,675 - --------------------------------------------------------------------- 93,018 - --------------------------------------------------------------------- COMPUTERS (HARDWARE) - 0.82% Brooktrout Technology, Inc.(a) 200 3,425 - --------------------------------------------------------------------- IDX Systems Corp.(a) 100 4,400 - --------------------------------------------------------------------- Micron Electronics, Inc.(a) 800 13,850 - --------------------------------------------------------------------- National Instruments Corp.(a) 200 6,825 - --------------------------------------------------------------------- Visual Networks, Inc.(a) 200 7,500 - --------------------------------------------------------------------- 36,000 - --------------------------------------------------------------------- COMPUTERS (NETWORKING) - 0.85% Broadcom Corp.(a) 200 24,150 - --------------------------------------------------------------------- International Network Services(a) 200 13,300 - --------------------------------------------------------------------- 37,450 - --------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 2.27% Cybex Computer Products Corp.(a) 300 8,812 - --------------------------------------------------------------------- Jabil Circuit, Inc.(a) 200 14,925 - --------------------------------------------------------------------- Network Appliance, Inc.(a) 800 36,000 - --------------------------------------------------------------------- QLogic Corp.(a) 100 13,087 - --------------------------------------------------------------------- SMART Modular Technologies, Inc.(a) 600 16,650 - --------------------------------------------------------------------- Xircom, Inc.(a) 300 10,200 - --------------------------------------------------------------------- 99,674 - ---------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-109 192
MARKET SHARES VALUE COMPUTERS (SOFTWARE & SERVICES) - 11.96% American Management Systems, Inc.(a) 200 $ 8,000 - ----------------------------------------------------------------------- Aspect Development, Inc.(a) 200 8,863 - ----------------------------------------------------------------------- Avant! Corp.(a) 400 6,400 - ----------------------------------------------------------------------- AVT Corp.(a) 400 11,600 - ----------------------------------------------------------------------- AXENT Technologies, Inc.(a) 400 12,225 - ----------------------------------------------------------------------- Business Objects S.A.-ADR (France)(a) 300 9,750 - ----------------------------------------------------------------------- Check Point Software Technologies Ltd.(a) (Israel) 400 18,325 - ----------------------------------------------------------------------- Citrix Systems, Inc.(a) 400 38,825 - ----------------------------------------------------------------------- Computer Management Sciences, Inc.(a) 500 8,688 - ----------------------------------------------------------------------- Concord Communications, Inc.(a) 200 11,350 - ----------------------------------------------------------------------- Concord EFS, Inc.(a) 900 38,137 - ----------------------------------------------------------------------- Documentum, Inc.(a) 200 10,687 - ----------------------------------------------------------------------- Electronics for Imaging, Inc.(a) 500 20,093 - ----------------------------------------------------------------------- Engineering Animation, Inc.(a) 500 27,000 - ----------------------------------------------------------------------- Gemstar International Group Ltd.(a) 200 11,450 - ----------------------------------------------------------------------- HNC Software, Inc.(a) 300 12,132 - ----------------------------------------------------------------------- Hyperion Solutions Corp.(a) 390 7,020 - ----------------------------------------------------------------------- Jack Henry & Associates 100 4,975 - ----------------------------------------------------------------------- Kronos, Inc.(a) 100 4,432 - ----------------------------------------------------------------------- Legato Systems, Inc.(a) 300 19,782 - ----------------------------------------------------------------------- Lycos, Inc.(a) 500 27,781 - ----------------------------------------------------------------------- Macromedia, Inc.(a) 200 6,738 - ----------------------------------------------------------------------- Medical Manager Corp.(a) 600 18,825 - ----------------------------------------------------------------------- Mercury Interactive Corp.(a) 200 12,650 - ----------------------------------------------------------------------- Mobius Management Systems, Inc.(a) 100 1,487 - ----------------------------------------------------------------------- PC Connection, Inc.(a) 400 7,050 - ----------------------------------------------------------------------- QRS Corp.(a) 100 4,800 - ----------------------------------------------------------------------- QuadraMed Corp.(a) 300 6,150 - ----------------------------------------------------------------------- Rational Software Corp.(a) 900 23,850 - ----------------------------------------------------------------------- Sapient Corp.(a) 100 5,600 - ----------------------------------------------------------------------- ScanSource, Inc.(a) 100 2,150 - ----------------------------------------------------------------------- Secure Computing Corp.(a) 400 7,625 - ----------------------------------------------------------------------- Sterling Software, Inc. (a) 200 5,412 - ----------------------------------------------------------------------- Technisource, Inc.(a) 100 987 - ----------------------------------------------------------------------- Transaction Systems Architects, Inc. - Class A(a) 200 10,000 - ----------------------------------------------------------------------- USWeb Corp.(a) 700 18,463 - ----------------------------------------------------------------------- Veritas Software Corp.(a) 650 38,959 - ----------------------------------------------------------------------- Visio Corp.(a) 500 18,282 - ----------------------------------------------------------------------- Whittman-Hart, Inc.(a) 200 5,525 - ----------------------------------------------------------------------- Wind River Systems(a) 300 14,100 - ----------------------------------------------------------------------- 526,168 - -----------------------------------------------------------------------
MARKET SHARES VALUE CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.75% Action Performance Companies, Inc.(a) 300 $ 10,613 - ------------------------------------------------------------------ Blyth Industries, Inc.(a) 500 15,625 - ------------------------------------------------------------------ Department 56, Inc.(a) 100 3,756 - ------------------------------------------------------------------ Fossil, Inc.(a) 100 2,875 - ------------------------------------------------------------------ 32,869 - ------------------------------------------------------------------ CONSUMER FINANCE - 0.37% AmeriCredit Corp.(a) 700 9,668 - ------------------------------------------------------------------ Doral Financial Corp. 300 6,637 - ------------------------------------------------------------------ 16,305 - ------------------------------------------------------------------ DISTRIBUTORS (FOOD & HEALTH) - 0.40% Patterson Dental Co.(a) 400 17,400 - ------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 2.60% AFC Cable Systems, Inc.(a) 300 10,088 - ------------------------------------------------------------------ Hadco Corp.(a) 100 3,500 - ------------------------------------------------------------------ Oak Industries, Inc.(a) 200 7,000 - ------------------------------------------------------------------ Sanmina Corp.(a) 400 25,000 - ------------------------------------------------------------------ Sawtek, Inc.(a) 100 1,750 - ------------------------------------------------------------------ SLI, Inc.(a) 200 5,550 - ------------------------------------------------------------------ Symbol Technologies, Inc. 600 38,363 - ------------------------------------------------------------------ Uniphase Corp.(a) 300 20,812 - ------------------------------------------------------------------ Watsco, Inc. 150 2,513 - ------------------------------------------------------------------ 114,576 - ------------------------------------------------------------------ ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.10% Anicom, Inc.(a) 500 4,594 - ------------------------------------------------------------------ ELECTRONICS (DEFENSE) - 0.21% Aeroflex, Inc.(a) 600 9,075 - ------------------------------------------------------------------ ELECTRONICS (INSTRUMENTATION) - 0.60% Waters Corp.(a) 300 26,175 - ------------------------------------------------------------------ ELECTRONICS (SEMICONDUCTORS) - 6.32% Apex PC Solutions, Inc.(a) 100 2,887 - ------------------------------------------------------------------ Applied Micro Circuits Corp.(a) 400 13,587 - ------------------------------------------------------------------ Artisan Components, Inc.(a) 500 2,657 - ------------------------------------------------------------------ Burr-Brown Corp.(a) 100 2,343 - ------------------------------------------------------------------ Dallas Semiconductor Corp. 200 8,150 - ------------------------------------------------------------------ Flextronics International Ltd.(a) 700 59,938 - ------------------------------------------------------------------ Level One Communications, Inc.(a) 600 21,300 - ------------------------------------------------------------------ Micrel, Inc.(a) 200 11,000 - ------------------------------------------------------------------ Microchip Technology, Inc.(a) 800 29,600 - ------------------------------------------------------------------ PMC-Sierra, Inc.(a) 300 18,938 - ------------------------------------------------------------------ Semtech Corp.(a) 300 10,763 - ------------------------------------------------------------------ Sipex Corp.(a) 1,000 35,125 - ------------------------------------------------------------------ TranSwitch Corp.(a) 500 19,468 - ------------------------------------------------------------------ Unitrode Corp.(a) 600 10,500 - ------------------------------------------------------------------ Vitesse Semiconductor Corp.(a) 700 31,938 - ------------------------------------------------------------------ 278,194 - ------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-110 193
MARKET SHARES VALUE ENTERTAINMENT - 0.81% Cinar Films Inc.-Class B(a) (Canada) 100 $ 2,538 - ------------------------------------------------------------------ SFX Entertainment, Inc.-Class A(a) 600 32,925 - ------------------------------------------------------------------ 35,463 - ------------------------------------------------------------------ EQUIPMENT (SEMICONDUCTORS) - 0.45% Asyst Technologies, Inc.(a) 300 6,112 - ------------------------------------------------------------------ Etec Systems, Inc.(a) 100 4,000 - ------------------------------------------------------------------ Novellus Systems, Inc.(a) 200 9,900 - ------------------------------------------------------------------ 20,012 - ------------------------------------------------------------------ FINANCIAL (DIVERSIFIED) - 1.04% Insignia Financial Group, Inc.(a) 200 2,425 - ------------------------------------------------------------------ NCO Group, Inc.(a) 300 13,500 - ------------------------------------------------------------------ SEI Investments Co. 300 29,812 - ------------------------------------------------------------------ 45,737 - ------------------------------------------------------------------ FOODS - 1.04% American Italian Pasta Co.-Class A(a) 200 5,275 - ------------------------------------------------------------------ Earthgrains Co. (The) 200 6,187 - ------------------------------------------------------------------ Fresh Del Monte Produce, Inc.(a) 200 4,337 - ------------------------------------------------------------------ Hain Food Group, Inc. (The)(a) 600 15,000 - ------------------------------------------------------------------ International Home Foods, Inc.(a) 200 3,375 - ------------------------------------------------------------------ Pilgrim's Pride Corp.-Class B 100 1,994 - ------------------------------------------------------------------ United Natural Foods, Inc.(a) 400 9,650 - ------------------------------------------------------------------ 45,818 - ------------------------------------------------------------------ HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.64% Alpharma, Inc.-Class A 600 21,188 - ------------------------------------------------------------------ Biovail Corporation International(a) (Canada) 200 7,563 - ------------------------------------------------------------------ Medicis Pharmaceutical Corp.-Class A(a) 600 35,775 - ------------------------------------------------------------------ Parexel International Corp.(a) 300 7,500 - ------------------------------------------------------------------ 72,026 - ------------------------------------------------------------------ HEALTH CARE (HOSPITAL MANAGEMENT) - 1.28% Health Management Associates, Inc.-Class A(a) 1,000 21,625 - ------------------------------------------------------------------ New American Healthcare Corp.(a) 300 3,356 - ------------------------------------------------------------------ Province Healthcare Co.(a) 300 10,763 - ------------------------------------------------------------------ Universal Health Services, Inc.-Class B(a) 400 20,750 - ------------------------------------------------------------------ 56,494 - ------------------------------------------------------------------ HEALTH CARE (LONG-TERM CARE) - 0.33% Assisted Living Concepts, Inc.(a) 700 9,189 - ------------------------------------------------------------------ Sunrise Assisted Living, Inc.(a) 100 5,187 - ------------------------------------------------------------------ 14,376 - ------------------------------------------------------------------ HEALTH CARE (MANAGED CARE) - 0.46% Express Scripts, Inc.-Class A(a) 300 20,138 - ------------------------------------------------------------------
MARKET SHARES VALUE HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.98% Haemonetics Corp.(a) 100 $ 2,275 - --------------------------------------------------------------------- Henry Schein, Inc.(a) 900 40,275 - --------------------------------------------------------------------- Hologic, Inc.(a) 700 8,487 - --------------------------------------------------------------------- MiniMed, Inc.(a) 200 20,950 - --------------------------------------------------------------------- Osteotech, Inc.(a) 300 13,950 - --------------------------------------------------------------------- PSS World Medical, Inc.(a) 300 6,900 - --------------------------------------------------------------------- ResMed, Inc.(a) 200 9,075 - --------------------------------------------------------------------- Serologicals Corp.(a) 300 9,000 - --------------------------------------------------------------------- Sybron International Corp.(a) 900 24,469 - --------------------------------------------------------------------- VISX, Inc.(a) 400 34,975 - --------------------------------------------------------------------- Xomed Surgical Products, Inc.(a) 150 4,800 - --------------------------------------------------------------------- 175,156 - --------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 3.27% Advance Paradigm, Inc.(a) 200 7,000 - --------------------------------------------------------------------- Covance, Inc.(a) 200 5,825 - --------------------------------------------------------------------- First Consulting Group, Inc.(a) 200 4,100 - --------------------------------------------------------------------- Hooper Holmes, Inc. 400 11,600 - --------------------------------------------------------------------- Lincare Holdings, Inc.(a) 100 4,056 - --------------------------------------------------------------------- NCS HealthCare, Inc.-Class A (a) 700 16,625 - --------------------------------------------------------------------- Ocular Sciences, Inc.(a) 400 10,700 - --------------------------------------------------------------------- Omnicare, Inc. 600 20,850 - --------------------------------------------------------------------- Orthodontic Centers of America, Inc.(a) 800 15,550 - --------------------------------------------------------------------- Renal Care Group, Inc.(a) 300 8,644 - --------------------------------------------------------------------- Res-Care, Inc.(a) 200 4,938 - --------------------------------------------------------------------- Superior Consultant Holdings Corp.(a) 300 13,050 - --------------------------------------------------------------------- Total Renal Care Holdings, Inc.(a) 300 8,868 - --------------------------------------------------------------------- Veterinary Centers of America, Inc.(a) 600 11,963 - --------------------------------------------------------------------- 143,769 - --------------------------------------------------------------------- HOMEBUILDING - 0.17% American Homestar Corp.(a) 500 7,500 - --------------------------------------------------------------------- HOUSEHOLD FURNITURE & APPLIANCES - 0.02% International Comfort Products Corp. (Canada)(a) 100 800 - --------------------------------------------------------------------- HOUSEWARES - 0.30% Helen of Troy Ltd.(a) 900 13,218 - --------------------------------------------------------------------- INSURANCE (LIFE & HEALTH) - 0.12% Penn Treaty American Corp.(a) 200 5,388 - --------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 0.07% Century Business Services, Inc.(a) 200 2,875 - --------------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.58% CMAC Investment Corp. 200 9,187 - --------------------------------------------------------------------- Fidelity National Financial, Inc. 110 3,355 - --------------------------------------------------------------------- FPIC Insurance Group, Inc.(a) 200 9,563 - --------------------------------------------------------------------- HCC Insurance Holdings, Inc. 200 3,525 - --------------------------------------------------------------------- 25,630 - ---------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-111 194
MARKET SHARES VALUE INVESTMENT MANAGEMENT - 0.52% Eaton Vance Corp. 300 $ 6,262 - ----------------------------------------------------------------- Knight/Trimark Group, Inc.-Class A(a) 700 16,756 - ----------------------------------------------------------------- 23,018 - ----------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 0.16% International Speedway Corp.-Class A 100 4,050 - ----------------------------------------------------------------- Speedway Motorsports, Inc. 100 2,850 - ----------------------------------------------------------------- 6,900 - ----------------------------------------------------------------- LODGING-HOTELS - 0.17% Royal Caribbean Cruises Ltd. (Norway) 200 7,400 - ----------------------------------------------------------------- MACHINERY (DIVERSIFIED) - 0.26% Applied Power, Inc.-Class A 300 11,325 - ----------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.29% Matthews International Corp.-Class A 200 6,300 - ----------------------------------------------------------------- Spartech Corp. 300 6,600 - ----------------------------------------------------------------- 12,900 - ----------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.31% JLG Industries, Inc. 500 7,812 - ----------------------------------------------------------------- Zebra Technologies Corp.(a) 200 5,750 - ----------------------------------------------------------------- 13,562 - ----------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES - 0.87% Daisytek International Corp.(a) 900 17,100 - ----------------------------------------------------------------- Herman Miller, Inc. 500 13,437 - ----------------------------------------------------------------- United Stationers, Inc.(a) 300 7,800 - ----------------------------------------------------------------- 38,337 - ----------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.38% Cal Dive International, Inc.(a) 200 4,150 - ----------------------------------------------------------------- Core Laboratories N.V.(a) (Netherlands) 500 9,563 - ----------------------------------------------------------------- Global Industries Ltd.(a) 500 3,062 - ----------------------------------------------------------------- 16,775 - ----------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.43% Cabot Oil & Gas Corp.-Class A 300 4,500 - ----------------------------------------------------------------- Evergreen Resources, Inc.(a) 500 8,875 - ----------------------------------------------------------------- Stone Energy Corp.(a) 200 5,750 - ----------------------------------------------------------------- 19,125 - ----------------------------------------------------------------- PERSONAL CARE - 0.44% Steiner Leisure Ltd.(a) 600 19,200 - ----------------------------------------------------------------- PUBLISHING - 0.33% IDG Books Worldwide, Inc.-Class A(a) 400 6,900 - ----------------------------------------------------------------- Meredith Corp. 200 7,575 - ----------------------------------------------------------------- 14,475 - ----------------------------------------------------------------- RAILROADS - 0.37% MotivePower Industries, Inc.(a) 500 16,093 - -----------------------------------------------------------------
MARKET SHARES VALUE RESTAURANTS - 1.14% Buffets, Inc.(a) 200 $ 2,387 - ------------------------------------------------------------- CEC Entertainment, Inc.(a) 700 19,425 - ------------------------------------------------------------- Papa John's International, Inc.(a) 300 13,238 - ------------------------------------------------------------- Sonic Corp.(a) 600 14,925 - ------------------------------------------------------------- 49,975 - ------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS) - 1.94% Best Buy Co., Inc.(a) 100 6,138 - ------------------------------------------------------------- CDW Computer Centers, Inc.(a) 700 67,156 - ------------------------------------------------------------- Tech Data Corp.(a) 300 12,075 - ------------------------------------------------------------- 85,369 - ------------------------------------------------------------- RETAIL (DISCOUNTERS) - 1.30% Burlington Coat Factory Warehouse Corp. 500 8,157 - ------------------------------------------------------------- Dollar Tree Stores, Inc.(a) 450 19,659 - ------------------------------------------------------------- Family Dollar Stores, Inc. 500 11,000 - ------------------------------------------------------------- 99 Cents Only Stores(a) 375 18,421 - ------------------------------------------------------------- 57,237 - ------------------------------------------------------------- RETAIL (FOOD CHAINS) - 0.14% Wild Oats Markets, Inc.(a) 200 6,300 - ------------------------------------------------------------- RETAIL (HOME SHOPPING) - 0.17% DM Management Co.(a) 400 7,600 - ------------------------------------------------------------- RETAIL (SPECIALTY) - 2.81% Casey's General Stores, Inc. 200 2,607 - ------------------------------------------------------------- Cost Plus, Inc.(a) 200 6,275 - ------------------------------------------------------------- CSK Auto Corp.(a) 400 10,675 - ------------------------------------------------------------- Hibbett Sporting Goods, Inc.(a) 400 9,700 - ------------------------------------------------------------- Linens 'N Things, Inc.(a) 500 19,813 - ------------------------------------------------------------- Michaels Stores, Inc.(a) 500 9,046 - ------------------------------------------------------------- O'Reilly Automotive, Inc.(a) 300 14,175 - ------------------------------------------------------------- PETsMART, Inc.(a) 400 4,400 - ------------------------------------------------------------- Rent-Way, Inc.(a) 300 7,294 - ------------------------------------------------------------- Renters Choice, Inc.(a) 600 19,050 - ------------------------------------------------------------- Trans World Entertainment Corp.(a) 650 12,390 - ------------------------------------------------------------- Williams-Sonoma, Inc.(a) 200 8,062 - ------------------------------------------------------------- 123,487 - ------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 2.86% Abercrombie & Fitch Co.-Class A(a) 338 23,913 - ------------------------------------------------------------- American Eagle Outfitters, Inc.(a) 400 26,650 - ------------------------------------------------------------- AnnTaylor Stores Corp.(a) 400 15,775 - ------------------------------------------------------------- Buckle, Inc. (The)(a) 850 20,400 - ------------------------------------------------------------- Goody's Family Clothing, Inc.(a) 1,100 11,035 - ------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 650 20,637 - ------------------------------------------------------------- Pacific Sunwear of California(a) 450 7,369 - ------------------------------------------------------------- 125,779 - -------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-112 195
MARKET SHARES VALUE SERVICES (ADVERTISING/MARKETING) - 1.18% Abacus Direct Corp.(a) 100 $ 4,550 - ---------------------------------------------------------------- Acxiom Corp.(a) 500 15,500 - ---------------------------------------------------------------- ADVO, Inc.(a) 100 2,637 - ---------------------------------------------------------------- Market Facts, Inc.(a) 500 13,000 - ---------------------------------------------------------------- Metris Companies, Inc. 100 5,032 - ---------------------------------------------------------------- Professional Detailing, Inc.(a) 100 2,825 - ---------------------------------------------------------------- TMP Worldwide, Inc.(a) 200 8,400 - ---------------------------------------------------------------- 51,944 - ---------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 2.60% Bright Horizons Family Solutions, Inc.(a) 300 8,100 - ---------------------------------------------------------------- Championship Auto Racing Teams, Inc.(a) 100 2,963 - ---------------------------------------------------------------- ChoicePoint, Inc.(a) 100 6,450 - ---------------------------------------------------------------- G & K Services, Inc.-Class A 300 15,975 - ---------------------------------------------------------------- Iron Mountain, Inc.(a) 200 7,213 - ---------------------------------------------------------------- MSC Industrial Direct Co., Inc.-Class A(a) 400 9,050 - ---------------------------------------------------------------- Regis Corp. 400 16,000 - ---------------------------------------------------------------- Ritchie Bros. Auctioneers, Inc.(a) (Canada) 200 5,388 - ---------------------------------------------------------------- Stewart Enterprises, Inc.-Class A 900 20,025 - ---------------------------------------------------------------- Strayer Education, Inc. 400 14,100 - ---------------------------------------------------------------- Sylvan Learning Systems, Inc.(a) 300 9,150 - ---------------------------------------------------------------- 114,414 - ---------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS) - 2.71% Analysts International Corp. 200 3,850 - ---------------------------------------------------------------- Ciber, Inc.(a) 200 5,587 - ---------------------------------------------------------------- Computer Task Group, Inc. 600 16,275 - ---------------------------------------------------------------- Insight Enterprises, Inc.(a) 1,000 50,875 - ---------------------------------------------------------------- Keane, Inc.(a) 200 7,988 - ---------------------------------------------------------------- Safeguard Scientifics, Inc.(a) 100 2,743 - ---------------------------------------------------------------- SunGard Data Systems, Inc.(a) 800 31,750 - ---------------------------------------------------------------- 119,068 - ---------------------------------------------------------------- SERVICES (DATA PROCESSING) - 3.77% Affiliated Computer Services, Inc.(a) 700 31,500 - ---------------------------------------------------------------- Computer Horizons Corp.(a) 200 5,325 - ---------------------------------------------------------------- CSG Systems International, Inc.(a) 700 55,300 - ---------------------------------------------------------------- FactSet Research Systems, Inc.(a) 200 12,350 - ---------------------------------------------------------------- Lason Holdings, Inc.(a) 100 5,818 - ---------------------------------------------------------------- MedQuist, Inc.(a) 400 15,800 - ---------------------------------------------------------------- National Computer Systems, Inc. 500 18,500 - ---------------------------------------------------------------- NOVA Corp.(a) 614 21,298 - ---------------------------------------------------------------- 165,891 - ----------------------------------------------------------------
MARKET SHARES VALUE SERVICES (EMPLOYMENT) - 1.05% On Assignment, Inc.(a) 100 $ 3,450 - -------------------------------------------------------------------------- RCM Technologies, Inc.(a) 200 5,300 - -------------------------------------------------------------------------- Robert Half International, Inc.(a) 300 13,408 - -------------------------------------------------------------------------- Romac International, Inc.(a) 700 15,575 - -------------------------------------------------------------------------- Select Appointments Holdings PLC-ADR (United Kingdom) 400 8,600 - -------------------------------------------------------------------------- 46,333 - -------------------------------------------------------------------------- SERVICES (FACILITIES & ENVIRONMENTAL) - 0.40% Cornell Corrections, Inc.(a) 500 9,500 - -------------------------------------------------------------------------- Tetra Tech, Inc.(a) 300 8,118 - -------------------------------------------------------------------------- 17,618 - -------------------------------------------------------------------------- SPECIALTY PRINTING - 0.83% Consolidated Graphics, Inc.(a) 300 20,268 - -------------------------------------------------------------------------- Valassis Communications, Inc.(a) 200 10,325 - -------------------------------------------------------------------------- World Color Press, Inc.(a) 200 6,088 - -------------------------------------------------------------------------- 36,681 - -------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.29% Amdocs Ltd.(a) 400 6,850 - -------------------------------------------------------------------------- International Telecommunication Data Systems, Inc.(a) 400 5,900 - -------------------------------------------------------------------------- 12,750 - -------------------------------------------------------------------------- TELEPHONE - 0.34% GeoTel Communications Corp.(a) 400 14,900 - -------------------------------------------------------------------------- Textiles (Apparel) - 0.82% Quicksilver, Inc.(a) 1,000 30,000 - -------------------------------------------------------------------------- Tommy Hilfiger Corp.(a) 100 6,000 - -------------------------------------------------------------------------- 36,000 - -------------------------------------------------------------------------- TEXTILES (HOME FURNISHINGS) - 0.48% Mohawk Industries, Inc.(a) 500 21,032 - -------------------------------------------------------------------------- Truckers - 0.25% Swift Transportation Co., Inc.(a) 400 11,213 - -------------------------------------------------------------------------- Trucks & Parts - 0.32% Wabash National Corp. 700 14,218 - -------------------------------------------------------------------------- WASTE MANAGEMENT - 1.03% Allied Waste Industries, Inc.(a) 1,360 32,130 - -------------------------------------------------------------------------- KTI, Inc.(a) 600 12,975 - -------------------------------------------------------------------------- 45,105 - -------------------------------------------------------------------------- Total Common Stocks (Cost $2,946,310) 3,619,519 - --------------------------------------------------------------------------
AIM V.I. AGGRESSIVE GROWTH FUND FS-113 196
PRINCIPAL MARKET AMOUNT VALUE U.S TREASURY BILLS(b) - 8.10% 4.439%, 03/25/99 (Cost $356,307) $360,000(c) $ 356,307 - -------------------------------------------------------------------------------- Total Investments, excluding repurchase agreement (Cost $3,302,617) 3,975,826 - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT(d) - 10.43% SBC Warburg Dillon Read, Inc., 4.75% 01/04/99(e) (Cost $459,028) 459,028 459,028 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS - 100.81% 4,434,854 - -------------------------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS - (0.81)% (35,751) - -------------------------------------------------------------------------------- NET ASSETS - 100.00% $4,399,103 ================================================================================
(a) Non-income producing security. (b) U.S. Treasury bills are traded on a discount basis. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (c) A portion of the principal balance was pledged as collateral to cover margin requirements for open future contracts. See Note 7. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 12/31/98 with a maturing value of $1,000,527,778. Collateralized by $2,207,068,000 U.S. Government obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market value at 12/31/98 of $1,020,001,079. Investment Abbreviation: ADR - American Depositary Receipt See Notes to Financial Statements. AIM V.I. AGGRESSIVE GROWTH FUND FS-114 197 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, excluding repurchase agreements, at market value (cost $3,302,617) $ 3,975,826 - --------------------------------------------------------------------- Repurchase agreements (cost $459,028) 459,028 - --------------------------------------------------------------------- Receivables for: Capital stock sold 3,114 - --------------------------------------------------------------------- Investments sold 19,772 - --------------------------------------------------------------------- Dividends and interest 259 - --------------------------------------------------------------------- Variation margin 3,875 - --------------------------------------------------------------------- Reimbursement from advisor 45,009 - --------------------------------------------------------------------- Investment for deferred compensation plan 2,778 - --------------------------------------------------------------------- Total assets 4,509,661 - --------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 100,750 - --------------------------------------------------------------------- Deferred compensation plan 2,778 - --------------------------------------------------------------------- Accrued operating expenses 7,030 - --------------------------------------------------------------------- Total liabilities 110,558 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $ 4,399,103 ===================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 446,621 ===================================================================== Net asset value, offering and redemption price per share $9.85 =====================================================================
STATEMENT OF OPERATIONS For the period May 1, 1998 (date operations commenced) through December 31, 1998 INVESTMENT INCOME: Interest $ 33,438 - --------------------------------------------------------------------- Dividends 1,129 - --------------------------------------------------------------------- Total investment income 34,567 - --------------------------------------------------------------------- EXPENSES: Advisory fees 13,054 - --------------------------------------------------------------------- Administrative services fees 26,658 - --------------------------------------------------------------------- Custodian fees 18,571 - --------------------------------------------------------------------- Directors' fees and expenses 6,301 - --------------------------------------------------------------------- Legal fees 7,771 - --------------------------------------------------------------------- Other 3,066 - --------------------------------------------------------------------- Total expenses 75,421 - --------------------------------------------------------------------- Less: Fees waived and reimbursed by advisor (56,454) - --------------------------------------------------------------------- Expenses paid indirectly (65) - --------------------------------------------------------------------- Net expenses 18,902 - --------------------------------------------------------------------- Net investment income 15,665 - --------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities (182,452) - --------------------------------------------------------------------- Futures contracts (213,085) - --------------------------------------------------------------------- (395,537) - --------------------------------------------------------------------- Net unrealized appreciation of: Investment securities 673,210 - --------------------------------------------------------------------- Futures contracts 15,300 - --------------------------------------------------------------------- 688,510 - --------------------------------------------------------------------- Net gain from investment securities and futures contracts 292,973 - --------------------------------------------------------------------- Net increase in net assets resulting from operations $ 308,638 =====================================================================
See Notes to Financial Statements. AIM V.I. AGGRESSIVE GROWTH FUND FS-115 198 STATEMENT OF CHANGES IN NET ASSETS For the period May 1, 1998 (date operations commenced) through December 31, 1998
1998 ---------- OPERATIONS: Net investment income $ 15,665 - ------------------------------------------------------------------------------ Net realized gain (loss) from investment securities and futures contracts (395,537) - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities and futures contracts 688,510 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 308,638 - ------------------------------------------------------------------------------ Dividends to shareholders from net investment income (22,273) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 4,112,738 - ------------------------------------------------------------------------------ Net increase in net assets 4,399,103 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of period -- - ------------------------------------------------------------------------------ End of period $4,399,103 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $4,108,916 - ------------------------------------------------------------------------------ Undistributed net investment income (2,786) - ------------------------------------------------------------------------------ Undistributed net realized gain (loss) from investment securities and futures contracts (395,537) - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities and futures contracts 688,510 - ------------------------------------------------------------------------------ $4,399,103 ==============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Aggressive Growth Fund (the "Fund"). The Fund's investment objective is to achieve long-term growth of capital. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If no mean is available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which AIM V.I. AGGRESSIVE GROWTH FUND FS-116 199 will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $3,822, undistributed net investment income was increased by $3,822 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $354,222, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.80% of the first $150 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $150 million. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM waived expenses of $11,445 and reimbursed expenses of $45,009. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM was reimbursed $26,658 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the period May 1, 1998 (date operations commenced) through December 31, 1998, the Fund incurred legal fees of $1,697 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $65 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $65 during the period May 1, 1998 (date operations commenced) through December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the period May 1, 1998 (date operations commenced) through December 31, 1998 was $3,584,305 and $455,412, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $759,923 - ----------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (95,945) - ----------------------------------------------------------------------- Net unrealized appreciation of investment securities $663,978 =======================================================================
Cost of investments for tax purposes is $3,770,876. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the period May 1, 1998 (date operations commenced) through December 31, 1998 were as follows:
Shares Amount ------- ---------- Sold 464,162 $4,261,686 - --------------------------------------------------------- Issued as reinvestment of dividends 2,421 22,273 - --------------------------------------------------------- Reacquired (19,962) (171,221) - --------------------------------------------------------- 446,621 $4,112,738 =========================================================
AIM V.I. AGGRESSIVE GROWTH FUND FS-117 200 NOTE 7- FUTURES CONTRACTS On December 31, 1998, $20,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts were as follows:
No. of Month/ Unrealized Contracts Commitment Appreciation Contract --------- ---------- ------------ Russell 2000 Index 1 Mar 99/Buy $15,300 ================================================================================
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the period May 1, 1998 (date operations commenced) through December 31, 1998.
1998 ------ Net asset value, beginning of period $10.00 - ---------------------------------------------------------------------- Income from investment operations: Net investment income 0.04 - ---------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.14) - ---------------------------------------------------------------------- Total from investment operations (0.10) - ---------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.05) - ---------------------------------------------------------------------- Net asset value, end of period $ 9.85 ================================================================= ====== Total return(a) (0.94)% ================================================================= ====== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $4,399 ================================================================= ====== Ratio of expenses to average net assets(b) 1.16%(c) ================================================================= ====== Ratio of net investment income to average net assets(d) 0.96%(c) ================================================================= ====== Portfolio turnover rate 30% ================================================================= ======
(a) Total return is not annualized. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 4.62% (annualized). (c) Ratios are annualized and based on average net assets of $2,430,925. (d) After fee waivers and/or expense reimbursements. Ratio of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursement was (2.50)% (annualized). AIM V.I. AGGRESSIVE GROWTH FUND FS-118 201 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Balanced Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations, the statement of changes in net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Balanced Fund, as of December 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. BALANCED FUND FS-119 202 SCHEDULE OF INVESTMENTS December 31, 1998
PRINCIPAL MARKET AMOUNT VALUE DOMESTIC BONDS & NOTES - 22.68% BANKS (MONEY CENTER) - 0.74% First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 $ 70,000 $ 76,815 - ------------------------------------------------------------------------------- BANKS (REGIONAL) - 0.71% HSBC Americas Inc., Unsec. Sub. Notes, 7.00%, 11/01/06 70,000 73,016 - ------------------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 2.45% Comcast Cable Communications, Unsec. Unsub. Notes, 6.20%, 11/15/08 100,000 101,998 - ------------------------------------------------------------------------------- CSC Holdings Inc., Series B Sr. Unsec. Deb., 7.625%, 07/15/18 50,000 51,196 - ------------------------------------------------------------------------------- USA Networks, Inc., Sr. Notes, 6.75%, 11/15/05(a) (Acquired 11/30/98; Cost $100,274) 100,000 100,266 - ------------------------------------------------------------------------------- 253,460 - ------------------------------------------------------------------------------- CHEMICALS - 1.18% Airgas Inc., Medium Term Notes, 7.14%, 03/08/04 50,000 51,056 - ------------------------------------------------------------------------------- Solutia Inc., Sr. Unsec. Deb., 6.72%, 10/15/37 70,000 71,120 - ------------------------------------------------------------------------------- 122,176 - ------------------------------------------------------------------------------- CHEMICALS (DIVERSIFIED) - 0.49% Monsanto Co., Deb., 6.50%, 12/01/18(a) (Acquired 12/04/98; Cost $49,791) 50,000 50,349 - ------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 0.34% Comverse Technology Inc., Conv. Unsec. Sub. Deb., 4.50%, 07/01/05 28,000 35,420 - ------------------------------------------------------------------------------- COMPUTERS (HARDWARE) - 0.29% Candescent Technology Corp., Conv. Sr. Sub. Deb., 7.00%, 05/01/03(a) (Acquired 11/06/98-11/09/98; Cost $28,326) 33,000 29,700 - ------------------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 0.33% Network Associates Inc., Conv. Unsec. Sub. Deb., 3.44%, 02/13/18(b) 55,000 33,825 - ------------------------------------------------------------------------------- CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.70% American Greetings, Unsec. Notes, 6.10%, 08/01/28 70,000 72,414 - ------------------------------------------------------------------------------- CONSUMER FINANCE - 2.55% Beneficial Corp.-Series H, Medium Term Notes, 6.94%, 12/15/06 250,000 263,978 - ------------------------------------------------------------------------------- ELECTRIC COMPANIES - 0.77% Commonwealth Edison Co., First Mortgage Notes, 7.50%, 07/01/13 70,000 79,153 - ------------------------------------------------------------------------------- ENTERTAINMENT - 0.76% Time Warner, Inc., Unsec. Deb., 6.85%, 01/15/26 75,000 78,903 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE FINANCIAL (DIVERSIFIED) - 2.88% Associates Corp of North America, Series B Sr. Deb., 6.95%, 11/01/18 $ 50,000 $ 53,213 - ------------------------------------------------------------------------------- Private Export Funding, Sec. Deb., 8.35%, 01/31/01 230,000 244,858 - ------------------------------------------------------------------------------- 298,071 - ------------------------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.38% Elan Finance Corp., Conv. Gtd. Sub. Notes, 3.25%, 12/14/18(a)(b) (Acquired 12/08/98; Cost $36,766) 70,000 39,375 - ------------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.49% Beckman Coulter, Sr. Unsec. Gtd. Notes, 7.45%, 03/04/08 50,000 50,865 - ------------------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.50% Merrill Lynch & Co., Unsec. Notes, 6.875%, 11/15/18 50,000 51,659 - ------------------------------------------------------------------------------- NATURAL GAS - 2.72% Enron Corp., Notes, 6.75%, 08/01/09 70,000 72,784 - ------------------------------------------------------------------------------- K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 100,000 105,515 - ------------------------------------------------------------------------------- National Fuel Gas Co., Series D, Medium Term Notes, 6.303%, 05/27/08 100,000 103,332 - ------------------------------------------------------------------------------- 281,631 - ------------------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.24% R & B Falcon Corp., Sr. Notes, 9.50%, 12/15/08(a) (Acquired 12/17/98; Cost $25,000) 25,000 25,125 - ------------------------------------------------------------------------------- RAILROADS - 1.45% CSX Corp.-Series C, Medium Term Notes, 6.80%, 12/01/28 150,000 149,625 - ------------------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 0.08% Affiliated Computer Services, Conv. Sub. Notes, 4.00%, 03/15/05 7,000 8,544 - ------------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 1.89% Global Telesystems Group, Conv. Sr. Sub. Deb., 5.75%, 07/01/10 15,000 16,931 - ------------------------------------------------------------------------------- MCI Communications Corp., Putable Sr. Unsec. Deb., 7.125%, 06/15/27 70,000 74,445 - ------------------------------------------------------------------------------- Sprint Capital Corp., Sr. Unsec. Gtd. Notes, 6.875%, 11/15/28 100,000 104,216 - ------------------------------------------------------------------------------- 195,592 - ------------------------------------------------------------------------------- TELEPHONE - 0.74% SBC Communications Inc., Deb., 7.375%, 07/15/43 70,000 76,385 - ------------------------------------------------------------------------------- Total Domestic Bonds & Notes (Cost $2,305,968) 2,346,081 - -------------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-120 203
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 28.92% BANKS (MONEY CENTER) - 0.56% BankAmerica Corp. 300 $ 18,038 - -------------------------------------------------------------- Chase Manhattan Corp. (The) 500 34,031 - -------------------------------------------------------------- First Union Corp. 100 6,081 - -------------------------------------------------------------- 58,150 - -------------------------------------------------------------- BANKS (REGIONAL) - 0.25% Bank United Corp.-Class A 300 11,775 - -------------------------------------------------------------- Southwest Bancorp. of Texas, Inc.(c) 800 14,300 - -------------------------------------------------------------- 26,075 - -------------------------------------------------------------- BEVERAGES (NON-ALCOHOLIC) - 0.21% Coca-Cola Co. (The) 200 13,375 - -------------------------------------------------------------- PepsiCo, Inc. 200 8,188 - -------------------------------------------------------------- 21,563 - -------------------------------------------------------------- BIOTECHNOLOGY - 0.48% Biogen, Inc.(c) 300 24,900 - -------------------------------------------------------------- Genzyme Corp.(c) 500 24,875 - -------------------------------------------------------------- 49,775 - -------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 0.72% CBS Corp.(c) 800 26,200 - -------------------------------------------------------------- Heftel Broadcasting Corp.(c) 400 19,700 - -------------------------------------------------------------- Univision Communications, Inc.(c) 800 28,950 - -------------------------------------------------------------- 74,850 - -------------------------------------------------------------- BUILDING MATERIALS - 0.12% Group Maintenance America Corp.(c) 1,000 12,125 - -------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 0.89% ADC Telecommunications, Inc.(c) 300 10,425 - -------------------------------------------------------------- ANTEC Corp.(c) 1,100 22,138 - -------------------------------------------------------------- Brightpoint, Inc.(c) 600 8,250 - -------------------------------------------------------------- Lucent Technologies, Inc. 400 44,000 - -------------------------------------------------------------- Tellabs, Inc.(c) 100 6,856 - -------------------------------------------------------------- 91,669 - -------------------------------------------------------------- COMPUTERS (HARDWARE) - 1.09% Compaq Computer Corp. 800 33,550 - -------------------------------------------------------------- Dell Computer Corp.(c) 600 43,913 - -------------------------------------------------------------- International Business Machines Corp. 100 18,475 - -------------------------------------------------------------- Sun Microsystems, Inc.(c) 200 17,125 - -------------------------------------------------------------- 113,063 - --------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (NETWORKING) - 0.83% Ascend Communications, Inc.(c) 600 $ 39,450 - --------------------------------------------------------------------- Cisco Systems, Inc.(c) 500 46,406 - --------------------------------------------------------------------- 85,856 - --------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 0.41% EMC Corp.(c) 500 42,500 - --------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 2.28% America Online, Inc. 600 96,000 - --------------------------------------------------------------------- Computer Associates International, Inc. 100 4,263 - --------------------------------------------------------------------- Engineering Animation, Inc.(c) 300 16,200 - --------------------------------------------------------------------- HBO & Co. 900 25,819 - --------------------------------------------------------------------- ISS Group, Inc.(c) 300 16,500 - --------------------------------------------------------------------- Microsoft Corp.(c) 100 13,869 - --------------------------------------------------------------------- Platinum Technology, Inc.(c) 400 7,650 - --------------------------------------------------------------------- Sterling Commerce, Inc.(c) 300 13,500 - --------------------------------------------------------------------- USWeb Corp.(c) 1,600 42,200 - --------------------------------------------------------------------- 236,001 - --------------------------------------------------------------------- CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.09% Blyth Industries, Inc.(c) 300 9,375 - --------------------------------------------------------------------- CONSUMER FINANCE - 0.23% SLM Holding Corp. 500 24,000 - --------------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 0.26% Cardinal Health, Inc. 350 26,556 - --------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 0.39% General Electric Co. 400 40,825 - --------------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 0.13% Quanta Services, Inc.(c) 600 13,238 - --------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 0.23% Intel Corp. 200 23,713 - --------------------------------------------------------------------- ENTERTAINMENT - 0.20% Walt Disney Co. (The) 700 21,000 - --------------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR) - 0.08% Applied Materials, Inc.(c) 200 8,538 - --------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 1.78% American Express Co. 200 20,450 - --------------------------------------------------------------------- CIT Group, Inc. (The) 300 9,544 - --------------------------------------------------------------------- Citigroup, Inc. 500 24,750 - --------------------------------------------------------------------- Fannie Mae 700 51,769 - --------------------------------------------------------------------- FINOVA Group, Inc. 200 10,788 - --------------------------------------------------------------------- Freddie Mac 400 25,775 - --------------------------------------------------------------------- Heller Financial, Inc. 500 14,688 - --------------------------------------------------------------------- Medallion Financial Corp. 800 11,450 - --------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 200 14,200 - --------------------------------------------------------------------- 183,414 - ---------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-121 204
MARKET SHARES VALUE FOODS - 0.57% Keebler Foods Co.(c) 700 $ 26,338 - ------------------------------------------------------------------- Ralston-Ralston Purina Group 1,000 32,375 - ------------------------------------------------------------------- 58,713 - ------------------------------------------------------------------- HEALTH CARE (DIVERSIFIED) - 1.18% Abbott Laboratories 200 9,800 - ------------------------------------------------------------------- American Home Products Corp. 400 22,525 - ------------------------------------------------------------------- Bristol-Myers Squibb Co. 200 26,763 - ------------------------------------------------------------------- Johnson & Johnson 300 25,163 - ------------------------------------------------------------------- Warner-Lambert Co. 500 37,594 - ------------------------------------------------------------------- 121,845 - ------------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.40% Barr Laboratories, Inc.(c) 300 14,400 - ------------------------------------------------------------------- Forest Laboratories, Inc.(c) 500 26,594 - ------------------------------------------------------------------- 40,994 - ------------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 1.03% Lilly (Eli) & Co. 400 35,550 - ------------------------------------------------------------------- Merck & Co., Inc. 200 29,538 - ------------------------------------------------------------------- Pfizer, Inc. 200 25,088 - ------------------------------------------------------------------- Schering-Plough Corp. 300 16,575 - ------------------------------------------------------------------- 106,751 - ------------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT) - 0.10% Province Healthcare Co.(c) 300 10,763 - ------------------------------------------------------------------- HEALTH CARE (LONG TERM CARE) - 0.49% Assisted Living Concepts, Inc.(c) 700 9,188 - ------------------------------------------------------------------- Sunrise Assisted Living, Inc.(c) 800 41,500 - ------------------------------------------------------------------- 50,688 - ------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.55% Arterial Vascular Engineering, Inc.(c) 400 21,000 - ------------------------------------------------------------------- Baxter International, Inc. 300 19,294 - ------------------------------------------------------------------- Becton, Dickinson & Co. 600 25,613 - ------------------------------------------------------------------- Guidant Corp. 200 22,050 - ------------------------------------------------------------------- Medtronic, Inc. 500 37,125 - ------------------------------------------------------------------- VISX, Inc.(c) 400 34,975 - ------------------------------------------------------------------- 160,057 - ------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 0.43% MAXIMUS, Inc.(c) 400 14,800 - ------------------------------------------------------------------- Omnicare, Inc. 400 13,900 - ------------------------------------------------------------------- Quintiles Transnational Corp.(c) 300 16,013 - ------------------------------------------------------------------- 44,713 - ------------------------------------------------------------------- HOUSEHOLD FURNITURE & APPLIANCES - 0.12% Ethan Allen Interiors, Inc. 300 12,300 - -------------------------------------------------------------------
MARKET SHARES VALUE HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.27% Colgate-Palmolive Co. 100 $ 9,288 - ------------------------------------------------------------------- Procter & Gamble Co. (The) 200 18,263 - ------------------------------------------------------------------- 27,551 - ------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 0.41% Equitable Companies, Inc. 300 17,363 - ------------------------------------------------------------------- Nationwide Financial Services, Inc.-Class A 300 15,506 - ------------------------------------------------------------------- ReliaStar Financial Corp. 200 9,225 - ------------------------------------------------------------------- 42,094 - ------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 0.40% CIGNA Corp. 200 15,463 - ------------------------------------------------------------------- Lincoln National Corp. 200 16,363 - ------------------------------------------------------------------- MONY Group, Inc.(c) 300 9,394 - ------------------------------------------------------------------- 41,220 - ------------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.43% Everest Reinsurance Holdings, Inc. 400 15,575 - ------------------------------------------------------------------- Progressive Corp. 100 16,938 - ------------------------------------------------------------------- Travelers Property Casualty Corp.-Class A 400 12,400 - ------------------------------------------------------------------- 44,913 - ------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.19% Merrill Lynch & Co., Inc. 300 20,025 - ------------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.12% Federated Investors, Inc.-Class B 700 12,688 - ------------------------------------------------------------------- LAND DEVELOPMENT - 0.08% Silverleaf Resorts, Inc. 900 8,381 - ------------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 0.10% Coach USA, Inc.(c) 300 10,406 - ------------------------------------------------------------------- LODGING-HOTELS - 0.23% Carnival Corp.-Class A 500 24,000 - ------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.22% Tyco International Ltd. 300 22,631 - ------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.64% Superior TeleCom, Inc. 1,000 47,250 - ------------------------------------------------------------------- USEC, Inc. 1,400 19,425 - ------------------------------------------------------------------- 66,675 - ------------------------------------------------------------------- METAL FABRICATORS - 0.08% Metals USA(c) 800 7,800 - ------------------------------------------------------------------- NATURAL GAS - 0.41% Enron Corp. 300 17,119 - ------------------------------------------------------------------- Williams Companies, Inc. (The) 800 24,950 - ------------------------------------------------------------------- 42,069 - ------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.14% Halliburton Co. 500 14,813 - -------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-122 205
MARKET SHARES VALUE OIL & GAS (EXPLORATION & PRODUCTION) - 0.18% Conoco Inc. - Class A(c) 900 $ 18,789 - -------------------------------------------------------------------- OIL (INTERNATIONAL INTERGRATED) - 0.14% Exxon Corp. 200 14,626 - -------------------------------------------------------------------- PERSONAL CARE - 0.45% Avon Products, Inc. 400 17,700 - -------------------------------------------------------------------- Gillette Co. 600 28,989 - -------------------------------------------------------------------- 46,689 - -------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 0.30% AES Corp.(c) 500 23,689 - -------------------------------------------------------------------- CalEnergy Co., Inc.(c) 200 6,939 - -------------------------------------------------------------------- 30,628 - -------------------------------------------------------------------- PUBLISHING - 0.07% Meredith Corp. 200 7,576 - -------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST - 0.49% Alexandria Real Estate Equities, Inc. 700 21,657 - -------------------------------------------------------------------- Boston Properties, Inc. 300 9,150 - -------------------------------------------------------------------- Crescent Real Estate Equities, Co. 400 9,200 - -------------------------------------------------------------------- Golf Trust of America, Inc. 400 11,100 - -------------------------------------------------------------------- 51,107 - -------------------------------------------------------------------- RETAIL (FOOD CHAINS) - 0.47% American Stores Co. 500 18,470 - -------------------------------------------------------------------- Safeway, Inc.(c) 500 30,470 - -------------------------------------------------------------------- 48,940 - -------------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 0.37% Dayton Hudson Corp. 700 37,975 - -------------------------------------------------------------------- RETAIL (SPECIALTY) - 0.37% Linens 'N Things, Inc.(c) 700 27,738 - -------------------------------------------------------------------- Musicland Stores Corp.(c) 700 10,456 - -------------------------------------------------------------------- 38,194 - -------------------------------------------------------------------- SAVINGS & LOAN COMPANIES - 0.22% Washington Mutual, Inc. 600 22,913 - -------------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 0.33% Outdoor Systems, Inc.(c) 800 24,000 - -------------------------------------------------------------------- Young & Rubicam, Inc.(c) 300 9,713 - -------------------------------------------------------------------- 33,713 - -------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 1.18% Apollo Group, Inc.(c) 1,000 33,875 - -------------------------------------------------------------------- Avis Rent A Car, Inc.(c) 600 14,513 - -------------------------------------------------------------------- Comfort Systems USA, Inc.(c) 500 8,938 - -------------------------------------------------------------------- Hertz Corp. - Class A 400 18,250 - -------------------------------------------------------------------- INSpire Insurance Solutions, Inc.(c) 500 9,188 - -------------------------------------------------------------------- Metzler Group, Inc.(c) 500 24,344 - -------------------------------------------------------------------- Service Corp. International 200 7,613 - -------------------------------------------------------------------- SM&A Corp.(c) 300 5,700 - -------------------------------------------------------------------- 122,421 - --------------------------------------------------------------------
MARKET SHARES VALUE SERVICES (DATA PROCESSING) - 0.37% Ceridian Corp.(c) 300 $ 20,944 - ----------------------------------------------------------------------------- DST Systems, Inc.(c) 300 17,119 - ----------------------------------------------------------------------------- 38,063 - ----------------------------------------------------------------------------- SERVICES (EMPLOYMENT) - 0.31% Administaff, Inc.(c) 300 7,500 - ----------------------------------------------------------------------------- Data Processing Resources Corp.(c) 600 17,550 - ----------------------------------------------------------------------------- Metamor Worldwide, Inc.(c) 300 7,500 - ----------------------------------------------------------------------------- 32,550 - ----------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 1.22% AT&T Corp. 300 22,575 - ----------------------------------------------------------------------------- IXC Communications, Inc.(c) 600 20,175 - ----------------------------------------------------------------------------- MCI WorldCom, Inc.(c) 500 35,875 - ----------------------------------------------------------------------------- Pacific Gateway Exchange, Inc.(c) 500 24,031 - ----------------------------------------------------------------------------- WinStar Communications, Inc.(c) 600 23,400 - ----------------------------------------------------------------------------- 126,056 - ----------------------------------------------------------------------------- TELEPHONE - 0.88% Bell Atlantic Corp. 300 17,044 - ----------------------------------------------------------------------------- McLeodUSA Inc. - Class A(c) 500 15,625 - ----------------------------------------------------------------------------- Qwest Communications International, Inc.(c) 900 45,000 - ----------------------------------------------------------------------------- US West, Inc. 200 12,925 - ----------------------------------------------------------------------------- 90,594 - ----------------------------------------------------------------------------- TOBACCO - 0.26% Philip Morris Companies, Inc. 500 26,750 - ----------------------------------------------------------------------------- WASTE MANAGEMENT - 0.49% Allied Waste Industries, Inc.(c) 1,000 23,625 - ----------------------------------------------------------------------------- Denali, Inc.(c) 1,000 14,000 - ----------------------------------------------------------------------------- Republic Services, Inc.(c) 700 12,906 - ----------------------------------------------------------------------------- 50,531 - ----------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $2,528,522) 2,992,491 - ----------------------------------------------------------------------------- DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.10% CHEMICALS (DIVERSIFIED) - 0.47% Monsanto Co., $2.60 Conv. Pfd. 1,000 49,000 - ----------------------------------------------------------------------------- HOMEBUILDING - 0.14% Fleetwood Capital Trust, $3.00 Conv. Gtd. Pfd. 300 14,063 - ----------------------------------------------------------------------------- NATURAL GAS - 0.11% KN Energy, Inc., $3.548 Conv. Pfd. 300 11,269 - ----------------------------------------------------------------------------- PERSONAL CARE - 0.15% Estee Lauder Co., $3.805 Conv. Pfd. 200 15,500 - ----------------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 0.23% United Rentals Trust I, $3.25 Conv. Pfd.(a) (Acquired 12/10/98; Cost $19,375) 500 24,063 - ----------------------------------------------------------------------------- Total Domestic Convertible Preferred Stocks (Cost $100,198) 113,895 - -----------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-123 206
PRINCIPAL MARKET AMOUNT VALUE DOMESTIC CONVERTIBLE BONDS - 0.27% Global Telesystems Group (Telecommunications - Long Distance) Sr. Sub. Notes, 8.75%, 06/30/00 (Cost $21,506) 10,000 $ 27,550 - ---------------------------------------------------------------------------------- U.S. DOLLAR DENOMINATED FOREIGN BONDS & NOTES - 2.56% CANADA - 0.95% Laidlaw, Inc. (Services - Commercial & Consumer), Yankee Unsec. Deb., 6.70%, 05/01/08 100,000 97,797 - ---------------------------------------------------------------------------------- NORWAY - 0.91% Petroleum Geo-Services A.S.A., (Oil & Gas-Drilling & Equipment), Sr. Unsec. Yankee Notes, 7.125%, 03/30/28 100,000 94,393 - ---------------------------------------------------------------------------------- UNITED KINGDOM - 0.70% Terra Nova Ins Holdings (Insurance - Property - Casual- ty), Sr. Unsec. Gtd. Notes, 7.20%, 8/15/07 70,000 72,279 - ---------------------------------------------------------------------------------- Total U.S. Dollar Denominated Foreign Bonds & Notes - (Cost $263,664) 264,469 - ---------------------------------------------------------------------------------- NON-U.S. DOLLAR DENOMINATED BONDS & NOTES(d) - 1.70% DUTCH GUILDERS - 0.37% Koninklijke Ahold NV (Retail - Food Chains), Conv. Sub. Notes, 3.00%, 09/30/03 NLG 60,000 38,335 - ---------------------------------------------------------------------------------- FRENCH FRANCS - 0.34% France Telecom (Telephone), Conv. Bonds, 2.00%, 01/01/04 FRF 183,680 34,956 - ---------------------------------------------------------------------------------- NEW ZEALAND DOLLARS - 0.99% International Bank for Reconstruction & Development (Banks - Money Center), Sr. Unsec. Unsub. Notes, 5.50%, 04/15/04 NZD 200,000 102,794 - ---------------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $173,980) 176,085 - ---------------------------------------------------------------------------------- SHARES FOREIGN STOCKS & OTHER EQUITYINTERESTS - 1.81% BERMUDA - 0.26% Global Crossing Ltd. (Telecommunications - Long Distance)(c) 600 27,075 - ---------------------------------------------------------------------------------- CANADA - 0.33% Cadillac Fairview Corp. (Land Development)(c) 600 11,213 - ---------------------------------------------------------------------------------- Teleglobe, Inc. (Services - Commercial & Consumer) 600 21,600 - ---------------------------------------------------------------------------------- 32,813 - ---------------------------------------------------------------------------------- CAYMAN ISLANDS - 0.20% Scottish Annuity Life & Holdings, Ltd. (Insurance - Life/Health) 1,500 20,625 - ----------------------------------------------------------------------------------
MARKET SHARES VALUE FINLAND - 0.47% Fortum Corp. (Electric Companies)(c) 2,100 $ 12,773 - -------------------------------------------------------------------------------- Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 300 36,131 - -------------------------------------------------------------------------------- 48,904 - -------------------------------------------------------------------------------- FRANCE - 0.15% France Telecom S.A. - ADR (Communications Equipment) 200 15,788 - -------------------------------------------------------------------------------- GERMANY - 0.17% DaimlerChrysler AG (Automobiles) 187 17,964 - -------------------------------------------------------------------------------- NETHERLANDS - 0.13% Equant N.V. (Computers - Networking)(c) 200 13,563 - -------------------------------------------------------------------------------- UNITED KINGDOM - 0.10% ESG Re Limited (Insurance - Life/Health) 500 10,125 - -------------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $156,229) 186,857 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT U.S. GOVERNMENT AGENCY SECURITIES - 6.42% Fannie Mae 6.18%, 03/15/01 $ 300,000 308,001 - -------------------------------------------------------------------------------- 6.50%, 11/01/28 353,499 355,818 - -------------------------------------------------------------------------------- Total U.S. Government Agency Securities (Cost $659,478) 663,819 - -------------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 20.02% Bills, 4.439%, 03/25/99(e) 1,428,000 1,413,349 - -------------------------------------------------------------------------------- Notes, 15.75%, 11/15/01 25,000 32,357 - -------------------------------------------------------------------------------- Notes, 5.75%, 04/30/03(f) 600,000 624,774 - -------------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $2,050,826) 2,070,480 - -------------------------------------------------------------------------------- Total Investments (excluding Repurchase Agreement) (Cost $8,260,371) 8,841,727 - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 13.11%(g) SBC Warburg Dillon Read Inc., 4.75%, 01/04/99(h) (Cost $1,356,240) 1,356,240 1,356,240 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS - 98.59% 10,197,967 - -------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 1.41% 145,369 - -------------------------------------------------------------------------------- NET ASSETS - 100.00% $10,343,336 - --------------------------------------------------------------------------------
AIM V.I. BALANCED FUND FS-124 207 (a) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at 12/31/98 was $268,878 which represented 2.60% of the Fund's net assets. (b) Zero coupon bond issued at a discount. The interest rate shown represents the rate of original discount. (c) Non-income producing security. (d) Foreign denominated security. Par value and coupon are denominated in currency of country indicated. (e) U.S. Treasury bills are traded on a discount basis. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Portfolio. (f) A portion of the principal balance was pledged as collateral to cover margin requirements for open future contracts. See Note 7. (g) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (h) Joint repurchase agreement entered into 12/31/98 with a maturing value of $1,000,527,778. Collateralized by $2,207,068,000 U.S. Government obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market value at 12/31/98 of $1,020,001,079. Investment abbreviations ADR -- American Depositary Receipts Conv. -- Convertible Deb. -- Debentures FRF -- French Francs Gtd. -- Guaranteed NLG -- Dutch Guilder NZD -- New Zealand Dollar Pfd. -- Preferred Sec. -- Secured Sr. -- Senior Sub. -- Subordinated Unsec. -- Unsecured Unsub. -- Unsubordinated See Notes to Financial Statements. AIM V.I. BALANCED FUND FS-125 208 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, excluding repurchase agreement, at market value (cost $8,260,371) $ 8,841,727 - ------------------------------------------------------------------------------- Repurchase Agreement (cost $1,356,240) 1,356,240 - ------------------------------------------------------------------------------- Receivables for: Investments sold 8,875 - ------------------------------------------------------------------------------- Reimbursement from advisor 26,753 - ------------------------------------------------------------------------------- Capital stock sold 73,907 - ------------------------------------------------------------------------------- Dividends and interest 61,043 - ------------------------------------------------------------------------------- Variation margin 5,950 - ------------------------------------------------------------------------------- Investment for deferred compensation plan 2,779 - ------------------------------------------------------------------------------- Total assets 10,377,274 - ------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 24,717 - ------------------------------------------------------------------------------- Deferred compensation plan 2,779 - ------------------------------------------------------------------------------- Accrued directors' fees 100 - ------------------------------------------------------------------------------- Accrued operating expenses 6,342 - ------------------------------------------------------------------------------- Total liabilities 33,938 - ------------------------------------------------------------------------------- Net assets applicable to shares outstanding $10,343,336 - ------------------------------------------------------------------------------- CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ------------------------------------------------------------------------------- Outstanding 928,627 - ------------------------------------------------------------------------------- Net asset value, offering and redemption price per share $11.14 - -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the period May 1, 1998 (date operations commenced) through December 31, 1998 INVESTMENT INCOME: Dividends $ 3,473 - -------------------------------------------------------------------------- Interest 135,187 - -------------------------------------------------------------------------- Total investment income 138,660 - -------------------------------------------------------------------------- EXPENSES: Advisory fees 21,238 - -------------------------------------------------------------------------- Administrative services fees 26,649 - -------------------------------------------------------------------------- Custodian fees 12,932 - -------------------------------------------------------------------------- Directors' fees and expenses 6,407 - -------------------------------------------------------------------------- Legal fees 8,287 - -------------------------------------------------------------------------- Other 4,734 - -------------------------------------------------------------------------- Total expenses 80,247 - -------------------------------------------------------------------------- Less: Expenses paid indirectly (39) - -------------------------------------------------------------------------- Fees waived and expenses reimbursed by advisor (46,739) - -------------------------------------------------------------------------- Net expenses 33,469 - -------------------------------------------------------------------------- Net investment income 105,191 - -------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain from: Investment securities 11,031 - -------------------------------------------------------------------------- Foreign currencies 1,960 - -------------------------------------------------------------------------- Futures contracts 122,291 - -------------------------------------------------------------------------- Option contracts 213 - -------------------------------------------------------------------------- 135,495 - -------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of: Investment securities 581,356 - -------------------------------------------------------------------------- Foreign currencies (443) - -------------------------------------------------------------------------- Futures contracts 119,775 - -------------------------------------------------------------------------- 700,688 - -------------------------------------------------------------------------- Net gain from investment securities and futures contracts 836,183 - -------------------------------------------------------------------------- Net increase in net assets resulting from operations $941,374 - --------------------------------------------------------------------------
See Notes to Financial Statements. AIM V.I. BALANCED FUND FS-126 209 STATEMENT OF CHANGES IN NET ASSETS For the period May 1, 1998 (date operations commenced) through December 31, 1998 OPERATIONS: Net investment income $ 105,191 - --------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, futures and option contracts 135,495 - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities, foreign currencies and futures contracts 700,688 - --------------------------------------------------------------------------- Net increase in net assets resulting from operations 941,374 - --------------------------------------------------------------------------- Dividends from net investment income (115,294) - --------------------------------------------------------------------------- Distributions from net realized gains (20,295) - --------------------------------------------------------------------------- Net increase from capital stock transactions 9,537,551 - --------------------------------------------------------------------------- Net increase in net assets 10,343,336 - --------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - --------------------------------------------------------------------------- End of period $10,343,336 =========================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 9,536,421 - --------------------------------------------------------------------------- Undistributed net investment income (2,790) - --------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, futures and options contracts 109,017 - --------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and futures contracts 700,688 - --------------------------------------------------------------------------- $10,343,336 ===========================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Balanced Fund (the "Fund"). The Fund's investment objective is to achieve as high a total return to investors as possible, consistent with preservation of capital. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. AIM V.I. BALANCED FUND FS-127 210 Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $1,130, undistributed net investment income was increased by $7,313 and undistributed net realized gains was decreased by $6,183 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. F. Put Options - The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The option's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. G. Bond Premiums - It is the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. H. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. I. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. AIM V.I. BALANCED FUND FS-128 211 NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of the first $150 million of the Fund's average daily net assets, plus 0.50% of the Fund's average daily net assets in excess of $150 million. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM waived fees and reimbursed expenses of $46,739. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM was reimbursed $26,649 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $1,697 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $39 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $39 during the period May 1, 1998 (date operations commenced) through December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the period May 1, 1998 (date operations commenced) through December 31, 1998 was $7,087,066 and $251,369, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $611,897 - ----------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (30,541) - ----------------------------------------------------------------------- Net unrealized appreciation of investment securities $581,356 =======================================================================
Investments have the same cost for tax and financial statement purposes. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the period May 1, 1998 (date operations commenced) through December 31, 1998 were as follows:
DECEMBER 31, 1998 ------------------- SHARES AMOUNT ------- ---------- Sold 954,695 $9,785,741 - ------------------------------------------------------------- Issued as reinvestment of distributions 12,578 135,589 - ------------------------------------------------------------- Reacquired (38,646) (383,779) - ------------------------------------------------------------- 928,627 $9,537,551 =============================================================
NOTE 7 - OPEN FUTURES CONTRACTS On December 31, 1998, $109,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts were as follows:
NUMBER OF UNREALIZED CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION --------- ----------------------------------- S&P 500 Index 7 March 99/Buy $119,775 ======================================================
NOTE 8 - CALL OPTION CONTRACTS WRITTEN Transactions in call options written during the year ended December 31, 1998 are summarized as follows:
CALL OPTION CONTRACTS --------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- --------- Beginning of period -- -- - ------------------------------------------------ Written 1 122 - ------------------------------------------------ Closed (1) (122) - ------------------------------------------------ Exercised -- -- - ------------------------------------------------ Expired -- -- - ------------------------------------------------ End of period -- -- ================================================
NOTE 9 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the period May 1, 1998 (date operations commenced) through December 31, 1998.
DECEMBER 31, 1998 ------------ Net asset value, beginning of period $ 10.00 - -------------------------------------------------------- ------- Income from investment operations: Net investment income 0.12 - -------------------------------------------------------- ------- Net gains on securities (both realized and unrealized) 1.18 - -------------------------------------------------------- ------- Total from investment operations 1.30 - -------------------------------------------------------- ------- Less Distributions: Dividends from net investment income (0.14) - -------------------------------------------------------- ------- Distributions from net realized gains (0.02) - -------------------------------------------------------- ------- Total Distributions (0.16) - -------------------------------------------------------- ------- Net asset value, end of period $ 11.14 ======================================================== ======= Total return(a) 13.02% ======================================================== ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $10,343 ======================================================== ======= Ratio of expenses to average net assets(b) 1.18%(c) ======================================================== ======= Ratio of net investment income to average net assets(d) 3.71%(c) ======================================================== ======= Portfolio turnover rate 9% ======================================================== =======
(a) Total return is not annualized. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 2.83% (annualized). (c) Ratios are annualized and based on average net assets of $4,218,617. (d) After fee waivers and/or expense reimbursements. Ratio of net investment income to average net assets prior to fee waivers and/or expense reimbursement was 2.07% (annualized). AIM V.I. BALANCED FUND FS-129 212 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Capital Appreciation Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Capital Appreciation Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. CAPITAL APPRECIATION FUND FS-130 213 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE COMMON STOCKS - 87.72% AEROSPACE/DEFENSE - 0.42% AAR Corp. 50,000 $ 1,193,750 - ------------------------------------------------------------- BE Aerospace, Inc.(a) 20,000 420,000 - ------------------------------------------------------------- Gulfstream Aerospace Corp.(a) 20,500 1,091,625 - ------------------------------------------------------------- 2,705,375 - ------------------------------------------------------------- AIRLINES - 0.23% Southwest Airlines Co. 65,500 1,469,656 - ------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 0.44% Danaher Corp. 52,300 2,840,544 - ------------------------------------------------------------- BANKS (MAJOR REGIONAL) - 0.31% Northern Trust Corp. 23,000 2,008,188 - ------------------------------------------------------------- BANKS (REGIONAL) - 2.63% AmSouth Bancorporation 30,000 1,368,750 - ------------------------------------------------------------- First Tennessee National Corp. 50,000 1,903,125 - ------------------------------------------------------------- Firstar Corp. 65,000 6,061,250 - ------------------------------------------------------------- Golden State Bancorp, Inc.(a) 53,000 881,125 - ------------------------------------------------------------- Hibernia Corp.-Class A 85,000 1,476,875 - ------------------------------------------------------------- North Fork Bancorporation, Inc. 110,000 2,633,125 - ------------------------------------------------------------- TCF Financial Corp. 40,000 967,500 - ------------------------------------------------------------- Zions Bancorp. 27,500 1,715,313 - ------------------------------------------------------------- 17,007,063 - ------------------------------------------------------------- BIOTECHNOLOGY - 0.72% Biogen, Inc.(a) 44,200 3,668,600 - ------------------------------------------------------------- Curative Health Services, Inc.(a) 29,700 994,950 - ------------------------------------------------------------- 4,663,550 - ------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO, & CABLE) - 2.34% Chancellor Media Corp.(a) 62,272 2,981,272 - ------------------------------------------------------------- Comcast Corp.-Class A 42,400 2,488,350 - ------------------------------------------------------------- Cox Communications, Inc.-Class A(a) 21,500 1,486,187 - ------------------------------------------------------------- Heftel Broadcasting Corp.(a) 22,100 1,088,425 - ------------------------------------------------------------- Liberty Media Group(a) 60,000 2,763,750 - ------------------------------------------------------------- Univision Communications, Inc.(a) 65,500 2,370,281 - ------------------------------------------------------------- USA Networks, Inc.(a) 59,600 1,974,250 - ------------------------------------------------------------- 15,152,515 - ------------------------------------------------------------- BUILDING MATERIALS - 0.19% Masco Corp. 41,800 1,201,750 - ------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 2.44% ADC Telecommunications, Inc.(a) 17,200 597,700 - ------------------------------------------------------------- Andrew Corp.(a) 75,000 1,237,500 - ------------------------------------------------------------- Comverse Technology, Inc.(a) 41,100 2,918,100 - ------------------------------------------------------------- ECI Telecommunications Ltd. (Israel) 19,000 676,875 - ------------------------------------------------------------- General Instrument Corp.(a) 66,000 2,239,875 - ------------------------------------------------------------- Nokia Oyj A.B.-Class A-ADR (Finland) 56,300 6,780,631 - ------------------------------------------------------------- QUALCOMM, Inc.(a) 26,000 1,347,125 - ------------------------------------------------------------- 15,797,806 - -------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (HARDWARE) - 1.67% Apple Computer, Inc.(a) 23,000 $ 941,562 - --------------------------------------------------------------------------- Comdisco, Inc. 165,200 2,787,750 - --------------------------------------------------------------------------- Dell Computer Corp.(a) 40,600 2,971,413 - --------------------------------------------------------------------------- Gateway 2000, Inc.(a) 22,100 1,131,244 - --------------------------------------------------------------------------- IDX Systems Corp.(a) 19,000 836,000 - --------------------------------------------------------------------------- Micron Electronics, Inc.(a) 23,400 405,112 - --------------------------------------------------------------------------- NCR Corp.(a) 42,000 1,753,500 - --------------------------------------------------------------------------- 10,826,581 - --------------------------------------------------------------------------- COMPUTERS (NETWORKING) - 2.99% Ascend Communications, Inc.(a) 128,300 8,435,725 - --------------------------------------------------------------------------- Cisco Systems, Inc.(a) 16,625 1,543,008 - --------------------------------------------------------------------------- Newbridge Networks Corp. (Canada)(a) 50,000 1,518,750 - --------------------------------------------------------------------------- 3Com Corp.(a) 175,000 7,842,187 - --------------------------------------------------------------------------- 19,339,670 - --------------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 2.45% Adaptec, Inc.(a) 52,300 918,519 - --------------------------------------------------------------------------- EMC Corp.(a) 103,000 8,755,000 - --------------------------------------------------------------------------- Lexmark International Group, Inc.(a) 40,200 4,040,100 - --------------------------------------------------------------------------- Seagate Technology, Inc.(a) 71,200 2,153,800 - --------------------------------------------------------------------------- 15,867,419 - --------------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 9.99% America Online, Inc. 32,500 5,200,000 - --------------------------------------------------------------------------- Aspect Development, Inc.(a) 40,000 1,772,500 - --------------------------------------------------------------------------- BMC Software, Inc.(a) 167,000 7,441,938 - --------------------------------------------------------------------------- Cadence Design Systems, Inc.(a) 105,800 3,147,550 - --------------------------------------------------------------------------- Check Point Software Technologies Ltd. (Israel)(a) 22,200 1,017,037 - --------------------------------------------------------------------------- Citrix Systems, Inc.(a) 55,700 5,406,381 - --------------------------------------------------------------------------- Compuware Corp.(a) 113,300 8,851,562 - --------------------------------------------------------------------------- Concord EFS, Inc.(a) 194,800 8,254,649 - --------------------------------------------------------------------------- Electronic Arts, Inc.(a) 21,000 1,178,625 - --------------------------------------------------------------------------- Informix Corp.(a) 35,600 351,550 - --------------------------------------------------------------------------- Intuit, Inc.(a) 27,000 1,957,500 - --------------------------------------------------------------------------- Learning Company, Inc. (The)(a) 45,000 1,167,188 - --------------------------------------------------------------------------- Microsoft Corp.(a) 11,100 1,539,431 - --------------------------------------------------------------------------- Network Associates, Inc.(a) 28,200 1,868,250 - --------------------------------------------------------------------------- Novell, Inc.(a) 35,000 634,375 - --------------------------------------------------------------------------- Parametric Technology Co.(a) 75,000 1,228,125 - --------------------------------------------------------------------------- Sterling Commerce, Inc.(a) 56,055 2,522,475 - --------------------------------------------------------------------------- Sterling Software, Inc.(a) 63,600 1,721,175 - --------------------------------------------------------------------------- Synopsys, Inc.(a) 60,000 3,255,000 - --------------------------------------------------------------------------- VERITAS Software Corp.(a) 36,100 2,163,744 - --------------------------------------------------------------------------- Wind River Systems(a) 40,000 1,880,000 - --------------------------------------------------------------------------- Yahoo! Inc.(a) 9,000 2,115,563 - --------------------------------------------------------------------------- 64,674,618 - ---------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-131 214
MARKET SHARES VALUE CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.23% Action Performance Companies, Inc.(a) 16,000 $ 566,000 - ---------------------------------------------------------------------- Blyth Industries, Inc.(a) 30,400 950,000 - ---------------------------------------------------------------------- 1,516,000 - ---------------------------------------------------------------------- CONSUMER FINANCE - 1.84% Capital One Financial Corp. 33,600 3,864,000 - ---------------------------------------------------------------------- Countrywide Credit Industries, Inc. 23,400 1,174,388 - ---------------------------------------------------------------------- Providian Financial Corp. 66,300 4,972,500 - ---------------------------------------------------------------------- SLM Holding Corp. 40,050 1,922,400 - ---------------------------------------------------------------------- 11,933,288 - ---------------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 2.06% Bergen Brunswig Corp.-Class A 75,400 2,629,575 - ---------------------------------------------------------------------- Cardinal Health, Inc. 99,630 7,559,426 - ---------------------------------------------------------------------- Patterson Dental Co.(a) 20,000 870,000 - ---------------------------------------------------------------------- SUPERVALU, INC. 26,300 736,400 - ---------------------------------------------------------------------- U.S. Foodservice(a) 31,200 1,528,800 - ---------------------------------------------------------------------- 13,324,201 - ---------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 3.12% American Power Conversion Corp.(a) 82,300 3,986,406 - ---------------------------------------------------------------------- Molex, Inc. 4,300 163,938 - ---------------------------------------------------------------------- Sanmina Corp.(a) 30,000 1,875,000 - ---------------------------------------------------------------------- SCI Systems, Inc.(a) 42,400 2,448,600 - ---------------------------------------------------------------------- Solectron Corp.(a) 66,700 6,198,931 - ---------------------------------------------------------------------- Symbol Technologies, Inc. 64,250 4,107,984 - ---------------------------------------------------------------------- Uniphase Corp.(a) 20,300 1,408,313 - ---------------------------------------------------------------------- 20,189,172 - ---------------------------------------------------------------------- ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.17% Arrow Electronics, Inc.(a) 41,100 1,096,856 - ---------------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 0.38% Perkin-Elmer Corp. 7,500 731,719 - ---------------------------------------------------------------------- Waters Corp.(a) 20,000 1,745,000 - ---------------------------------------------------------------------- 2,476,719 - ---------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 3.63% Altera Corp.(a) 55,200 3,360,300 - ---------------------------------------------------------------------- Analog Devices, Inc.(a) 85,000 2,666,875 - ---------------------------------------------------------------------- Linear Technology Corp. 40,000 3,582,500 - ---------------------------------------------------------------------- Maxim Integrated Products, Inc.(a) 66,400 2,900,850 - ---------------------------------------------------------------------- Microchip Technology, Inc.(a) 94,200 3,485,400 - ---------------------------------------------------------------------- Micron Technology, Inc.(a) 44,300 2,239,919 - ---------------------------------------------------------------------- National Semiconductor Corp.(a) 70,000 945,000 - ---------------------------------------------------------------------- PMC-Sierra, Inc.(a) 39,500 2,493,437 - ---------------------------------------------------------------------- Xilinx, Inc.(a) 27,800 1,810,475 - ---------------------------------------------------------------------- 23,484,756 - ----------------------------------------------------------------------
MARKET SHARES VALUE EQUIPMENT (SEMICONDUCTOR) - 0.26% Applied Materials, Inc.(a) 40,000 $ 1,707,500 - ---------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 0.74% FINOVA Group, Inc. 27,500 1,483,281 - ---------------------------------------------------------------------- MGIC Investment Corp. 46,633 1,856,573 - ---------------------------------------------------------------------- Newcourt Credit Group, Inc. (Canada) 41,600 1,453,400 - ---------------------------------------------------------------------- 4,793,254 - ---------------------------------------------------------------------- FOODS - 0.51% Earthgrains Co. (The) 10,200 315,562 - ---------------------------------------------------------------------- Flowers Industries, Inc. 45,000 1,077,188 - ---------------------------------------------------------------------- Keebler Foods Co.(a) 8,900 334,863 - ---------------------------------------------------------------------- Quaker Oats Co. (The) 26,600 1,582,700 - ---------------------------------------------------------------------- 3,310,313 - ---------------------------------------------------------------------- HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.49% Alpharma, Inc.-Class A 12,750 450,234 - ---------------------------------------------------------------------- Elan Corp. PLC-ADR (Ireland)(a) 44,100 3,067,706 - ---------------------------------------------------------------------- Forest Laboratories, Inc.(a) 22,400 1,191,400 - ---------------------------------------------------------------------- Jones Medical Industries, Inc. 99,500 3,631,750 - ---------------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A(a) 33,000 1,967,625 - ---------------------------------------------------------------------- Mylan Laboratories, Inc. 104,700 3,298,050 - ---------------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 40,000 2,515,000 - ---------------------------------------------------------------------- 16,121,765 - ---------------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT) - 1.13% Health Management Associates, Inc.-Class A(a) 174,202 3,767,118 - ---------------------------------------------------------------------- Universal Health Services, Inc.-Class B(a) 68,400 3,548,250 - ---------------------------------------------------------------------- 7,315,368 - ---------------------------------------------------------------------- HEALTH CARE (LONG TERM CARE) - 0.14% HCR Manor Care, Inc.(a) 30,000 881,250 - ---------------------------------------------------------------------- HEALTH CARE (MANAGED CARE) - 0.62% Express Scripts, Inc.-Class A(a) 43,600 2,926,650 - ---------------------------------------------------------------------- Trigon Healthcare, Inc.(a) 28,500 1,063,406 - ---------------------------------------------------------------------- 3,990,056 - ---------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.75% Bausch & Lomb, Inc. 25,000 1,500,000 - ---------------------------------------------------------------------- Becton, Dickinson & Co. 169,500 7,235,531 - ---------------------------------------------------------------------- Biomet, Inc. 86,800 3,493,700 - ---------------------------------------------------------------------- Guidant Corp. 79,100 8,720,775 - ---------------------------------------------------------------------- Henry Schein, Inc.(a) 34,985 1,565,579 - ---------------------------------------------------------------------- Safeskin Corp.(a) 14,300 344,987 - ---------------------------------------------------------------------- Sybron International Corp.(a) 51,400 1,397,438 - ---------------------------------------------------------------------- 24,258,010 - ----------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-132 215
MARKET SHARES VALUE HEALTH CARE (SPECIALIZED SERVICES) - 1.76% Alza Corp.(a) 42,000 $ 2,194,500 - ------------------------------------------------------------------------- Covance, Inc.(a) 47,000 1,368,875 - ------------------------------------------------------------------------- HEALTHSOUTH Corp.(a) 43,200 666,900 - ------------------------------------------------------------------------- Omnicare, Inc. 88,400 3,071,900 - ------------------------------------------------------------------------- Orthodontic Centers of America, Inc.(a) 15,000 291,562 - ------------------------------------------------------------------------- Quintiles Transnational Corp.(a) 21,100 1,126,213 - ------------------------------------------------------------------------- Total Renal Care Holdings, Inc.(a) 90,000 2,660,625 - ------------------------------------------------------------------------- 11,380,575 - ------------------------------------------------------------------------- HOMEBUILDING - 0.50% Clayton Homes, Inc. 146,625 2,025,258 - ------------------------------------------------------------------------- Fleetwood Enterprises, Inc. 14,000 486,500 - ------------------------------------------------------------------------- Kaufman and Broad Home Corporation 24,600 707,250 - ------------------------------------------------------------------------- 3,219,008 - ------------------------------------------------------------------------- HOUSEHOLD FURNITURE & APPLIANCES - 0.59% Leggett & Platt, Inc. 70,000 1,540,000 - ------------------------------------------------------------------------- Maytag Corp. 37,000 2,303,250 - ------------------------------------------------------------------------- 3,843,250 - ------------------------------------------------------------------------- HOUSEWARES - 0.09% Helen of Troy Ltd.(a) 38,000 558,125 - ------------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 1.25% AFLAC, Inc. 38,900 1,711,600 - ------------------------------------------------------------------------- Provident Companies, Inc. 60,000 2,490,000 - ------------------------------------------------------------------------- ReliaStar Financial Corp. 63,000 2,905,875 - ------------------------------------------------------------------------- Torchmark Corp. 28,000 988,750 - ------------------------------------------------------------------------- 8,096,225 - ------------------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.60% Progressive Corp. 23,000 3,895,625 - ------------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 1.17% Edwards (A.G.), Inc. 25,000 931,250 - ------------------------------------------------------------------------- Lehman Brothers Holdings, Inc. 27,000 1,189,688 - ------------------------------------------------------------------------- Schwab (Charles) Corp. (The) 97,500 5,478,281 - ------------------------------------------------------------------------- 7,599,219 - ------------------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.69% Federated Investors, Inc.-Class B 85,000 1,540,625 - ------------------------------------------------------------------------- T. Rowe Price Associates, Inc. 85,800 2,938,650 - ------------------------------------------------------------------------- 4,479,275 - ------------------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 0.76% Harley-Davidson, Inc. 94,000 4,453,250 - ------------------------------------------------------------------------- Speedway Motorsports, Inc.(a) 15,900 453,150 - ------------------------------------------------------------------------- 4,906,400 - ------------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 1.31% Corning, Inc. 137,200 6,174,000 - ------------------------------------------------------------------------- Crane Co. 17,400 525,262 - ------------------------------------------------------------------------- Hillenbrand Industries, Inc. 21,500 1,222,813 - ------------------------------------------------------------------------- Pentair, Inc. 14,500 577,281 - ------------------------------------------------------------------------- 8,499,356 - -------------------------------------------------------------------------
MARKET SHARES VALUE MANUFACTURING (SPECIALIZED) - 0.44% Avery Dennison Corp. 23,600 $ 1,063,475 - ------------------------------------------------------------------------- Coflexip SA-ADR (France) 10,100 324,462 - ------------------------------------------------------------------------- Diebold, Inc. 40,800 1,456,050 - ------------------------------------------------------------------------- 2,843,987 - ------------------------------------------------------------------------- NATURAL GAS - 0.37% El Paso Energy Corp. 68,000 2,367,250 - ------------------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES - 0.12% Herman Miller, Inc. 28,000 752,500 - ------------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 1.54% Baker Hughes, Inc. 85,000 1,503,438 - ------------------------------------------------------------------------- BJ Services Co.(a) 62,000 968,750 - ------------------------------------------------------------------------- Cooper Cameron Corp.(a) 60,000 1,470,000 - ------------------------------------------------------------------------- Core Laboratories N.V. (Netherlands)(a) 30,200 577,575 - ------------------------------------------------------------------------- Diamond Offshore Drilling, Inc. 40,000 947,500 - ------------------------------------------------------------------------- Global Industries Ltd.(a) 108,000 661,500 - ------------------------------------------------------------------------- Rowan Companies, Inc.(a) 80,000 800,000 - ------------------------------------------------------------------------- Smith International, Inc.(a) 50,000 1,259,375 - ------------------------------------------------------------------------- Transocean Offshore, Inc. 25,000 670,312 - ------------------------------------------------------------------------- Varco International, Inc.(a) 140,000 1,085,000 - ------------------------------------------------------------------------- 9,943,450 - ------------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.41% Apache Corp. 67,000 1,695,938 - ------------------------------------------------------------------------- Santa Fe Energy Resources, Inc.(a) 80,000 590,000 - ------------------------------------------------------------------------- Stolt Comex Seaway, S.A. (United Kingdom)(a) 40,000 270,000 - ------------------------------------------------------------------------- Stolt Comex Seaway, S.A.-ADR (United Kingdom)(a) 20,000 112,500 - ------------------------------------------------------------------------- 2,668,438 - ------------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 0.29% AES Corp.(a) 40,000 1,895,000 - ------------------------------------------------------------------------- PRODUCTS (NON-DURABLES) - 0.46% Clorox Co. (The) 12,600 1,471,838 - ------------------------------------------------------------------------- Dial Corp. (The) 53,000 1,530,375 - ------------------------------------------------------------------------- 3,002,213 - ------------------------------------------------------------------------- PUBLISHING - 0.38% McGraw-Hill Companies, Inc. (The) 24,000 2,445,000 - ------------------------------------------------------------------------- RAILROADS - 0.38% Kansas City Southern Industries, Inc. 50,000 2,459,375 - ------------------------------------------------------------------------- RESTAURANTS - 1.69% Brinker International, Inc.(a) 82,000 2,367,750 - ------------------------------------------------------------------------- Outback Steakhouse, Inc.(a) 56,000 2,233,000 - ------------------------------------------------------------------------- Papa John's International, Inc.(a) 41,900 1,848,838 - ------------------------------------------------------------------------- Starbucks Corp.(a) 39,400 2,211,325 - ------------------------------------------------------------------------- Tricon Global Restaurants, Inc.(a) 45,000 2,255,625 - ------------------------------------------------------------------------- 10,916,538 - -------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-133 216
MARKET SHARES VALUE RETAIL (BUILDING SUPPLIES) - 0.32% Lowe's Companies, Inc. 40,200 $ 2,057,738 - ----------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS) - 1.07% Best Buy Co., Inc.(a) 21,000 1,288,875 - ----------------------------------------------------------------- CDW Computer Centers, Inc.(a) 38,500 3,693,594 - ----------------------------------------------------------------- Tech Data Corp.(a) 48,600 1,956,150 - ----------------------------------------------------------------- 6,938,619 - ----------------------------------------------------------------- RETAIL (DEPARTMENT STORES) - 0.50% Kohl's Corp.(a) 53,000 3,256,188 - ----------------------------------------------------------------- RETAIL (DISCOUNTERS) - 1.04% Dollar Tree Stores, Inc.(a) 73,475 3,209,939 - ----------------------------------------------------------------- Family Dollar Stores, Inc. 126,000 2,772,000 - ----------------------------------------------------------------- Ross Stores, Inc. 20,000 787,500 - ----------------------------------------------------------------- 6,769,439 - ----------------------------------------------------------------- RETAIL (DRUG STORES) - 0.80% Rite Aid Corp. 104,560 5,182,255 - ----------------------------------------------------------------- RETAIL (FOOD CHAINS) - 1.05% Kroger Co.(a) 86,900 5,257,450 - ----------------------------------------------------------------- Safeway, Inc.(a) 25,400 1,547,812 - ----------------------------------------------------------------- 6,805,262 - ----------------------------------------------------------------- RETAIL (SPECIALTY) - 3.25% Amazon.com, Inc.(a) 6,500 2,088,125 - ----------------------------------------------------------------- Bed Bath & Beyond, Inc.(a) 112,000 3,822,000 - ----------------------------------------------------------------- Linens 'n Things, Inc.(a) 11,600 459,650 - ----------------------------------------------------------------- Michaels Stores, Inc.(a) 41,000 741,844 - ----------------------------------------------------------------- Office Depot, Inc.(a) 130,000 4,801,875 - ----------------------------------------------------------------- Staples, Inc.(a) 171,187 7,478,732 - ----------------------------------------------------------------- Williams-Sonoma, Inc.(a) 40,000 1,612,500 - ----------------------------------------------------------------- 21,004,726 - ----------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 1.83% Abercrombie & Fitch Co.-Class A(a) 33,300 2,355,975 - ----------------------------------------------------------------- Gap, Inc. (The) 43,575 2,451,094 - ----------------------------------------------------------------- Intimate Brands, Inc. 46,000 1,374,250 - ----------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 83,625 2,655,093 - ----------------------------------------------------------------- TJX Companies, Inc. 103,000 2,987,000 - ----------------------------------------------------------------- 11,823,412 - ----------------------------------------------------------------- SAVINGS & LOAN COMPANIES - 0.89% Astoria Financial Corp. 30,000 1,372,500 - ----------------------------------------------------------------- Dime Bancorp, Inc. 106,000 2,802,375 - ----------------------------------------------------------------- GreenPoint Financial Corp. 45,000 1,580,625 - ----------------------------------------------------------------- 5,755,500 - -----------------------------------------------------------------
MARKET SHARES VALUE SERVICES (ADVERTISING & MARKETING) - 2.06% Interpublic Group of Companies, Inc. (The) 20,000 $ 1,595,000 - ------------------------------------------------------------------- Lamar Advertising Co.(a) 66,000 2,458,500 - ------------------------------------------------------------------- Omnicom Group, Inc. 103,300 5,991,400 - ------------------------------------------------------------------- Outdoor Systems, Inc.(a) 57,000 1,710,000 - ------------------------------------------------------------------- Snyder Communications, Inc.(a) 47,700 1,609,875 - ------------------------------------------------------------------- 13,364,775 - ------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 2.87% Apollo Group, Inc.(a) 65,500 2,218,813 - ------------------------------------------------------------------- ChoicePoint, Inc.(a) 24,500 1,580,250 - ------------------------------------------------------------------- Cintas Corp. 63,100 4,444,606 - ------------------------------------------------------------------- G & K Services, Inc.-Class A 15,000 798,750 - ------------------------------------------------------------------- IMS Health, Inc. 51,500 3,885,031 - ------------------------------------------------------------------- Service Corp. International 32,400 1,233,225 - ------------------------------------------------------------------- Stewart Enterprises, Inc.-Class A 107,500 2,391,875 - ------------------------------------------------------------------- Viad Corp. 60,000 1,822,500 - ------------------------------------------------------------------- Waddell & Reed Financial, Inc. 1,507 35,697 - ------------------------------------------------------------------- Waddell & Reed Financial, Inc.-Class B 6,489 150,869 - ------------------------------------------------------------------- 18,561,616 - ------------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS) - 1.15% CIBER, Inc.(a) 25,000 698,437 - ------------------------------------------------------------------- Keane, Inc.(a) 49,700 1,984,893 - ------------------------------------------------------------------- Policy Management Systems Corp.(a) 35,000 1,767,500 - ------------------------------------------------------------------- SunGard Data Systems, Inc.(a) 75,200 2,984,500 - ------------------------------------------------------------------- 7,435,330 - ------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 3.93% Affiliated Computer Services, Inc.(a) 30,500 1,372,500 - ------------------------------------------------------------------- Billing Concepts Corp.(a) 58,500 643,500 - ------------------------------------------------------------------- Ceridian Corp.(a) 53,700 3,748,931 - ------------------------------------------------------------------- CSG Systems International, Inc.(a) 34,900 2,757,100 - ------------------------------------------------------------------- DST Systems, Inc.(a) 30,300 1,728,994 - ------------------------------------------------------------------- Equifax, Inc. 44,100 1,507,669 - ------------------------------------------------------------------- Fiserv, Inc.(a) 103,150 5,305,778 - ------------------------------------------------------------------- National Data Corp. 48,000 2,337,000 - ------------------------------------------------------------------- NOVA Corp.(a) 57,407 1,991,306 - ------------------------------------------------------------------- Paychex, Inc. 78,975 4,062,276 - ------------------------------------------------------------------- 25,455,054 - ------------------------------------------------------------------- SERVICES (EMPLOYMENT) - 0.21% Robert Half International, Inc.(a) 30,400 1,358,500 - ------------------------------------------------------------------- SPECIALTY PRINTING - 0.28% Valassis Communications, Inc.(a) 35,000 1,806,875 - ------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.23% Metromedia Fiber Network, Inc.(a) 44,000 1,474,000 - -------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND FS-134 217
MARKET SHARES VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 0.65% Global TeleSystems Group, Inc.(a) 75,000 $ 4,181,250 - -------------------------------------------------------------------------- TELEPHONE - 1.07% Century Telephone Enterprises, Inc. 64,600 4,360,500 - -------------------------------------------------------------------------- Cincinnati Bell, Inc. 37,800 1,429,312 - -------------------------------------------------------------------------- NTL, Inc. (United Kingdom)(a) 20,000 1,128,750 - -------------------------------------------------------------------------- 6,918,562 - -------------------------------------------------------------------------- TEXTILES (APPAREL) - 0.30% Jones Apparel Group, Inc.(a) 52,500 1,158,281 - -------------------------------------------------------------------------- Tommy Hilfiger Corp.(a) 13,100 786,000 - -------------------------------------------------------------------------- 1,944,281 - -------------------------------------------------------------------------- TEXTILES (HOME FURNISHINGS) - 0.25% Shaw Industries, Inc. 67,000 1,624,750 - -------------------------------------------------------------------------- WASTE MANAGEMENT - 1.28% Allied Waste Industries, Inc.(a) 110,670 2,614,579 - -------------------------------------------------------------------------- Republic Services, Inc.(a) 50,000 921,875 - -------------------------------------------------------------------------- Waste Management, Inc. 101,675 4,740,597 - -------------------------------------------------------------------------- 8,277,051 - -------------------------------------------------------------------------- Total Common Stocks (Cost $377,506,768) 567,719,235 - -------------------------------------------------------------------------- WARRANTS - 0.03% Banks (Regional) Golden State Bancorp, Litigation Wts., expiring 01/01/01 (Cost $227,318)(a) 40,000 182,500 - -------------------------------------------------------------------------- PRINCIPAL AMOUNT TIME DEPOSIT - 1.08% Credit Communal De Belgium, 5.125%, 01/04/99 (Cost $7,000,000) $ 7,000,000 7,000,000 - -------------------------------------------------------------------------- REPURCHASE AGREEMENT - 9.15%(b) Goldman Sachs & Co., 4.40%, 01/04/99(c) (Cost $59,251,734) 59,251,734 59,251,734 - -------------------------------------------------------------------------- TOTAL INVESTMENTS - 97.98% 634,153,469 - -------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 2.02% 13,094,534 - -------------------------------------------------------------------------- NET ASSETS - 100.00% $647,248,003 ==========================================================================
Notes to Schedule of Investments: (a) Non-income producing security. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to insure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (c) Joint repurchase agreement entered into 12/31/98 with a maturing value of $700,342,222. Collateralized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 of $714,694,897. Abbreviations: ADR -- American Depositary Receipt Wts. -- Warrants See Notes to Financial Statements AIM V.I. CAPITAL APPRECIATION FUND FS-135 218 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $443,985,820) $634,153,469 - ---------------------------------------------------------------------- Receivables for: Investments sold 13,808,584 - ---------------------------------------------------------------------- Capital stock sold 677,286 - ---------------------------------------------------------------------- Dividends and interest 191,840 - ---------------------------------------------------------------------- Investment for deferred compensation plan 25,282 - ---------------------------------------------------------------------- Other assets 2,963 - ---------------------------------------------------------------------- Total assets 648,859,424 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 1,236,530 - ---------------------------------------------------------------------- Capital stock reacquired 13,206 - ---------------------------------------------------------------------- Deferred compensation plan 25,282 - ---------------------------------------------------------------------- Accrued advisory fees 317,257 - ---------------------------------------------------------------------- Accrued directors' fees 232 - ---------------------------------------------------------------------- Accrued administrative services fees 8,797 - ---------------------------------------------------------------------- Accrued operating expenses 10,117 - ---------------------------------------------------------------------- Total liabilities 1,611,421 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $647,248,003 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 25,689,529 - ---------------------------------------------------------------------- Net asset value, offering and redemption price per share $ 25.20 ======================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Interest $ 2,782,124 - --------------------------------------------------------------------------- Dividends (net of $17,799 foreign withholding tax) 1,619,969 - --------------------------------------------------------------------------- Total investment income 4,402,093 - --------------------------------------------------------------------------- EXPENSES: Advisory fees 3,521,837 - --------------------------------------------------------------------------- Administrative services fees 53,266 - --------------------------------------------------------------------------- Custodian fees 104,218 - --------------------------------------------------------------------------- Directors' fees and expenses 12,181 - --------------------------------------------------------------------------- Other 88,482 - --------------------------------------------------------------------------- Total expenses 3,779,984 - --------------------------------------------------------------------------- Less: Expenses paid indirectly (9,472) - --------------------------------------------------------------------------- Net expenses 3,770,512 - --------------------------------------------------------------------------- Net investment income 631,581 - --------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS: Net realized gain from: Investment securities 22,739,811 - --------------------------------------------------------------------------- Foreign currencies 43,713 - --------------------------------------------------------------------------- Option contracts 25,169 - --------------------------------------------------------------------------- 22,808,693 - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities 78,385,559 - --------------------------------------------------------------------------- Net gain from investment securities, foreign currencies and option contracts 101,194,252 - --------------------------------------------------------------------------- Net increase in net assets resulting from operations $101,825,833 ===========================================================================
See Notes to Financial Statements. AIM V.I. CAPITAL APPRECIATION FUND FS-136 219 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ------------ ------------ OPERATIONS: Net investment income $ 631,581 $ 914,009 - ------------------------------------------------------------------------------ Net realized gain from investment securities, foreign currencies and option contracts 22,808,693 16,155,941 - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities and foreign currencies 78,385,559 35,953,703 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 101,825,833 53,023,653 - ------------------------------------------------------------------------------ Dividends to shareholders from net investment income (922,615) (536,874) - ------------------------------------------------------------------------------ Distributions to shareholders from net realized gains (16,345,246) (6,902,664) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 39,909,953 107,132,798 - ------------------------------------------------------------------------------ Net increase in net assets 124,467,925 152,716,913 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of year 522,780,078 370,063,165 - ------------------------------------------------------------------------------ End of year $647,248,003 $522,780,078 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $434,303,451 $394,408,721 - ------------------------------------------------------------------------------ Undistributed net investment income 700,362 876,543 - ------------------------------------------------------------------------------ Undistributed net realized gain from investment securities, foreign currencies, futures and option contracts 22,076,541 15,712,724 - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities, foreign currencies and futures contracts 190,167,649 111,782,090 - ------------------------------------------------------------------------------ $647,248,003 $522,780,078 ==============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Capital Appreciation Fund (the "Fund"). The Fund's investment objective is to seek capital appreciation through investments in common stocks, with emphasis on medium-sized and smaller emerging growth companies. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally AIM V.I. CAPITAL APPRECIATION FUND FS-137 220 determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $15,223, undistributed net investment income was increased by $114,853 and undistributed net realized gains was decreased by $99,630 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $53,266 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. AIM V.I. CAPITAL APPRECIATION FUND FS-138 221 During the year ended December 31, 1998, the Fund incurred legal fees of $4,536 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $9,472 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $9,472 during the year ended December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the year ended December 31, 1998 was $427,487,795 and $457,350,071, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $202,819,727 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (13,557,353) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $189,262,374 ===========================================================================
Cost of investments for tax purposes is $444,891,095. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------- Sold 4,333,736 $ 99,858,597 9,656,144 $202,278,514 - ------------------------------------------------------------------------------- Issued as reinvestment of distributions 740,474 17,267,861 357,327 7,439,538 - ------------------------------------------------------------------------------- Reacquired (3,416,071) (77,216,505) (5,025,910) (102,585,254) - ------------------------------------------------------------------------------- 1,658,139 $ 39,909,953 4,987,561 $ 107,132,798 ===============================================================================
NOTE 7 - CALL OPTION CONTRACTS WRITTEN Transactions in call options written during the year ended December 31, 1998 are summarized as follows:
CALL OPTION CONTRACTS ------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- --------- Beginning of period -- $ -- - ---------------------------------------------- Written 1,092 271,645 - ---------------------------------------------- Closed (678) (154,318) - ---------------------------------------------- Expired (244) (21,153) - ---------------------------------------------- Exercised (170) (96,174) - ---------------------------------------------- End of period -- $ -- ==============================================
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ----------------------------------------- ----------------- 1998 1997 1996 1995 1995 1994 -------- -------- -------- -------- ------- ------- Net asset value, beginning of period $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00 - ------------------------ -------- -------- -------- -------- ------- ------- Income from investment operations: Net investment income 0.02 0.03 0.02 0.04 0.05 -- - ------------------------ -------- -------- -------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 4.12 2.58 2.89 4.46 (0.54) 2.59 - ------------------------ -------- -------- -------- -------- ------- ------- Total from investment operations 4.14 2.61 2.91 4.50 (0.49) 2.59 - ------------------------ -------- -------- -------- -------- ------- ------- Less distributions: Dividends from net investment income (0.04) (0.02) (0.03) -- (0.04) (0.01) - ------------------------ -------- -------- -------- -------- ------- ------- Distributions from net realized gains (0.65) (0.27) -- -- -- -- - ------------------------ -------- -------- -------- -------- ------- ------- Total distributions (0.69) (0.29) (0.03) -- (0.04) (0.01) - ------------------------ -------- -------- -------- -------- ------- ------- Net asset value, end of period $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58 ======================== ======== ======== ======== ======== ======= ======= Total return(a) 19.30% 13.51% 17.58% 37.38% (3.91)% 25.90% ======================== ======== ======== ======== ======== ======= ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $647,248 $522,642 $370,063 $212,152 $88,177 $35,354 ======================== ======== ======== ======== ======== ======= ======= Ratio of expenses to average net assets 0.67%(b) 0.68% 0.73% 0.75%(c) 0.84% 1.06%(c) ======================== ======== ======== ======== ======== ======= ======= Ratio of net investment income to average net assets 0.11%(b) 0.18% 0.18% 0.39%(c) 0.46% 0.07%(c) ======================== ======== ======== ======== ======== ======= ======= Portfolio turnover rate 83% 65% 59% 37% 81% 34% ======================== ======== ======== ======== ======== ======= =======
(a) Total returns are not annualized for periods less than one year. (b) Ratios are based on average net assets of $566,139,574. (c) Annualized. AIM V.I. CAPITAL APPRECIATION FUND FS-139 222 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Capital Development Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations, the statement of changes in net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Capital Development Fund, as of December 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. CAPITAL DEVELOPMENT FUND FS-140 223 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 87.38% AEROSPACE/DEFENSE - 0.78% Gulfstream Aerospace Corp.(a) 100 $ 5,325 - -------------------------------------------------------------------- Hawk Corp.(a) 200 1,675 - -------------------------------------------------------------------- Kroll-O'Gara Co. (The)(a) 400 15,775 - -------------------------------------------------------------------- TriStar Aerospace Co.(a) 300 2,100 - -------------------------------------------------------------------- 24,875 - -------------------------------------------------------------------- AIRLINES - 0.43% Atlantic Coast Airlines Holdings(a) 400 10,000 - -------------------------------------------------------------------- Midway Airlines, Corp.(a) 300 3,600 - -------------------------------------------------------------------- 13,600 - -------------------------------------------------------------------- AUTO PARTS & EQUIPMENT - 0.69% Keystone Automotive Industries, Inc.(a) 500 10,469 - -------------------------------------------------------------------- Stoneridge, Inc.(a) 500 11,375 - -------------------------------------------------------------------- 21,844 - -------------------------------------------------------------------- BANKS (REGIONAL) - 1.27% Banco Santandr Puerto Rico(a) 300 6,581 - -------------------------------------------------------------------- Bank United Corp.-Class A 200 7,850 - -------------------------------------------------------------------- Golden State Bancorp, Inc.(a) 600 9,975 - -------------------------------------------------------------------- Independence Community Bank Corp. 400 6,375 - -------------------------------------------------------------------- North Fork Bancorporation, Inc. 400 9,575 - -------------------------------------------------------------------- 40,356 - -------------------------------------------------------------------- BEVERAGES (ALCOHOLIC) - 0.65% Beringer Wine Estates-Class B(a) 200 8,938 - -------------------------------------------------------------------- Canandaigua Wine Co., Inc.-Class A(a) 200 11,563 - -------------------------------------------------------------------- 20,501 - -------------------------------------------------------------------- BEVERAGES (NON-ALCOHOLIC) - 0.15% Triarc Companies, Inc.(a) 300 4,800 - -------------------------------------------------------------------- BIOTECHNOLOGY - 0.54% IDEXX Laboratories, Inc.(a) 300 8,072 - -------------------------------------------------------------------- Pharmaceutical Product Development, Inc.(a) 300 9,019 - -------------------------------------------------------------------- 17,091 - -------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 2.29% Capstar Broadcasting Corp.-Class A(a) 400 9,150 - -------------------------------------------------------------------- Chancellor Media Corp.(a) 200 9,575 - -------------------------------------------------------------------- Cox Radio, Inc.-Class A(a) 200 8,450 - -------------------------------------------------------------------- Emmis Broadcasting Corp.-Class A(a) 300 13,013 - -------------------------------------------------------------------- Hearst-Argyle Television, Inc.(a) 100 3,300 - -------------------------------------------------------------------- Heftel Broadcasting Corp.(a) 200 9,850 - -------------------------------------------------------------------- Metro Networks, Inc.(a) 200 8,525 - -------------------------------------------------------------------- Univision Communications, Inc.(a) 300 10,856 - -------------------------------------------------------------------- 72,719 - --------------------------------------------------------------------
MARKET SHARES VALUE BUILDING MATERIAL - 0.27% Pameco Corp.(a) 200 $ 2,313 - ---------------------------------------------------------- White Cap Industries, Inc.(a) 400 6,100 - ---------------------------------------------------------- 8,413 - ---------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 1.71% ADC Telecommunications, Inc.(a) 300 10,425 - ---------------------------------------------------------- Comverse Technology, Inc.(a) 300 21,300 - ---------------------------------------------------------- Excel Switching Corp.(a) 300 11,400 - ---------------------------------------------------------- NorthEast Optic Network, Inc.(a) 600 6,225 - ---------------------------------------------------------- Tekelec(a) 300 4,969 - ---------------------------------------------------------- 54,319 - ---------------------------------------------------------- COMPUTER (HARDWARE) - 0.50% Bell & Howell Co.(a) 300 11,344 - ---------------------------------------------------------- IDX Systems Corp.(a) 100 4,400 - ---------------------------------------------------------- 15,744 - ---------------------------------------------------------- COMPUTER (NETWORKING) - 0.76% Ascend Communications, Inc.(a) 100 6,575 - ---------------------------------------------------------- FORE Systems, Inc.(a) 700 12,819 - ---------------------------------------------------------- Fvc.com, Inc.(a) 300 4,725 - ---------------------------------------------------------- 24,119 - ---------------------------------------------------------- COMPUTER (PERIPHERALS) - 0.74% Actel Corp.(a) 200 4,000 - ---------------------------------------------------------- Quantum Corp.(a) 400 8,500 - ---------------------------------------------------------- SMART Modular Technologies, Inc.(a) 400 11,100 - ---------------------------------------------------------- 23,600 - ---------------------------------------------------------- COMPUTER (SOFTWARE & SERVICES) - 8.88% Avant! Corp.(a) 200 3,200 - ---------------------------------------------------------- Axent Technologies, Inc.(a) 200 6,113 - ---------------------------------------------------------- Best Software, Inc.(a) 550 13,063 - ---------------------------------------------------------- Cadence Design Systems, Inc.(a) 400 11,900 - ---------------------------------------------------------- Complete Business Solutions, Inc.(a) 400 13,550 - ---------------------------------------------------------- Concord Communications, Inc.(a) 100 5,675 - ---------------------------------------------------------- Concord EFS, Inc.(a) 300 12,712 - ---------------------------------------------------------- DA Consulting Group, Inc.(a) 300 6,562 - ---------------------------------------------------------- Datastream Systems, Inc.(a) 600 6,900 - ---------------------------------------------------------- Dendrite International, Inc.(a) 200 4,994 - ---------------------------------------------------------- Electronic Arts, Inc.(a) 100 5,612 - ---------------------------------------------------------- HNC Software, Inc.(a) 300 12,131 - ---------------------------------------------------------- Hyperion Solutions Corp.(a) 190 3,420 - ---------------------------------------------------------- InfoCure Corp.(a) 500 16,375 - ---------------------------------------------------------- Intuit, Inc.(a) 200 14,500 - ---------------------------------------------------------- Learning Company, Inc. (The)(a) 150 3,891 - ---------------------------------------------------------- Manhattan Associates, Inc.(a) 100 2,725 - ---------------------------------------------------------- Mastech Corp.(a) 400 11,450 - ---------------------------------------------------------- Medical Manager Corp.(a) 700 21,963 - ---------------------------------------------------------- Mercury Interactive Corp.(a) 200 12,650 - ----------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-141 224
MARKET SHARES VALUE COMPUTER (SOFTWARE & SERVICES) -- (CONTINUED) Network Associates, Inc.(a) 200 $ 13,250 - ------------------------------------------------------------------- Platinum Technology, Inc.(a) 400 7,650 - ------------------------------------------------------------------- Rational Software Corp.(a) 300 7,950 - ------------------------------------------------------------------- Sterling Commerce, Inc.(a) 300 13,500 - ------------------------------------------------------------------- Synopsys, Inc.(a) 200 10,850 - ------------------------------------------------------------------- Transaction Systems Architects, Inc.-Class A(a) 200 10,000 - ------------------------------------------------------------------- Unigraphics Solutions, Inc.(a) 300 4,350 - ------------------------------------------------------------------- USWeb Corp.(a) 400 10,550 - ------------------------------------------------------------------- Visio Corp.(a) 300 10,969 - ------------------------------------------------------------------- Walker Interactive Systems, Inc.(a) 500 3,375 - ------------------------------------------------------------------- 281,830 - ------------------------------------------------------------------- CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.39% Blyth Industries, Inc.(a) 400 12,500 - ------------------------------------------------------------------- CONSUMER FINANCE - 0.60% American Capital Strategies, Ltd. 200 3,450 - ------------------------------------------------------------------- AmeriCredit Corp.(a) 700 9,669 - ------------------------------------------------------------------- Cash America International, Inc. 300 4,556 - ------------------------------------------------------------------- United Panam Financial Corp.(a) 300 1,256 - ------------------------------------------------------------------- 18,931 - ------------------------------------------------------------------- CONTAINERS (METAL & GLASS) - 0.39% Silgan Holdings, Inc.(a) 450 12,509 - ------------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 0.91% JP Foodservice, Inc.(a) 200 9,800 - ------------------------------------------------------------------- McKesson Corp. 100 7,906 - ------------------------------------------------------------------- Performance Food Group Co.(a) 400 11,250 - ------------------------------------------------------------------- 28,956 - ------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 1.19% AFC Cable Systems, Inc.(a) 200 6,725 - ------------------------------------------------------------------- American Power Conversion Corp.(a) 200 9,688 - ------------------------------------------------------------------- PCD, Inc.(a) 200 2,600 - ------------------------------------------------------------------- Pinnacle Systems, Inc.(a) 200 7,150 - ------------------------------------------------------------------- SCI Systems, Inc.(a) 200 11,550 - ------------------------------------------------------------------- 37,713 - ------------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 0.42% Quanta Services, Inc.(a) 600 13,238 - ------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 1.03% Apex PC Solutions, Inc.(a) 200 5,775 - ------------------------------------------------------------------- Microchip Technology, Inc.(a) 300 11,100 - ------------------------------------------------------------------- Sipex Corp.(a) 300 10,538 - ------------------------------------------------------------------- Unitrode Corp.(a) 300 5,250 - ------------------------------------------------------------------- 32,663 - -------------------------------------------------------------------
MARKET SHARES VALUE ENTERTAINMENT - 0.96% Loews Cineplex Entertainment Corp.(a) 800 $ 8,100 - ------------------------------------------------------------------ Metro-Goldwyn-Mayer, Inc.(a) 458 6,040 - ------------------------------------------------------------------ Metromedia International Group, Inc.(a) 600 3,263 - ------------------------------------------------------------------ SFX Entertainment, Inc.-Class A(a) 200 10,975 - ------------------------------------------------------------------ The Sports Club Co., Inc.(a) 500 1,969 - ------------------------------------------------------------------ 30,347 - ------------------------------------------------------------------ EQUIPMENT (SEMICONDUCTOR) - 0.54% Etec Systems, Inc.(a) 200 8,000 - ------------------------------------------------------------------ Photronics, Inc.(a) 200 4,794 - ------------------------------------------------------------------ Teradyne, Inc.(a) 100 4,238 - ------------------------------------------------------------------ 17,032 - ------------------------------------------------------------------ FINANCIAL (DIVERSIFIED) - 1.02% FirstCity Financial Corp.(a) 300 3,881 - ------------------------------------------------------------------ Hamilton Bancorp, Inc.(a) 200 5,337 - ------------------------------------------------------------------ Medallion Financial Corp. 400 5,725 - ------------------------------------------------------------------ PMI Group, Inc. (The) 100 4,938 - ------------------------------------------------------------------ Rock Financial Corp. 200 2,600 - ------------------------------------------------------------------ SEI Investments Co. 100 9,938 - ------------------------------------------------------------------ 32,419 - ------------------------------------------------------------------ FOODS - 1.63% American Italian Pasta Co.-Class A(a) 450 11,869 - ------------------------------------------------------------------ International Home Foods, Inc.(a) 600 10,125 - ------------------------------------------------------------------ Keebler Foods Co.(a) 300 11,288 - ------------------------------------------------------------------ Suiza Foods Corp.(a) 200 10,187 - ------------------------------------------------------------------ Universal Foods Corp. 300 8,231 - ------------------------------------------------------------------ 51,700 - ------------------------------------------------------------------ GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.30% Harrah's Entertainment, Inc.(a) 300 4,706 - ------------------------------------------------------------------ International Game Technology 200 4,863 - ------------------------------------------------------------------ 9,569 - ------------------------------------------------------------------ HEALTH CARE (DIVERSIFIED) - 0.40% Allergan, Inc. 100 6,475 - ------------------------------------------------------------------ IVAX Corp.(a) 500 6,219 - ------------------------------------------------------------------ 12,694 - ------------------------------------------------------------------ HEALTH CARE (DRUGS-GENERIC & OTHER) - 2.37% Barr Laboratories, Inc.(a) 300 14,400 - ------------------------------------------------------------------ Dura Pharmaceuticals, Inc.(a) 600 9,113 - ------------------------------------------------------------------ Forest Laboratories, Inc.(a) 200 10,637 - ------------------------------------------------------------------ Jones Medical Industries, Inc. 300 10,950 - ------------------------------------------------------------------ Mylan Laboratories, Inc. 400 12,600 - ------------------------------------------------------------------ Parexel International Corp.(a) 200 5,000 - ------------------------------------------------------------------ Watson Pharmaceuticals, Inc.(a) 200 12,575 - ------------------------------------------------------------------ 75,275 - ------------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-142 225
MARKET SHARES VALUE HEALTH CARE (HOSPITAL MANAGEMENT) - 0.52% Health Management Associates, Inc.-Class A(a) 400 $ 8,650 - ----------------------------------------------------------------- New American Healthcare Corp.(a) 700 7,831 - ----------------------------------------------------------------- 16,481 - ----------------------------------------------------------------- HEALTH CARE (LONG TERM CARE) - 0.33% Sunrise Assisted Living, Inc.(a) 200 10,375 - ----------------------------------------------------------------- HEALTH CARE (MANAGED CARE) - 0.64% Alternative Living Services, Inc.(a) 200 6,850 - ----------------------------------------------------------------- Express Scripts, Inc.-Class A(a) 200 13,425 - ----------------------------------------------------------------- 20,275 - ----------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.14% Biomet, Inc. 200 8,050 - ----------------------------------------------------------------- Coopers Companies, Inc.(a) 400 8,275 - ----------------------------------------------------------------- Cyberonics, Inc.(a) 300 4,050 - ----------------------------------------------------------------- DVI, Inc.(a) 300 5,438 - ----------------------------------------------------------------- Henry Schein, Inc.(a) 300 13,425 - ----------------------------------------------------------------- Lifecore Biomedical, Inc.(a) 400 4,100 - ----------------------------------------------------------------- Maxxim Medical, Inc.(a) 300 8,925 - ----------------------------------------------------------------- MiniMed, Inc.(a) 100 10,475 - ----------------------------------------------------------------- PSS World Medical, Inc.(a) 500 11,500 - ----------------------------------------------------------------- Serologicals Corp.(a) 300 9,000 - ----------------------------------------------------------------- Steris Corp.(a) 100 2,843 - ----------------------------------------------------------------- Sybron International Corp.(a) 500 13,594 - ----------------------------------------------------------------- 99,675 - ----------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 3.40% Advance Paradigm, Inc.(a) 400 14,000 - ----------------------------------------------------------------- Capital Senior Living Corp.(a) 300 4,181 - ----------------------------------------------------------------- Covance, Inc.(a) 200 5,825 - ----------------------------------------------------------------- First Consulting Group, Inc.(a) 500 10,250 - ----------------------------------------------------------------- MAXIMUS, Inc.(a) 400 14,800 - ----------------------------------------------------------------- Ocular Sciences, Inc.(a) 300 8,025 - ----------------------------------------------------------------- Omnicare, Inc. 200 6,950 - ----------------------------------------------------------------- Orthodontic Centers of America, Inc.(a) 600 11,663 - ----------------------------------------------------------------- PharMerica, Inc.(a) 400 2,400 - ----------------------------------------------------------------- Renal Care Group, Inc.(a) 200 5,762 - ----------------------------------------------------------------- Renex Corp.(a) 300 2,175 - ----------------------------------------------------------------- Superior Consultant Holdings Corp.(a) 200 8,700 - ----------------------------------------------------------------- Ventana Medical Systems, Inc.(a) 600 12,975 - ----------------------------------------------------------------- 107,706 - ----------------------------------------------------------------- HOUSEHOLD FURNITURE & APPLIANCES - 0.18% Service Experts, Inc.(a) 200 5,850 - ----------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.18% Dial Corp. (The) 200 5,775 - -----------------------------------------------------------------
MARKET SHARES VALUE HOUSEWARES - 0.35% Central Garden and Pet Co.(a) 250 $ 3,594 - --------------------------------------------------------------- Helen of Troy Ltd.(a) 200 2,937 - --------------------------------------------------------------- Windmere-Durable Holdings, Inc.(a) 600 4,650 - --------------------------------------------------------------- 11,181 - --------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 0.79% Healthcare Recoveries, Inc.(a) 700 11,900 - --------------------------------------------------------------- Nationwide Financial Services, Inc.-Class A 200 10,338 - --------------------------------------------------------------- PAULA Financial 300 2,812 - --------------------------------------------------------------- 25,050 - --------------------------------------------------------------- INSURANCE (MULTI-LINE) - 0.27% Horace Mann Educators Corp. 300 8,550 - --------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 1.44% Amerin Corp.(a) 350 8,269 - --------------------------------------------------------------- CMAC Investment Corp. 100 4,594 - --------------------------------------------------------------- CNA Surety Corp. 500 7,875 - --------------------------------------------------------------- Everest Reinsurance Holdings, Inc. 200 7,788 - --------------------------------------------------------------- Fidelity National Financial, Inc. 220 6,710 - --------------------------------------------------------------- HCC Insurance Holdings, Inc. 300 5,287 - --------------------------------------------------------------- Reliance Group Holdings, Inc. 400 5,150 - --------------------------------------------------------------- 45,673 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.57% EVEREN Capital Corp. 400 9,100 - --------------------------------------------------------------- Hambrecht & Quist Group(a) 400 9,075 - --------------------------------------------------------------- 18,175 - --------------------------------------------------------------- INVESTMENT MANAGEMENT - 1.06% Affiliated Managers Group, Inc.(a) 500 14,938 - --------------------------------------------------------------- Conning Corp. 100 2,075 - --------------------------------------------------------------- Knight/Trimark Group, Inc.-Class A(a) 700 16,756 - --------------------------------------------------------------- 33,769 - --------------------------------------------------------------- LAND DEVELOPMENT - 0.12% Silverleaf Resorts, Inc.(a) 400 3,725 - --------------------------------------------------------------- LEISURE TIME (PRODUCTS) - 0.79% Family Golf Centers, Inc.(a) 400 7,900 - --------------------------------------------------------------- GTECH Holdings Corp.(a) 200 5,125 - --------------------------------------------------------------- International Speedway Corp.-Class A 300 12,150 - --------------------------------------------------------------- 25,175 - --------------------------------------------------------------- LODGING-HOTELS - 0.55% Prime Hospitality Corp.(a) 400 4,225 - --------------------------------------------------------------- Royal Caribbean Cruises Ltd. 300 11,100 - --------------------------------------------------------------- Vail Resorts, Inc.(a) 100 2,200 - --------------------------------------------------------------- 17,525 - ---------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-143 226
MARKET SHARES VALUE MANUFACTURING (SPECIALIZED) - 2.36% Alpine Group, Inc. (The)(a) 300 $ 4,500 - ---------------------------------------------------------------- American Bank Note Holographics, Inc.(a) 1,000 17,500 - ---------------------------------------------------------------- Armor Holdings, Inc.(a) 200 2,288 - ---------------------------------------------------------------- First Years, Inc. (The) 700 11,068 - ---------------------------------------------------------------- Howmet International, Inc.(a) 600 9,675 - ---------------------------------------------------------------- Mettler-Toledo International, Inc.(a) 400 11,225 - ---------------------------------------------------------------- Superior TeleCom, Inc. 200 9,450 - ---------------------------------------------------------------- US Filter Corp.(a) 300 6,862 - ---------------------------------------------------------------- U.S.A. Floral Products, Inc.(a) 200 2,300 - ---------------------------------------------------------------- 74,868 - ---------------------------------------------------------------- METAL FABRICATORS - 0.22% Metals USA, Inc.(a) 700 6,825 - ---------------------------------------------------------------- NATURAL GAS - 0.11% KN Energy, Inc. 100 3,638 - ---------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES - 0.70% Daisytek International Corp.(a) 400 7,600 - ---------------------------------------------------------------- Knoll, Inc.(a) 200 5,925 - ---------------------------------------------------------------- School Specialty, Inc.(a) 400 8,550 - ---------------------------------------------------------------- 22,075 - ---------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 0.30% Cal Dive International, Inc.(a) 200 4,150 - ---------------------------------------------------------------- Newpark Resources, Inc.(a) 800 5,450 - ---------------------------------------------------------------- 9,600 - ---------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 1.46% Anadarko Petroleum Corp. 300 9,263 - ---------------------------------------------------------------- Apache Corp. 300 7,594 - ---------------------------------------------------------------- Devon Energy Corp. 300 9,206 - ---------------------------------------------------------------- Newfield Exploration Co.(a) 100 2,087 - ---------------------------------------------------------------- Noble Affiliates, Inc. 200 4,925 - ---------------------------------------------------------------- Ocean Energy, Inc.(a) 200 1,262 - ---------------------------------------------------------------- Snyder Oil Corp. 500 6,656 - ---------------------------------------------------------------- Union Pacific Resources Group, Inc. 600 5,438 - ---------------------------------------------------------------- 46,431 - ---------------------------------------------------------------- PAPER & FOREST PRODUCTS - 0.06% Wausau-Mosinee Paper Corp. 100 1,768 - ---------------------------------------------------------------- PERSONAL CARE - 1.52% Chattem, Inc.(a) 300 14,363 - ---------------------------------------------------------------- NBTY, Inc.(a) 700 4,988 - ---------------------------------------------------------------- Playtex Products, Inc.(a) 600 9,637 - ---------------------------------------------------------------- Rexall Sundown, Inc.(a) 400 5,600 - ---------------------------------------------------------------- Steiner Leisure Ltd.(a) 300 9,600 - ---------------------------------------------------------------- Twinlab Corp.(a) 300 3,937 - ---------------------------------------------------------------- 48,125 - ----------------------------------------------------------------
MARKET SHARES VALUE PUBLISHING - 0.93% IDG Books Worldwide, Inc.-Class A(a) 700 $ 12,075 - ----------------------------------------------------------------- Petersen Companies, Inc. (The)-Class A(a) 200 6,775 - ----------------------------------------------------------------- Scholastic Corp.(a) 200 10,725 - ----------------------------------------------------------------- 29,575 - ----------------------------------------------------------------- RAILROADS - 0.31% Kansas City Southern Industries, Inc. 200 9,837 - ----------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST - 1.96% AMRESCO Capital Trust, Inc. 350 3,325 - ----------------------------------------------------------------- Apartment Investment & Management Co.-Class A 200 7,438 - ----------------------------------------------------------------- CarrAmerica Realty Corp. 200 4,800 - ----------------------------------------------------------------- CCA Prison Realty Trust 300 6,150 - ----------------------------------------------------------------- Colonial Properties Trust 200 5,325 - ----------------------------------------------------------------- Corporate Office Properties Trust, Inc. 600 4,275 - ----------------------------------------------------------------- Correctional Properties Trust 400 7,225 - ----------------------------------------------------------------- Kilroy Realty Corp. 300 6,900 - ----------------------------------------------------------------- Manufactured Home Communities, Inc. 300 7,519 - ----------------------------------------------------------------- MeriStar Hospitality Corp. 200 3,712 - ----------------------------------------------------------------- Weeks Corp. 200 5,637 - ----------------------------------------------------------------- 62,306 - ----------------------------------------------------------------- RESTAURANTS - 1.49% Avado Brands, Inc. 600 4,988 - ----------------------------------------------------------------- Brinker International, Inc.(a) 500 14,438 - ----------------------------------------------------------------- CEC Entertainment, Inc.(a) 350 9,712 - ----------------------------------------------------------------- Dave & Buster's, Inc.(a) 300 6,918 - ----------------------------------------------------------------- Starbucks Corp.(a) 200 11,225 - ----------------------------------------------------------------- 47,281 - ----------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS) - 0.43% CDW Computer Centers, Inc.(a) 100 9,593 - ----------------------------------------------------------------- Tech Data Corp.(a) 100 4,025 - ----------------------------------------------------------------- 13,618 - ----------------------------------------------------------------- RETAIL (DISCOUNTERS) - 0.47% Family Dollar Stores, Inc. 600 13,200 - ----------------------------------------------------------------- K & G Men's Center, Inc.(a) 200 1,775 - ----------------------------------------------------------------- 14,975 - ----------------------------------------------------------------- RETAIL (FOOD CHAINS) - 1.18% American Stores Co. 200 7,388 - ----------------------------------------------------------------- BJ's Wholesale Club, Inc.(a) 200 9,262 - ----------------------------------------------------------------- Whole Foods Market, Inc.(a) 200 9,675 - ----------------------------------------------------------------- Wild Oats Markets, Inc.(a) 350 11,025 - ----------------------------------------------------------------- 37,350 - ----------------------------------------------------------------- RETAIL (HOME SHOPPING) - 0.43% Micro Warehouse, Inc.(a) 400 13,525 - -----------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-144 227
MARKET SHARES VALUE RETAIL (SPECIALTY) - 5.10% Casey's General Stores, Inc. 200 $ 2,606 - ------------------------------------------------------------ CSK Auto Corp.(a) 600 16,013 - ------------------------------------------------------------ Electronics Boutique Holdings Corp.(a) 400 8,150 - ------------------------------------------------------------ Group 1 Automotive, Inc.(a) 200 5,200 - ------------------------------------------------------------ Guitar Center, Inc.(a) 300 7,388 - ------------------------------------------------------------ Hibbett Sporting Goods, Inc.(a) 300 7,275 - ------------------------------------------------------------ Hot Topic, Inc.(a) 100 1,288 - ------------------------------------------------------------ Just for Feet, Inc.(a) 300 5,213 - ------------------------------------------------------------ Linens 'N Things, Inc.(a) 600 23,775 - ------------------------------------------------------------ Lithia Motors, Inc.-Class A(a) 300 4,950 - ------------------------------------------------------------ Michaels Stores, Inc.(a) 300 5,428 - ------------------------------------------------------------ Musicland Stores Corp.(a) 600 8,962 - ------------------------------------------------------------ PETsMART, Inc.(a) 400 4,400 - ------------------------------------------------------------ Pier 1 Imports, Inc.(a) 300 2,906 - ------------------------------------------------------------ Rainbow Rentals, Inc.(a) 300 2,962 - ------------------------------------------------------------ Rent-Way, Inc.(a) 376 9,151 - ------------------------------------------------------------ Renters Choice, Inc.(a) 400 12,700 - ------------------------------------------------------------ Select Comfort Corp.(a) 100 2,643 - ------------------------------------------------------------ Williams-Sonoma, Inc.(a) 400 16,125 - ------------------------------------------------------------ Zale Corp.(a) 450 14,513 - ------------------------------------------------------------ 161,648 - ------------------------------------------------------------ RETAIL (SPECIALTY-APPAREL) - 0.51% Abercrombie & Fitch Co.-Class A(a) 100 7,075 - ------------------------------------------------------------ Men's Wearhouse, Inc. (The)(a) 200 6,350 - ------------------------------------------------------------ Stage Stores, Inc.(a) 300 2,812 - ------------------------------------------------------------ 16,237 - ------------------------------------------------------------ SAVINGS & LOAN COMPANIES - 0.27% Allied Capital Corp. 500 8,656 - ------------------------------------------------------------ SERVICES (ADVERTISING/MARKETING) - 2.94% Abacus Direct Corp.(a) 100 4,550 - ------------------------------------------------------------ Acxiom Corp.(a) 420 13,020 - ------------------------------------------------------------ Forrester Research, Inc.(a) 200 8,750 - ------------------------------------------------------------ HA-LO Industries, Inc.(a) 300 11,288 - ------------------------------------------------------------ Information Resources, Inc.(a) 200 2,037 - ------------------------------------------------------------ Lamar Advertising Co.(a) 450 16,762 - ------------------------------------------------------------ Market Facts, Inc.(a) 300 7,800 - ------------------------------------------------------------ Nielsen Media Research 333 5,994 - ------------------------------------------------------------ Snyder Communications, Inc.(a) 300 10,125 - ------------------------------------------------------------ Young & Rubicam, Inc.(a) 400 12,950 - ------------------------------------------------------------ 93,276 - ------------------------------------------------------------
MARKET SHARES VALUE SERVICES (COMMERCIAL & CONSUMER) - 6.65% ABR Information Services, Inc.(a) 500 $ 9,812 - ------------------------------------------------------------- Advantage Learning Systems, Inc.(a) 100 6,575 - ------------------------------------------------------------- Apollo Group, Inc.(a) 400 13,550 - ------------------------------------------------------------- Avis Rent A Car, Inc.(a) 300 7,256 - ------------------------------------------------------------- Bright Horizons Family Solutions, Inc.(a) 400 10,800 - ------------------------------------------------------------- Career Education Corp.(a) 100 3,000 - ------------------------------------------------------------- F.Y.I., Inc.(a) 300 9,600 - ------------------------------------------------------------- G & K Services, Inc.-Class A 100 5,325 - ------------------------------------------------------------- Galileo International, Inc. 300 13,050 - ------------------------------------------------------------- Hertz Corp.-Class A 200 9,125 - ------------------------------------------------------------- INSpire Insurance Solutions, Inc.(a) 300 5,512 - ------------------------------------------------------------- Iron Mountain, Inc.(a) 350 12,622 - ------------------------------------------------------------- LaSalle Partners, Inc.(a) 100 2,944 - ------------------------------------------------------------- MemberWorks, Inc.(a) 200 5,900 - ------------------------------------------------------------- Metzler Group, Inc.(a) 300 14,606 - ------------------------------------------------------------- Pegasus Systems, Inc.(a) 500 18,000 - ------------------------------------------------------------- Pittston Brink's Group 100 3,188 - ------------------------------------------------------------- Primark Corp.(a) 200 5,425 - ------------------------------------------------------------- Protection One, Inc. 900 7,706 - ------------------------------------------------------------- Regis Corp. 300 12,000 - ------------------------------------------------------------- Strayer Education, Inc. 100 3,525 - ------------------------------------------------------------- Sylvan Learning Systems, Inc.(a) 300 9,150 - ------------------------------------------------------------- Trammell Crow Co.(a) 100 2,800 - ------------------------------------------------------------- Travel Services International, Inc.(a) 500 15,250 - ------------------------------------------------------------- United Road Services, Inc.(a) 100 1,838 - ------------------------------------------------------------- Waddell & Reed Financial, Inc.-Class A 100 2,369 - ------------------------------------------------------------- 210,928 - ------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS) - 2.56% Cotelligent Group, Inc.(a) 300 6,394 - ------------------------------------------------------------- Insight Enterprises, Inc.(a) 250 12,719 - ------------------------------------------------------------- Keane, Inc.(a) 100 3,993 - ------------------------------------------------------------- Policy Management Systems Corp.(a) 300 15,150 - ------------------------------------------------------------- SunGard Data Systems, Inc.(a) 700 27,781 - ------------------------------------------------------------- Sykes Enterprises, Inc.(a) 500 15,250 - ------------------------------------------------------------- 81,287 - -------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-145 228
MARKET SHARES VALUE SERVICES (DATA PROCESSING) - 3.94% Billing Concepts Corp.(a) 300 $ 3,300 - ------------------------------------------------------------------------- BISYS Group, Inc.(a) 450 23,231 - ------------------------------------------------------------------------- Computer Horizons Corp.(a) 300 7,988 - ------------------------------------------------------------------------- CSG Systems International, Inc.(a) 300 23,700 - ------------------------------------------------------------------------- DST Systems, Inc.(a) 100 5,706 - ------------------------------------------------------------------------- Fiserv, Inc.(a) 200 10,288 - ------------------------------------------------------------------------- 4Front Software International, Inc.(a) 800 8,850 - ------------------------------------------------------------------------- Lason Holdings, Inc.(a) 200 11,637 - ------------------------------------------------------------------------- MedQuist, Inc.(a) 200 7,900 - ------------------------------------------------------------------------- NOVA Corp.(a) 300 10,406 - ------------------------------------------------------------------------- Transaction Network Services, Inc.(a) 600 12,037 - ------------------------------------------------------------------------- 125,043 - ------------------------------------------------------------------------- SERVICES (EMPLOYMENT) - 0.77% Labor Ready, Inc.(a) 400 7,875 - ------------------------------------------------------------------------- Metamor Worldwide, Inc.(a) 400 10,000 - ------------------------------------------------------------------------- Syntel, Inc.(a) 100 1,131 - ------------------------------------------------------------------------- Vincam Group, Inc. (The)(a) 300 5,269 - ------------------------------------------------------------------------- 24,275 - ------------------------------------------------------------------------- SERVICES (FACILITIES & ENVIRONMENTAL) - 1.20% Casella Waste Systems, Inc.(a) 500 18,563 - ------------------------------------------------------------------------- Corrections Corp. of America(a) 300 5,287 - ------------------------------------------------------------------------- Wackenhut Corrections Corp.(a) 300 8,587 - ------------------------------------------------------------------------- Waste Connections, Inc.(a) 300 5,513 - ------------------------------------------------------------------------- 37,950 - ------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.20% Associated Group, Inc. (The)-Class A(a) 400 17,200 - ------------------------------------------------------------------------- International Telecommunication Data Systems, Inc.(a) 500 7,375 - ------------------------------------------------------------------------- Metromedia Fiber Network, Inc.(a) 400 13,400 - ------------------------------------------------------------------------- 37,975 - ------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.35% Global TeleSystems Group, Inc.(a) 200 11,150 - ------------------------------------------------------------------------- TELEPHONE - 0.27% ICG Communications, Inc.(a) 400 8,600 - ------------------------------------------------------------------------- TEXTILES (APPAREL) - 0.31% Columbia Sportswear Co.(a) 400 6,750 - ------------------------------------------------------------------------- Nautica Enterprises, Inc.(a) 200 3,000 - ------------------------------------------------------------------------- 9,750 - ------------------------------------------------------------------------- WASTE MANAGEMENT - 1.24% Catalytica, Inc.(a) 500 9,000 - ------------------------------------------------------------------------- Safety-Kleen Corp(a) 700 9,887 - ------------------------------------------------------------------------- Superior Services, Inc.(a) 400 8,025 - ------------------------------------------------------------------------- U.S. Liquids Inc.(a) 400 9,000 - ------------------------------------------------------------------------- Waste Industries, Inc.(a) 200 3,450 - ------------------------------------------------------------------------- 39,362 - ------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $2,487,893) 2,772,251 - -------------------------------------------------------------------------
MARKET SHARES VALUE FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.44% BERMUDA - 0.37% Annuity and Life Re, Ltd. (Insurance-Life/Health) 100 $ 2,700 - ------------------------------------------------------------------------------ Global Crossing Ltd. (Telecommunications-Long Distance)(a) 200 9,025 - ------------------------------------------------------------------------------ 11,725 - ------------------------------------------------------------------------------ CANADA - 0.47% Alliance Atlantis Communications Corp.-Class B (Entertainment)(a) 100 1,644 - ------------------------------------------------------------------------------ Celestica, Inc. (Electronics-Semiconductors)(a) 300 7,406 - ------------------------------------------------------------------------------ Four Seasons Hotels, Inc. (Lodging-Hotels) 200 5,850 - ------------------------------------------------------------------------------ 14,900 - ------------------------------------------------------------------------------ CAYMAN ISLANDS - 0.43% Sutton Group Financial Services Ltd. (Insurance- Life/Health)(a) 1,000 13,750 - ------------------------------------------------------------------------------ IRELAND - 0.54% Ryanair Holdings PLC-ADR (Airlines)(a) 200 7,550 - ------------------------------------------------------------------------------ Saville Systems Ireland PLC-ADR (Services-Data Processing)(a) 500 9,500 - ------------------------------------------------------------------------------ 17,050 - ------------------------------------------------------------------------------ ISRAEL - 0.88% Check Point Software Technologies Ltd. (Computer- Software & Services(a) 100 4,581 - ------------------------------------------------------------------------------ Galileo Technology Ltd. (Electronics-Semiconductors)(a) 700 18,900 - ------------------------------------------------------------------------------ NICE-Systems Ltd. (Communications-Equipment)(a) 200 4,325 - ------------------------------------------------------------------------------ 27,806 - ------------------------------------------------------------------------------ UNITED KINGDOM - 0.75% ESG Re Limited (Insurance-Life/Health) 100 2,025 - ------------------------------------------------------------------------------ LucasVarity PLC-ADR (Auto Parts & Equipment) 200 6,700 - ------------------------------------------------------------------------------ NTL Inc. (Telephone)(a) 200 11,287 - ------------------------------------------------------------------------------ Signet Group PLC (Retail-General Merchandise)(a) 4,000 2,044 - ------------------------------------------------------------------------------ Stolt Comex Seaway, S.A. (Oil & Gas-Exploration & Production)(a) 250 1,687 - ------------------------------------------------------------------------------ 23,743 - ------------------------------------------------------------------------------ Total Foreign Stocks & Other Equity Interests (Cost $98,384) 108,974 - ------------------------------------------------------------------------------
AIM V.I. CAPITAL DEVELOPMENT FUND FS-146 229
PRINCIPAL MARKET AMOUNT VALUE REPURCHASE AGREEMENT(b) - 7.74% SBC Warburg Dillion Read, Inc., 4.75%, 01/04/99(c) (Cost $245,668) $245,668 $ 245,668 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS - 98.56% 3,126,893 - ------------------------------------------------------------------------------ OTHER ASSETS LESS LIABILITIES - 1.44% 45,575 - ------------------------------------------------------------------------------ NET ASSETS - 100.00% $3,172,468 ==============================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (c) Joint repurchase agreement entered into 12/31/98 with a maturing value of $1,000,527,778. Collateralized by $2,207,068,000 U.S. Government obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market value at 12/31/98 of $1,020,001,079. Abbreviation: ADR -- American Depositary Receipt See Notes to Financial Statements. AIM V.I. CAPITAL DEVELOPMENT FUND FS-147 230 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments at market value (cost $2,831,945) $ 3,126,893 - --------------------------------------------------------------------- Receivables for: Capital stock sold 26,986 - --------------------------------------------------------------------- Dividends and interest 1,092 - --------------------------------------------------------------------- Investments sold 8,881 - --------------------------------------------------------------------- Reimbursement from advisor 50,307 - --------------------------------------------------------------------- Investment for deferred compensation plan 2,777 - --------------------------------------------------------------------- Total assets 3,216,936 - --------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 34,293 - --------------------------------------------------------------------- Deferred compensation plan 2,777 - --------------------------------------------------------------------- Accrued directors' fees 410 - --------------------------------------------------------------------- Accrued operating expenses 6,988 - --------------------------------------------------------------------- Total liabilities 44,468 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $ 3,172,468 - --------------------------------------------------------------------- CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 344,450 - --------------------------------------------------------------------- Net asset value, offering and redemption price per share $9.21 =====================================================================
STATEMENT OF OPERATIONS For the period May 1, 1998 (date operations commenced) through December 31, 1998 INVESTMENT INCOME: Interest $ 19,212 - -------------------------------------------------------------------- Dividends 4,034 - -------------------------------------------------------------------- Total investment income 23,246 - -------------------------------------------------------------------- EXPENSES: Advisory fees 9,522 - -------------------------------------------------------------------- Administrative services fees 26,658 - -------------------------------------------------------------------- Custodian fees 20,224 - -------------------------------------------------------------------- Directors' fees and expenses 6,710 - -------------------------------------------------------------------- Legal fees 7,847 - -------------------------------------------------------------------- Other 2,699 - -------------------------------------------------------------------- Total expenses 73,660 - -------------------------------------------------------------------- Less: Fees waived and reimbursed by advisor (58,330) - -------------------------------------------------------------------- Expenses paid indirectly (210) - -------------------------------------------------------------------- Net expenses 15,120 - -------------------------------------------------------------------- Net investment income 8,126 - -------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities (142,359) - -------------------------------------------------------------------- Futures contracts (111,690) - -------------------------------------------------------------------- Foreign currencies 28 - -------------------------------------------------------------------- (254,021) - -------------------------------------------------------------------- Net unrealized appreciation of: Investment securities 294,948 - -------------------------------------------------------------------- Net gain from investment securities and futures contracts 40,927 - -------------------------------------------------------------------- Net increase in net assets resulting from operations $ 49,053 ====================================================================
See Notes to Financial Statements. AIM V.I. CAPITAL DEVELOPMENT FUND FS-148 231 STATEMENT OF CHANGES IN NET ASSETS For the period May 1, 1998 (date operations commenced) through December 31, 1998 OPERATIONS: Net investment income $ 8,126 - ------------------------------------------------------------------------------ Net realized gain (loss) from investment securities and futures contracts (254,021) - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities 294,948 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 49,053 - ------------------------------------------------------------------------------ Dividends to shareholders from net investment income (12,074) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 3,135,489 - ------------------------------------------------------------------------------ Net increase in net assets 3,172,468 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of period -- - ------------------------------------------------------------------------------ End of period $3,172,468 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $3,134,630 - ------------------------------------------------------------------------------ Undistributed net investment income (3,061) - ------------------------------------------------------------------------------ Undistributed net realized gain (loss) from investment securities and futures contracts (254,049) - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities 294,948 - ------------------------------------------------------------------------------ $3,172,468 ==============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Capital Development Fund (the "Fund"). The Fund's investment objective is long-term capital appreciation. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If no mean is available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or, absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such AIM V.I. CAPITAL DEVELOPMENT FUND FS-149 232 exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $859, undistributed net investment income was increased by $887 and undistributed net realized gains was decreased by $28 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $204,323, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of the first $350 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $350 million. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM waived advisory fees and reimbursed expenses of $58,330. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM was reimbursed $26,658 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $210 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $210 during the period May 1, 1998 (date operations commenced) through December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the period May 1, 1998 (date operations commenced) through December 31, 1998 was $3,405,734 and $676,949, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $ 431,624 - ------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (160,611) - ------------------------------------------------------------------------ Net unrealized appreciation of investment securities $ 271,013 ======================================================================== Cost of investments for tax purposes is $2,855,880.
NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the period May 1, 1998 (date operations commenced) through December 31, 1998 as follows:
1998 ------------------- SHARES AMOUNT ------- ---------- Sold 403,978 $3,617,838 - ------------------------------------------------------------- Issued as reinvestment of distributions 1,426 12,074 - ------------------------------------------------------------- Reacquired (60,954) (494,423) - ------------------------------------------------------------- 344,450 $3,135,489 =============================================================
AIM V.I. CAPITAL DEVELOPMENT FUND FS-150 233 NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the period May 1, 1998 (date operations commenced) through December 31, 1998.
DECEMBER 31, 1998 ------------ Net asset value, beginning of period $10.00 - ----------------------------------------------------------------- ------ Income from investment operations: Net investment income 0.03(a) - ----------------------------------------------------------------- ------ Net gains (losses) on securities (both realized and unrealized) (0.78) - ----------------------------------------------------------------- ------ Total from investment operations (0.75) - ----------------------------------------------------------------- ------ Less distributions: Dividends from net investment income (0.04) - ----------------------------------------------------------------- ------ Net asset value, end of period $ 9.21 ================================================================= ====== Total return(b) (7.51)% ================================================================= ====== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $3,172 ================================================================= ====== Ratio of expenses to average net assets(c) 1.21%(d) ================================================================= ====== Ratio of net investment income to average net assets(e) 0.62% ================================================================= ====== Portfolio turnover rate 45% ================================================================= ======
(a) Calculated using average shares outstanding. (b) Total returns is not annualized. (c) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 5.80% (annualized). (d) Ratios are annualized and based on average net assets of $1,891,388. (e) After fee waivers and/or expense reimbursements. Ratio of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursement was (3.97)% (annualized). AIM V.I. CAPITAL DEVELOPMENT FUND FS-151 234 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Diversified Income Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Diversified Income Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. DIVERSIFIED INCOME FUND FS-152 235 SCHEDULE OF INVESTMENTS December 31, 1998
PRINCIPAL MARKET AMOUNT(a) VALUE U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 67.63% AEROSPACE/DEFENSE - 0.35% Pacific Aerospace & Electronics, Sr. Sub Notes, 11.25%, 08/01/05 (Acquired 07/24/98; Cost $450,000)(b) $ 450,000 $ 339,750 - ------------------------------------------------------------------------------ AIR FREIGHT - 0.44% Atlas Air, Inc., Sr. Notes, 10.75%, 08/01/05 400,000 422,000 - ------------------------------------------------------------------------------ AIRLINES - 2.74% Airplanes Pass Through Trust, Series D Gtd. Sub. Bonds, 10.875%, 03/15/19 300,000 315,189 - ------------------------------------------------------------------------------ America West Airlines, Inc., Pass Through Certificates, 6.86%, 07/02/04 863,999 862,012 - ------------------------------------------------------------------------------ Delta Air Lines, Inc., Deb., 9.00%, 05/15/16 825,000 947,917 - ------------------------------------------------------------------------------ United Air Lines, Inc., Pass Through Certificates, 9.56%, 10/19/18 425,000 521,603 - ------------------------------------------------------------------------------ 2,646,721 - ------------------------------------------------------------------------------ AUTO PARTS & EQUIPMENT - 0.41% Advance Stores Co. Inc., Series B Sr. Unsec. Gtd. Sub. Notes, 10.25%, 04/15/08 390,000 397,800 - ------------------------------------------------------------------------------ AUTOMOBILES - 0.52% General Motors Corp., Deb., 8.80%, 03/01/21 400,000 505,973 - ------------------------------------------------------------------------------ BANKS (MAJOR REGIONAL) - 0.60% Regions Financial Corp., Sub. Notes, 7.75%, 09/15/24 500,000 576,015 - ------------------------------------------------------------------------------ BANKS (MONEY CENTER) - 1.73% Deutsche Bank Financial, Unsec. Gtd. Sub. Deb., 6.70%, 12/13/06 750,000 790,343 - ------------------------------------------------------------------------------ First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 800,000 877,888 - ------------------------------------------------------------------------------ 1,668,231 - ------------------------------------------------------------------------------ BANKS (REGIONAL) - 1.45% Mercantile Bancorp Inc., Unsec. Sub. Notes, 7.30%, 06/15/07 1,000,000 1,095,900 - ------------------------------------------------------------------------------ Mercantile Bank Inc., Sub. Notes, 6.375%, 01/15/04 300,000 307,056 - ------------------------------------------------------------------------------ 1,402,956 - ------------------------------------------------------------------------------ BEVERAGES (NON-ALCOHOLIC) - 1.33% Coca-Cola Enterprises, Inc., Putable Notes, 7.24%, 06/20/20(c) 5,000,000 1,282,200 - ------------------------------------------------------------------------------ BROADCASTING (TELEVISION, RADIO & CABLE) - 4.24% Comcast Cable Communications, Notes, 8.50%, 05/01/27 500,000 627,470 - ------------------------------------------------------------------------------ CSC Holdings, Inc., Sr. Notes, 7.875%, 12/15/07 500,000 527,400 - ------------------------------------------------------------------------------ Sr. Unsec. Deb., 7.625%, 07/15/18 500,000 511,960 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(a) VALUE BROADCASTING (TELEVISION, RADIO & CABLE) - (CONTINUED) EchoStar DBS Corp., Sr. Sec. Gtd. Notes, 12.50%, 07/01/02 $ 430,000 $ 498,800 - ------------------------------------------------------------------------------- Knology Holdings, Inc., Sr. Disc. Notes, 11.875%, 10/15/07(d) 1,000,000 462,500 - ------------------------------------------------------------------------------- TCI Communications, Inc., Sr. Notes, 8.00%, 08/01/05 850,000 958,435 - ------------------------------------------------------------------------------- USA Networks, Inc., Sr. Notes, 6.75%, 11/15/05 (Acquired 11/30/98; Cost $501,370)(b) 500,000 501,330 - ------------------------------------------------------------------------------- 4,087,895 - ------------------------------------------------------------------------------- CHEMICALS - 2.41% Airgas Inc., Medium Term Notes, 7.14%, 03/08/04 750,000 765,840 - ------------------------------------------------------------------------------- Nova Gas Transmission Ltd. (Canada), Yankee Deb., 8.50%, 12/15/12 500,000 606,900 - ------------------------------------------------------------------------------- Solutia, Inc., Bonds, 6.72%, 10/15/37 750,000 762,000 - ------------------------------------------------------------------------------- Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes, 11.75%, 08/15/06 220,000 190,300 - ------------------------------------------------------------------------------- 2,325,040 - ------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 0.47% Dialog Corp. PLC (United Kingdom), Series A Sr. Sub. Notes, 11.00%, 11/15/07 350,000 350,000 - ------------------------------------------------------------------------------- Northern Telecom (Canada), Yankee Notes, 6.00%, 09/01/03 100,000 101,482 - ------------------------------------------------------------------------------- 451,482 - ------------------------------------------------------------------------------- COMPUTERS (NETWORKING) - 0.50% Exodus Communications, Sr. Unsec. Notes, 11.25%, 07/01/08 480,000 484,800 - ------------------------------------------------------------------------------- CONSUMER FINANCE - 1.97% GMAC, Notes, 9.00%, 10/15/02 750,000 836,985 - ------------------------------------------------------------------------------- Household Finance Corp., Notes, 7.125%, 09/01/05 1,000,000 1,064,040 - ------------------------------------------------------------------------------- 1,901,025 - ------------------------------------------------------------------------------- CONTAINERS & PACKAGING (PAPER) - 0.15% MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02 145,000 142,825 - ------------------------------------------------------------------------------- ELECTRIC COMPANIES - 3.56% Cleveland Electric Illumination, Series D Sr. Sec. Notes, 7.88%, 11/01/17 500,000 527,796 - ------------------------------------------------------------------------------- El Paso Electric Co., Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 500,000 563,250 - ------------------------------------------------------------------------------- Series E Sec. First Mortgage Bonds, 9.40%, 05/01/11 150,000 170,336 - ------------------------------------------------------------------------------- Niagara Mohawk Power Corp., First Mortgage Notes, 9.25%, 10/01/01 1,000,000 1,083,450 - ------------------------------------------------------------------------------- Series G Sr. Unsec. Notes, 7.75%, 10/01/08 1,000,000 1,093,100 - ------------------------------------------------------------------------------- 3,437,932 - -------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-153 236
PRINCIPAL MARKET AMOUNT(a) VALUE ELECTRICAL EQUIPMENT - 0.22% Electronic Retailing Systems International, Inc., Sr. Disc. Notes, 13.25%, 02/01/04(d) $ 590,000 $ 215,350 - ------------------------------------------------------------------------------ ENTERTAINMENT - 1.42% Ascent Entertainment Group, Sr. Sec. Disc. Notes, 11.875%, 12/15/04(d) 350,000 211,750 - ------------------------------------------------------------------------------ Time Warner, Inc., Deb., 9.125%, 01/15/13 500,000 628,805 - ------------------------------------------------------------------------------ Unsec. Deb., 6.85%, 01/15/26 500,000 526,020 - ------------------------------------------------------------------------------ 1,366,575 - ------------------------------------------------------------------------------ FINANCIAL (DIVERSIFIED) - 1.72% Associates Corp. of North America, Series B Sr. Deb., 7.95%, 02/15/10 750,000 867,908 - ------------------------------------------------------------------------------ Finova Capital Corp., Unsec. Notes, 7.40%, 05/06/06 750,000 789,195 - ------------------------------------------------------------------------------ 1,657,103 - ------------------------------------------------------------------------------ FOODS - 2.07% AmeriServ Food Co., Gtd. Notes, 10.125%, 07/15/07 320,000 280,000 - ------------------------------------------------------------------------------ ConAgra Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,388,972 - ------------------------------------------------------------------------------ Del Monte Corp./Foods Co., Sr. Unsec. Sub. Notes, 12.25%, 04/15/07 290,000 330,600 - ------------------------------------------------------------------------------ 1,999,572 - ------------------------------------------------------------------------------ GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.39% Venetian Casino Resort LLC, Gtd. Mortgage Notes, 12.25%, 11/15/04 400,000 376,000 - ------------------------------------------------------------------------------ HEALTH CARE (HOSPITAL MANAGEMENT) - 0.80% Tenet Healthcare Corp., Sr. Notes, 8.00%, 01/15/05 750,000 769,942 - ------------------------------------------------------------------------------ HEALTH CARE (LONG TERM CARE) - 0.39% Mariner Post-Acute Network, Inc., Series B Sr. Unsec. Disc. Sub. Notes, 10.50%, 11/01/07(d) 380,000 165,300 - ------------------------------------------------------------------------------ Series B Sr. Unsec. Sub. Notes, 9.50%, 11/01/07 270,000 209,250 - ------------------------------------------------------------------------------ 374,550 - ------------------------------------------------------------------------------ HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.79% Alaris Medical Systems, Sr. Unsec. Gtd. Sub. Deb., 9.75%, 12/01/06 300,000 306,000 - ------------------------------------------------------------------------------ Dade International Inc., Series B Sr. Sub. Notes, 11.125%, 05/01/06 80,000 89,000 - ------------------------------------------------------------------------------ Mediq Inc., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 06/01/08 380,000 366,700 - ------------------------------------------------------------------------------ 761,700 - ------------------------------------------------------------------------------ HOUSEWARES - 0.49% Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes, 11.00%, 05/01/05 500,000 472,500 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(a) VALUE INSURANCE (LIFE/HEALTH) - 0.89% Americo Life, Inc., Sr. Sub. Notes, 9.25%, 06/01/05 $ 75,000 $ 77,250 - ----------------------------------------------------------------------------- Torchmark Corp., Notes, 7.875%, 05/15/23 750,000 779,640 - ----------------------------------------------------------------------------- 856,890 - ----------------------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.48% Orion Capital Trust II, Gtd. Notes, 7.70%, 04/15/28 500,000 459,410 - ----------------------------------------------------------------------------- IRON & STEEL - 0.33% Acme Metal, Inc., Sr. Unsec. Gtd. Deb., 10.875%, 12/15/07(e) 588,000 79,380 - ----------------------------------------------------------------------------- GS Industries, Inc., Sr. Gtd. Notes, 12.00%, 09/01/04 350,000 239,750 - ----------------------------------------------------------------------------- 319,130 - ----------------------------------------------------------------------------- LODGING-HOTELS - 2.21% Booth Creek Ski Holdings, Sr. Notes, 12.50%, 03/15/07 390,000 388,050 - ----------------------------------------------------------------------------- Coast Hotels & Casinos Inc., Series B Sec. First Mortgage Gtd. Notes, 13.00%, 12/15/02 180,000 203,400 - ----------------------------------------------------------------------------- ITT Corp., Unsec. Gtd. Deb., 7.375%, 11/15/15 750,000 638,100 - ----------------------------------------------------------------------------- John Q. Hammons Hotels, Inc., Sec. First Mortgage Notes, 9.75%, 10/01/05 550,000 517,000 - ----------------------------------------------------------------------------- Stena Line A.B. (Sweden), Sr. Yankee Notes, 10.625%, 06/01/08 430,000 389,150 - ----------------------------------------------------------------------------- 2,135,700 - ----------------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 0.34% Elgin National Industies, Sr. Unsec. Gtd. Sub. Notes, 11.00%, 11/01/07 320,000 323,200 - ----------------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.43% MMI Products, Inc., Sr. Unsec. Sub. Notes, 11.25%, 04/15/07 380,000 412,300 - ----------------------------------------------------------------------------- METALS MINING - 0.94% Centaur Mining & Exploration Ltd. (Australia), Sr. Yankee Gtd. Notes, 11.00%, 12/01/07 550,000 503,250 - ----------------------------------------------------------------------------- Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%, 11/01/05 370,000 402,219 - ----------------------------------------------------------------------------- 905,469 - ----------------------------------------------------------------------------- NATURAL GAS - 2.90% Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 500,000 493,355 - ----------------------------------------------------------------------------- Enron Corp., Notes, 6.75%, 08/01/09 750,000 779,827 - ----------------------------------------------------------------------------- Sr. Sub. Deb., 6.75%, 07/01/05 450,000 464,558 - ----------------------------------------------------------------------------- Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes, 9.375%, 06/15/06 525,000 527,625 - ----------------------------------------------------------------------------- K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 500,000 527,575 - ----------------------------------------------------------------------------- 2,792,940 - ----------------------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES - 0.32% United Stationer Supply, Sr. Sub. Notes, 12.75%, 05/01/05 275,000 308,000 - -----------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-154 237
PRINCIPAL MARKET AMOUNT(a) VALUE OIL (INTERNATIONAL INTEGRATED) - 0.84% Gulf Canada Resources, Ltd. (Canada), Sr. Yankee Unsec. Notes, 8.35%, 08/01/06 $ 800,000 $ 805,736 - ------------------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 1.44% Petroleum Geo-Services A.S.A. (Norway), Sr. Yankee Unsec. Notes, 7.125%, 03/30/28 750,000 707,948 - ------------------------------------------------------------------------------- R&B Falcon Corp., Sr. Notes, 9.50%, 12/15/08 (Acquired 12/17/98; Cost $250,000)(b) 250,000 251,250 - ------------------------------------------------------------------------------- Series B Sr. Unsec. Notes, 6.95%, 04/15/08 500,000 434,285 - ------------------------------------------------------------------------------- 1,393,483 - ------------------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 1.98% Abraxas Petroleum Corp., Series D Sr. Unsec. Gtd. Notes, 11.50%, 11/01/04 125,000 95,625 - ------------------------------------------------------------------------------- Chesapeake Energy Corp., Series B Sr. Unsec. Gtd. Notes, 9.625%, 05/01/05 230,000 180,550 - ------------------------------------------------------------------------------- Kelley Oil & Gas Corp., Series B Sr. Gtd. Sub. Notes, 10.375%, 10/15/06 400,000 298,000 - ------------------------------------------------------------------------------- Louis Dreyfus Natural Gas, Sr. Sub. Notes, 9.25%, 06/15/04 500,000 539,585 - ------------------------------------------------------------------------------- Queen Sand Resources, Inc., Sr. Unsec. Gtd. Notes, 12.50%, 07/01/08 400,000 282,000 - ------------------------------------------------------------------------------- Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%, 06/01/07 500,000 517,020 - ------------------------------------------------------------------------------- 1,912,780 - ------------------------------------------------------------------------------- OIL & GAS (REFINING & MARKETING) - 0.34% Texas Petrochemical Corp., Sr. Unsec. Sub. Notes, 11.125%, 07/01/06 330,000 326,700 - ------------------------------------------------------------------------------- PERSONAL CARE - 1.09% Alberto-Culver Corp., Notes, 6.375%, 06/15/28 1,000,000 1,047,880 - ------------------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 0.85% AES Corp., Sr. Notes, 8.00%, 12/31/08 750,000 747,532 - ------------------------------------------------------------------------------- Panda Global Energy Co. (China), Sr. Yankee Sec. Gtd. Notes, 12.50%, 04/15/04 150,000 68,250 - ------------------------------------------------------------------------------- 815,782 - ------------------------------------------------------------------------------- PUBLISHING (NEWSPAPERS) - 1.53% News America Holdings, Inc., Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 936,127 - ------------------------------------------------------------------------------- Sr. Gtd. Putable Bonds, 7.43%, 10/01/26 500,000 543,560 - ------------------------------------------------------------------------------- 1,479,687 - ------------------------------------------------------------------------------- RAILROADS - 0.76% Norfolk Southern Corp., Putable Bonds, 7.05%, 05/01/37 650,000 733,993 - ------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST - 1.51% Glenborough Properties, Series B Sr. Unsec. Notes, 7.625%, 03/15/05 800,000 766,798 - ------------------------------------------------------------------------------- Spieker Properties LP, Unsec. Deb., 7.35%, 12/01/17 750,000 689,363 - ------------------------------------------------------------------------------- 1,456,161 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(a) VALUE RETAIL (GENERAL MERCHANDISE) - 0.27% Plainwell Inc., Series B Sr. Unsec. Sub. Notes, 11.00%, 03/01/08 $ 330,000 $ 259,050 - ------------------------------------------------------------------------------- RETAIL (SPECIALTY) - 1.56% CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes, 9.625%, 06/01/08 370,000 334,850 - ------------------------------------------------------------------------------- CSK Auto Inc., Sr. Gtd. Sub. Deb., 11.00%, 11/01/06 260,000 274,300 - ------------------------------------------------------------------------------- Neff Corp., Sr. Sub. Notes, 10.25%, 06/01/08 (Acquired 12/02/98; Cost $325,103)(b) 330,000 320,100 - ------------------------------------------------------------------------------- Renters Choice, Inc., Sr. Sub. Notes, 11.00%, 08/15/08 (Acquired 08/13/98; Cost $500,000)(b) 500,000 510,000 - ------------------------------------------------------------------------------- Wilson's - The Leather Experts, Inc., Sr. Notes, 11.25%, 08/15/04 70,000 68,950 - ------------------------------------------------------------------------------- 1,508,200 - ------------------------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 0.74% Big 5 Corp., Sr. Unsec. Notes, 10.875%, 11/15/07 500,000 507,500 - ------------------------------------------------------------------------------- J Crew Operating Corp., Sr. Sub. Notes, 10.375%, 10/15/07 240,000 207,600 - ------------------------------------------------------------------------------- 715,100 - ------------------------------------------------------------------------------- SAVINGS & LOAN COMPANIES - 0.87% Sovereign Bancorp, Inc., Sub. Notes, 8.00%, 03/15/03 800,000 841,608 - ------------------------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING) - 0.32% MDC Communications Corp. (Canada), Sr. Yankee Unsec. Sub. Notes, 10.50%, 12/01/06 300,000 307,500 - ------------------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 0.96% Laidlaw, Inc. (Canada), Yankee Unsec. Deb., 6.70%, 05/01/08 500,000 488,985 - ------------------------------------------------------------------------------- Pegasus Shipping Hellas Co. (Bermuda), Series A Sr. Yankee Sec. Gtd. Mortgage Notes, 11.875%, 11/15/04 500,000 432,500 - ------------------------------------------------------------------------------- 921,485 - ------------------------------------------------------------------------------- SERVICES (EMPLOYMENT) - 0.38% MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.375%, 01/15/08 380,000 363,850 - ------------------------------------------------------------------------------- SERVICES (FACILITIES & ENVIRONMENTAL) - 0.04% ATC Group Services, Inc., Sr. Unsec. Gtd. Sub. Notes, 12.00%, 01/15/08(e) 450,000 42,750 - ------------------------------------------------------------------------------- SHIPPING - 0.43% Pacific & Atlantic Holdings, Yankee First Mortgage Notes, 11.50%, 05/30/08 530,000 410,750 - ------------------------------------------------------------------------------- SOVEREIGN DEBT - 2.66% Province of Manitoba (Canada), Yankee Bonds, 7.75%, 07/17/16 700,000 826,322 - ------------------------------------------------------------------------------- Province of Quebec (Canada), Series A Yankee Notes, 6.29%, 03/06/26 800,000 897,184 - ------------------------------------------------------------------------------- Yankee Notes, 5.735%, 03/02/26 750,000 845,025 - ------------------------------------------------------------------------------- 2,568,531 - -------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-155 238
PRINCIPAL MARKET AMOUNT(a) VALUE TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.58% Clearnet Communications Inc. (Canada), Sr. Yankee Unsec. Disc. Notes, 14.75%, 12/15/05(d) $ 110,000 $ 95,150 - ------------------------------------------------------------------------------ Metrocall Inc., Sr. Sub. Notes, 11.00%, 09/15/08 (Acquired 12/17/98; Cost $446,868)(b) 450,000 454,500 - ------------------------------------------------------------------------------ Nextel Communications, Inc., Sr. Notes, 12.00%, 11/01/08 (Acquired 10/28/98; Cost $552,037)(b) 560,000 616,000 - ------------------------------------------------------------------------------ PageMart Wireless, Inc., Sr. Sub. Disc. Notes, 11.25%, 02/01/08(d) 750,000 363,750 - ------------------------------------------------------------------------------ 1,529,400 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 2.65% Bell Canada (Canada), Yankee Deb., 9.50%, 10/15/10 350,000 461,058 - ------------------------------------------------------------------------------ Centel Capital, Deb., 9.00%, 10/15/19 320,000 411,693 - ------------------------------------------------------------------------------ Esprit Telecom Group PLC (United Kingdom), Sr. Yankee Notes, 11.50%, 12/15/07 350,000 364,000 - ------------------------------------------------------------------------------ MCI Communications Corp., Putable Sr. Unsec. Deb., 7.125%, 06/15/27 1,000,000 1,063,500 - ------------------------------------------------------------------------------ Versatel Telecom BV (Netherlands), Sr. Notes, 13.25%, 05/15/08 250,000 255,000 - ------------------------------------------------------------------------------ 2,555,251 - ------------------------------------------------------------------------------ TELEPHONE - 2.47% Cable & Wireless Communications PLC (United Kingdom), Yankee Notes, 6.75%, 03/06/08 750,000 767,655 - ------------------------------------------------------------------------------ ESAT Telecom Group PLC (Ireland), Sr. Yankee Notes, 12.50%, 02/01/07(d) 470,000 312,550 - ------------------------------------------------------------------------------ NTL Inc., Sr. Notes, 11.50%, 10/01/08 (Acquired 10/26/98; Cost $440,000)(b) 440,000 481,800 - ------------------------------------------------------------------------------ SBC Communications, Inc., Deb., 7.375%, 07/15/43 750,000 818,415 - ------------------------------------------------------------------------------ 2,380,420 - ------------------------------------------------------------------------------ TEXTILES (APPAREL) - 0.74% Fruit of the Loom, Notes, 6.50%, 11/15/03 750,000 712,620 - ------------------------------------------------------------------------------ TRUCKERS - 0.41% Travelcenters of America, Inc., Sr. Unsec. Gtd. Sub. Deb., 10.25%, 04/01/07 400,000 400,000 - ------------------------------------------------------------------------------ TRUCKS & PARTS - 0.12% Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%, 11/15/06 110,000 113,850 - ------------------------------------------------------------------------------ WASTE MANAGEMENT - 1.09% WMX Technologies, Inc., Unsec. Notes, 7.10%, 08/01/26 1,000,000 1,047,230 - ------------------------------------------------------------------------------ Total U.S. Dollar Denominated Non-Convertible Bonds & Notes (Cost $65,650,575) 65,228,773 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(a) VALUE U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 0.56% SHIPPING - 0.56% Hutchison Delta Finance (Cayman Islands), Conv. Unsec. Notes, 7.00%, 11/08/02 (Cost $527,500) $ 500,000 $ 537,500 - ------------------------------------------------------------------------------ NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES - 12.32%(f) CANADA - 6.11% Bank of Montreal (Banks - Money Center), Sub. Deb., 7.92%, 07/31/12 CAD 850,000 643,722 - ------------------------------------------------------------------------------ Bell Mobility Cellular (Telecommunications - Cellular/Wireless), Deb., 6.55%, 06/02/08 750,000 501,936 - ------------------------------------------------------------------------------ Canadian Oil Debco, Inc. (Oil & Gas-Exploration & Production), Deb., 11.00%, 10/31/00 450,000 320,000 - ------------------------------------------------------------------------------ Clearnet Communications, Inc. (Telecommunications - Cellular/Wireless), Sr. Disc. Notes, 11.75%, 08/13/07(d) 1,500,000 590,686 - ------------------------------------------------------------------------------ Sr. Disc. Notes, 10.40%, 05/15/08(d) 1,600,000 556,863 - ------------------------------------------------------------------------------ Microcell Telecommunications, Inc. (Telecommunications - Cellular/Wireless), Sr. Disc. Notes, 11.125%, 10/15/07(d) 1,000,000 361,111 - ------------------------------------------------------------------------------ NAV Canada (Services - Commercial & Consumer), Bonds, 7.40%, 06/01/27 1,000,000 800,771 - ------------------------------------------------------------------------------ Poco Petroleums Ltd. (Oil & Gas - Exploration & Production), Unsec. Deb., 6.60%, 09/11/07 750,000 480,863 - ------------------------------------------------------------------------------ Teleglobe Canada, Inc. (Telephone), Unsec. Deb., 8.35%, 06/20/03 850,000 621,039 - ------------------------------------------------------------------------------ Trans-Canada Pipelines (Natural Gas), Series Q Deb., 10.625%, 10/20/09 500,000 450,412 - ------------------------------------------------------------------------------ Unsec. Notes, 8.55%, 02/01/06 280,000 213,365 - ------------------------------------------------------------------------------ Westcoast Energy, Inc. (Natural Gas), Deb., 6.45%, 12/18/06 500,000 346,085 - ------------------------------------------------------------------------------ 5,886,853 - ------------------------------------------------------------------------------ GERMANY - 2.83% International Bank for Reconstruction & Development (Banks - Money Center), Unsec. Global Bonds, 7.125%, 04/12/05(c) DEM 1,000,000 711,987 - ------------------------------------------------------------------------------ LKB Global (Financial-Diversified), Gtd. Notes, 6.00%, 01/25/06 3,000,000 2,016,627 - ------------------------------------------------------------------------------ 2,728,614 - ------------------------------------------------------------------------------ NEW ZEALAND - 1.57% International Bank for Reconstruction & Development (Banks - Money Center), Sr. Unsub. Notes, 7.25%, 05/27/03 NZD 2,200,000 1,211,399 - ------------------------------------------------------------------------------ Sr. Unsec. Notes, 6.77%, 08/20/07(c) 1,000,000 303,547 - ------------------------------------------------------------------------------ 1,514,946 - ------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-156 239
PRINCIPAL MARKET AMOUNT(a) VALUE UNITED KINGDOM - 1.81% International Bank for Reconstruction & Development (Banks - Money Center), Sr. Unsec. Notes, 6.875%, 07/14/00 GBP 500,000 $ 846,580 - ----------------------------------------------------------------------------- Sutton Bridge Financial Ltd. (Financial - Diversified), Gtd. Eurobonds, 8.625%, 06/30/22 (Acquired 05/29/97; Cost $733,650)(b) 450,000 901,279 - ----------------------------------------------------------------------------- 1,747,859 - ----------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Non- Convertible Bonds & Notes (Cost $12,210,409) 11,878,272 - ----------------------------------------------------------------------------- NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 1.09%(f) GERMANY - 0.64% Daimler-Benz A.G. (Automobiles), Conv. Gtd. Unsub. Eurobonds, 4.125%, 07/05/03 DEM 570,000 619,119 - ----------------------------------------------------------------------------- UNITED KINGDOM - 0.45% COLT Telecom Group PLC (Telephone), Conv. Notes, 2.00%, 08/06/05 GBP 700,000 435,819 - ----------------------------------------------------------------------------- Total Non-U.S. Dollar Denominated Convertible Bonds & Notes (Cost $833,353) 1,054,938 - ----------------------------------------------------------------------------- NON-U.S. DOLLAR DENOMINATED GOVERNMENT BONDS & NOTES - 10.67%(f) BRITISH POUND STERLING - 3.22% Federal National Mortgage Association, Sr. Unsec. Notes, 6.875%, 06/07/02 GBP 450,000 795,215 - ----------------------------------------------------------------------------- United Kingdom Treasury, Bonds, 8.00%, 12/07/00 400,000 702,549 - ----------------------------------------------------------------------------- Gtd. Notes, 7.00%, 11/06/01 400,000 705,209 - ----------------------------------------------------------------------------- Bonds, 7.50%, 12/07/06 450,000 899,399 - ----------------------------------------------------------------------------- 3,102,372 - ----------------------------------------------------------------------------- CANADIAN DOLLARS - 2.81% British Columbia Municipal Finance Authority, Bonds, 7.75%, 12/01/05 CAD 500,000 374,441 - ----------------------------------------------------------------------------- Canadian Government, Bonds, 6.625%, 10/03/07 500,000 270,179 - ----------------------------------------------------------------------------- Ontario Province, Sr. Unsec. Unsub. Global Bonds, 8.00%, 03/11/03 750,000 545,666 - ----------------------------------------------------------------------------- Province of Ontario, Deb., 11.125%, 02/14/01 500,000 913,595 - ----------------------------------------------------------------------------- Province of Ontario, Unsec. Unsub. Notes, 6.25%, 12/03/08 1,000,000 517,059 - ----------------------------------------------------------------------------- Quebec (Province of), Deb., 9.375%, 01/16/23 100,000 91,871 - ----------------------------------------------------------------------------- 2,712,811 - ----------------------------------------------------------------------------- GERMAN DEUTSCHE MARKS - 0.74% Bundesrepublic Deutschland, Bonds, 6.875%, 05/12/05 DEM 1,000,000 708,431 - -----------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT(a) VALUE NEW ZEALAND DOLLARS - 1.14% Federal National Mortgage Association, Notes, 7.25%, 06/20/02 NZD 1,250,000 $ 682,650 - ------------------------------------------------------------------------------ New Zealand Government, Bonds, 8.00%, 02/15/01 750,000 416,233 - ------------------------------------------------------------------------------ 1,098,883 - ------------------------------------------------------------------------------ SWEDISH KRONAS - 2.76% Swedish Government, Bonds, 6.00%, 02/09/05 SEK 6,000,000 821,959 - ------------------------------------------------------------------------------ Bonds, 6.50%, 10/25/06 6,000,000 860,313 - ------------------------------------------------------------------------------ Bonds, 5.00%, 01/28/09 7,500,000 983,492 - ------------------------------------------------------------------------------ 2,665,764 - ------------------------------------------------------------------------------ Total Non-U.S. Dollar Denominated Government Bonds & Notes (Cost $10,155,523) 10,288,261 - ------------------------------------------------------------------------------ SHARES DOMESTIC COMMON STOCK - 0.02% TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02% Nextel Communications, Inc. - Class A(g) (Cost $12,000) 743 17,553 - ------------------------------------------------------------------------------ DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.40% BANKS (REGIONAL) - 0.52% Westpac Banking Corp. STRYPES Trust - $3.135 Conv. Pfd. 16,000 505,000 - ------------------------------------------------------------------------------ INSURANCE (LIFE/HEALTH) - 0.88% Conseco Inc. - $4.278 Conv. PRIDES 8,000 844,000 - ------------------------------------------------------------------------------ Total Domestic Convertible Preferred Stocks (Cost $990,600) 1,349,000 - ------------------------------------------------------------------------------ FOREIGN STOCKS & OTHER EQUITY INTERESTS - 0.41% BANKS (MAJOR REGIONAL) - 0.36% Societe Generale (France) 2,150 348,108 - ------------------------------------------------------------------------------ BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00% Knology Holdings, Inc., expiring 10/15/07 (Acquired 03/12/98; Cost $0)(b)(h) 1,000 2,250 - ------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 0.00% Electronic Retailing Systems International, expiring 02/01/04(h) 590 2,950 - ------------------------------------------------------------------------------ HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.00% MVE, Inc., expiring 02/15/02(h) 190 1,900 - ------------------------------------------------------------------------------ METAL FABRICATORS - 0.00% Gulf States Steel, Inc., expiring 04/15/03(h) 230 2 - ------------------------------------------------------------------------------
AIM V.I. DIVERSIFIED INCOME FUND FS-157 240
MARKET SHARES VALUE PERSONAL CARE - 0.00% IHF Capital Inc., Series I, expiring 11/14/99(h) 150 $ 75 - ------------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.01% Clearnet Communications Inc. (Canada), expiring 09/15/05(h) 891 6,237 - ------------------------------------------------------------------------------- Loral Space & Communications Ltd., expiring 01/15/07(h) 580 6,235 - ------------------------------------------------------------------------------- 12,472 - ------------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.00% Versatel, expiring 01/15/07(h) 250 2,531 - ------------------------------------------------------------------------------- TELEPHONE - 0.04% ESAT Holdings Ltd., expiring 02/01/07(h) 470 33,017 - ------------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interest (Cost $279,886) 403,305 - ------------------------------------------------------------------------------- PRINCIPAL AMOUNT(a) U.S. TREASURY SECURITIES - 1.42% 5.625%, 05/15/08 $ 300,000 $ 319,872 - ------------------------------------------------------------------------------- 5.50%, 08/15/28 1,000,000 1,046,970 - ------------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $1,378,625) 1,366,842 - ------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 2.39%(i) Goldman Sachs & Co., 4.40%, 01/04/99(j) (Cost $2,305,989) 2,305,989 2,305,989 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS - 97.91% 94,430,433 - ------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 2.09% 2,014,920 - ------------------------------------------------------------------------------- NET ASSETS - 100.00% $96,445,353 ===============================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Principal amount is in U.S. Dollars, except as indicated by note (e). (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at 12/31/98 was $4,378,259 which represents 4.54% of the Fund's net assets. (c) Zero coupon bond issued at a discount. The interest rate shown represents the rate of original issue discount. (d) Step bond issued at a discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (e) Defaulted security. Currently, the issuer is partially in default with respect to interest payments. (f) Foreign denominated security. Par value and coupon rate are denominated in currency of country indicated. (g) Non-income producing security. (h) Non-income producing security acquired as part of a unit with or in exchange for other securities. (i) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the Notes to Schedule of Investments - (Continued) sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (j) Joint repurchase agreement entered into 12/31/98 with a maturing value of $700,342,222. Collateralized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 of $714,694,897. Abbreviations: CAD - Canadian Dollar Conv. - Convertible Deb. - Debentures DEM - German Deutsche Mark Disc. - Discounted GBP - British Pound Sterling Gtd. - Guaranteed NZD - New Zealand Dollar Pfd. - Preferred PRIDES - Preferred Redeemable Increased Dividend Equity Security Sec. - Secured SEK - Swedish Krona Sr. - Senior STRYPES - Structured Yield Product Exchangeable for Stock Sub. - Subordinated Unsec. - Unsecured See Notes to Financial Statements. AIM V.I. DIVERSIFIED INCOME FUND FS-158 241 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $94,344,460) $94,430,433 - --------------------------------------------------------------------- Foreign currencies, at value (cost $142,597) 144,120 - --------------------------------------------------------------------- Receivables for: Forward currency contracts 206,490 - --------------------------------------------------------------------- Capital stock sold 53,293 - --------------------------------------------------------------------- Dividends and interest 1,847,543 - --------------------------------------------------------------------- Investment for deferred compensation plan 22,013 - --------------------------------------------------------------------- Other assets 452 - --------------------------------------------------------------------- Total assets 96,704,344 - --------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 86,236 - --------------------------------------------------------------------- Deferred compensation plan 22,013 - --------------------------------------------------------------------- Forward currency contracts 70,412 - --------------------------------------------------------------------- Accrued advisory fees 49,252 - --------------------------------------------------------------------- Accrued directors' fees 183 - --------------------------------------------------------------------- Accrued operating expenses 30,895 - --------------------------------------------------------------------- Total liabilities 258,991 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $96,445,353 - --------------------------------------------------------------------- CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 8,818,969 - --------------------------------------------------------------------- Net asset value, offering and redemption price per share $ 10.94 =====================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Interest $ 7,419,812 - ------------------------------------------------------------------------------- Dividends 81,920 - ------------------------------------------------------------------------------- Total investment income 7,501,732 - ------------------------------------------------------------------------------- EXPENSES: Advisory fees 580,119 - ------------------------------------------------------------------------------- Administrative services fees 47,472 - ------------------------------------------------------------------------------- Custodian fees 37,018 - ------------------------------------------------------------------------------- Directors' fees and expenses 8,887 - ------------------------------------------------------------------------------- Other 67,596 - ------------------------------------------------------------------------------- Total expenses 741,092 - ------------------------------------------------------------------------------- Less: Expenses paid directly (615) - ------------------------------------------------------------------------------- Net expenses 740,477 - ------------------------------------------------------------------------------- Net investment income 6,761,255 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS: Net realized gain (loss) from: Investment securities (1,271,441) - ------------------------------------------------------------------------------- Foreign currencies (10,161) - ------------------------------------------------------------------------------- Forward currency contracts 396,825 - ------------------------------------------------------------------------------- (884,777) - ------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of: Investment securities (2,232,376) - ------------------------------------------------------------------------------- Foreign currencies 19,348 - ------------------------------------------------------------------------------- Forward currency contracts (373,121) - ------------------------------------------------------------------------------- (2,586,149) - ------------------------------------------------------------------------------- Net gain (loss) on investment securities, foreign currencies and forward currency contracts (3,470,926) - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 3,290,329 ===============================================================================
See Notes to Financial Statements. AIM V.I. DIVERSIFIED INCOME FUND FS-159 242 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ----------- ----------- OPERATIONS: Net investment income $ 6,761,255 $ 5,150,458 - ----------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies and forward currency contracts (884,777) 1,075,468 - ----------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities, foreign currencies and forward currency contracts (2,586,149) 695,704 - ----------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,290,329 6,921,630 - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income (4,724,444) (77,788) - ----------------------------------------------------------------------------- Distributions to shareholders from net realized gains (1,507,363) -- - ----------------------------------------------------------------------------- Net increase from capital stock transactions 10,068,179 18,851,039 - ----------------------------------------------------------------------------- Net increase in net assets 7,126,701 25,694,881 - ----------------------------------------------------------------------------- NET ASSETS: Beginning of year 89,318,652 63,623,771 - ----------------------------------------------------------------------------- End of year $96,445,353 $89,318,652 ============================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $90,723,425 $80,655,246 - ----------------------------------------------------------------------------- Undistributed net investment income 5,805,150 4,195,077 - ----------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies and forward currency contracts (311,599) 1,653,803 - ----------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and forward currency contracts 228,377 2,814,526 - ----------------------------------------------------------------------------- $96,445,353 $89,318,652 =============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Diversified Income Fund (the "Fund"). The Fund's investment objective is to seek to achieve a high level of current income. The Fund will seek to achieve its objective by investing primarily in a diversified portfolio of foreign and U.S. government and corporate debt securities, including lower rated high yield debt securities (commonly known as "junk bonds"). These high yield bonds may involve special risks in addition to the risks associated with investment in higher rated debt securities. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. Also, the secondary market in which high yield bonds are traded may be less liquid than the market for higher grade bonds. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations--Debt obligations are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Investment securities for which prices are not provided by the pricing service and which are listed or traded on an exchange are valued at the last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, at the mean between the closing bid and asked prices on that day unless the Board of Directors, or persons designated by the Board of Directors, determines that the over-the-counter quotations more closely reflect the current market value of the security. Securities traded in the over-the-counter market, except (i) securities priced by the pricing service, (ii) securities for which representative exchange prices are available, and (iii) securities reported in the NASDAQ National Market System, are valued at the mean between representative last bid and asked prices obtained from AIM V.I. DIVERSIFIED INCOME FUND FS-160 243 an electronic quotation reporting system, if such prices are available, or from established market makers. Each security reported in the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Securities for which market quotations are either not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Fund's officers in accordance with methods which are specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities as well as corporate bonds and U.S. Government securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Foreign Currency Translation - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. C. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. Outstanding forward currency contracts at December 31, 1998 were as follows:
CONTRACT TO UNREALIZED SETTLEMENT ------------------------- APPRECIATION DATE DELIVER RECEIVE VALUE (DEPRECIATION) - ---------- ---------- ----------- ----------- -------------- 02/04/99 CAD 5,000,000 $ 3,281,529 $ 3,267,875 $ 13,654 01/15/99 DEM 2,700,000 1,655,660 1,621,505 34,155 01/15/99 DEM 500,000 296,384 300,279 (3,895) 02/26/99 DEM 3,800,000 2,238,850 2,286,929 (48,079) 01/14/99 GBP 1,250,000 2,107,175 2,074,708 32,467 02/26/99 GBP 2,000,000 3,298,740 3,307,651 (8,911) 01/13/99 NZD 1,900,000 989,425 998,952 (9,527) 02/04/99 NZD 2,500,000 1,329,050 1,314,275 14,775 02/26/99 NZD 1,800,000 959,310 946,223 13,087 01/29/99 SEK 20,500,000 2,626,353 2,528,001 98,352 ----------- ----------- -------- $18,782,476 $18,646,398 $136,078 =========== =========== ========
D. Securities Transactions, Investment Income and Distributions-Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. It is the policy of the Fund not to amortize premiums on bonds for financial reporting purposes. Realized gains or losses from securities transactions are recorded on the identified cost basis. On December 31, 1998 undistributed net investment income was decreased by $426,738 and undistributed net realized gains was increased by $426,738 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. E. Federal Income Taxes - For federal income tax purposes, each portfolio in the Company is taxed as a separate entity. It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $299,947, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of the first $250 million of the Fund's average daily net assets, plus 0.55% of such Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $47,472 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $3,617 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $615 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $615 during the year ended December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. AIM V.I. DIVERSIFIED INCOME FUND FS-161 244 NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 1998 was $55,546,371 and $46,737,685, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $ 4,188,413 - -------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (4,102,440) - -------------------------------------------------------------------------- Net unrealized appreciation of investment securities $ 85,973 ==========================================================================
Investments have the same cost for tax and financial statement purposes. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold 2,291,048 $ 26,553,679 2,860,755 $ 30,505,544 - ------------------------------------------------------------------------------ Issued as reinvestment of distributions 569,635 6,231,807 6,908 77,788 - ------------------------------------------------------------------------------ Reacquired (1,956,150) (22,717,307) (1,114,698) (11,732,293) - ------------------------------------------------------------------------------ 904,533 $ 10,068,179 1,752,965 $ 18,851,039 ==============================================================================
NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ------------------------------------- ------------------- 1998 1997 1996 1995 1995 1994 ------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00 - ----------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.75 0.73 0.73 0.69 0.76 0.54 - ----------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.35) 0.24 0.28 0.94 (1.42) 0.29 - ----------------------------------------------------------------------------------------------- Total from investment operations 0.40 0.97 1.01 1.63 (0.66) 0.83 - ----------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.57) (0.01) (0.68) (0.75) (0.68) (0.35) - ----------------------------------------------------------------------------------------------- Distributions from net realized capital gains (0.18) -- -- -- -- (0.02) - ----------------------------------------------------------------------------------------------- Total distributions (0.75) (0.01) (0.68) (0.75) (0.68) (0.37) - ----------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46 =============================================================================================== Total return(a) 3.58% 9.39% 10.19% 18.11% (6.35)% 8.33% =============================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $96,445 $89,319 $63,624 $44,630 $25,271 $14,530 =============================================================================================== Ratio of expenses to average net assets 0.77%(b) 0.80% 0.86% 0.88%(c) 0.91%(d) 1.05%(c)(d) =============================================================================================== Ratio of net investment income to average net assets 6.99%(b) 6.90% 7.09% 7.65%(c) 8.07%(e) 6.78%(c)(e) =============================================================================================== Portfolio turnover rate 50% 52% 76% 72% 100% 57% ===============================================================================================
(a) Total returns are not annualized for periods less than one year. (b) Ratios are based on average net assets of $96,686,554. (c) Annualized. (d) After fee waivers and/or expense reimbursement. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.03% and 1.69% (annualized) for January 31, 1995 and 1994, respectively. (e) After fee waivers and/or expense reimbursement. Ratios of net investment income to average net assets prior to fee waivers and/or expense reimbursements were 7.95% and 6.14% (annualized) for January 31, 1995 and 1994, respectively. AIM V.I. DIVERSIFIED INCOME FUND FS-162 245 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Global Utilities Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, and the period May 2, 1994 (commencement of operations) through January 31, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Global Utilities Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, and the period May 2, 1994 (commencement of operations) through January 31, 1995 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. GLOBAL UTILITIES FUND FS-163 246 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 48.82% BROADCASTING (TELEVISION, RADIO & CABLE) - 0.54% Univision Communications, Inc.(a) 4,200 $ 151,987 - ------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT - 2.97% ANTEC Corp.(a) 4,000 80,500 - ------------------------------------------------------------------ Carrier Access Corp.(a) 4,300 148,081 - ------------------------------------------------------------------ Lucent Technologies, Inc. 4,500 495,000 - ------------------------------------------------------------------ Tellabs, Inc.(a) 1,600 109,700 - ------------------------------------------------------------------ 833,281 - ------------------------------------------------------------------ ELECTRIC COMPANIES - 17.65% Allegheny Energy, Inc. 7,300 251,850 - ------------------------------------------------------------------ BEC Energy 3,400 140,038 - ------------------------------------------------------------------ Carolina Power & Light Co. 4,400 207,075 - ------------------------------------------------------------------ Cinergy Corp. 5,100 175,313 - ------------------------------------------------------------------ CMS Energy Corp. 1,600 77,500 - ------------------------------------------------------------------ DQE, Inc. 7,000 307,562 - ------------------------------------------------------------------ Edison International 12,000 334,500 - ------------------------------------------------------------------ Energy East Corp. 6,000 339,000 - ------------------------------------------------------------------ FPL Group, Inc. 5,600 345,100 - ------------------------------------------------------------------ IPALCO Enterprises, Inc. 2,000 110,625 - ------------------------------------------------------------------ New Century Energies, Inc. 4,500 219,375 - ------------------------------------------------------------------ Niagara Mohawk Power Corp.(a) 14,800 238,650 - ------------------------------------------------------------------ NIPSCO Industries, Inc. 11,600 353,075 - ------------------------------------------------------------------ Pinnacle West Capital Corp. 10,800 457,650 - ------------------------------------------------------------------ Public Service Co. of New Mexico 9,800 200,287 - ------------------------------------------------------------------ Sierra Pacific Resources 3,700 140,600 - ------------------------------------------------------------------ Southern Co. 11,600 337,125 - ------------------------------------------------------------------ Teco Energy, Inc. 12,300 346,706 - ------------------------------------------------------------------ Texas Utilities Co. 5,240 244,643 - ------------------------------------------------------------------ Unicom Corp. 3,400 131,113 - ------------------------------------------------------------------ 4,957,787 - ------------------------------------------------------------------ ELECTRONICS (INSTRUMENTATION) - 0.43% Quanta Services, Inc.(a) 5,500 121,344 - ------------------------------------------------------------------ MANUFACTURING (SPECIALIZED) - 1.38% Superior TeleCom, Inc. 5,325 251,606 - ------------------------------------------------------------------ USEC, Inc. 9,800 135,975 - ------------------------------------------------------------------ 387,581 - ------------------------------------------------------------------
MARKET SHARES VALUE NATURAL GAS - 4.09% Columbia Energy Group 2,700 $ 155,925 - ----------------------------------------------------------------------- Energen Corp. 2,800 54,600 - ----------------------------------------------------------------------- Enron Corp. 2,200 125,538 - ----------------------------------------------------------------------- KN Energy, Inc. 4,600 167,325 - ----------------------------------------------------------------------- Public Service Co. of North Carolina, Inc. 3,200 83,200 - ----------------------------------------------------------------------- Williams Companies, Inc. (The) 18,000 561,375 - ----------------------------------------------------------------------- 1,147,963 - ----------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 1.07% AES Corp.(a) 2,400 113,700 - ----------------------------------------------------------------------- CalEnergy Co., Inc.(a) 5,400 187,312 - ----------------------------------------------------------------------- 301,012 - ----------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS - 1.33% Alexandria Real Estate Equities, Inc. 4,700 145,406 - ----------------------------------------------------------------------- Boston Properties, Inc. 4,300 131,150 - ----------------------------------------------------------------------- Crescent Real Estate Equities, Co. 2,300 52,900 - ----------------------------------------------------------------------- Golf Trust of America, Inc. 1,600 44,400 - ----------------------------------------------------------------------- 373,856 - ----------------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 0.24% Metzler Group, Inc.(a) 1,400 68,162 - ----------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 5.43% AT&T Corp. 2,640 198,660 - ----------------------------------------------------------------------- Global TeleSystems Group, Inc.(a) 1,800 100,350 - ----------------------------------------------------------------------- IXC Communications, Inc.(a) 5,700 191,663 - ----------------------------------------------------------------------- MCI WorldCom, Inc.(a) 8,887 637,642 - ----------------------------------------------------------------------- Pacific Gateway Exchange, Inc.(a) 3,200 153,800 - ----------------------------------------------------------------------- WinStar Communications, Inc.(a) 6,275 244,725 - ----------------------------------------------------------------------- 1,526,840 - ----------------------------------------------------------------------- TELEPHONE - 13.69% Ameritech Corp. 10,400 659,100 - ----------------------------------------------------------------------- Bell Atlantic Corp. 3,600 204,525 - ----------------------------------------------------------------------- BellSouth Corp. 9,800 488,775 - ----------------------------------------------------------------------- Century Telephone Enterprises, Inc. 6,800 459,000 - ----------------------------------------------------------------------- Cincinnati Bell, Inc. 13,300 502,906 - ----------------------------------------------------------------------- GTE Corp. 3,200 215,800 - ----------------------------------------------------------------------- McLeodUSA, Inc. - Class A(a) 3,100 96,875 - ----------------------------------------------------------------------- NEXTLINK Communications, Inc. - Class A(a) 1,100 31,213 - ----------------------------------------------------------------------- Qwest Communications International, Inc.(a) 6,400 320,000 - ----------------------------------------------------------------------- SBC Communications, Inc. 13,200 707,850 - ----------------------------------------------------------------------- US West, Inc. 2,500 161,563 - ----------------------------------------------------------------------- 3,847,607 - ----------------------------------------------------------------------- Total Domestic Common Stocks (Cost $8,478,351) 13,717,420 - -----------------------------------------------------------------------
AIM V.I. GLOBAL UTILITIES FUND FS-164 247
MARKET SHARES VALUE DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.50% NATURAL GAS - 1.26% El Paso Energy Cap Trust, Inc. - $2.375 Conv. Pfd. 6,700 $ 320,762 - ------------------------------------------------------------------------------ KN Energy, Inc. - $3.548 Conv. Pfd. 900 33,807 - ------------------------------------------------------------------------------ 354,569 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 0.15% WinStar Communications, Inc. - $3.50 Conv. Pfd. 900 41,400 - ------------------------------------------------------------------------------ TELEPHONE - 0.09% NEXTLINK Communications, Inc. - $3.25 Conv. Pfd.(b) (Acquired 03/26/98; Cost $30,000) 600 24,450 - ------------------------------------------------------------------------------ Total Domestic Convertible Preferred Stocks (Cost $466,623) 420,419 - ------------------------------------------------------------------------------ FOREIGN STOCKS & OTHER EQUITY INTERESTS - 23.44% AUSTRALIA - 0.24% Telstra Corp. Ltd. (Telephone) 14,380 67,182 - ------------------------------------------------------------------------------ AUSTRIA - 0.53% Oesterreichische Elektrizitaetswirtschafts A.G. - Class A (Electric Companies) 970 148,277 - ------------------------------------------------------------------------------ BELGIUM - 0.62% Electrabel S.A. (Electric Companies) 400 174,820 - ------------------------------------------------------------------------------ BERMUDA - 0.45% Global Crossing Ltd. (Telecommunications - Long Distance)(a) 2,800 126,351 - ------------------------------------------------------------------------------ CANADA - 1.84% MetroNet Communications Corp. - Class B (Telecommunications)(a) 2,700 90,450 - ------------------------------------------------------------------------------ Teleglobe, Inc. (Telecommunications - Long Distance) 3,800 136,800 - ------------------------------------------------------------------------------ TELUS Corp. (Telecommunications - Cellular & Wireless) 8,500 180,555 - ------------------------------------------------------------------------------ Westcoast Energy Inc. (Natural Gas) 5,500 109,313 - ------------------------------------------------------------------------------ 517,118 - ------------------------------------------------------------------------------ DENMARK - 0.60% Tele Danmark A.S. - ADR (Telephone) 2,500 169,688 - ------------------------------------------------------------------------------ FINLAND - 1.14% Fortum Corp. (Electric Companies)(a) 6,300 38,320 - ------------------------------------------------------------------------------ Nokia Oyj A.B. - Class A - ADR (Communications Equipment) 2,000 240,875 - ------------------------------------------------------------------------------ Sonera Group Oyj (Telecommunications - Cellular/Wireless)(a)(b) (Acquired 11/10/98; Cost $20,144) 2,300 40,617 - ------------------------------------------------------------------------------ 319,812 - ------------------------------------------------------------------------------
MARKET SHARES VALUE FRANCE - 0.98% France Telecom S.A. - ADR (Communications Equipment) 3,500 $ 276,281 - ---------------------------------------------------------------------------- GERMANY - 1.00% RWE A.G. (Electric Companies) 2,425 132,790 - ---------------------------------------------------------------------------- Viag A.G. (Manufacturing - Diversified) 250 146,574 - ---------------------------------------------------------------------------- 279,364 - ---------------------------------------------------------------------------- GREECE - 0.11% Panafon Hellenic Telecom S.A. - GDR (Telecommunications - Cellular/Wireless)(a)(b) (Acquired 11/20/98; Cost $21,696) 1,200 31,800 - ---------------------------------------------------------------------------- HUNGARY - 0.33% Magyar Tavkozlesi - ADR (Telecommunications - Long Distance) 3,100 92,419 - ---------------------------------------------------------------------------- ITALY - 4.40% AEM S.p.A. (Electric Companies)(a)(b) (Acquired 07/17/98; Cost $52,035) 55,000 131,950 - ---------------------------------------------------------------------------- Societa Nordelettrica S.p.A. (Electric Companies) 49,000 216,730 - ---------------------------------------------------------------------------- Telecom Italia Mobile S.p.A. (Telecommunications - Cellular/Wireless) 38,025 280,695 - ---------------------------------------------------------------------------- Telecom Italia S.p.A. (Telephone) 71,277 608,099 - ---------------------------------------------------------------------------- 1,237,474 - ---------------------------------------------------------------------------- JAPAN - 0.42% Nippon Telegraph & Telephone Corp. (Telecommunications - Long Distance) 90 69,464 - ---------------------------------------------------------------------------- Nippon Telegraph & Telephone Corp. - ADR (Telecommunications - Long Distance) 1,300 48,750 - ---------------------------------------------------------------------------- 118,214 - ---------------------------------------------------------------------------- NETHERLANDS - 0.61% Equant N.V. (Computers - Networking)(a) 900 61,032 - ---------------------------------------------------------------------------- Koninklijke KPN N.V. (Telecommunications - Long Distance) 3 150 - ---------------------------------------------------------------------------- Royal PTT Nederland N.V. - ADR (Telephone) 24 1,206 - ---------------------------------------------------------------------------- TNT Post Group N.V. (Air Freight) 284 9,148 - ---------------------------------------------------------------------------- TNT Post Group N.V. - ADR (Air Freight) 3,046 98,985 - ---------------------------------------------------------------------------- 170,521 - ---------------------------------------------------------------------------- PORTUGAL - 2.06% Electricidade de Portugal, S.A. (Electric Companies) 2,900 63,906 - ---------------------------------------------------------------------------- Electricidade de Portugal, S.A. - ADR (Electric Companies) 4,000 178,250 - ---------------------------------------------------------------------------- Portugal Telecom S.A. - ADR (Telephone) 5,700 254,363 - ---------------------------------------------------------------------------- Telecel-Comunicacaoes Pessoais, S.A. (Telecommunications - Cellular/Wireless) 200 40,919 - ---------------------------------------------------------------------------- Telecel-Comunicacaoes Pessoais, S.A. - ADR (Telecommunications - Cellular/Wireless) 200 40,884 - ---------------------------------------------------------------------------- 578,322 - ----------------------------------------------------------------------------
AIM V.I. GLOBAL UTILITIES FUND FS-165 248
MARKET SHARES VALUE SPAIN - 2.81% Autopistas Concesionaria Espanola S.A. (Services - Commercial & Consumer) 3,900 $ 64,784 - ------------------------------------------------------------------------------ Iberdrola S.A. (Electric Companies) 21,000 392,447 - ------------------------------------------------------------------------------ Telefonica S.A. - ADR (Telephone) 2,448 331,398 - ------------------------------------------------------------------------------ 788,629 - ------------------------------------------------------------------------------ SWITZERLAND - 0.75% Swisscom A. G. (Telephone)(a) 500 209,364 - ------------------------------------------------------------------------------ UNITED KINGDOM - 4.55% Hyder PLC (Water Utilities) 4,280 53,702 - ------------------------------------------------------------------------------ National Grid Group PLC (Electric Companies) 10,313 82,225 - ------------------------------------------------------------------------------ PowerGen PLC (Electric Companies) 31,485 413,366 - ------------------------------------------------------------------------------ PowerGen PLC - ADR (Electric Companies) 1,100 58,850 - ------------------------------------------------------------------------------ Scottish & Southern Energy PLC (Electric Companies) 9,706 109,203 - ------------------------------------------------------------------------------ Scottish Power PLC (Electric Companies) 15,950 163,682 - ------------------------------------------------------------------------------ United Utilities PLC (Water Utilities) 15,459 214,008 - ------------------------------------------------------------------------------ Yorkshire Water PLC (Water Utilities) 20,174 184,399 - ------------------------------------------------------------------------------ 1,279,435 - ------------------------------------------------------------------------------ Total Foreign Stocks & Other Equity Interests (Cost $4,201,239) 6,585,071 - ------------------------------------------------------------------------------ PRINCIPAL AMOUNT DOMESTIC NON-CONVERTIBLE BONDS & NOTES - 9.99% BROADCASTING (TELEVISION, RADIO & CABLE) - 0.92% Comcast Cable Communications, Unsec. Unsub. Notes, 6.20%, 11/15/08 $ 150,000 152,997 - ------------------------------------------------------------------------------ Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 100,000 105,750 - ------------------------------------------------------------------------------ 258,747 - ------------------------------------------------------------------------------ CONSUMER FINANCE - 0.30% GMAC, Notes, 9.00%, 10/15/02 75,000 83,698 - ------------------------------------------------------------------------------ ELECTRIC COMPANIES - 2.28% Commonwealth Edison Co., First Mortgage Notes, 7.50%, 07/01/13 130,000 146,998 - ------------------------------------------------------------------------------ El Paso Electric Co., Sec. First Mortgage Bonds Series D, 8.90%, 02/01/06 75,000 84,488 - ------------------------------------------------------------------------------ Series E, 9.40%, 05/01/11 100,000 113,557 - ------------------------------------------------------------------------------ Niagara Mohawk Power Corp., Series G Sr. Unsec. Notes, 7.75%, 10/01/08 100,000 109,310 - ------------------------------------------------------------------------------ Western Resources, Inc. Sr. Unsec. Notes, 6.25%, 08/15/03 75,000 76,482 - ------------------------------------------------------------------------------ Sr. Notes, 7.125%, 08/15/09 100,000 108,860 - ------------------------------------------------------------------------------ 639,695 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE ENTERTAINMENT - 1.06% Time Warner, Inc. Deb., 9.125%, 01/15/13 $ 175,000 $ 220,082 - ---------------------------------------------------------------------------- Unsec. Deb., 6.85%, 01/15/26 75,000 78,903 - ---------------------------------------------------------------------------- 298,985 - ---------------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.38% California Energy Co., Notes, 10.25%, 01/15/04 100,000 105,620 - ---------------------------------------------------------------------------- NATURAL GAS - 1.73% Dynegy Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 100,000 98,671 - ---------------------------------------------------------------------------- Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes, 9.375%, 06/15/06 75,000 75,376 - ---------------------------------------------------------------------------- KN Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 250,000 263,787 - ---------------------------------------------------------------------------- PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 49,408 - ---------------------------------------------------------------------------- 487,242 - ---------------------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION) - 0.37% Tennessee Gas Pipeline Co., Bonds, 7.00%, 03/15/27 100,000 104,712 - ---------------------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT) - 1.41% AES Corp. Sr. Sub. Notes, 10.25%, 07/15/06 75,000 81,188 - ---------------------------------------------------------------------------- Sr. Notes, 8.00%, 12/31/08 100,000 99,671 - ---------------------------------------------------------------------------- Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 86,266 - ---------------------------------------------------------------------------- Indiana Michigan Power, Sec. Lease Obligation Bonds, 9.82%, 12/07/22 93,405 126,767 - ---------------------------------------------------------------------------- 393,892 - ---------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 1.54% AT&T Corp., Sr. Notes, 7.75%, 03/01/07 150,000 173,046 - ---------------------------------------------------------------------------- Sprint Capital Corp., Sr. Unsec. Notes, 6.875%, 11/15/28 250,000 260,540 - ---------------------------------------------------------------------------- 433,586 - ---------------------------------------------------------------------------- Total Domestic Non-Convertible Bonds & Notes (Cost $2,666,053) 2,806,177 - ---------------------------------------------------------------------------- DOMESTIC CONVERTIBLE BONDS - 2.12% COMPUTERS (HARDWARE) - 1.32% Candescent Technology Corp., Conv. Sr. Sub.(b) Deb., 7.00%, 05/01/03 (Acquired 04/17/98-11/09/98; Cost $396,154) 412,000 370,800 - ---------------------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE) - 0.80% Global Telesystems Group, Sr. Sub. Notes, 8.75%, 06/30/00 80,000 225,400 - ---------------------------------------------------------------------------- Total Domestic Convertible Bonds (Cost $539,616) 596,200 - ----------------------------------------------------------------------------
AIM V.I. GLOBAL UTILITIES FUND FS-166 249
PRINCIPAL MARKET AMOUNT VALUE FOREIGN NON-CONVERTIBLE BONDS & NOTES - 1.91%(c) CANADA - 1.91% Bell Canada (Telecommunications -Cellular/Wireless) Unsec. Deb., 10.875%, 10/11/04 CAD $ 50,000 $ 41,386 - --------------------------------------------------------------------------- Series EW Deb., 8.80%, 08/17/05 50,000 38,846 - --------------------------------------------------------------------------- Canadian Oil Debco Inc. (Oil & Gas - Exploration & Production), Deb., 11.00%, 10/31/00 100,000 71,111 - --------------------------------------------------------------------------- Ontario Hydro (Electric Companies), Sr. Unsec. Notes, 9.00%, 06/24/02 200,000 147,456 - --------------------------------------------------------------------------- Teleglobe Canada, Inc. (Telephone), Unsec. Deb., 8.35%, 06/20/03 100,000 73,064 - --------------------------------------------------------------------------- Trans-Canada Pipelines (Natural Gas) Unsec. Notes, 8.55%, 02/01/06 70,000 53,341 - --------------------------------------------------------------------------- Series Q Deb., 10.625%, 10/20/09 125,000 112,603 - --------------------------------------------------------------------------- Total Foreign Non-Convertible Bonds & Notes (Cost $554,253) 537,807 - --------------------------------------------------------------------------- FOREIGN CONVERTIBLE BONDS - 2.18%(c) FRANCE - 0.41% France Telecom (Telephone), Conv. Bonds, 2.00%, 01/01/04 FRF 603,520 114,856 - --------------------------------------------------------------------------- UNITED KINGDOM - 1.77% National Grid Co. PLC, (Electric Companies), Bonds, 4.25%, 02/17/08 GBP 240,000 498,569 - --------------------------------------------------------------------------- Total Foreign Convertible Bonds (Cost $504,277) 613,425 - --------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 1.17% U.S. TREASURY BONDS - 0.61% 7.625%, 02/15/25 130,000 171,000 - --------------------------------------------------------------------------- U.S. TREASURY NOTES - 0.56% 6.625%, 06/30/01 150,000 157,114 - --------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $292,052) 328,114 - --------------------------------------------------------------------------- REPURCHASE AGREEMENT - 8.51%(d) Goldman, Sachs & Co., 4.40%, 01/04/99 (Cost $2,391,815)(e) 2,391,815 2,391,815 - --------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 99.64% 27,996,448 - --------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 0.36% 137,180 - --------------------------------------------------------------------------- NET ASSETS - 100.00% $28,133,628 ===========================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) Restricted security. May be resold to qualified institutional buyers in accordance with provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The market value of these securities at 12/31/98 was $599,617 which represented 2.13% of the Fund's net assets. (c) Foreign denominated security. Par value and coupon are denominated in currency of country indicated. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreements. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 12/31/98 with a maturing value of $700,342,222. Collateralized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 at $714,694,897. Abbreviations: ADR - American Depositary Receipt CAD - Canadian Dollars Conv. - Convertible Deb. - Debentures FRF - French Francs GBP - British Pound Sterling GDR - Global Depositary Receipt Gtd. - Guaranteed Pfd. - Preferred Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated See Notes to Financial Statements. AIM V.I. GLOBAL UTILITIES FUND FS-167 250 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $20,094,279) $27,996,448 - --------------------------------------------------------------------- Foreign currencies, at value (cost $421) 423 - --------------------------------------------------------------------- Receivables for: Capital stock sold 35,150 - --------------------------------------------------------------------- Dividends and interest 124,164 - --------------------------------------------------------------------- Investment for deferred compensation plan 18,328 - --------------------------------------------------------------------- Total assets 28,174,513 - --------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 103 - --------------------------------------------------------------------- Deferred compensation plan 18,328 - --------------------------------------------------------------------- Accrued advisory fees 14,982 - --------------------------------------------------------------------- Accrued directors' fees 175 - --------------------------------------------------------------------- Accrued operating expenses 7,297 - --------------------------------------------------------------------- Total liabilities 40,885 - --------------------------------------------------------------------- Net assets applicable to shares outstanding $28,133,628 - --------------------------------------------------------------------- CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - --------------------------------------------------------------------- Outstanding 1,620,177 - --------------------------------------------------------------------- Net asset value, offering and redemption price per share $17.36 =====================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Dividends (net of $24,555 foreign withholding tax) $ 488,969 - --------------------------------------------------------------------------- Interest 396,662 - --------------------------------------------------------------------------- Total investment income 885,631 - --------------------------------------------------------------------------- EXPENSES: Advisory fees 161,488 - --------------------------------------------------------------------------- Administrative services fees 46,855 - --------------------------------------------------------------------------- Custodian fees 22,823 - --------------------------------------------------------------------------- Directors' fees and expenses 8,926 - --------------------------------------------------------------------------- Professional fees 20,541 - --------------------------------------------------------------------------- Other 14,694 - --------------------------------------------------------------------------- Total expenses 275,327 - --------------------------------------------------------------------------- Less: Expenses paid indirectly (276) - --------------------------------------------------------------------------- Net expenses 275,051 - --------------------------------------------------------------------------- Net investment income 610,580 - --------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities (179,826) - --------------------------------------------------------------------------- Foreign currencies 8,019 - --------------------------------------------------------------------------- Futures contracts 110,924 - --------------------------------------------------------------------------- Option contracts 921 - --------------------------------------------------------------------------- (59,962) - --------------------------------------------------------------------------- Net unrealized appreciation of: Investment securities 3,278,067 - --------------------------------------------------------------------------- Foreign currencies 587 - --------------------------------------------------------------------------- 3,278,654 - --------------------------------------------------------------------------- Net gain on investment securities, foreign currencies, futures and option contracts 3,218,692 - --------------------------------------------------------------------------- Net increase in net assets resulting from operations $3,829,272 ===========================================================================
See Notes to Financial Statements. AIM V.I. GLOBAL UTILITIES FUND FS-168 251 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ----------- ----------- OPERATIONS: Net investment income $ 610,580 $ 458,649 - -------------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies, futures and option contracts (59,962) 176,145 - -------------------------------------------------------------------------------- Net unrealized appreciation of investment securities and foreign currencies 3,278,654 2,779,707 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,829,272 3,414,501 - -------------------------------------------------------------------------------- Dividends to shareholders from net investment income (450,038) -- - -------------------------------------------------------------------------------- Distributions from net realized gains (187,121) (6,795) - -------------------------------------------------------------------------------- Net increase from capital stock transactions 2,862,654 5,095,582 - -------------------------------------------------------------------------------- Net increase in net assets 6,054,767 8,503,288 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of year 22,078,861 13,575,573 - -------------------------------------------------------------------------------- End of year $28,133,628 $22,078,861 ================================================================================ NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $19,698,693 $16,836,039 - -------------------------------------------------------------------------------- Undistributed net investment income 608,138 439,576 - -------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies, futures and option contracts (75,451) 179,652 - -------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and option contracts 7,902,248 4,623,594 - -------------------------------------------------------------------------------- $28,133,628 $22,078,861 ================================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Global Utilities Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income, and as a secondary objective the Fund seeks to achieve capital appreciation, by investing primarily in the common and preferred stocks of public utility companies (either domestic or foreign). Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or, absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having AIM V.I. GLOBAL UTILITIES FUND FS-169 252 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains or losses from securities transactions are recorded on the identified cost basis. On December 31, 1998, undistributed net realized gain (loss) was decreased and undistributed net investment income was increased by $8,020 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $50,716, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. H. Put options - The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the options' underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The option's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a AIM V.I. GLOBAL UTILITIES FUND FS-170 253 portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $46,855 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $3,476 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $276 under an expense offset arrangement. The effect of this arrangement resulted in a reduction of the Fund's total expenses of $276 during the year ended December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 1998 was $10,839,264 and $6,928,632, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $8,036,931 - ------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (134,773) - ------------------------------------------------------------------------- Net unrealized appreciation of investment securities $7,902,158 =========================================================================
Cost of investments for tax purposes is $20,094,290. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 -------------------- --------------------- SHARES AMOUNT SHARES AMOUNT -------- ---------- -------- ----------- Sold 516,028 $8,375,181 505,614 $ 6,971,987 - ----------------------------------------------------------------------- Issued as reinvestment of distributions 37,858 637,159 459 6,795 - ----------------------------------------------------------------------- Reacquired (380,439) (6,149,686) (140,799) (1,883,200) - ----------------------------------------------------------------------- 173,447 $2,862,654 365,274 $ 5,095,582 =======================================================================
NOTE 7 - OPTION CONTRACTS WRITTEN Transactions in call options written during the year ended December 31, 1998 are summarized as follows:
OPTION CONTRACTS ------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED ---------------- Beginning of period -- $ -- - --------------------------------------- Written 14,000 921 - --------------------------------------- Closed (14,000) (921) - --------------------------------------- Expired -- -- - --------------------------------------- End of period -- $ -- =======================================
AIM V.I. GLOBAL UTILITIES FUND FS-177 254 NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995.
DECEMBER 31, --------------------------------------- JANUARY 31, 1998 1997 1996 1995 1995 ------- ------- ------- ------ ----------- Net asset value, beginning of period $ 15.26 $ 12.55 $11.64 $9.69 $10.00 - --------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.35 0.32 0.40 0.29 0.27 - --------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 2.15 2.40 0.99 1.98 (0.33) - --------------------------------------------------------------------------------------- Total from investment operations 2.50 2.72 1.39 2.27 (0.06) - --------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.28) -- (0.41) (0.31) (0.25) - --------------------------------------------------------------------------------------- Distributions from net realized gains (0.12) (0.01) (0.07) (0.01) -- - --------------------------------------------------------------------------------------- Total distributions (0.40) (0.01) (0.48) (0.32) (0.25) - --------------------------------------------------------------------------------------- Net asset value, end of period $ 17.36 $ 15.26 $12.55 $11.64 $ 9.69 ======================================================================================= Total return(a) 16.49% 21.63% 12.07% 23.73% (0.56)% ======================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $28,134 $22,079 $13,576 $8,394 $2,958 ======================================================================================= Ratio of expenses to average net assets 1.11%(b) 1.28% 1.40%(c) 1.47%(c)(d) 1.31%(d)(e) ======================================================================================= Ratio of net investment income to average net assets 2.46%(b) 2.81% 3.56%(c) 3.76%(c)(d) 4.39%(d)(e) ======================================================================================= Portfolio turnover rate 32% 28% 47% 58% 69% =======================================================================================
(a) Totals returns are not annualized for periods less than one year. (b) Ratios are based on average net assets of $24,844,324. (c) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.55%, 3.42% for 1996 and 2.44% (annualized) and 2.79% (annualized) for 1995. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 2.80% (annualized) and 2.90% (annualized), respectively. AIM V.I. GLOBAL UTILITIES FUND FS-172 255 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Government Securities Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Government Securities Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. GOVERNMENT SECURITIES FUND FS-173 256 SCHEDULE OF INVESTMENTS December 31, 1998
PRINCIPAL MARKET AMOUNT VALUE U.S. GOVERNMENT AGENCY SECURITIES - 101.99% FEDERAL FARM CREDIT BANK - 3.88% Medium term notes 5.96%, 07/14/03 $ 200,000 $ 206,830 - --------------------------------------------------------------------------- 5.80%, 06/17/05 1,000,000 1,030,620 - --------------------------------------------------------------------------- 6.22%, 06/17/08 1,000,000 1,020,460 - --------------------------------------------------------------------------- 2,257,910 - --------------------------------------------------------------------------- FEDERAL HOME LOAN BANK - 4.15% Debentures 8.375%, 10/25/99 150,000 154,281 - --------------------------------------------------------------------------- 6.00%, 06/27/00 250,000 253,985 - --------------------------------------------------------------------------- 5.97%, 12/11/00 1,000,000 1,019,900 - --------------------------------------------------------------------------- 7.31%, 07/06/01 500,000 528,280 - --------------------------------------------------------------------------- 8.17%, 12/16/04 400,000 459,712 - --------------------------------------------------------------------------- 2,416,158 - --------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") - 20.98% Debentures 6.13%, 08/19/99 150,000 151,287 - --------------------------------------------------------------------------- Pass through certificates 6.00%, 11/01/08 to 08/01/10 692,788 699,280 - --------------------------------------------------------------------------- 6.50%, 12/01/08 to 01/14/29 8,612,043 8,695,795 - --------------------------------------------------------------------------- 7.00%, 11/01/10 to 01/01/26 1,316,740 1,350,198 - --------------------------------------------------------------------------- 10.50%, 08/01/19 175,967 193,618 - --------------------------------------------------------------------------- 8.50%, 08/01/24 to 12/01/26 1,064,597 1,118,576 - --------------------------------------------------------------------------- 12,208,754 - --------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 35.73% Debentures 4.696%, 06/02/99 500,000 499,600 - --------------------------------------------------------------------------- 8.25%, 12/18/00 500,000 531,060 - --------------------------------------------------------------------------- 7.50%, 02/01/02 1,350,000 1,445,756 - --------------------------------------------------------------------------- 7.55%, 04/22/02 400,000 430,612 - --------------------------------------------------------------------------- 8.50%, 02/01/05 500,000 516,845 - --------------------------------------------------------------------------- 5.75%, 06/15/05 500,000 513,945 - --------------------------------------------------------------------------- Medium term notes 7.375%, 03/28/05 300,000 333,747 - --------------------------------------------------------------------------- Pass through certificates 7.50%, 11/01/09 to 07/01/27 2,444,502 2,519,349 - --------------------------------------------------------------------------- 7.00%, 07/01/11 to 01/01/28 4,745,887 4,860,237 - --------------------------------------------------------------------------- 6.50%, 10/01/10 to 06/01/23(a)(b) 1,446,854 1,470,115 - --------------------------------------------------------------------------- 6.00%, 10/01/13 to 12/01/13 2,981,962 2,992,190 - --------------------------------------------------------------------------- 5.50%, 01/20/14(a)(b) 4,000,000 3,954,261 - --------------------------------------------------------------------------- 8.50%, 09/01/24 173,169 182,368 - ---------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - CONTINUED STRIPS(a) 7.37%, 10/09/19 $1,800,000 $ 538,218 - --------------------------------------------------------------------------- 20,788,303 - --------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 31.68% Pass through certificates 9.50%, 08/15/03 to 09/15/16 52,981 57,265 - --------------------------------------------------------------------------- 9.00%, 09/15/08 to 10/15/16 121,713 130,650 - --------------------------------------------------------------------------- 11.00%, 10/15/15 26,171 29,107 - --------------------------------------------------------------------------- 10.50%, 09/15/17 to 11/15/19 29,476 32,460 - --------------------------------------------------------------------------- 10.00%, 06/15/19 939,580 1,027,665 - --------------------------------------------------------------------------- 6.50%, 12/15/23 417,615 424,790 - --------------------------------------------------------------------------- 8.00%, 10/15/25 to 07/15/26 2,107,426 2,198,099 - --------------------------------------------------------------------------- 7.50%, 05/15/27 to 08/15/28 2,703,267 2,791,836 - --------------------------------------------------------------------------- 7.00%, 04/15/28 to 06/15/28 3,707,135 3,799,189 - --------------------------------------------------------------------------- 6.00%, 01/21/29(a)(b) 8,000,000 7,941,015 - --------------------------------------------------------------------------- 18,432,076 - --------------------------------------------------------------------------- PRIVATE EXPORT FUNDING COMPANY - 0.55% Debentures 7.30%, 01/31/02 300,000 318,633 - --------------------------------------------------------------------------- STUDENT LOAN MARKETING ASSOCIATION - 1.39% Debentures 4.838%, 02/22/99 500,000 499,900 - --------------------------------------------------------------------------- 5.55%, 12/15/99 150,000 151,125 - --------------------------------------------------------------------------- 6.50%, 08/01/02 150,000 157,262 - --------------------------------------------------------------------------- 808,287 - --------------------------------------------------------------------------- TENNESSEE VALLEY AUTHORITY - 3.63% Debentures 6.375%, 06/15/05 2,000,000 2,114,460 - --------------------------------------------------------------------------- Total U.S. Government Agency Securities (Cost $58,447,599) 59,344,581 - --------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 20.37% U.S. TREASURY NOTES & BONDS - 18.75% 6.125%, 12/31/01 500,000 520,840 - --------------------------------------------------------------------------- 6.00%, 07/31/02 300,000 313,026 - --------------------------------------------------------------------------- 5.25%, 08/15/03 3,500,000 3,590,545 - --------------------------------------------------------------------------- 5.50%, 02/15/08 1,000,000 1,059,290 - --------------------------------------------------------------------------- 6.875%, 08/15/25 500,000 606,180 - --------------------------------------------------------------------------- 6.125%, 11/15/27 1,500,000 1,679,850 - --------------------------------------------------------------------------- 5.50%, 08/15/28 3,000,000 3,140,910 - --------------------------------------------------------------------------- 10,910,641 - ---------------------------------------------------------------------------
AIM V.I. GOVERNMENT SECURITIES FUND FS-174 257
PRINCIPAL AMOUNT MARKET VALUE U.S. TREASURY STRIPS(c) - 1.62% 5.378%, 05/15/06 $ 750,000 $ 527,393 - ----------------------------------------------------------------------------- 6.80%, 11/15/18 1,250,000 414,837 - ----------------------------------------------------------------------------- 942,230 - ----------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $11,566,802) 11,852,871 - ----------------------------------------------------------------------------- REPURCHASE AGREEMENT - 6.74%(d) SBC Warburg Dillion Read , Inc., 4.75%, 01/04/99(e) (Cost $3,921,882) 3,921,882 3,921,882 - ----------------------------------------------------------------------------- TOTAL INVESTMENTS - 129.10% 75,119,334 - ----------------------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS - (29.10%) (16,934,653) - ----------------------------------------------------------------------------- NET ASSETS - 100.00% $ 58,184,681 =============================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) At 12/31/98, cost of securities purchased on a when-issued basis totaled $15,929,375. (b) These securities are subject to dollar roll transactions. See Note 1 of Notes to Financial Statements. (c) STRIPS are traded on a discount basis. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 12/31/98 with a maturing value of $1,000,527,778. Collateralized by $2,207,068,000 U.S. Government obligations, 0% to 6.75%, due 06/30/99 to 11/15/21 with an aggregate market value at 12/31/98 of $1,020,001,079. Abbreviation: STRIPS - Separately Traded Registered Interest and Principal Security See Notes to Financial Statements. AIM V.I. GOVERNMENT SECURITIES FUND FS-175 258 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $73,936,283) $ 75,119,334 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 37,061 - ---------------------------------------------------------------------- Interest 482,349 - ---------------------------------------------------------------------- Investment for deferred compensation plan 21,587 - ---------------------------------------------------------------------- Other assets 6,610 - ---------------------------------------------------------------------- Total assets 75,666,941 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 15,929,375 - ---------------------------------------------------------------------- Capital stock reacquired 1,479,184 - ---------------------------------------------------------------------- Deferred compensation plan 21,587 - ---------------------------------------------------------------------- Accrued advisory fees 24,918 - ---------------------------------------------------------------------- Accrued administrative services fees 2,655 - ---------------------------------------------------------------------- Accrued operating expenses 24,541 - ---------------------------------------------------------------------- Total liabilities 17,482,260 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $ 58,184,681 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 5,205,570 - ---------------------------------------------------------------------- Net asset value, offering and redemption price per share $11.18 ======================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Interest $2,890,554 - -------------------------------------------------------------------- EXPENSES: Advisory fees 221,956 - -------------------------------------------------------------------- Administrative services fees 43,129 - -------------------------------------------------------------------- Custodian fees 20,817 - -------------------------------------------------------------------- Directors' fees and expenses 8,172 - -------------------------------------------------------------------- Interest expense 20,591 - -------------------------------------------------------------------- Professional fees 27,641 - -------------------------------------------------------------------- Other 17,635 - -------------------------------------------------------------------- Total expenses 359,941 - -------------------------------------------------------------------- Net investment income 2,530,613 - -------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES: Net realized gain from investment securities 241,993 - -------------------------------------------------------------------- Net unrealized appreciation of investment securities 445,919 - -------------------------------------------------------------------- Net gain on investment securities 687,912 - -------------------------------------------------------------------- Net increase in net assets resulting from operations $3,218,525 ====================================================================
See Notes to Financial Statements. AIM V.I. GOVERNMENT SECURITIES FUND FS-176 259 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ----------- ----------- OPERATIONS: Net investment income $ 2,530,613 $ 1,620,458 - ------------------------------------------------------------------------------ Net realized gain (loss) from investment securities 241,993 (100,162) - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities 445,919 728,502 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 3,218,525 2,248,798 - ------------------------------------------------------------------------------ Dividends from net investment income (1,611,964) (15,600) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 22,778,324 7,040,082 - ------------------------------------------------------------------------------ Net increase in net assets 24,384,885 9,273,280 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of year 33,799,796 24,526,516 - ------------------------------------------------------------------------------ End of year $58,184,681 $33,799,796 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $54,757,995 $31,984,676 - ------------------------------------------------------------------------------ Undistributed net investment income 2,488,745 1,585,397 - ------------------------------------------------------------------------------ Undistributed net realized gain (loss) from investment securities (245,110) (507,409) - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities 1,183,051 737,132 - ------------------------------------------------------------------------------ $58,184,681 $33,799,796 ==============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Government Securities Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the United States Government. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - Debt obligations that are issued or guaranteed by the U.S. Government, its agencies, authorities, and instrumentalities are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate, maturity and seasoning differential. Securities for which market prices are not provided by the pricing service are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations are either not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. B. Securities Transactions, Investment Income and Distributions-Securities transactions are accounted for on a trade date basis. The Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage security held in the portfolio to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar AIM V.I. GOVERNMENT SECURITIES FUND FS-177 260 security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be reinvested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Distributions to shareholders are recorded on the ex- dividend date. Realized gains or losses from securities transactions are recorded on the identified cost basis. On December 31, 1998, undistributed net realized gain (loss) was increased $20,306, undistributed net investment income was decreased $15,301 and paid in capital was decreased $5,005 as a result of permanent book/tax difference due to the differing book/tax treatment for principal paydown losses on mortgage back securities. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - For federal income tax purposes, each portfolio in the Company is taxed as a separate entity. It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $180,497, which expires, if not previously utilized, through the year 2004. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% of the first $250 million of the Fund's average daily net assets, plus 0.45% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $43,129 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Fund's shares. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $3,499 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - BORROWINGS Reverse repurchase agreements involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase such securities at an agreed-upon price and date. Proceeds from reverse repurchase agreements are treated as borrowings. The agreements are collateralized by the underlying securities and are carried at the amount at which the securities will subsequently be repurchased as specified in the agreements. The maximum amount outstanding during the year ended December 31, 1998 was $3,683,750 while borrowings averaged $940,485 per day with a weighted average interest rate of 2.19%. No borrowings existed at December 31, 1998. The Fund will limit its borrowings from banks, reverse repurchase agreements and dollar roll transactions to an aggregate of 33 1/3% of its total assets at the time of investment. The Fund will not purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 1998 was $55,684,558 and $33,064,108, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $1,245,286 - ------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (126,848) - ------------------------------------------------------------------------- Net unrealized appreciation of investment securities $1,118,438 ========================================================================-
Cost of investments for tax purposes is $74,000,896. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ----------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT ---------- ----------- --------- ----------- Sold 3,062,093 $34,224,621 1,272,288 $13,023,561 - --------------------------------------------------------------------------- Issued as reinvestment of dividends 144,183 1,611,964 1,468 15,600 - --------------------------------------------------------------------------- Reacquired (1,168,506) (13,058,261) (591,274) (5,999,079) - --------------------------------------------------------------------------- 2,037,770 $22,778,324 682,482 $ 7,040,082 ===========================================================================
AIM V.I. GOVERNMENT SECURITIES FUND FS-178 261 NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ------------------------------------- ------------------- 1998 1997 1996 1995 1995 1994 ------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00 - ----------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.63(a) 0.59 0.58 0.54 0.53 0.38 - ----------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.20 0.22 (0.35) 0.74 (0.88) 0.10 - ----------------------------------------------------------------------------------------------- Total from investment operations 0.83 0.81 0.23 1.28 (0.35) 0.48 - ----------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.32) (0.01) (0.53) (0.50) (0.50) (0.24) - ----------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24 =============================================================================================== Total return(b) 7.73% 8.16% 2.29% 13.84% (3.42)% 4.78% =============================================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $58,185 $33,800 $24,527 $19,545 $12,887 $10,643 =============================================================================================== Ratio of expenses (exclusive of interest expense) to average net assets 0.76%(c) 0.87% 0.91% 1.19%(d) 0.95%(e) 1.00%(d)(e) =============================================================================================== Ratio of net investment income to average net assets 5.70%(c) 5.85% 5.80% 5.78%(d) 5.51%(f) 4.74%(d)(f) =============================================================================================== Portfolio turnover rate 78% 66% 32% 41% 29% 0% =============================================================================================== Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) -- -- -- -- -- -- =============================================================================================== Average amount of debt outstanding during the period (000s omitted)(g) $ 940 -- -- -- -- -- =============================================================================================== Average number of shares outstanding during the period (000s omitted)(g) 3,992 -- -- -- -- -- =============================================================================================== Average amount of debt per share during the period $0.2355 -- -- -- -- -- ===============================================================================================
(a) Calculated using average shares outstanding. (b) Total returns are not annualized for periods less than one year. (c) Ratios are based on average net assets of $44,391,219. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.10% and 1.80% (annualized) for January 1995 and 1994, respectively. (f) After fee waivers and/or expense reimbursements. Ratios of net investment income to average net assets prior to fee waivers and/or expense reimbursements were 5.35% and 3.94% (annualized) for January 1995 and 1994, respectively. (g) Averages computed on a daily basis. AIM V.I. GOVERNMENT SECURITIES FUND FS-179 262 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Growth and Income Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995 and the period May 2, 1994 (commencement of operations) through January 31, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Growth Fund and Income Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, and the period May 2, 1994 (commencement of operations) through January 31, 1995 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER -------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. GROWTH AND INCOME FUND FS-180 263 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE COMMON STOCKS - 80.72% AUTOMOBILES - 1.00% Ford Motor Co. 215,000 $ 12,617,812 - ------------------------------------------------------------------ BANKS (MONEY CENTER) - 2.36% BankAmerica Corp. 100,000 6,012,500 - ------------------------------------------------------------------ Chase Manhattan Corp. (The) 350,000 23,821,875 - ------------------------------------------------------------------ 29,834,375 - ------------------------------------------------------------------ BROADCASTING (RADIO, TELEVISION & CABLE) - 1.32% Comcast Corp. - Class A 175,000 10,270,313 - ------------------------------------------------------------------ Infinity Manhattan Corp. - Class A(a) 231,300 6,331,838 - ------------------------------------------------------------------ 16,602,151 - ------------------------------------------------------------------ CHEMICALS (DIVERSIFIED) - 1.22% Monsanto Co. 325,000 15,437,500 - ------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT - 0.79% Lucent Technologies, Inc. 90,000 9,900,000 - ------------------------------------------------------------------ COMPUTERS (HARDWARE) - 3.78% Compaq Computer Corp.(b) 170,000 7,129,375 - ------------------------------------------------------------------ Dell Computer Corp.(a) 200,000 14,637,500 - ------------------------------------------------------------------ Hewlett-Packard 110,000 7,514,375 - ------------------------------------------------------------------ International Business Machines Corp. 65,000 12,008,750 - ------------------------------------------------------------------ Sun Microsystems, Inc.(a) 75,000 6,421,875 - ------------------------------------------------------------------ 47,711,875 - ------------------------------------------------------------------ COMPUTERS (NETWORKING) - 2.00% Ascend Communications, Inc.(a) 80,000 5,260,000 - ------------------------------------------------------------------ Cisco Systems, Inc.(a) 215,000 19,954,687 - ------------------------------------------------------------------ 25,214,687 - ------------------------------------------------------------------ COMPUTERS (SOFTWARE & SERVICES) - 5.01% BMC Software, Inc.(a) 225,000 10,026,562 - ------------------------------------------------------------------ Computer Sciences Corp.(a) 100,000 6,443,750 - ------------------------------------------------------------------ Compuware Corp.(a)(b) 60,000 4,687,500 - ------------------------------------------------------------------ HBO & Co. 200,000 5,737,500 - ------------------------------------------------------------------ Microsoft Corp.(a) 210,000 29,124,375 - ------------------------------------------------------------------ Novell, Inc.(a) 400,000 7,250,000 - ------------------------------------------------------------------ 63,269,687 - ------------------------------------------------------------------ CONSUMER FINANCE - 0.97% MBNA Corp. 219,100 5,463,824 - ------------------------------------------------------------------ Providian Financial Corp. 90,000 6,750,000 - ------------------------------------------------------------------ 12,213,824 - ------------------------------------------------------------------ DISTRIBUTORS (FOOD & HEALTH) - 0.91% Bergen Brunswig Corp. - Class A 83,000 2,894,625 - ------------------------------------------------------------------ Cardinal Health, Inc. 112,500 8,535,937 - ------------------------------------------------------------------ 11,430,562 - ------------------------------------------------------------------
MARKET SHARES VALUE ELECTRIC COMPANIES - 1.19% Duke Power Co. 90,000 $ 5,765,625 - -------------------------------------------------------------------------- Edison International 200,000 5,575,000 - -------------------------------------------------------------------------- FPL Group, Inc. 60,000 3,697,500 - -------------------------------------------------------------------------- 15,038,125 - -------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 3.51% AMP, Inc. 150,000 7,809,375 - -------------------------------------------------------------------------- General Electric Co. 310,600 31,700,613 - -------------------------------------------------------------------------- Honeywell, Inc. 60,000 4,518,750 - -------------------------------------------------------------------------- Philips Electronics N.V. - New York Shares -ADR (Netherlands) 3,800 257,213 - -------------------------------------------------------------------------- 44,285,951 - -------------------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 0.66% Intel Corp. 70,000 8,299,375 - -------------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 7.64% American Express Co. 125,000 12,781,250 - -------------------------------------------------------------------------- Associates First Capital Corp. - Class A 150,000 6,356,250 - -------------------------------------------------------------------------- Citigroup, Inc. 375,000 18,562,500 - -------------------------------------------------------------------------- Fannie Mae 210,000 15,540,000 - -------------------------------------------------------------------------- Freddie Mac 300,000 19,331,250 - -------------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 130,000 9,230,000 - -------------------------------------------------------------------------- SunAmerica, Inc. 180,000 14,602,500 - -------------------------------------------------------------------------- 96,403,750 - -------------------------------------------------------------------------- HEALTH CARE (DIVERSIFIED) - 4.10% Abbott Laboratories 90,000 4,410,000 - -------------------------------------------------------------------------- American Home Products Corp. 100,000 5,631,250 - -------------------------------------------------------------------------- Bristol-Myers Squibb Co. 130,000 17,395,625 - -------------------------------------------------------------------------- Johnson & Johnson 75,000 6,290,625 - -------------------------------------------------------------------------- Warner-Lambert Co. 240,000 18,045,000 - -------------------------------------------------------------------------- 51,772,500 - -------------------------------------------------------------------------- HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 6.62% Lilly (Eli) & Co. 160,000 14,220,000 - -------------------------------------------------------------------------- Merck & Co., Inc. 130,000 19,199,375 - -------------------------------------------------------------------------- Pfizer, Inc. 260,000 32,613,750 - -------------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 310,000 17,553,750 - -------------------------------------------------------------------------- 83,586,875 - -------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.34% Allegiance Corp. 100,000 4,662,500 - -------------------------------------------------------------------------- Arterial Vascular Engineering, Inc.(a) 125,000 6,562,500 - -------------------------------------------------------------------------- Baxter International, Inc. 80,700 5,190,019 - -------------------------------------------------------------------------- Becton, Dickinson & Co. 120,000 5,122,500 - -------------------------------------------------------------------------- Boston Scientific Corp.(a) 266,500 7,145,531 - -------------------------------------------------------------------------- Guidant Corp. 65,000 7,166,250 - -------------------------------------------------------------------------- Medtronic, Inc. 85,000 6,311,250 - -------------------------------------------------------------------------- 42,160,550 - --------------------------------------------------------------------------
AIM V.I. GROWTH AND INCOME FUND FS-181 264
MARKET SHARES VALUE HEALTH CARE (SPECIALIZED SERVICES) - 0.76% Omnicare, Inc. 275,000 $ 9,556,250 - --------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.01% Colgate-Palmolive Co. 125,000 11,609,375 - --------------------------------------------------------------------------- Procter & Gamble Co. (The) 150,000 13,696,875 - --------------------------------------------------------------------------- 25,306,250 - --------------------------------------------------------------------------- HOUSEWARES - 0.23% Newell Co. 19,000 783,750 - --------------------------------------------------------------------------- Rubbermaid, Inc. 65,000 2,043,438 - --------------------------------------------------------------------------- 2,827,188 - --------------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 0.77% American International Group, Inc. 100,000 9,662,500 - --------------------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY) - 0.38% Allstate Corp. (The) 125,000 4,828,125 - --------------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.74% Merrill Lynch & Co., Inc. 140,000 9,345,000 - --------------------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.35% Franklin Resources, Inc. 140,000 4,480,000 - --------------------------------------------------------------------------- LODGING-HOTELS - 0.90% Carnival Corp. - Class A(b) 237,000 11,376,000 - --------------------------------------------------------------------------- MACHINERY (DIVERSIFIED) - 0.32% Ingersoll-Rand Co. 86,300 4,050,706 - --------------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 3.08% Corning, Inc. 150,000 6,750,000 - --------------------------------------------------------------------------- Tyco International Ltd. (Bermuda) 340,000 25,648,750 - --------------------------------------------------------------------------- United Technologies Corp. 59,000 6,416,250 - --------------------------------------------------------------------------- 38,815,000 - --------------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 0.28% Diebold, Inc. 100,000 3,568,750 - --------------------------------------------------------------------------- NATURAL GAS - 1.47% El Paso Natural Gas Co. 100,000 3,481,250 - --------------------------------------------------------------------------- Enron Corp. 150,000 8,559,375 - --------------------------------------------------------------------------- Williams Companies, Inc. (The) 210,000 6,549,375 - --------------------------------------------------------------------------- 18,590,000 - --------------------------------------------------------------------------- OIL (INTERNATIONAL INTEGRATED) - 1.49% Royal Dutch Petroleum Co. - New York Shares - ADR (Netherlands) 260,000 12,447,500 - --------------------------------------------------------------------------- Texaco, Inc. 120,000 6,345,000 - --------------------------------------------------------------------------- 18,792,500 - --------------------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT) - 1.88% Baker Hughes, Inc. 375,000 6,632,812 - --------------------------------------------------------------------------- Halliburton Co. 342,500 10,146,563 - --------------------------------------------------------------------------- Schlumberger Ltd. 150,000 6,918,750 - --------------------------------------------------------------------------- 23,698,125 - ---------------------------------------------------------------------------
MARKET SHARES VALUE OIL & GAS (EXPLORATION & PRODUCTION) - 0.71% Conoco, Inc.(a) 430,000 $ 8,976,250 - ---------------------------------------------------------------- PERSONAL CARE - 0.35% Avon Products, Inc. 100,000 4,425,000 - ---------------------------------------------------------------- PHOTOGRAPHY/IMAGING - 0.84% Xerox Corp. 90,000 10,620,000 - ---------------------------------------------------------------- PUBLISHING - 0.34% Dow Jones & Co., Inc. 90,000 4,331,250 - ---------------------------------------------------------------- RAILROADS - 0.39% Kansas City Southern Industries, Inc. 100,000 4,918,750 - ---------------------------------------------------------------- RETAIL (BUILDING SUPPLIES) - 0.41% Lowe's Companies, Inc. 100,000 5,118,750 - ---------------------------------------------------------------- RETAIL (DEPARTMENT STORES) - 1.35% Federated Department Stores, Inc.(a) 100,000 4,356,250 - ---------------------------------------------------------------- J.C. Penney Co., Inc. 130,000 6,093,750 - ---------------------------------------------------------------- Saks, Inc.(a) 210,000 6,628,125 - ---------------------------------------------------------------- 17,078,125 - ---------------------------------------------------------------- RETAIL (DISCOUNTERS) - 0.35% Family Dollar Stores, Inc. 200,000 4,400,000 - ---------------------------------------------------------------- RETAIL (DRUG STORES) - 0.53% Walgreen Co. 115,000 6,734,688 - ---------------------------------------------------------------- RETAIL (FOOD CHAINS) - 0.60% Safeway, Inc.(a) 125,000 7,617,188 - ---------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 2.54% Dayton Hudson Corp. 215,000 11,663,750 - ---------------------------------------------------------------- Wal-Mart Stores, Inc. 250,000 20,359,375 - ---------------------------------------------------------------- 32,023,125 - ---------------------------------------------------------------- RETAIL (SPECIALTY) - 0.80% Office Depot, Inc.(a) 171,400 6,331,088 - ---------------------------------------------------------------- Staples, Inc.(a) 85,091 3,717,411 - ---------------------------------------------------------------- 10,048,499 - ---------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL) - 0.37% TJX Companies, Inc. 160,000 4,640,000 - ---------------------------------------------------------------- SAVINGS & LOAN COMPANIES - 0.45% Washington Mutual, Inc. 150,000 5,728,125 - ---------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER) - 0.21% Service Corp. International 70,000 2,664,375 - ---------------------------------------------------------------- SERVICES (DATA PROCESSING) - 0.62% Equifax, Inc. 100,000 3,418,750 - ---------------------------------------------------------------- Fiserv, Inc.(a) 85,000 4,372,188 - ---------------------------------------------------------------- 7,790,938 - ----------------------------------------------------------------
AIM V.I. GROWTH AND INCOME FUND FS-182 265
MARKET SHARES VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 2.27% MCI WorldCom, Inc.(a) 400,000 $ 28,700,000 - --------------------------------------------------------------------------- TELEPHONE - 3.65% AT&T Corp. 63,100 4,779,825 - --------------------------------------------------------------------------- Ameritech Corp. 135,000 8,555,625 - --------------------------------------------------------------------------- BellSouth Corp. 280,000 13,965,000 - --------------------------------------------------------------------------- GTE Corp. 100,000 6,743,750 - --------------------------------------------------------------------------- SBC Communications, Inc. 225,000 12,065,625 - --------------------------------------------------------------------------- 46,109,825 - --------------------------------------------------------------------------- TOBACCO - 2.86% Philip Morris Companies, Inc. 675,000 36,112,500 - --------------------------------------------------------------------------- Total Common Stocks (Cost $766,711,907) 1,018,713,381 - --------------------------------------------------------------------------- DOMESTIC CONVERTIBLE PREFERRED STOCKS - 6.07% BROADCASTING (TELEVISION, RADIO & CABLE) - 2.07% Chancellor Media Corp., $3.00 Conv. Pfd. 75,000 7,429,687 - --------------------------------------------------------------------------- MediaOne Group, Inc., $3.63 Conv. Pfd. 125,000 8,312,500 - --------------------------------------------------------------------------- MediaOne Group, Inc., $2.25 Series D Conv. Pfd. 110,000 10,450,000 - --------------------------------------------------------------------------- 26,192,187 - --------------------------------------------------------------------------- CHEMICALS (DIVERSIFIED) - 0.43% Monsanto Co., $2.60 Conv. Pfd. 110,000 5,390,000 - --------------------------------------------------------------------------- ELECTRIC COMPANIES - 1.06% Houston Industries, Inc. - $3.22 Conv. Pfd. 125,500 13,350,063 - --------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.56% McKesson Financing Trust, $2.50 Conv. Pfd. 65,000 7,076,875 - --------------------------------------------------------------------------- HOUSEWARES - 0.19% Newell Financial Trust, Inc., $2.625 Conv. Pfd. 47,000 2,479,250 - --------------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 0.42% Conseco, Inc. - $4.278 Conv. PRIDES 50,000 5,275,000 - --------------------------------------------------------------------------- LODGING - HOTELS - 0.52% Royal Caribbean Cruises Ltd. - $3.63 Conv. Pfd. 56,000 6,636,000 - --------------------------------------------------------------------------- RETAIL (DRUG STORES) - 0.48% CVS Corp., $4.23 Conv. Pfd. 60,000 6,011,250 - --------------------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.34% Loral Space & Communications Ltd., $3.00 Conv. Pfd. 80,000 4,250,000 - --------------------------------------------------------------------------- Total Domestic Convertible Preferred Stocks (Cost $65,636,173) 76,660,625 - ---------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE CONVERTIBLE CORPORATE BONDS - 10.03% AUTO PARTS & EQUIPMENT - 0.24% Magna International, Inc., Conv. Sub. Deb., 4.875%, 02/15/05 $3,000,000 $ 3,086,250 - ------------------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 0.29% Jacor Communications, Inc., Conv. Sr. LYON, 5.50%, 06/12/11(c) 4,000,000 3,590,000 - ------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT - 0.30% Comverse Technology, Inc., Conv. Sub. Deb. 4.50%, 07/01/05(d) (Acquired 06/25/98; Cost $3,000,000) 3,000,000 3,795,000 - ------------------------------------------------------------------------------- COMPUTERS (HARDWARE) - 0.43% Candescent Technology Corp., Conv. Sr. Sub. Deb., 7.00%, 05/01/03(d) (Acquired 04/17/98; Cost $5,862,772) 6,000,000 5,400,000 - ------------------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 1.35% EMC Corp., Conv. Sub. Notes, 3.25%, 03/15/02 4,500,000 16,965,000 - ------------------------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES) - 3.13% America Online, Inc., Conv. Sub. Notes, 4.00%, 11/15/02 3,500,000 21,555,625 - ------------------------------------------------------------------------------- America Online, Inc., Conv. Sub. Notes, 4.00%, 11/15/02(d) (Acquired 02/10/98; Cost $2,499,041) 2,000,000 12,317,500 - ------------------------------------------------------------------------------- Veritas Software Corp., Conv. Unsec. Sub. Notes, 5.25%, 11/01/04 3,500,000 5,656,875 - ------------------------------------------------------------------------------- 39,530,000 - ------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 0.57% SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06 3,000,000 7,136,250 - ------------------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 0.32% Loews Corp., Conv. Sub. Notes, 3.125%, 09/15/07 5,000,000 4,000,000 - ------------------------------------------------------------------------------- RETAIL (BUILDING SUPPLIES) - 0.63% Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 3,000,000 7,968,750 - ------------------------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE) - 0.54% Costco Companies, Inc. Conv. Sub. Notes, 3.50%, 08/19/17(e) 8,000,000 6,860,000 - ------------------------------------------------------------------------------- SERVICES (DATA PROCESSING) - 0.36% Affiliated Computer Services, Conv. Sub. Notes, 4.00%, 03/15/05 1,750,000 2,136,093 - ------------------------------------------------------------------------------- Affiliated Computer Services, Conv. Sub. Notes, 4.00%, 03/15/05(d) (Acquired 03/17/98; Cost $2,006,875) 2,000,000 2,441,250 - ------------------------------------------------------------------------------- 4,577,343 - -------------------------------------------------------------------------------
AIM V.I. GROWTH AND INCOME FUND FS-183 266
PRINCIPAL MARKET AMOUNT VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 1.25% Global Telesystems Group, Inc., Conv. Sr. Sub. Deb., 8.75%, 06/30/00 $ 500,000 $ 1,408,750 - -------------------------------------------------------------------------- Global Telesystems Group, Inc., Conv. Sr. Sub. Deb., 8.75%, 06/30/00(d) (Acquired 02/05/98; Cost $1,950,312) 1,500,000 4,226,250 - -------------------------------------------------------------------------- Global Telesystems Group, Inc., Conv. Sr. Sub. Deb., 5.75%, 07/01/10 9,000,000 10,158,750 - -------------------------------------------------------------------------- 15,793,750 - -------------------------------------------------------------------------- WASTE MANAGEMENT - 0.62% USA Waste Services, Inc., Conv. Sub. Notes, 4.50%, 06/01/01 5,000,000 7,843,750 - -------------------------------------------------------------------------- Total Convertible Corporate Bonds (Cost $76,598,280) 126,546,093 - -------------------------------------------------------------------------- FOREIGN CONVERTIBLE NOTES - 0.37% SERVICES - COMMERCIAL & CONSUMER - 0.37% Airtours PLC, Conv. Sub. Notes, 5.75% 01/05/04(d)(e) (Acquired 02/05/98; Cost $4,514,585) GBP 2,729,000 4,660,046 - -------------------------------------------------------------------------- Total Foreign Convertible Notes (Cost $4,514,585) 4,660,046 - -------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 1.26% 9.125%, 05/15/99 10,000,000 10,161,400 - -------------------------------------------------------------------------- 11.75%, 02/15/01 5,000,000 5,716,450 - -------------------------------------------------------------------------- Total U.S. Treasury Securities (Cost $16,353,828) 15,877,850 - -------------------------------------------------------------------------- REPURCHASE AGREEMENT(f) - 2.81% Goldman Sachs & Co., 4.40%, 01/04/99(g) (Cost $35,491,011) 35,491,011 35,491,011 - -------------------------------------------------------------------------- TOTAL INVESTMENTS SECURITIES - 101.26% 1,277,949,006 - -------------------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS - (1.26)% (15,890,237) - -------------------------------------------------------------------------- NET ASSETS - 100.00% $1,262,058,769 ==========================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) A portion of this security is subject to call options written. See Note 8. (c) Zero coupon bond issued at a discount. Interest rate shown represents the rate of original issue discount. (d) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with the procedures established by the Board of Directors. The aggregate market value of these securities at 12/31/98 was $32,840,046 which represented 2.60% of the Fund's net assets. (e) Foreign denominated security. Par value and coupon are denominated in currency of country indicated. (f) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (g) Joint repurchase agreements entered into 12/31/98 with a maturing value of $700,342,222. Collateralized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 of $714,694,897. Investment Abbreviations: ADR - American Depositary Receipt Conv. - Convertible Deb. - Debentures Gtd. - Guaranteed LYON - Liquid Yield Option Notes Pfd. - Preferred PRIDES - Preferred Redeemable Increased Dividend Equity Security Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured See Notes to Financial Statements. AIM V.I. GROWTH AND INCOME FUND FS-184 267 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $965,305,784) $1,277,949,006 - ------------------------------------------------------------------------ Receivables for: Investments sold 24,131,504 - ------------------------------------------------------------------------ Capital stock sold 636,098 - ------------------------------------------------------------------------ Dividends and interest 2,075,051 - ------------------------------------------------------------------------ Investment for deferred compensation plan 21,235 - ------------------------------------------------------------------------ Other assets 14,825 - ------------------------------------------------------------------------ Total assets 1,304,827,719 - ------------------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 39,326,193 - ------------------------------------------------------------------------ Capital stock reacquired 1,033,605 - ------------------------------------------------------------------------ Deferred compensation plan 21,235 - ------------------------------------------------------------------------ Options written (Premiums received $617,471) 1,728,012 - ------------------------------------------------------------------------ Accrued advisory fees 612,379 - ------------------------------------------------------------------------ Accrued directors' fees 325 - ------------------------------------------------------------------------ Accrued operating expenses 47,201 - ------------------------------------------------------------------------ Total liabilities 42,768,950 - ------------------------------------------------------------------------ Net assets applicable to shares outstanding $1,262,058,769 ======================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ------------------------------------------------------------------------ Outstanding 53,131,024 ======================================================================== Net asset value, offering and redemption price per share $23.75 ========================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Dividends (net of $135,103 foreign withholding tax) $ 10,826,657 - ------------------------------------------------------------------------------ Interest 7,206,342 - ------------------------------------------------------------------------------ Total investment income 18,032,999 - ------------------------------------------------------------------------------ EXPENSES: Advisory fees 5,556,833 - ------------------------------------------------------------------------------ Administrative services fees 60,729 - ------------------------------------------------------------------------------ Custodian fees 119,817 - ------------------------------------------------------------------------------ Directors' fees and expenses 15,043 - ------------------------------------------------------------------------------ Interest expense (Note 4) 58,555 - ------------------------------------------------------------------------------ Other 90,585 - ------------------------------------------------------------------------------ Total expenses 5,901,562 - ------------------------------------------------------------------------------ Less: Expenses paid indirectly (18,086) - ------------------------------------------------------------------------------ Net expenses 5,883,476 - ------------------------------------------------------------------------------ Net investment income 12,149,523 - ------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities 7,206,698 - ------------------------------------------------------------------------------ Foreign currencies (127,792) - ------------------------------------------------------------------------------ Futures contracts (845,486) - ------------------------------------------------------------------------------ Option contracts (1,146,650) - ------------------------------------------------------------------------------ 5,086,770 - ------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) of: Investment securities 224,947,459 - ------------------------------------------------------------------------------ Foreign currencies 5,448 - ------------------------------------------------------------------------------ Futures contracts 277,200 - ------------------------------------------------------------------------------ Option contracts (905,620) - ------------------------------------------------------------------------------ 224,324,487 - ------------------------------------------------------------------------------ Net gain from investment securities, foreign currencies, futures and option contracts 229,411,257 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations $241,560,780 ==============================================================================
See Notes to Financial Statements. AIM V.I. GROWTH AND INCOME FUND FS-185 268 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 -------------- ------------ OPERATIONS: Net investment income $ 12,149,523 $ 4,767,618 - ------------------------------------------------------------------------------ Net realized gain from investment securities, foreign currencies, futures and option contracts 5,086,770 9,736,106 - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities, foreign currencies, futures and option contracts 224,324,487 66,989,418 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 241,560,780 81,493,142 - ------------------------------------------------------------------------------ Dividends to shareholders from net investment income (4,873,870) (326,695) - ------------------------------------------------------------------------------ Distributions to shareholders from net realized gains (12,029,125) (490,042) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 398,288,439 349,104,509 - ------------------------------------------------------------------------------ Net increase in net assets 622,946,224 429,780,914 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of year 639,112,545 209,331,631 - ------------------------------------------------------------------------------ End of year $1,262,058,769 $639,112,545 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 935,990,892 $537,626,187 - ------------------------------------------------------------------------------ Undistributed net investment income 11,997,368 4,850,844 - ------------------------------------------------------------------------------ Undistributed net realized gain on sales from investment securities, foreign currencies, futures and option contracts 2,532,381 9,421,873 - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities, foreign currencies and option contracts 311,538,128 87,213,641 - ------------------------------------------------------------------------------ $1,262,058,769 $639,112,545 ==============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Growth and Income Fund (the "Fund"). The Fund's investment objective is to seek growth of capital, with current income as a secondary objective. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between the last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is AIM V.I. GROWTH AND INCOME FUND FS-186 269 substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions-Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains or losses from securities transactions are recorded on the identified cost basis. On December 31, 1998, paid-in capital was increased by $76,266, undistributed net investment income was decreased by $129,129 and undistributed net realized gains increased by $52,863 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. The Fund will not write a covered call option if, immediately thereafter, the aggregate value of the securities underlying all such options, determined as of the dates such options were written, would exceed 25% of the net assets of the Fund. H. Put options - The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the options's underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The options's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM AIM V.I. GROWTH AND INCOME FUND FS-187 270 at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $60,729 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $4,825 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $18,086 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $18,086 during the year ended December 31, 1998. NOTE 4 - BORROWINGS Reverse repurchase agreements involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase such securities at an agreed- upon price and date. Proceeds from reverse repurchase agreements are treated as borrowings. The agreements are collateralized by the underlying securities and are carried at the amount at which the securities will subsequently be repurchased as specified in the agreements. The maximum amount outstanding during the period ended December 31, 1998 was $18,886,000 while borrowings averaged $1,028,866 per day with a weighted average interest rate of 5.60%. NOTE 5 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 6 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 1998 was $1,628,755,153 and $1,243,229,582, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $315,376,411 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (9,991,857) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $305,384,554 ===========================================================================
Cost of investments for tax purposes is $972,564,452. NOTE 7 - CAPITAL STOCK Changes in capital stock outstanding during the year ended December 31, 1998 and 1997 were as follows:
1998 1997 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold 19,890,074 $409,625,526 20,645,975 $361,699,824 - ------------------------------------------------------------------------------ Issued as reinvestment of distributions 751,578 16,902,995 44,268 816,737 - ------------------------------------------------------------------------------ Reacquired (1,379,171) (28,240,082) (745,032) (13,412,052) - ------------------------------------------------------------------------------ 19,262,481 $398,288,439 19,945,211 $349,104,509 ==============================================================================
NOTE 8 - CALL OPTION CONTRACTS WRITTEN Transactions in call options written during the year ended December 31, 1998 are summarized as follows:
CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------- Beginning of year 3,100 $ 624,245 - ----------------------------------------- Written 47,846 11,523,972 - ----------------------------------------- Closed (37,960) (9,750,978) - ----------------------------------------- Exercised (6,648) (1,542,256) - ----------------------------------------- Expired (3,671) (237,512) - ----------------------------------------- End of year 2,667 $ 617,471 =========================================
Open call option contracts written at December 31, 1998 were as follows:
DECEMBER 31, 1998 UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION) - ----- ------------- -------------------------------------- Carnival Corp. Jan $40 750 $226,440 $ 585,938 $ (359,498) - ------------------------------------------------------------------------------------- Compaq Computer Corp. Jan 37 1/2 1,450 213,143 715,937 (502,794) - ------------------------------------------------------------------------------------- Compuware Corp. Jan 70 467 177,888 426,137 (248,249) - ------------------------------------------------------------------------------------- 2,667 $617,471 $1,728,012 $(1,110,541) =====================================================================================
AIM V.I. GROWTH AND INCOME FUND FS-188 271 NOTE 9 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995.
December 31, ------------------------------------------ January 31, 1998 1997 1996 1995 1995 ---------- -------- -------- ------- ----------- Net asset value, beginning of period $ 18.87 $ 15.03 $ 12.68 $ 9.98 $10.00 - ---------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.26(a) 0.13 0.16 0.14 0.11 - ---------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 4.95 3.74 2.36 3.11 (0.02) - ---------------------------------------------------------------------------------------- Total from investment operations 5.21 3.87 2.52 3.25 0.09 - ---------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.09) (0.01) (0.14) (0.14) (0.11) - ---------------------------------------------------------------------------------------- Distributions from net realized gains (0.24) (0.02) (0.03) (0.41) -- - ---------------------------------------------------------------------------------------- Total distributions (0.33) (0.03) (0.17) (0.55) (0.11) - ---------------------------------------------------------------------------------------- Net asset value, end of period $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98 ======================================================================================== Total return(b) 27.68% 25.72% 19.95% 32.65% 0.90% ======================================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $1,262,059 $639,113 $209,332 $38,567 $7,380 ======================================================================================== Ratio of expenses to average net assets 0.65%(c) 0.69% 0.78% 0.78%(d) 1.07%(d)(e) ======================================================================================== Ratio of net investment income to average net assets 1.34%(c) 1.15% 2.05% 1.92%(d) 1.95%(d)(e) ======================================================================================== Portfolio turnover rate 140% 135% 148% 145% 96% ========================================================================================
(a) Calculated using average shares outstanding. (b) Total returns are not annualized for periods less than one year. (c) Ratios are based on average net assets of $905,305,521. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.72% (annualized) and 1.30% (annualized), respectively. AIM V.I. GROWTH AND INCOME FUND FS-189 272 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Growth Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Growth Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER --------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. GROWTH FUND FS-190 273 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 86.97% BANKS (REGIONAL) - 0.40% North Fork Bancorporation, Inc. 62,000 $ 1,484,125 - ------------------------------------------------------------------ BEVERAGES (NON-ALCOHOLIC) - 0.63% PepsiCo, Inc. 57,700 2,362,094 - ------------------------------------------------------------------ BROADCASTING (TELEVISION, RADIO & CABLE) - 5.82% Chancellor Media Corp.(a) 60,500 2,896,437 - ------------------------------------------------------------------ Clear Channel Communications, Inc.(a) 42,476 2,314,942 - ------------------------------------------------------------------ Comcast Corp.-Class A 66,000 3,873,375 - ------------------------------------------------------------------ Cox Communications, Inc.-Class A(a) 49,500 3,421,687 - ------------------------------------------------------------------ Infinity Broadcasting Corp.-Class A(a) 63,500 1,738,312 - ------------------------------------------------------------------ Jacor Communications, Inc.(a) 41,000 2,639,375 - ------------------------------------------------------------------ Liberty Media Group(a) 21,600 994,950 - ------------------------------------------------------------------ Tele-Communications, Inc.-Class A(a) 68,000 3,761,250 - ------------------------------------------------------------------ 21,640,328 - ------------------------------------------------------------------ CHEMICALS (DIVERSIFIED) - 0.52% Monsanto Co. 40,800 1,938,000 - ------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT - 0.70% Lucent Technologies, Inc.(b)(c) 23,500 2,585,000 - ------------------------------------------------------------------ COMPUTERS (HARDWARE) - 5.33% Compaq Computer Corp. 78,800 3,304,675 - ------------------------------------------------------------------ Dell Computer Corp.(a)(b) 74,000 5,415,875 - ------------------------------------------------------------------ International Business Machines Corp. 45,200 8,350,700 - ------------------------------------------------------------------ Sun Microsystems, Inc.(a) 32,000 2,740,000 - ------------------------------------------------------------------ 19,811,250 - ------------------------------------------------------------------ COMPUTERS (NETWORKING) - 3.73% 3Com Corp.(a) 77,500 3,472,969 - ------------------------------------------------------------------ Ascend Communications, Inc.(a) 63,975 4,206,356 - ------------------------------------------------------------------ Cisco Systems, Inc.(a) 66,550 6,176,672 - ------------------------------------------------------------------ 13,855,997 - ------------------------------------------------------------------ COMPUTERS (PERIPHERALS) - 0.99% EMC Corp.(a) 43,500 3,697,500 - ------------------------------------------------------------------ COMPUTERS (SOFTWARE & SERVICES) - 10.98% America Online, Inc. 116,000 18,560,000 - ------------------------------------------------------------------ BMC Software, Inc.(a) 74,000 3,297,625 - ------------------------------------------------------------------ Compuware Corp.(a) 48,000 3,750,000 - ------------------------------------------------------------------ HBO & Co. 53,000 1,520,437 - ------------------------------------------------------------------ Microsoft Corp.(a) 57,300 7,946,794 - ------------------------------------------------------------------ Oracle Corp.(a) 93,000 4,010,625 - ------------------------------------------------------------------ Unisys Corp.(a) 51,000 1,756,313 - ------------------------------------------------------------------ 40,841,794 - ------------------------------------------------------------------
MARKET SHARES VALUE CONSUMER FINANCE - 0.60% Providian Financial Corp. 30,000 $ 2,250,000 - -------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH) - 2.05% AmeriSource Health Corp.-Class A(a) 24,100 1,566,500 - -------------------------------------------------------------- Cardinal Health, Inc. 61,500 4,666,312 - -------------------------------------------------------------- McKesson Corp. 6,500 513,906 - -------------------------------------------------------------- Sysco Corp. 31,800 872,513 - -------------------------------------------------------------- 7,619,231 - -------------------------------------------------------------- ELECTRICAL EQUIPMENT - 2.58% AMP, Inc. 20,000 1,041,250 - -------------------------------------------------------------- General Electric Co. 40,000 4,082,500 - -------------------------------------------------------------- Sanmina Corp.(a) 9,000 562,500 - -------------------------------------------------------------- SCI Systems, Inc.(a) 32,300 1,865,325 - -------------------------------------------------------------- Symbol Technologies, Inc. 31,800 2,033,213 - -------------------------------------------------------------- 9,584,788 - -------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS) - 6.11% Advanced Micro Devices, Inc.(a) 33,600 972,300 - -------------------------------------------------------------- Altera Corp.(a) 45,000 2,739,375 - -------------------------------------------------------------- Analog Devices, Inc.(a) 60,000 1,882,500 - -------------------------------------------------------------- Intel Corp. 66,600 7,896,262 - -------------------------------------------------------------- LSI Logic Corp.(a) 78,000 1,257,750 - -------------------------------------------------------------- Micron Technology, Inc.(a) 26,000 1,314,625 - -------------------------------------------------------------- National Semiconductor Corp.(a) 76,200 1,028,700 - -------------------------------------------------------------- Texas Instruments, Inc. 40,000 3,422,500 - -------------------------------------------------------------- Xilinx, Inc.(a) 34,000 2,214,250 - -------------------------------------------------------------- 22,728,262 - -------------------------------------------------------------- ENTERTAINMENT - 1.08% Time Warner, Inc. 64,600 4,009,238 - -------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR) - 0.51% Applied Materials, Inc.(a) 44,000 1,878,250 - -------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 5.93% American Express Co. 14,000 1,431,500 - -------------------------------------------------------------- Fannie Mae 61,200 4,528,800 - -------------------------------------------------------------- Freddie Mac 97,000 6,250,437 - -------------------------------------------------------------- MBIA, Inc. 58,400 3,828,849 - -------------------------------------------------------------- MGIC Investment Corp. 44,799 1,783,560 - -------------------------------------------------------------- SunAmerica, Inc. 52,000 4,218,500 - -------------------------------------------------------------- 22,041,646 - --------------------------------------------------------------
AIM V.I. GROWTH FUND FS-191 274
MARKET SHARES VALUE HEALTH CARE (DIVERSIFIED) - 3.86% Abbott Laboratories 52,200 $ 2,557,800 - --------------------------------------------------------------------- American Home Products Corp. 18,000 1,013,625 - --------------------------------------------------------------------- Bristol-Myers Squibb Co. 22,300 2,984,019 - --------------------------------------------------------------------- Johnson & Johnson 17,000 1,425,875 - --------------------------------------------------------------------- Warner-Lambert Co. 85,000 6,390,937 - --------------------------------------------------------------------- 14,372,256 - --------------------------------------------------------------------- HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.31% Mylan Laboratories, Inc. 65,600 2,066,400 - --------------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 44,900 2,823,088 - --------------------------------------------------------------------- 4,889,488 - --------------------------------------------------------------------- HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 5.54% Lilly (Eli) & Co. 55,600 4,941,450 - --------------------------------------------------------------------- Merck & Co., Inc. 11,000 1,624,562 - --------------------------------------------------------------------- Pfizer, Inc. 48,000 6,021,000 - --------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 96,900 5,486,962 - --------------------------------------------------------------------- Schering-Plough Corp. 46,000 2,541,500 - --------------------------------------------------------------------- 20,615,474 - --------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.65% Arterial Vascular Engineering, Inc.(a) 45,000 2,362,500 - --------------------------------------------------------------------- Baxter International, Inc. 4,800 308,700 - --------------------------------------------------------------------- Becton, Dickinson & Co. 154,000 6,573,875 - --------------------------------------------------------------------- Biomet, Inc. 49,500 1,992,375 - --------------------------------------------------------------------- Guidant Corp. 38,200 4,211,550 - --------------------------------------------------------------------- Medtronic, Inc. 25,000 1,856,250 - --------------------------------------------------------------------- 17,305,250 - --------------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.58% Procter & Gamble Co. (The) 23,500 2,145,844 - --------------------------------------------------------------------- INSURANCE (LIFE/HEALTH) - 0.13% Nationwide Financial Services, Inc.-Class A 9,600 496,200 - --------------------------------------------------------------------- INSURANCE (MULTI-LINE) - 0.34% American International Group, Inc. 12,900 1,246,463 - --------------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE - 0.33% Paine Webber Group, Inc. 31,700 1,224,413 - --------------------------------------------------------------------- INVESTMENT MANAGEMENT - 0.21% Franklin Resources, Inc. 10,900 348,800 - --------------------------------------------------------------------- T. Rowe Price Associates, Inc. 12,900 441,825 - --------------------------------------------------------------------- 790,625 - --------------------------------------------------------------------- LODGING - HOTELS - 1.41% Carnival Corp.-Class A 109,300 5,246,400 - ---------------------------------------------------------------------
MARKET SHARES VALUE MANUFACTURING (DIVERSIFIED) - 0.61% Tyco International Ltd. 30,000 $ 2,263,125 - ------------------------------------------------------------------ NATURAL GAS - 0.66% Enron Corp. 43,000 2,453,688 - ------------------------------------------------------------------ RETAIL (BUILDING SUPPLIES) - 3.01% Home Depot, Inc. (The) 97,000 5,935,188 - ------------------------------------------------------------------ Lowe's Companies, Inc. 103,100 5,277,431 - ------------------------------------------------------------------ 11,212,619 - ------------------------------------------------------------------ RETAIL (COMPUTERS & ELECTRONICS) - 0.56% Best Buy Co., Inc.(a) 34,000 2,086,750 - ------------------------------------------------------------------ RETAIL (DRUG STORES) - 0.43% CVS Corp. 29,000 1,595,000 - ------------------------------------------------------------------ RETAIL (FOOD CHAINS) - 1.74% Albertson's, Inc. 29,000 1,846,937 - ------------------------------------------------------------------ Kroger Co.(a) 43,000 2,601,500 - ------------------------------------------------------------------ Safeway, Inc.(a) 33,000 2,010,938 - ------------------------------------------------------------------ 6,459,375 - ------------------------------------------------------------------ RETAIL (GENERAL MERCHANDISE) - 1.57% Costco Companies, Inc.(a)(b) 30,000 2,165,625 - ------------------------------------------------------------------ Dayton Hudson Corp. 33,000 1,790,250 - ------------------------------------------------------------------ Wal-Mart Stores, Inc. 23,000 1,873,063 - ------------------------------------------------------------------ 5,828,938 - ------------------------------------------------------------------ RETAIL (SPECIALTY) - 2.68% Office Depot, Inc.(a) 154,000 5,688,375 - ------------------------------------------------------------------ Staples, Inc.(a) 98,000 4,281,375 - ------------------------------------------------------------------ 9,969,750 - ------------------------------------------------------------------ RETAIL (SPECIALTY - APPAREL) - 0.36% Gap, Inc. (The) 24,050 1,352,812 - ------------------------------------------------------------------ SERVICES (ADVERTISING/MARKETING) - 1.12% Outdoor Systems, Inc.(a) 139,450 4,183,500 - ------------------------------------------------------------------ SERVICES (COMMERCIAL & CONSUMER) - 0.22% Service Corp. International 21,500 818,344 - ------------------------------------------------------------------ SERVICES (COMPUTER SYSTEMS) - 0.57% Keane, Inc.(a) 53,100 2,120,681 - ------------------------------------------------------------------ SERVICES (DATA PROCESSING) - 1.24% Ceridian Corp.(a) 26,900 1,877,956 - ------------------------------------------------------------------ Equifax, Inc. 34,400 1,176,050 - ------------------------------------------------------------------ Fiserv, Inc.(a) 30,150 1,550,841 - ------------------------------------------------------------------ 4,604,847 - ------------------------------------------------------------------
AIM V.I. GROWTH FUND FS-192 275
MARKET SHARES VALUE TELECOMMUNICATIONS (LONG DISTANCE) - 4.94% MCI WorldCom, Inc.(a) 256,243 $ 18,385,435 - ------------------------------------------------------------------------------- TOBACCO - 0.94% Philip Morris Companies, Inc. 65,000 3,477,500 - ------------------------------------------------------------------------------- Total Domestic Common Stocks (Cost $204,614,000) 323,472,280 - ------------------------------------------------------------------------------- FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.10% FINLAND - 0.41% Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 5,700 686,494 - ------------------------------------------------------------------------------- Nokia Oyj A.B.-Class A (Communications Equipment) 6,800 827,234 - ------------------------------------------------------------------------------- 1,513,728 - ------------------------------------------------------------------------------- FRANCE - 0.27% Renault S.A. (Automobiles) 22,500 1,010,377 - ------------------------------------------------------------------------------- IRELAND - 0.54% Elan Corp. PLC-ADR (Health Care-Drugs-Generic & Other)(a) 29,000 2,017,313 - ------------------------------------------------------------------------------- NETHERLANDS - 1.00% Philips Electronics N.V. (Electrical Equipment) 19,000 1,274,625 - ------------------------------------------------------------------------------- Philips Electronics N.V.-ADR-New York Shares (Electrical Equipment) 36,000 2,436,750 - ------------------------------------------------------------------------------- 3,711,375 - ------------------------------------------------------------------------------- SWITZERLAND - 0.88% Nestle S.A. (Foods) 1,500 3,266,093 - ------------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $10,115,291) 11,518,886 - ------------------------------------------------------------------------------- OPTIONS PURCHASED - 0.00% NUMBER OF EXERCISE EXPIRATION CONTRACTS PRICE DATE PUTS - 0.00% Lucent Technologies, Inc. (Communications Equipment (Cost $118,378) 157 $95 Jan-99 8,831 - --------------------------------------------------------------
PRINCIPAL AMOUNT FOREIGN CONVERTIBLE BONDS - 0.84% SWITZERLAND - 0.84% Nestle Holding Inc., Conv. Bond, 3.00%, 06/17/02 (Cost $2,941,380) $2,200,000 3,105,903 - ----------------------------------------------------------------------- REPURCHASE AGREEMENT - 8.49%(d) Goldman, Sachs & Co., 4.40%, 01/04/99(e) (Cost $31,583,054) 31,583,054 31,583,054 - ----------------------------------------------------------------------- TOTAL INVESTMENTS - 99.40% 369,688,954 - ----------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 0.60% 2,225,797 - ----------------------------------------------------------------------- NET ASSETS - 100.00% $371,914,751 ======================================================================-
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) A portion of this security is subject to call options. (c) A portion of this security is subject to put options. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreements entered into 12/31/98 with a maturing value of $700,342,222. Collaterialized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 of $714,694,897. Investment Abbreviations: ADR - American Depositary Receipt Conv. - Convertible See Notes to Financial Statements. AIM V.I. GROWTH FUND FS-193 276 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments at market value (cost $249,372,103) $369,688,954 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 1,229,040 - ---------------------------------------------------------------------- Investments sold 2,040,256 - ---------------------------------------------------------------------- Dividends and interest 224,599 - ---------------------------------------------------------------------- Investment for deferred compensation plan 23,264 - ---------------------------------------------------------------------- Other assets 1,985 - ---------------------------------------------------------------------- Total assets 373,208,098 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 61,353 - ---------------------------------------------------------------------- Deferred compensation plan 23,264 - ---------------------------------------------------------------------- Options written (Premiums received $739,850) 953,563 - ---------------------------------------------------------------------- Accrued advisory fees 186,515 - ---------------------------------------------------------------------- Accrued directors' fees 2,560 - ---------------------------------------------------------------------- Accrued administrative services fees 3,637 - ---------------------------------------------------------------------- Accrued operating expenses 62,455 - ---------------------------------------------------------------------- Total liabilities 1,293,347 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $371,914,751 ====================================================================== CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 14,997,262 ====================================================================== Net asset value, offering and redemption price per share $24.80 ======================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Dividends (net of $48,337 foreign withholding tax) $ 1,895,594 - ------------------------------------------------------------------------------ Interest 1,514,487 - ------------------------------------------------------------------------------ Total investment income 3,410,081 - ------------------------------------------------------------------------------ EXPENSES: Advisory fees 1,941,818 - ------------------------------------------------------------------------------ Administrative services fees 50,535 - ------------------------------------------------------------------------------ Custodian fees 98,543 - ------------------------------------------------------------------------------ Directors' fees and expenses 12,859 - ------------------------------------------------------------------------------ Other 79,110 - ------------------------------------------------------------------------------ Total expenses 2,182,865 - ------------------------------------------------------------------------------ Less: Expenses paid indirectly (2,844) - ------------------------------------------------------------------------------ Net expenses 2,180,021 - ------------------------------------------------------------------------------ Net investment income 1,230,060 - ------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS: Net realized gain (loss) from: Investment securities 22,750,448 - ------------------------------------------------------------------------------ Foreign currencies 87,369 - ------------------------------------------------------------------------------ Futures contracts 1,100,047 - ------------------------------------------------------------------------------ Options contracts (1,680,833) - ------------------------------------------------------------------------------ 22,257,031 - ------------------------------------------------------------------------------ Net unrealized appreciation of: Investment securities 67,962,858 - ------------------------------------------------------------------------------ Foreign currencies 4,310 - ------------------------------------------------------------------------------ Options contracts 90,382 - ------------------------------------------------------------------------------ 68,057,550 - ------------------------------------------------------------------------------ Net gain from investment securities, foreign currencies, futures and options contracts 90,314,581 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations $91,544,641 ==============================================================================
See Notes to Financial Statements. AIM V.I. GROWTH FUND FS-194 277 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ------------ ------------ OPERATIONS: Net investment income $ 1,230,060 $ 1,211,773 - ------------------------------------------------------------------------------ Net realized gain from investment securities, foreign currencies, futures and options contracts 22,257,031 22,109,980 - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities, foreign currencies, futures and options contracts 68,057,550 28,069,985 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 91,544,641 51,391,738 - ------------------------------------------------------------------------------ Dividends to shareholders from net investment income (1,180,373) (1,119,140) - ------------------------------------------------------------------------------ Distributions to shareholders from net realized gains (22,129,920) (8,443,286) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 44,828,633 38,384,566 - ------------------------------------------------------------------------------ Net increase in net assets 113,062,981 80,213,878 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of year 258,851,770 178,637,892 - ------------------------------------------------------------------------------ End of year $371,914,751 $258,851,770 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $228,798,661 $183,975,681 - ------------------------------------------------------------------------------ Undistributed net investment income 1,289,508 1,182,806 - ------------------------------------------------------------------------------ Undistributed net realized gain from investment securities, foreign currencies, futures and options contracts 21,719,134 21,643,385 - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities, foreign currencies, futures and options contracts 120,107,448 52,049,898 - ------------------------------------------------------------------------------ $371,914,751 $258,851,770 ==============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Growth Fund (the "Fund"). The Fund's investment objective is to seek growth of capital principally through investment in common stocks of seasoned and better capitalized companies considered by AIM to have strong earnings momentum. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If no mean is available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. AIM V.I. GROWTH FUND FS-195 278 Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $5,653, undistributed net investment income was increased by $57,015 and undistributed net realized gains was decreased by $51,362 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. E. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. F. Put options - The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The option's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. G. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. H. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be AIM V.I. GROWTH FUND FS-196 279 exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $50,535 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $4,004 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $2,844 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $2,844 during the year ended December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the year ended December 31, 1998 was $385,017,854 and $363,389,349, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $120,017,053 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,102,014) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $118,915,039 ===========================================================================
Cost of investments for tax purposes is $250,773,915. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ----------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ------------ Sold 2,345,258 $52,301,342 2,757,339 $ 51,600,352 - ----------------------------------------------------------------------------- Issued as reinvestment of distributions 1,005,621 23,310,293 492,909 9,562,426 - ----------------------------------------------------------------------------- Reacquired (1,407,943) (30,783,002) (1,185,922) (22,778,212) - ----------------------------------------------------------------------------- 1,942,936 $44,828,633 2,064,326 $ 38,384,566 =============================================================================
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN Transactions in call options written during the year ended December 31, 1998 are summarized as follows:
CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------- Beginning of period 1,815 $ 531,904 - ------------------------------------------- Written 10,693 5,020,455 - ------------------------------------------- Closed (7,461) (3,712,050) - ------------------------------------------- Exercised (2,378) (653,704) - ------------------------------------------- Expired (1,472) (446,755) - ------------------------------------------- End of period 1,197 $ 739,850 ===========================================
Open call options held at December 31, 1998 were as follows:
DECEMBER 31, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUM 1998 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - ----- ---------------------------------------------------- Costco Companies, Inc. Jan. 99 55 300 $182,544 $528,750 $(346,206) - -------------------------------------------------------------------------------------- Dell Computer Corp. Jan. 99 70 740 422,526 356,125 66,401 - -------------------------------------------------------------------------------------- Lucent Technologies, Inc. Jan. 99 110 157 134,780 68,688 66,092 - -------------------------------------------------------------------------------------- 1,197 $739,850 $953,563 $(213,713) ======================================================================================
AIM V.I. GROWTH FUND FS-197 280 NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ----------------------------------------- ----------------- 1998 1997 1996 1995 1995 1994 -------- -------- -------- -------- ------- ------- Net asset value, beginning of period $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00 - ------------------------ -------- -------- -------- -------- ------- ------- Income from investment operations: Net investment income 0.08 0.08 0.07 0.09 0.06 0.02 - ------------------------ -------- -------- -------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 6.57 4.27 2.52 3.65 (0.88) 1.59 - ------------------------ -------- -------- -------- -------- ------- ------- Total from investment operations 6.65 4.35 2.59 3.74 (0.82) 1.61 - ------------------------ -------- -------- -------- -------- ------- ------- Less distributions: Dividends from net investment income (0.09) (0.09) (0.06) (0.01) (0.06) (0.02) - ------------------------ -------- -------- -------- -------- ------- ------- Distributions from net realized gains (1.59) (0.68) (0.72) -- -- -- - ------------------------ -------- -------- -------- -------- ------- ------- Total distributions (1.68) (0.77) (0.78) (0.01) (0.06) (0.02) - ------------------------ -------- -------- -------- -------- ------- ------- Net asset value, end of period $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59 ======================== ======== ======== ======== ======== ======= ======= Total return(a) 34.12% 26.87% 18.09% 34.89% (7.11)% 16.07% ======================== ======== ======== ======== ======== ======= ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $371,915 $258,852 $178,638 $102,600 $45,497 $25,115 ======================== ======== ======== ======== ======== ======= ======= Ratio of expenses to average net assets 0.72%(b) 0.73% 0.78% 0.84%(c) 0.95% 0.85%(c)(d) ======================== ======== ======== ======== ======== ======= ======= Ratio of net investment income to average net assets 0.41%(b) 0.54% 0.79% 0.95%(c) 0.71% 0.51%(c)(d) ======================== ======== ======== ======== ======== ======= ======= Portfolio turnover rate 133% 132% 143% 125% 179% 99% ======================== ======== ======== ======== ======== ======= =======
(a) Total returns are not annualized for periods less than one year. (b) Ratios are based on average net assets of $302,803,063. (c) Annualized. (d) After fee waivers and/or expense reimbursement. Ratios of expenses and net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were 1.50% (annualized) and (0.14)% (annualized), respectively. AIM V.I. GROWTH FUND FS-198 281 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. High Yield Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations, the statement of changes in net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. High Yield Fund, as of December 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the period May 1, 1998 (commencement of operations) through December 31, 1998 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ------------------------------ TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. HIGH YIELD FUND FS-199 282 SCHEDULE OF INVESTMENTS December 31, 1998
PRINCIPAL MARKET AMOUNT VALUE CORPORATE BONDS & NOTES - 91.37% AEROSPACE/DEFENSE - 1.42% Pacific Aerospace & Electronics, Inc., Sr. Sub. Notes, 11.25%, 08/01/05(a) (Acquired 07/24/98; Cost $150,000) $150,000 $ 113,250 - ------------------------------------------------------------------------------- AIR FREIGHT - 1.99% Atlas Air, Inc., Sr. Unsec. Notes, 10.75%, 08/01/05 150,000 158,250 - ------------------------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE) - 3.26% EchoStar DBS Corp., Sr. Sec. Gtd. Notes, 12.50%, 07/01/02 150,000 174,000 - ------------------------------------------------------------------------------- Park N View, Inc., Series B Sr. Notes, 13.00%, 05/15/08(b) 100,000 85,500 - ------------------------------------------------------------------------------- 259,500 - ------------------------------------------------------------------------------- BUILDING MATERIALS - 2.37% Congoleum Corp., Sr. Unsec. Notes, 8.625%, 08/01/08 100,000 99,000 - ------------------------------------------------------------------------------- Imperial Home Decor Group, Series B Sr. Unsec. Gtd. Sub. Notes, 11.00%, 03/15/08 100,000 89,500 - ------------------------------------------------------------------------------- 188,500 - ------------------------------------------------------------------------------- COMPUTERS (NETWORKING) - 4.35% Convergent Communications, Series B Sr. Unsec. Notes, 13.00%, 04/01/08(c) 90,000 43,650 - ------------------------------------------------------------------------------- Exodus Communications, Sr. Unsec. Notes, 11.25%, 07/01/08 300,000 303,000 - ------------------------------------------------------------------------------- 346,650 - ------------------------------------------------------------------------------- COMPUTERS (PERIPHERALS) - 0.76% Metal Management, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.00%, 05/15/08 100,000 60,500 - ------------------------------------------------------------------------------- CONSTRUCTION (CEMENT & AGGREGATES) - 1.65% Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%, 06/01/08 150,000 131,250 - ------------------------------------------------------------------------------- CONTAINERS & PACKAGING (PAPER) - 1.05% BPC Holding Corp., Series B Sr. Sec. Notes, 12.50%, 06/15/06 80,000 83,600 - ------------------------------------------------------------------------------- FOODS - 0.80% RAB Enterprise, Inc., Sr. Notes, 13.00%, 05/01/08(a) (Acquired 05/05/98; Cost $90,900) 90,000 63,450 - ------------------------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES - 12.18% Alliance Gaming Corp., Series B Sr. Unsec. Gtd. Sub. Notes, 10.00%, 08/01/07 100,000 90,500 - ------------------------------------------------------------------------------- Circus Circus Enterprises, Inc., Sr. Sub. Notes, 9.25%, 12/01/05 300,000 311,175 - ------------------------------------------------------------------------------- Majestic Star Casino, LLC, Sr. Sec. Notes, 12.75%, 05/15/03 150,000 156,750 - ------------------------------------------------------------------------------- Resort at Summerlin/RAS Co., Sr. Unsec. Sub. PIK Notes, 13.00%, 12/15/07 111,000 106,005 - -------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE GAMING, LOTTERY & PARIMUTUEL COMPANIES - (CONTINUED) Venetian Casino Resort LLC, Sec. Gtd. Mortgage Notes, 12.25%, 11/15/04 $ 325,000 $ 305,500 - ------------------------------------------------------------------------------- 969,930 - ------------------------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.91% Biovail Corp., Sr. Notes, 10.875%, 11/15/05(a) (Acquired 11/10/98 - 11/24/98; Cost $151,650) 150,000 152,250 - ------------------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.34% Alaris Medical, Inc., Sr. Disc. Notes, 11.125%, 08/01/08(a)(d) (Acquired 07/23/98; Cost $121,856) 200,000 110,000 - ------------------------------------------------------------------------------- Alliance Imaging, Sr. Sub. Notes, 9.625%, 12/15/05 200,000 199,000 - ------------------------------------------------------------------------------- Everest Healthcare Services Corp., Sr. Unsec. Gtd. Sub. Notes, 9.75%, 05/01/08 100,000 99,500 - ------------------------------------------------------------------------------- Mediq, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 06/01/08 100,000 96,500 - ------------------------------------------------------------------------------- 505,000 - ------------------------------------------------------------------------------- HOMEBUILDING - 0.24% Schuler Homes, Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 20,000 19,500 - ------------------------------------------------------------------------------- HOUSEWARES - 4.03% Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes, 11.00%, 05/01/05 340,000 321,300 - ------------------------------------------------------------------------------- LODGING-HOTELS - 7.33% American Skiing Co., Series B Sr. Sub. Notes, 12.00%, 07/15/06 300,000 313,500 - ------------------------------------------------------------------------------- Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes, 12.50%, 03/15/07 90,000 89,550 - ------------------------------------------------------------------------------- Stena Line A.B. (Sweden), Sr. Unsec. Yankee Notes, 10.625%, 06/01/08 200,000 181,000 - ------------------------------------------------------------------------------- 584,050 - ------------------------------------------------------------------------------- MANUFACTURING (DIVERSIFIED) - 2.47% Anthony Crane Rentals, Sr. Notes, 10.375%, 08/01/08(a) (Acquired 07/15/98 - 07/20/98; Cost $100,375) 100,000 96,500 - ------------------------------------------------------------------------------- Generac Portable Products, Sr. Sub. Notes, 11.25%, 07/01/06(a) (Acquired 07/02/98; Cost $100,000) 100,000 100,500 - ------------------------------------------------------------------------------- 197,000 - ------------------------------------------------------------------------------- MANUFACTURING (SPECIALIZED) - 7.02% Brand Scaffold Services, Sr. Unsec. Notes, 10.25%, 02/15/08 150,000 143,250 - ------------------------------------------------------------------------------- Derby Cycle Corp., Sr. Notes, 10.00%, 05/15/08(a) (Acquired 05/07/98; Cost $100,000) 100,000 86,500 - ------------------------------------------------------------------------------- Globe Manufacturing Corp., Sr. Sub. Notes, 10.00%, 08/01/08(a) (Acquired 07/28/98 - 10/27/98; Cost $179,193) 200,000 182,000 - ------------------------------------------------------------------------------- Omega Cabinets, Sr. Sub. Notes, 10.50%, 06/15/07 150,000 147,750 - ------------------------------------------------------------------------------- 559,500 - -------------------------------------------------------------------------------
AIM V.I. HIGH YIELD FUND FS-200 283
PRINCIPAL MARKET AMOUNT VALUE OIL & GAS (EXPLORATION & PRODUCTION) - 0.71% Lodestar Holdings Inc., Sr. Unsec. Gtd. Notes, 11.50%, 05/15/05 $ 70,000 $ 56,350 - ------------------------------------------------------------------------------ PUBLISHING - 1.05% Liberty Group Publishing, Inc., Sr. Unsec. Disc. Deb., 11.625%, 02/01/09(d) 150,000 83,250 - ------------------------------------------------------------------------------ RAILROAD - 1.01% TFM SA de CV. (Mexico), Sr. Gtd. Yankee Notes, 10.25%, 06/15/07 95,000 80,750 - ------------------------------------------------------------------------------ RETAIL (GENERAL MERCHANDISE) - 1.97% Plainwell, Inc., Series B Sr. Unsec. Sub. Notes, 11.00%, 03/01/08 200,000 157,000 - ------------------------------------------------------------------------------ RETAIL (SPECIALTY) - 5.00% CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes, 9.625%, 06/01/08 95,000 85,975 - ------------------------------------------------------------------------------ National Vision Associates, Sr. Notes, 12.75%, 10/15/05(a) (Acquired 10/05/98; Cost $148,296) 150,000 159,750 - ------------------------------------------------------------------------------ Rent-A-Center, Inc., Sr. Sub. Notes, 11.00%, 08/15/08(a) (Acquired 08/13/98; Cost $150,000) 150,000 153,000 - ------------------------------------------------------------------------------ 398,725 - ------------------------------------------------------------------------------ SERVICES (FACILITIES & ENVIRONMENTAL) - 0.12% ATC Group Services, Inc., Sr. Unsec. Gtd. Sub. Notes, 12.00%, 01/15/08(e) 100,000 9,500 - ------------------------------------------------------------------------------ SHIPPING - 2.10% Millenium Seacarriers, First Priority Ship Mortgage Notes, 12.00%, 07/15/05(a)(f) (Acquired 07/20/98; Cost $96,733) 100,000 80,500 - ------------------------------------------------------------------------------ Pegasus Shipping Hellas Co. (Bermuda), Sr. Sec. Gtd. Mortgage Notes, 11.875%, 11/15/04 100,000 86,500 - ------------------------------------------------------------------------------ 167,000 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 11.26% Dobson Communications Corp., Sr. Notes, 11.75%, 04/15/07 200,000 203,500 - ------------------------------------------------------------------------------ Metrocall, Inc., Sr. Sub. Notes, 11.00%, 09/15/08(a) (Acquired 12/17/98; Cost $337,634) 340,000 343,400 - ------------------------------------------------------------------------------ Nextel Communications, Inc., Sr. Notes, 12.00%, 11/01/08(a) (Acquired 10/28/98; Cost $221,801) 225,000 247,500 - ------------------------------------------------------------------------------ Spectrasite Holdings, Inc., Sr. Disc. Notes, 12.00%, 07/15/08(a)(d) (Acquired 06/23/98; Cost $117,927) 200,000 103,000 - ------------------------------------------------------------------------------ 897,400 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 5.36% Long Distance Direct, Inc., Sr. Notes, 12.25%, 04/15/08(a)(g) (Acquired 05/05/98 - 10/01/98; Cost $131,064) 140,000 120,750 - ------------------------------------------------------------------------------ Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%, 05/15/08 100,000 102,000 - ------------------------------------------------------------------------------ Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%, 05/15/08(a)(h) (Acquired 11/17/98; Cost $192,036) 200,000 204,000 - ------------------------------------------------------------------------------ 426,750 - ------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE TELEPHONE - 2.48% Dobson Communications Corp., Sr. Unsec. Notes, 12.25%, 06/15/08 $100,000 $ 92,750 - ------------------------------------------------------------------------------ US Xchange LLC, Sr. Unsec. Notes, 15.00%, 07/01/08 100,000 105,250 - ------------------------------------------------------------------------------ 198,000 - ------------------------------------------------------------------------------ TRUCK & PARTS - 1.14% HDA Part System, Inc., Sr. Sub. Notes, 12.00%, 08/01/05(a) (Acquired 07/28/98; Cost $100,000) 100,000 90,500 - ------------------------------------------------------------------------------ Total Corporate Bonds & Notes (Cost $7,595,612) 7,278,705 - ------------------------------------------------------------------------------ SHARES PREFERRED STOCK - 1.04% BROADCASTING (TELEVISION, RADIO, & CABLE) - 1.04% Benedek Communications, 11.50% PIK Pfd. (Cost $100,000) 102 83,130 - ------------------------------------------------------------------------------ WARRANTS - 0.10% BROADCASTING (TELEVISION, RADIO & CABLE) - 0.08% Park N View, Inc., expiring 05/15/08 (United Kingdom)(i) 100 6,200 - ------------------------------------------------------------------------------ COMPUTERS (NETWORKING) - 0.00% Convergent Communications, expiring 04/01/08(i) 360 4 - ------------------------------------------------------------------------------ GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.00% Resort At Summerlin/RAS Co., expiring 12/15/07(i) 100 1 - ------------------------------------------------------------------------------ METAL FABRICATORS - 0.00% Gulf States Steel, Inc., expiring 04/15/03(i) 60 1 - ------------------------------------------------------------------------------ SHIPPING - 0.01% Millenium Seacarriers, expiring 07/15/03(i) 100 625 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 0.01% Long Distance Direct, Inc., expiring 04/13/08(i) 140 350 - ------------------------------------------------------------------------------ Versatel Telecom B.V. (New Zealand), expiring 05/15/08(i) 100 1,012 - ------------------------------------------------------------------------------ 1,362 - ------------------------------------------------------------------------------ Total Warrants (Cost $166) 8,193 - ------------------------------------------------------------------------------ PRINCIPAL AMOUNT REPURCHASE AGREEMENT - 4.47%(j) SBC Warburg Dillion Read, Inc., 4.75%, 1/04/99(k) (Cost $356,078) $356,078 356,078 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS - 96.98% 7,726,106 - ------------------------------------------------------------------------------ OTHER ASSETS LESS LIABILITIES - 3.02% 240,195 - ------------------------------------------------------------------------------ NET ASSETS - 100.00% $7,966,301 ================================================================================
AIM V.I. HIGH YIELD FUND FS-201 284 NOTES TO SCHEDULE OF INVESTMENTS: (a) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at 12/31/98 was $2,202,850 which represented 27.65% of the Fund's net assets. (b) Issued as a unit. This unit also includes 100 warrants to purchase 6.73833 shares of common stock per warrant. (c) Issued as a unit. This unit also includes 360 warrants to purchase 10.8 shares of common stock per warrant. (d) Step bond issued at a discount. Interest rate shown represents the coupon rate at which the bond will accrue at a specified future date. (e) Defaulted security. Currently, the issuer is partially in default with respect to interest payments. (f) Issued as a unit. This unit also includes 100 warrants to purchase 1.9 shares of common stock per warrant. (g) Issued as a unit. This unit also includes 140 warrants to purchase 15.0874 shares of common stock per warrant. (h) Issued as unit. This unit also includes 100 warrants to purchase 6.667 shares of common stock per warrant. (i) Non-income producing security. (j) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investments advisor or its affiliates. (k) Joint repurchase agreement entered into 12/31/98 with a maturing value of $1,000,527,778. Collateralized by $2,207,068,000 U.S. Government obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market value at 12/31/98 of $1,020,001,079. Abbreviations: Deb. - Debentures Disc. - Discounted Gtd. - Guaranteed Pfd. - Preferred PIK - Payment in Kind Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND FS-202 285 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $8,051,856) $ 7,726,106 - ---------------------------------------------------------------------- Cash 7,980 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 15,759 - ---------------------------------------------------------------------- Dividends and interest 194,385 - ---------------------------------------------------------------------- Reimbursement from advisor 28,175 - ---------------------------------------------------------------------- Investment for deferred compensation plan 2,781 - ---------------------------------------------------------------------- Other assets 3,402 - ---------------------------------------------------------------------- Total assets 7,978,588 - ---------------------------------------------------------------------- LIABILITIES: Payables for Capital stock reacquired 57 - ---------------------------------------------------------------------- Deferred compensation plan 2,781 - ---------------------------------------------------------------------- Accrued administrative services fees 663 - ---------------------------------------------------------------------- Accrued operating expenses 8,786 - ---------------------------------------------------------------------- Total liabilities 12,287 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $ 7,966,301 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 901,675 ====================================================================== Net asset value, offering and redemption price per share $8.84 ======================================================================
STATEMENT OF OPERATIONS For the period May 1, 1998 (date operations commenced) through December 31, 1998 INVESTMENT INCOME: Interest $ 360,052 - ------------------------------------------------------------------------------- EXPENSES: Advisory fees 20,728 - ------------------------------------------------------------------------------- Administrative services fees 27,339 - ------------------------------------------------------------------------------- Custodian fees 12,190 - ------------------------------------------------------------------------------- Directors' fees and expenses 6,309 - ------------------------------------------------------------------------------- Professional fees 10,645 - ------------------------------------------------------------------------------- Other 5,661 - ------------------------------------------------------------------------------- Total expenses 82,872 - ------------------------------------------------------------------------------- Less: Expenses paid indirectly (655) - ------------------------------------------------------------------------------- Fees waived and reimbursed by advisor (45,526) - ------------------------------------------------------------------------------- Net expenses 36,691 - ------------------------------------------------------------------------------- Net investment income 323,361 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain (loss) from investment securities (367,230) - ------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities (325,750) - ------------------------------------------------------------------------------- Net gain (loss) from investment securities (692,980) - ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(369,619) ===============================================================================
See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND FS-203 286 STATEMENT OF CHANGES IN NET ASSETS For the period May 1, 1998 (date operations commenced) through December 31, 1998 OPERATIONS: Net investment income $ 323,361 - ----------------------------------------------------------------------------- Net realized gain (loss) from investment securities (367,230) - ----------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities (325,750) - ----------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (369,619) - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income (330,305) - ----------------------------------------------------------------------------- Net increase from capital stock transactions 8,666,225 - ----------------------------------------------------------------------------- Net increase in net assets 7,966,301 - ----------------------------------------------------------------------------- NET ASSETS: Beginning of period - - ----------------------------------------------------------------------------- End of period $7,966,301 ============================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $8,662,066 - ----------------------------------------------------------------------------- Undistributed net investment income (loss) (2,785) - ----------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities (367,230) - ----------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities (325,750) - ----------------------------------------------------------------------------- $7,966,301 =============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. High Yield Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income by investing primarily in publicly traded non-investment grade debt securities. The Fund will also consider the possibility of capital growth when it purchases and sells securities. Debt securities of less than investment grade are considered "high risk" securities (commonly referred to as junk bonds). These bonds may involve special risks in addition to the risks associated with investment in higher rated debt securities. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. Also, the secondary market in which high yield bonds are traded may be less liquid than the market for higher grade bonds. The Fund commenced operations on May 1, 1998. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - Debt securities (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Investment securities for which prices are not provided by the pricing service and which are listed or traded on an exchange (except convertible bonds) are valued at the last sales price on the exchange where principally traded or, lacking any sales on a particular day, at the mean between the closing bid and asked prices on that day unless the Board of Directors, or persons designated by the Board of Directors, determines that over-the- counter quotations more closely reflect the current market value of the security. Securities traded in the over-the-counter market, except (i) securities priced by the pricing service, (ii) securities for which representative exchange prices are available, and (iii) securities reported in the NASDAQ National Market System, are valued at the mean between representative last bid and asked prices obtained from an electronic quotation reporting system, if such prices are available, or from established market makers. Each security reported in the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean between the closing bid and asked prices. Securities for which market quotations either are not AIM V.I. HIGH YIELD FUND FS-204 287 readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $4,159 and undistributed net investment income was increased by $4,159 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund had capital loss carryforwards (which may be carried forward to offset future taxable capital gains, if any) of $247,108, which expires, if not previously utilized, through the year 2006. The Fund cannot distribute capital gains to shareholders until the tax loss carryforwards have been utilized. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% of the first $200 million of the Fund's average daily net assets, plus 0.55% of the Fund's average daily net assets of the next $300 million, plus 0.50% of the Fund's average daily net assets of the next $500 million, plus 0.45% of the Fund's average daily net assets in excess of $1 billion. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM waived fees and reimbursed expenses of $45,526. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the period May 1, 1998 (date operations commenced) through December 31, 1998, AIM was reimbursed $27,339 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the period May 1, 1998 (date operations commenced) through December 31, 1998, the Fund incurred legal fees of $1,697 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $655 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $655 during the period May 1, 1998 (date operations commenced) through December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the period May 1, 1998 (date operations commenced) through December 31, 1998 was $9,741,226 and $1,711,250, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $ 152,901 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (478,651) - ------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities $(325,750) ===============================================================================
Investments have the same cost for tax and financial statements. AIM V.I. HIGH YIELD FUND FS-205 288 NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the period May 1, 1998 (date operations commenced) through December 31, 1998 were as follows:
SHARES AMOUNT ------- ---------- Sold 910,186 $8,767,632 - --------------------------------------------------------- Issued as reinvestment of dividends 37,577 330,305 - --------------------------------------------------------- Reacquired (46,088) (431,712) - --------------------------------------------------------- 901,675 $8,666,225 =========================================================
NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during the period May 1, 1998 (date operations commenced) through December 31, 1998.
1998 ------ Net asset value, beginning of period $10.00 - ---------------------------------------------------------------------- Income from investment operations: Net investment income 0.39 - ---------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (1.15) - ---------------------------------------------------------------------- Total from investment operations (0.76) - ---------------------------------------------------------------------- Less dividends from net investment income (0.40) - ---------------------------------------------------------------------- Net asset value, end of period $ 8.84 ================================================================= ====== Total return(a) (7.61)% ================================================================= ====== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $7,966 ================================================================= ====== Ratio of expenses to average net assets(b) 1.13%(c) ================================================================= ====== Ratio of net investment income to average net assets(d) 9.75%(c) ================================================================= ====== Portfolio turnover rate 39% ================================================================= ======
(a) Total return is not annualized. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 2.50% (annualized). (c) Ratios are based on average net assets of $4,940,917. (d) After fee waivers and/or expense reimbursements. Ratio of net investment income to average net assets prior to fee waivers and/or expense reimbursements was 8.36% (annualized). AIM V.I. HIGH YIELD FUND FS-206 289 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. International Equity Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. International Equity Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ------------------------------ TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. INTERNATIONAL EQUITY FUND FS-207 290 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE FOREIGN STOCKS & OTHER EQUITY INTERESTS - 91.58% ARGENTINA - 1.11% Telefonica de Argentina S.A.-ADR (Telephone) 29,300 $ 818,569 - ----------------------------------------------------------------------------- YPF Sociedad Anonima-ADR (Oil-International Integrated) 65,900 1,841,081 - ----------------------------------------------------------------------------- 2,659,650 - ----------------------------------------------------------------------------- AUSTRALIA - 0.87% AMP Ltd. (Insurance-Life/Health)(a) 120,800 1,529,244 - ----------------------------------------------------------------------------- Cable & Wireless Optus, Ltd. (Telephone)(a) 268,000 562,851 - ----------------------------------------------------------------------------- 2,092,095 - ----------------------------------------------------------------------------- BELGIUM - 3.25% Barco N.V. (Manufacturing-Diversified) 4,000 1,123,010 - ----------------------------------------------------------------------------- Colruyt N.V. (Retail-Food Chains) 2,600 2,167,294 - ----------------------------------------------------------------------------- Delhaize-Le Lion, S.A. (Retail-Food & Drug)(a) 29,000 2,551,664 - ----------------------------------------------------------------------------- UCB S.A. (Manufacturing-Diversified) 320 1,963,531 - ----------------------------------------------------------------------------- 7,805,499 - ----------------------------------------------------------------------------- BRAZIL - 0.95% Companhia Brasileira de Distribuicao Grupo Pao de Acucar-Pfd. (Retail-Food Chain) 57,700 894,350 - ----------------------------------------------------------------------------- Embratel Participacoes S.A. ADR (Telephone)(a) 14,100 196,519 - ----------------------------------------------------------------------------- Petroleo Brasileiro S.A.-Petrobras-Pfd. (Oil & Gas- Exploration & Production) 3,013 341,719 - ----------------------------------------------------------------------------- Tele Celular Sul Participacoes S.A. (Telecommunications-Cellular/Wireless)(a) 1,410 24,587 - ----------------------------------------------------------------------------- Tele Centro Oeste Celular Participacoes S.A. (Telecommunication-Cellular/Wireless)(a) 1 3 - ----------------------------------------------------------------------------- Tele Centro Sul Participacoes S.A. (Telephone)(a) 2,820 117,911 - ----------------------------------------------------------------------------- Tele Sudeste Celular Participacoes S.A. (Telecommunications-Cellular/Wireless) 2,820 58,339 - ----------------------------------------------------------------------------- Telecomunicacoes Brasileiras S.A.-ADR (Telephone) 14,100 1,542 - ----------------------------------------------------------------------------- Telesp Celular Participacoes S.A. (Telecommunications-Cellular/Wireless)(a) 5,640 98,700 - ----------------------------------------------------------------------------- Telesp Celular S.A. (Telecommunications- Cellular/Wireless)(a) 5,500 241,763 - ----------------------------------------------------------------------------- Telesp Participacoes S.A.-ADR (Telephone) 14,100 311,963 - ----------------------------------------------------------------------------- 2,287,396 - ----------------------------------------------------------------------------- CANADA - 5.55% ATI Technologies, Inc. (Computers-Hardware)(a) 43,100 491,565 - ----------------------------------------------------------------------------- Bank of Montreal (Banks-Major Regional) 35,000 1,411,438 - ----------------------------------------------------------------------------- BCE Inc. (Telephone) 32,300 1,221,278 - ----------------------------------------------------------------------------- Bombardier Inc. (Aerospace/Defense) 137,600 1,978,562 - -----------------------------------------------------------------------------
MARKET SHARES VALUE CANADA - (CONTINUED) Canadian National Railway Co. (Railroads) 9,000 $ 466,874 - ------------------------------------------------------------------------------- Imasco Ltd. (Manufacturing-Diversified) 95,600 2,043,216 - ------------------------------------------------------------------------------- Northern Telecom Ltd.-ADR (Communications Equipment) 10,917 547,215 - ------------------------------------------------------------------------------- Royal Bank of Canada (Banks-Major Regional) 32,500 1,626,062 - ------------------------------------------------------------------------------- Suncor Energy, Inc. (Oil-International Integrated) 38,000 1,142,483 - ------------------------------------------------------------------------------- Teleglobe, Inc. (Telecommunications) 39,500 1,419,935 - ------------------------------------------------------------------------------- Toronto-Dominion Bank (Banks-Regional) 28,100 988,092 - ------------------------------------------------------------------------------- 13,336,720 - ------------------------------------------------------------------------------- CROATIA - 0.25% Pliva DD - GDR (Health Care - Drugs-Major Pharmaceutical) (Acquired 05/13/98-05/20/98; Cost $604,917)(b) 36,000 597,600 - ------------------------------------------------------------------------------- FINLAND - 1.81% Nokia Oyj A.B.-Class A (Communications Equipment) 26,200 3,187,285 - ------------------------------------------------------------------------------- Sonera Group Oyj (Telecommunications- Cellular/Wireless) (Acquired 11/10/98; Cost $700,547)(a)(b) 65,250 1,152,262 - ------------------------------------------------------------------------------- 4,339,547 - ------------------------------------------------------------------------------- FRANCE - 16.11% Accor S.A. (Lodging-Hotels) 5,500 1,190,625 - ------------------------------------------------------------------------------- Altran Technologies, S.A. (Services-Commercial & Consumer) 3,900 940,549 - ------------------------------------------------------------------------------- AXA S.A. (Insurance-Multi-Line) 13,000 1,883,889 - ------------------------------------------------------------------------------- Banque Nationale de Paris (Banks-Major Regional) 36,000 2,963,986 - ------------------------------------------------------------------------------- Cap Gemini Sogeti S.A. (Computer-Software & Services) 20,800 3,337,973 - ------------------------------------------------------------------------------- Danone (Foods) 8,000 2,290,008 - ------------------------------------------------------------------------------- Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 19,500 2,253,690 - ------------------------------------------------------------------------------- Essilor International S.A. (Manufacturing- Specialized) 2,275 895,429 - ------------------------------------------------------------------------------- Etablissements Economiques du Casino Guichard- Perrachon (Retail-Food Chains)(a) 20,400 2,124,126 - ------------------------------------------------------------------------------- Legrand S.A. (Housewares) 6,900 1,828,232 - ------------------------------------------------------------------------------- Pinault-Printemps-Redoute S.A. (Retail-General Merchandise) 17,800 3,401,091 - ------------------------------------------------------------------------------- Promodes (Retail-Food Chains) 3,650 2,653,833 - ------------------------------------------------------------------------------- PSA Peugeot Citreon (Automobiles) 7,000 1,083,281 - ------------------------------------------------------------------------------- Renault S.A. (Automobiles) 49,000 2,200,376 - ------------------------------------------------------------------------------- Rexal S.A. (Distributors-Food & Health) 13,600 1,291,994 - ------------------------------------------------------------------------------- Rhone-Poulenc-Class A (Chemicals-Diversified) 25,100 1,291,486 - -------------------------------------------------------------------------------
AIM V.I. INTERNATIONAL EQUITY FUND FS-208 291
MARKET SHARES VALUE FRANCE - (CONTINUED) Societe Generale (Banks-Major Regional) 8,550 $ 1,384,337 - ------------------------------------------------------------------------------- Societe Television Francaise 1 (Broadcasting- Television, Radio & Cable) 6,600 1,174,881 - ------------------------------------------------------------------------------- Suez Lyonnaise des Eaux (Manufacturing-Diversified) 11,600 2,382,467 - ------------------------------------------------------------------------------- Total S.A.-Class B (Oil & Gas-Refining & Marketing) 9,500 961,982 - ------------------------------------------------------------------------------- Valeo S.A. (Auto Parts & Equipment) 15,000 1,181,859 - ------------------------------------------------------------------------------- 38,716,094 - ------------------------------------------------------------------------------- GERMANY - 5.13% Allianz A.G. (Insurance-Multi-Line) 7,600 2,786,606 - ------------------------------------------------------------------------------- Bayerische Vereinsbank A.G. (Banks-Major Regional) 27,000 2,114,438 - ------------------------------------------------------------------------------- BHF-Bank A.G. (Banks-Major Regional) 15,000 603,097 - ------------------------------------------------------------------------------- DaimlerChrysler A.G. (Automobiles) 12,964 1,279,751 - ------------------------------------------------------------------------------- Dresdner Bank A.G. (Banks-Major Regional) 38,500 1,617,259 - ------------------------------------------------------------------------------- Karstadt A.G. (Retail-Department Stores) 6,200 3,236,918 - ------------------------------------------------------------------------------- Porsche A.G.-Pfd. (Automobiles) 300 684,109 - ------------------------------------------------------------------------------- 12,322,178 - ------------------------------------------------------------------------------- HONG KONG - 1.73% China Telecom Ltd. (Telecommunications- Cellular/Wireless)(a) 582,000 1,006,673 - ------------------------------------------------------------------------------- Cosco Pacific Ltd. (Financial-Diversified) 2,444,000 1,017,400 - ------------------------------------------------------------------------------- Hutchison Whampoa Ltd. (Retail-Food Chains) 242,000 1,710,253 - ------------------------------------------------------------------------------- Ng Fung Hong Ltd. (Foods) 460,000 412,671 - ------------------------------------------------------------------------------- 4,146,997 - ------------------------------------------------------------------------------- INDONESIA - 0.34% Gulf Indonesia Resources Ltd. (Oil-International Integrated)(a) 127,400 828,100 - ------------------------------------------------------------------------------- IRELAND - 1.95% Allied Irish Banks PLC (Banks-Regional) 176,500 3,144,447 - ------------------------------------------------------------------------------- Bank of Ireland (Banks-Major Regional) 70,500 1,543,049 - ------------------------------------------------------------------------------- 4,687,496 - ------------------------------------------------------------------------------- ITALY - 6.24% Assicurazioni Generali (Insurance-Multi-Line) 49,100 2,049,918 - ------------------------------------------------------------------------------- Banca Commerciale Italiana (Banks-Major Regional) 109,300 753,930 - ------------------------------------------------------------------------------- Banca di Roma (Banks-Major Regional)(a) 972,000 1,646,760 - ------------------------------------------------------------------------------- Credito Italiano S.p.A. (Banks-Major Regional) 333,400 1,975,950 - ------------------------------------------------------------------------------- Ente Nazionale Idrocarburi S.p.A. (Oil & Gas-Refining & Marketing) 189,000 1,235,070 - ------------------------------------------------------------------------------- Olivetti S.p.A. (Telecommunications- Cellular/Wireless)(a) 378,000 1,315,121 - ------------------------------------------------------------------------------- San Paolo-IMI S.p.A. (Banks-Major Regional) 122,160 2,158,330 - ------------------------------------------------------------------------------- Telecom Italia Mobile S.p.A. (Telecommunications- Cellular/Wireless) 271,000 2,000,484 - ------------------------------------------------------------------------------- Telecom Italia S.p.A. (Telephone) 217,500 1,855,600 - ------------------------------------------------------------------------------- 14,991,163 - -------------------------------------------------------------------------------
MARKET SHARES VALUE JAPAN - 7.68% Advantest Corp. (Electronics-Instrumentation)(a) 34,700 $ 2,199,079 - ------------------------------------------------------------------------------- Alps Electric Co., Ltd. (Electronics-Component Distributors)(a) 47,000 863,206 - ------------------------------------------------------------------------------- Hoya Corp.(Manufacturing-Specialized)(a) 17,000 827,580 - ------------------------------------------------------------------------------- Matsushita Communication Industrial Co., Ltd. (Telephone)(a) 16,000 754,824 - ------------------------------------------------------------------------------- Murata Manufacturing Co., Ltd. (Electronics-Component Distributors) 20,000 830,235 - ------------------------------------------------------------------------------- Nippon Telegraph & Telephone Corp. (Telephone) 1,500 1,157,727 - ------------------------------------------------------------------------------- Nippon Television Network Corp. (Broadcasting- Television, Radio & Cable) 2,690 792,857 - ------------------------------------------------------------------------------- NTT Data Corp. (Computers-Software & Services)(a) 365 1,812,400 - ------------------------------------------------------------------------------- Okuma Corp. (Machine Tools)(a) 205,000 1,066,915 - ------------------------------------------------------------------------------- Omron Corp. (Electronics-Component Distributors)(a) 57,000 780,988 - ------------------------------------------------------------------------------- SMC Corp. (Machinery-Diversified) 5,900 471,039 - ------------------------------------------------------------------------------- Sony Corp. (Electronics-Component Distributors) 16,800 1,223,792 - ------------------------------------------------------------------------------- Takeda Chemical Industries (Health Care - Drugs- Generic & Other) 53,000 2,040,627 - ------------------------------------------------------------------------------- TDK Corp. (Electrical Equipment) 17,000 1,554,346 - ------------------------------------------------------------------------------- Tokyo Electron Ltd. (Electronics-Semiconductors)(a) 55,000 2,088,423 - ------------------------------------------------------------------------------- 18,464,038 - ------------------------------------------------------------------------------- MEXICO - 2.11% Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 39,800 527,350 - ------------------------------------------------------------------------------- Formento Economico Mexicano, S.A. de C.V.-Class B (Beverages-Alcoholic) 70,720 1,882,920 - ------------------------------------------------------------------------------- Grupo Financiero Banamex Accival, S.A. de C.V. (Financial-Diversified)(a) 767,000 1,005,622 - ------------------------------------------------------------------------------- Grupo Modelo S.A. de C.V.-Series C (Beverages- Alcoholic) 387,000 818,955 - ------------------------------------------------------------------------------- Grupo Televisa S.A.-GDR (Entertainment)(a) 33,700 831,969 - ------------------------------------------------------------------------------- 5,066,816 - ------------------------------------------------------------------------------- NETHERLANDS - 6.94% Getronics N.V. (Computers-Software & Services) 42,500 2,104,408 - ------------------------------------------------------------------------------- Heineken N.V. (Beverages-Alcoholic) 46,800 2,815,675 - ------------------------------------------------------------------------------- IHC Caland N.V. (Manufacturing-Specialized) 11,100 460,973 - ------------------------------------------------------------------------------- Koninklijke Ahold N.V. (Retail-Food Chains) 51,800 1,914,024 - ------------------------------------------------------------------------------- Koninklijke Numico N.V. (Foods) 26,000 1,238,952 - ------------------------------------------------------------------------------- Laurus N.V. (Retail-General Merchandise) 23,380 590,039 - ------------------------------------------------------------------------------- Randstad Holdings N.V. (Services-Commercial & Consumer) 13,000 699,074 - ------------------------------------------------------------------------------- Vendex N.V. (Retail-General Merchandise) 33,400 810,904 - ------------------------------------------------------------------------------- Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit (Publishing) 90,100 3,396,380 - ------------------------------------------------------------------------------- Wolters Kluwer N.V. (Specialty Printing)(a) 12,350 2,642,014 - ------------------------------------------------------------------------------- 16,672,443 - -------------------------------------------------------------------------------
AIM V.I. INTERNATIONAL EQUITY FUND FS-209 292
MARKET SHARES VALUE NORWAY - 0.18% Merkantildata A.S.A (Services-Commercial & Consumer) 44,000 $ 434,371 - ------------------------------------------------------------------------------ PHILIPPINES - 0.30% Philippine Long Distance Telephone Co.-ADR (Telephone) 11,600 300,875 - ------------------------------------------------------------------------------ Philippine Long Distance Telephone Co. (Telephone) 16,660 429,935 - ------------------------------------------------------------------------------ 730,810 - ------------------------------------------------------------------------------ PORTUGAL - 2.44% Banco Comercial Portugues, S.A. (Banks-Major Regional) 66,200 2,037,072 - ------------------------------------------------------------------------------ Electricidade de Portugal, S.A.-ADR (Electric Companies) 13,800 614,962 - ------------------------------------------------------------------------------ Electricidade de Portugal, S.A. (Electric Companies) 25,000 550,915 - ------------------------------------------------------------------------------ Portugal Telecom S.A. (Telephone) 35,900 1,647,469 - ------------------------------------------------------------------------------ Telecel-Comunicacaoes Pessoais, S.A. (Telecommunications-Cellular/Wireless) 5,000 1,022,980 - ------------------------------------------------------------------------------ 5,873,398 - ------------------------------------------------------------------------------ SINGAPORE - 0.24% Keppel Corp. Ltd. (Engineering & Construction)(a) 217,000 581,472 - ------------------------------------------------------------------------------ SPAIN - 2.96% Corp. Financiera Reunida, S.A. (Investment Management)(a) 49,400 742,372 - ------------------------------------------------------------------------------ Endesa S.A. (Electric Companies) 49,200 1,302,119 - ------------------------------------------------------------------------------ Iberdrola S.A. (Electric Companies) 148,000 2,765,820 - ------------------------------------------------------------------------------ Telefonica de Espana (Telephone) 50,900 2,260,710 - ------------------------------------------------------------------------------ Telefonica de Espana-Rights, expiring 01/30/99 (Telephone) 50,900 45,143 - ------------------------------------------------------------------------------ 7,116,164 - ------------------------------------------------------------------------------ SWEDEN - 1.09% Hennes & Mauritz A.B.-Class B (Retail-Specialty- Apparel) 21,494 1,752,343 - ------------------------------------------------------------------------------ WM-Data A.B. (Computers-Software & Services) 20,500 873,523 - ------------------------------------------------------------------------------ 2,625,866 - ------------------------------------------------------------------------------ SWITZERLAND - 4.35% Adecco S.A. (Services-Commercial & Consumer)(a) 2,600 1,187,154 - ------------------------------------------------------------------------------ Julius Baer Holding A.G. (Banks-Major Regional)(a) 230 764,601 - ------------------------------------------------------------------------------ Nestle S.A. (Foods) 800 1,741,917 - ------------------------------------------------------------------------------ Novartis A.G. (Health Care-Diversified) 1,380 2,713,370 - ------------------------------------------------------------------------------ UBS A.G. (Banks-Major Regional) 7,107 2,184,062 - ------------------------------------------------------------------------------ Zurich Allied A.G. (Insurance-Multi-Line)(a) 2,500 1,851,515 - ------------------------------------------------------------------------------ 10,442,619 - ------------------------------------------------------------------------------
MARKET SHARES VALUE UNITED KINGDOM - 18.00% Airtours PLC (Services-Commercial & Consumer) 135,450 $ 859,898 - ------------------------------------------------------------------------------- Bodycote International PLC (Chemicals-Specialty) 40,500 553,600 - ------------------------------------------------------------------------------- British Aerospace PLC (Aerospace/Defense) 226,200 1,915,321 - ------------------------------------------------------------------------------- British Energy PLC (Electric Companies-Utilities) 219,000 2,502,198 - ------------------------------------------------------------------------------- British Petroleum Co. PLC (Oil & Gas-Refining & Marketing) 113,800 1,697,390 - ------------------------------------------------------------------------------- Cable & Wireless PLC (Telecommunications- Cellular/Wireless) 107,810 1,324,062 - ------------------------------------------------------------------------------- Compass Group PLC (Services-Commercial & Consumer) 156,000 1,784,980 - ------------------------------------------------------------------------------- EMAP PLC (Publishing) 93,100 1,779,313 - ------------------------------------------------------------------------------- General Electric Co. PLC (Manufacturing-Diversified) 262,600 2,367,551 - ------------------------------------------------------------------------------- GKN PLC (Manufacturing-Diversified) 100,000 1,325,365 - ------------------------------------------------------------------------------- Hays PLC (Services-Commercial & Consumer) 278,800 2,444,106 - ------------------------------------------------------------------------------- Kingfisher PLC (Retail-Department Stores) 261,000 2,821,582 - ------------------------------------------------------------------------------- Ladbroke Group PLC (Leisure Time-Products) 234,000 939,156 - ------------------------------------------------------------------------------- Logica PLC (Computer Software/Services) 92,500 803,986 - ------------------------------------------------------------------------------- Misys PLC (Services-Commercial & Consumer) 127,500 927,558 - ------------------------------------------------------------------------------- Orange PLC (Telecommunications)(a) 172,000 1,996,640 - ------------------------------------------------------------------------------- Pearson PLC (Specialty Printing) 106,300 2,107,553 - ------------------------------------------------------------------------------- Provident Financial PLC (Consumer Finance) 89,543 1,316,982 - ------------------------------------------------------------------------------- Railtrack Group PLC (Shipping) 78,644 2,053,272 - ------------------------------------------------------------------------------- Rentokil Initial PLC (Services-Commercial & Consumer) 375,000 2,823,152 - ------------------------------------------------------------------------------- Seton Scholl Healthcare PLC (Healthcare-Medical Products & Supplies)(a) 42,000 586,318 - ------------------------------------------------------------------------------- Somerfield PLC (Retail-Food Chains) 145,000 968,720 - ------------------------------------------------------------------------------- Stagecoach Holdings PLC (Shipping) 145,000 576,534 - ------------------------------------------------------------------------------- Unilever PLC (Foods) 208,000 2,329,850 - ------------------------------------------------------------------------------- Vodafone Group PLC (Telecommunications- Cellular/Wireless) 185,000 3,000,726 - ------------------------------------------------------------------------------- WPP Group PLC (Services-Advertising/ Marketing) 240,000 1,458,816 - ------------------------------------------------------------------------------- 43,264,629 - ------------------------------------------------------------------------------- TOTAL FOREIGN STOCKS & OTHER EQUITY INTERESTS (Cost $163,998,293) 220,083,161 - -------------------------------------------------------------------------------
AIM V.I. INTERNATIONAL EQUITY FUND FS-210 293
PRINCIPAL MARKET AMOUNT VALUE FOREIGN CONVERTIBLE BONDS - 0.43% HONG KONG - 0.08% Cosco Treasury Co. Ltd. (Financial -Diversified), Conv. Gtd. Bonds, 1.00%, 03/13/03 $ 246,000 $ 178,965 - ------------------------------------------------------------------------------- UNITED KINGDOM - 0.35% Airtours PLC (Services - Commercial & Consumer)(c), Conv. Sub. Notes, 5.75%, 01/05/04 GBP 498,000 850,386 - ------------------------------------------------------------------------------- TOTAL FOREIGN CONVERTIBLE BONDS (Cost $995,959) 1,029,351 - ------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 7.46%(d) Goldman, Sachs & Co., 4.40%, 01/04/99 (Cost $17,938,040)(e) 17,938,040 17,938,040 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS - 99.47% 239,050,552 - ------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 0.53% 1,263,760 - ------------------------------------------------------------------------------- NET ASSETS - 100.00% $240,314,312 ===============================================================================
NOTES TO SCHEDULE OF INVESTMENTS (a) Non-income producing security. (b) Restricted securities. May be resold to qualified institutional buyers in accordance with provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of the these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities was $1,749,862 which at 12/31/98 represented 0.73% of the Fund's net assets. (c) Foreign denominated security. Par value and coupon are denominated in currency of country indicated. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts, and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 12/31/98 with a maturing value of $700,342,222. Collateralized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 of $714,694,897. Abbreviations: ADR - American Depositary Receipt Conv.- Convertible Deb. - Debentures GBP - British Pound Sterling GDR. - Global Depositary Receipt Gtd. - Guaranteed Pfd. - Preferred Sub. - Subordinated See Notes to Financial Statements. AIM V.I. INTERNATIONAL EQUITY FUND FS-211 294 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, at market value (cost $182,932,292) $239,050,552 - ---------------------------------------------------------------------- Foreign currencies, at value (cost $963,811) 982,733 - ---------------------------------------------------------------------- Receivables for: Capital stock sold 50,764 - ---------------------------------------------------------------------- Investments sold 119,244 - ---------------------------------------------------------------------- Dividends and interest 450,298 - ---------------------------------------------------------------------- Investment for deferred compensation plan 23,005 - ---------------------------------------------------------------------- Other assets 687 - ---------------------------------------------------------------------- Total assets 240,677,283 - ---------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 136,066 - ---------------------------------------------------------------------- Deferred compensation plan 23,005 - ---------------------------------------------------------------------- Accrued advisory fees 148,393 - ---------------------------------------------------------------------- Accrued directors' fees 397 - ---------------------------------------------------------------------- Accrued operating expenses 55,110 - ---------------------------------------------------------------------- Total liabilities 362,971 - ---------------------------------------------------------------------- Net assets applicable to shares outstanding $240,314,312 ====================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ---------------------------------------------------------------------- Outstanding 12,249,573 ====================================================================== Net asset value, offering and redemption price per share $19.62 ======================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Dividends (net of $426,044 foreign withholding tax) $ 3,026,033 - ------------------------------------------------------------------------- Interest 937,102 - ------------------------------------------------------------------------- Total investment income 3,963,135 - ------------------------------------------------------------------------- EXPENSES: Advisory fees 1,744,127 - ------------------------------------------------------------------------- Administrative services fees 68,587 - ------------------------------------------------------------------------- Custodian fees 220,051 - ------------------------------------------------------------------------- Directors' fees and expenses 8,867 - ------------------------------------------------------------------------- Other 70,591 - ------------------------------------------------------------------------- Total expenses 2,112,223 - ------------------------------------------------------------------------- Less: Expenses paid indirectly (1,417) - ------------------------------------------------------------------------- Net expenses 2,110,806 - ------------------------------------------------------------------------- Net investment income 1,852,329 - ------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities 12,331,648 - ------------------------------------------------------------------------- Foreign currencies 929,906 - ------------------------------------------------------------------------- 13,261,554 - ------------------------------------------------------------------------- Net unrealized appreciation of: Investment securities 15,897,320 - ------------------------------------------------------------------------- Foreign currencies 72,349 - ------------------------------------------------------------------------- 15,969,669 - ------------------------------------------------------------------------- Net gain from investment securities and foreign currencies 29,231,223 - ------------------------------------------------------------------------- Net increase in net assets resulting from operations $31,083,552 =========================================================================
See Notes to Financial Statements. AIM V.I. INTERNATIONAL EQUITY FUND FS-212 295 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ------------ ------------ OPERATIONS: Net investment income $ 1,852,329 $ 1,372,766 - ----------------------------------------------------------------------------- Net realized gain (loss) from investment securities and foreign currencies 13,261,554 (743,433) - ----------------------------------------------------------------------------- Net unrealized appreciation of investment securities and foreign currencies 15,969,669 11,878,346 - ----------------------------------------------------------------------------- Net increase in net assets resulting from operations 31,083,552 12,507,679 - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income (1,910,166) (955,397) - ----------------------------------------------------------------------------- Distributions to shareholders from net realized gains -- (3,362,028) - ----------------------------------------------------------------------------- Net increase from capital stock transactions 118,341 37,094,253 - ----------------------------------------------------------------------------- Net increase in net assets 29,291,727 45,284,507 - ----------------------------------------------------------------------------- NET ASSETS: Beginning of year 211,022,585 165,738,078 - ----------------------------------------------------------------------------- End of year $240,314,312 $211,022,585 ============================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $170,399,034 $170,283,064 - ----------------------------------------------------------------------------- Undistributed net investment income 1,934,360 1,134,854 - ----------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies 11,825,802 (580,780) - ----------------------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 56,155,116 40,185,447 - ----------------------------------------------------------------------------- $240,314,312 $211,022,585 =============================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to AIM V.I. International Equity Fund (the "Fund"). The Fund's investment objective is to seek to provide long-term growth of capital by investing in a diversified portfolio of international equity securities the issuers of which are considered by AIM to have strong earnings momentum. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the AIM V.I. INTERNATIONAL EQUITY FUND FS-213 296 supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. C. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. D. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Realized gains or losses are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on an accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. E. Federal Income Taxes - The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. On December 31, 1998, undistributed income was increased by $857,343, undistributed net realized gains decreased by $854,972 and paid-in-capital decreased by $2,371 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of the first $250 million of the Fund's average daily net assets, plus 0.70% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $68,587 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $2,525 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $1,417 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $1,417 during the year ended December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 1998 was $162,175,992 and $169,568,442, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $60,248,789 - -------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (5,508,109) - -------------------------------------------------------------------------- Net unrealized appreciation of investment securities $54,740,680 ==========================================================================
Cost of investments for tax purposes is $184,309,872. NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ----------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ------------ Sold 2,410,075 $46,643,002 2,963,552 $ 50,938,182 - ----------------------------------------------------------------------------- Issued as reinvestment of distributions 101,067 1,910,166 257,449 4,317,425 - ----------------------------------------------------------------------------- Reacquired (2,581,125) (48,434,827) (1,031,143) (18,161,354) - ----------------------------------------------------------------------------- (69,983) $ 118,341 2,189,858 $ 37,094,253 =============================================================================
AIM V.I. INTERNATIONAL EQUITY FUND FS-214 297 NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ---------------------------------------- ------------------- 1998 1997 1996 1995 1995 1994 -------- -------- -------- ------- ------- ------- Net asset value, beginning of period $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00 - -------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.15 0.10 0.07 0.07 0.06 -- - -------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 2.50 1.03 2.67 2.58 (1.49) 2.49 - -------------------------------------------------------------------------------------------------- Total from investment operations 2.65 1.13 2.74 2.65 (1.43) 2.49 - -------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.16) (0.08) (0.04) (0.02) (0.03) -- - -------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.28) -- -- -- -- - -------------------------------------------------------------------------------------------------- Total distributions (0.16) (0.36) (0.04) (0.02) (0.03) -- - -------------------------------------------------------------------------------------------------- Net asset value, end of period $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49 ================================================================================================== Total return(a) 15.49% 6.94% 20.05% 24.04% (11.48)% 24.90% ================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $240,314 $211,023 $165,738 $82,257 $55,019 $23,533 ================================================================================================== Ratio of expenses to average net assets 0.91%(b) 0.93% 0.96% 1.15%(c) 1.27%(d) 1.98%(c)(d) ================================================================================================== Ratio of net investment income (loss) to average net assets 0.80%(b) 0.68% 0.78% 0.75%(c) 0.60%(e) (0.15)%(c)(e) ================================================================================================== Portfolio turnover rate 76% 57% 59% 67% 64% 26% ==================================================================================================
(a) Total returns are not annualized for periods less than one year. (b) Ratios are based on average net assets of $232,550,286 (c) Annualized. (d) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.28% and 3.06% (annualized), for January 1995 and 1994 respectively. (e) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were 0.59% and (1.23)% (annualized), for January 1995 and 1994 respectively. AIM V.I. INTERNATIONAL EQUITY FUND FS-215 298 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Money Market Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Money Market Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ------------------------------ TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. MONEY MARKET FUND FS-216 299 SCHEDULE OF INVESTMENTS December 31, 1998
PAR (000) VALUE COMMERCIAL PAPER - 42.60%(a) ASSET-BACKED SECURITIES - MULTI-PURPOSE - 22.50% Bavaria TRR Corp. 5.20%, 03/02/99 $ 2,000 $ 1,982,667 - --------------------------------------------------------------------- Clipper Receivables Corp. 5.75%, 01/08/99 3,000 2,996,646 - --------------------------------------------------------------------- Edison Asset Securitization, LLC 5.30%, 01/29/99 3,000 2,987,634 - --------------------------------------------------------------------- Falcon Asset Securitization Corp. 5.28%, 01/19/99 500 498,680 - --------------------------------------------------------------------- Mont Blanc Capital Corp. 5.20%, 01/13/99 2,000 1,996,533 - --------------------------------------------------------------------- Monte Rosa Capital Corp. 5.32%, 01/21/99 1,000 997,045 - --------------------------------------------------------------------- Preferred Receivables Funding Corp. 5.25%, 03/11/99 2,000 1,979,875 - --------------------------------------------------------------------- 5.06%, 04/21/99 1,000 984,539 - --------------------------------------------------------------------- 14,423,619 - --------------------------------------------------------------------- ASSET-BACKED SECURITIES - TRADE RECEIVABLES - 6.21% Corporate Asset Funding Co. 5.20%, 02/17/99 1,000 993,211 - --------------------------------------------------------------------- Delaware Funding Corp. 5.45%, 01/11/99 2,000 1,996,972 - --------------------------------------------------------------------- 5.15%, 03/11/99 1,000 990,129 - --------------------------------------------------------------------- 3,980,312 - --------------------------------------------------------------------- BANKS - DOMESTIC - 3.10% First Chicago Financial Corp. 5.26%, 02/19/99 2,000 1,985,681 - --------------------------------------------------------------------- FINANCE - MULTIPLE INDUSTRY - 3.08% General Electric Capital Corp. 5.05%, 04/06/99 2,000 1,973,347 - --------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 4.61% Colgate-Palmolive Co. 4.85%, 04/22/99 3,000 2,955,138 - --------------------------------------------------------------------- INSURANCE (LIFE) - 1.56% Hancock (John) Capital Corp. 5.35%, 01/22/99 1,000 996,879 - --------------------------------------------------------------------- INSURANCE (OTHER) - 1.54% Marsh & McLennan Companies, Inc. 5.10%, 03/22/99 1,000 988,667 - --------------------------------------------------------------------- Total Commercial Paper (Cost $27,303,643) 27,303,643 - ---------------------------------------------------------------------
PAR (000) VALUE CORPORATE NOTES - 1.56% AUTOMOBILE - 1.56% Ford Motor Credit Co. 5.625%, 01/15/99 (Cost $1,000,070) $ 1,000 $ 1,000,070 - ---------------------------------------------------------------------------- MASTER NOTE AGREEMENTS - 12.48%(b) Citicorp Securities, Inc. 5.75%, 01/25/99(c) 2,000 2,000,000 - ---------------------------------------------------------------------------- Merrill Lynch Mortgage Capital, Inc. 5.78%, 08/16/99(d) 3,000 3,000,000 - ---------------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 5.60%, 05/24/99(e) 3,000 3,000,000 - ---------------------------------------------------------------------------- Total Master Note Agreements (Cost $8,000,000) 8,000,000 - ---------------------------------------------------------------------------- TIME DEPOSITS - 4.68% BANKS - FOREIGN - 4.68% Credit Communal de Belgique 5.125%, 01/04/99 (Cost $3,000,000) 3,000 3,000,000 - ---------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY SECURITIES - 3.12% Federal National Mortgage Association 4.696%, 06/02/99(f) (Cost $2,000,000) 2,000 2,000,000 - ---------------------------------------------------------------------------- Total Investments, excluding Repurchase Agreements 41,303,713 - ---------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 35.39%(g) Bear, Stearns & Co., Inc., 4.85%(h) 3,000 3,000,000 - ---------------------------------------------------------------------------- J.P. Morgan Securities, Inc., 4.75%, 01/04/99(i) 15,000 15,000,000 - ---------------------------------------------------------------------------- SBC Warburg Dillon Read Securities, Inc., 4.75%, 01/04/99(j) 4,677 4,676,787 - ---------------------------------------------------------------------------- Total Repurchase Agreements (Cost $22,676,787) 22,676,787 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS - 99.83% 63,980,500(k) - ---------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 0.17% 109,823 - ---------------------------------------------------------------------------- NET ASSETS - 100.00% $64,090,323 ============================================================================
AIM V.I. MONEY MARKET FUND FS-217 300 NOTES TO SCHEDULE OF INVESTMENTS: (a) Some commercial paper is traded on a discount basis. In such cases, the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (b) The investments in master note agreements are through participation in joint accounts with other mutual funds, private accounts, and certain nonregistered investment companies managed by the investment advisor or its affiliates. (c) The Portfolio may demand prepayment of notes purchased under the Master Note Purchase Agreement upon 3 business days' notice to the issuer. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on 12/31/98. (d) The Portfolio may demand prepayment of notes purchased under the Master Note Purchase Agreement upon 2 days' notice to the issuer. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on 12/31/98. (e) Master Note Purchase Agreement may be terminated by either party upon 3 business days' prior written notice. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on 12/31/98. (f) Interest rates are redetermined weekly. Rate shown is the rate in effect on 12/31/98. (g) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (h) Open joint repurchase agreement entered into 12/31/98. Either party may terminate the agreement upon demand. Interest rates are redetermined daily. Collateralized by $354,763,000 U.S. Government obligations, 0% to 8.65% due 01/15/99 to 06/11/18 with an aggregate market value at 12/31/98 of $360,262,932. (i) Joint repurchase agreement entered into 12/31/98 with a maturing value of $500,263,889. Collateralized by $606,702,000 U.S. Government obligations, 0% to 7.55% due 01/04/99 to 10/03/22 with an aggregate market value at 12/31/98 of $510,001,764. (j) Joint repurchase agreement entered into 12/31/98 with a maturing value of $1,000,527,778. Collateralized by $2,207,068,000 U.S. Government obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market value at 12/31/98 of $1,020,001,079. (k) Also represents cost for federal income tax purposes. See Notes to Financial Statements. AIM V.I. MONEY MARKET FUND FS-218 301 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, excluding repurchase agreements, at value (cost $41,303,713) $ 41,303,713 - -------------------------------------------------------------------------- Repurchase agreements (cost $22,676,787) 22,676,787 - -------------------------------------------------------------------------- Receivables for: Capital stock sold 78,786 - -------------------------------------------------------------------------- Interest receivable 71,601 - -------------------------------------------------------------------------- Investment for deferred compensation plan 22,139 - -------------------------------------------------------------------------- Other assets 385 - -------------------------------------------------------------------------- Total assets 64,153,411 - -------------------------------------------------------------------------- LIABILITIES: Payables for: Capital stock reacquired 80 - -------------------------------------------------------------------------- Deferred compensation plan 22,139 - -------------------------------------------------------------------------- Accrued advisory fees 21,659 - -------------------------------------------------------------------------- Accrued directors' fees 293 - -------------------------------------------------------------------------- Accrued operating expenses 18,917 - -------------------------------------------------------------------------- Total liabilities 63,088 - -------------------------------------------------------------------------- Net assets applicable to shares outstanding $ 64,090,323 ========================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - -------------------------------------------------------------------------- Outstanding 64,090,266 ========================================================================== Net asset value, offering and redemption price per share $ 1.00 ==========================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Interest $3,483,093 - ---------------------------------------------------------------- EXPENSES: Advisory fees 252,407 - ---------------------------------------------------------------- Administrative services fees 36,480 - ---------------------------------------------------------------- Custodian fees 26,470 - ---------------------------------------------------------------- Directors' fees and expenses 8,885 - ---------------------------------------------------------------- Other 43,075 - ---------------------------------------------------------------- Total expenses 367,317 - ---------------------------------------------------------------- Net investment income 3,115,776 - ---------------------------------------------------------------- Net increase in net assets resulting from operations $3,115,776 ================================================================
See Notes to Financial Statements. AIM V.I. MONEY MARKET FUND FS-219 302 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 ----------- ----------- OPERATIONS: Net investment income $ 3,115,776 $ 3,190,054 - --------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,115,776 3,190,054 - --------------------------------------------------------------------------- Dividends to shareholders from net investment income (3,115,776) (3,190,054) - --------------------------------------------------------------------------- Net increase (decrease) from capital stock transactions 5,455,702 (4,894,872) - --------------------------------------------------------------------------- Net increase (decrease) in net assets 5,455,702 (4,894,872) - --------------------------------------------------------------------------- NET ASSETS: Beginning of year 58,634,621 63,529,493 - --------------------------------------------------------------------------- End of year $64,090,323 $58,634,621 =========================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $64,090,266 $58,634,564 - --------------------------------------------------------------------------- Undistributed net realized gain from investment securities 57 57 - --------------------------------------------------------------------------- $64,090,323 $58,634,621 ===========================================================================
NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Money Market Fund (the "Fund"). The Fund's investment objective is to seek to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - The Fund's securities are valued on the basis of amortized cost which approximates market value. This method values a security at its cost on the date of purchase and thereafter, assumes a constant amortization to maturity of any discount or premiums. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and discounts on investments, is recorded as earned from settlement date and is recorded on the accrual basis. Distributions to shareholders are declared and paid daily. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.40% of the first $250 million of the Fund's average daily net assets, plus 0.35% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing AIM V.I. MONEY MARKET FUND FS-220 303 accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $36,480 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $3,548 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------ Sold 100,181,770 $100,181,770 88,948,357 $ 88,948,357 - ---------------------- ----------- ------------ ----------- ------------ Issued as reinvestment of dividends 3,115,776 3,115,776 3,190,054 3,190,054 - ---------------------- ----------- ------------ ----------- ------------ Reacquired (97,841,844) (97,841,844) (97,033,283) (97,033,283) - ---------------------- ----------- ------------ ----------- ------------ 5,455,702 $ 5,455,702 (4,894,872) $ (4,894,872) =========== ============ =========== ============
NOTE 5 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ------------------------------------- ------------------- 1998 1997 1996 1995 1995 1994 ------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------- ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.05 0.05 0.05 0.05 0.04 0.02 - ----------------------- ------- ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.04) (0.02) - ----------------------- ------- ------- ------- ------- ------- ------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======================= ======= ======= ======= ======= ======= ======= Total return 5.06% 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a) ======================= ======= ======= ======= ======= ======= ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $64,090 $58,635 $63,529 $65,506 $31,017 $13,891 ======================= ======= ======= ======= ======= ======= ======= Ratio of expenses to average net assets 0.58%(b) 0.59% 0.55% 0.53%(a) 0.63%(c) 0.95%(a)(d) ======================= ======= ======= ======= ======= ======= ======= Ratio of net investment income to average net assets 4.94%(b) 5.01% 4.84% 5.40%(a) 4.14%(c) 2.29%(a)(d) ======================= ======= ======= ======= ======= ======= =======
(a) Annualized. (b) Ratios are based on average daily net assets of $63,101,740. (c) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average daily net assets prior to fee waivers and/or expense reimbursements were 0.70% and 4.07%, respectively. (d) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average daily net assets prior to fee waivers and/or expense reimbursements were 1.53% (annualized) and 1.70% (annualized), respectively. AIM V.I. MONEY MARKET FUND FS-221 304 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors AIM Variable Insurance Funds, Inc. We have audited the accompanying statement of assets and liabilities of AIM V.I. Value Fund, a series of shares of common stock of AIM Variable Insurance Funds, Inc. including the schedule of investments as of December 31, 1998, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (commencement of operations) through January 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Value Fund, as of December 31, 1998, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, the eleven month period ended December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement of operations) through January 31, 1994 in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ------------------------------ TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 3, 1999 AIM V.I. VALUE FUND FS-222 305 SCHEDULE OF INVESTMENTS December 31, 1998
MARKET SHARES VALUE DOMESTIC COMMON STOCKS - 85.50% AIRLINES - 0.38% Continental Airlines, Inc.(a) 136,900 $ 4,586,150 - ------------------------------------------------------------------ AUTOMOBILES - 0.21% Ford Motor Co. 44,000 2,582,250 - ------------------------------------------------------------------ BANKS (MONEY CENTER) - 1.55% Chase Manhattan Corp. (The) 278,000 18,921,375 - ------------------------------------------------------------------ BROADCASTING (TELEVISION, RADIO & CABLE) - 4.68% Comcast Corp.-Class A 105,000 6,162,188 - ------------------------------------------------------------------ Cox Communications, Inc.-Class A(a) 400,000 27,650,000 - ------------------------------------------------------------------ MediaOne Group, Inc.(a) 497,500 23,382,500 - ------------------------------------------------------------------ 57,194,688 - ------------------------------------------------------------------ BUILDING MATERIALS - 0.48% Masco Corp. 205,000 5,893,750 - ------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT - 1.05% Comverse Technology, Inc.(a) 120,000 8,520,000 - ------------------------------------------------------------------ Lucent Technologies, Inc. 39,000 4,290,000 - ------------------------------------------------------------------ 12,810,000 - ------------------------------------------------------------------ COMPUTERS (HARDWARE) - 3.23% Dell Computer Corp.(a) 245,000 17,930,938 - ------------------------------------------------------------------ International Business Machines Corp. 46,000 8,498,500 - ------------------------------------------------------------------ Sun Microsystems, Inc.(a) 152,000 13,015,001 - ------------------------------------------------------------------ 39,444,439 - ------------------------------------------------------------------ COMPUTERS (NETWORKING) - 1.64% Cisco Systems, Inc.(a) 216,000 20,047,500 - ------------------------------------------------------------------ COMPUTERS (PERIPHERALS) - 0.98% EMC Corp.(a) 104,000 8,840,000 - ------------------------------------------------------------------ Lexmark International Group, Inc.(a) 31,000 3,115,500 - ------------------------------------------------------------------ 11,955,500 - ------------------------------------------------------------------ COMPUTERS (SOFTWARE & SERVICES) - 6.87% BMC Software, Inc.(a) 365,000 16,265,313 - ------------------------------------------------------------------ Computer Sciences Corp.(a) 190,000 12,243,125 - ------------------------------------------------------------------ Microsoft Corp.(a) 188,000 26,073,251 - ------------------------------------------------------------------ Sterling Commerce, Inc.(a) 153,000 6,885,000 - ------------------------------------------------------------------ Unisys Corp.(a) 655,000 22,556,563 - ------------------------------------------------------------------ 84,023,252 - ------------------------------------------------------------------ CONSUMER FINANCE - 1.05% MBNA Corp. 122,000 3,042,375 - ------------------------------------------------------------------ Providian Financial Corp. 130,500 9,787,500 - ------------------------------------------------------------------ 12,829,875 - ------------------------------------------------------------------
MARKET SHARES VALUE DISTRIBUTORS (FOOD & HEALTH) - 0.07% Cardinal Health, Inc. 10,650 $ 808,069 - ---------------------------------------------------------------------- ELECTRIC COMPANIES - 0.11% Wisconsin Energy Corp. 43,600 1,370,675 - ---------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 1.75% General Electric Co. 209,000 21,331,063 - ---------------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION) - 0.11% Waters Corp.(a) 15,900 1,387,275 - ---------------------------------------------------------------------- ENTERTAINMENT - 3.05% Time Warner, Inc. 600,000 37,237,500 - ---------------------------------------------------------------------- FINANCIAL (DIVERSIFIED) - 6.77% Ambac Financial Group, Inc. 73,000 4,393,687 - ---------------------------------------------------------------------- American Express Co. 98,000 10,020,500 - ---------------------------------------------------------------------- American General Corp. 85,000 6,630,000 - ---------------------------------------------------------------------- Associates First Capital Corp.-Class A 370,000 15,678,750 - ---------------------------------------------------------------------- Citigroup, Inc. 93,000 4,603,500 - ---------------------------------------------------------------------- Fannie Mae 245,000 18,130,000 - ---------------------------------------------------------------------- Freddie Mac 324,000 20,877,750 - ---------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 35,000 2,485,000 - ---------------------------------------------------------------------- 82,819,187 - ---------------------------------------------------------------------- HEALTH CARE (DIVERSIFIED) - 1.81% Bristol-Myers Squibb Co. 142,000 19,001,376 - ---------------------------------------------------------------------- Warner-Lambert Co. 41,000 3,082,688 - ---------------------------------------------------------------------- 22,084,064 - ---------------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.33% Watson Pharmaceuticals, Inc.(a) 64,200 4,036,575 - ---------------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.05% Merck & Co., Inc. 72,000 10,633,500 - ---------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 685,000 38,788,125 - ---------------------------------------------------------------------- 49,421,625 - ---------------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.97% Allegiance Corp. 77,000 3,590,125 - ---------------------------------------------------------------------- Guidant Corp. 455,000 50,163,750 - ---------------------------------------------------------------------- Medtronic, Inc. 93,700 6,957,225 - ---------------------------------------------------------------------- 60,711,100 - ---------------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES) - 0.52% Alza Corp.(a) 122,500 6,400,625 - ----------------------------------------------------------------------
AIM V.I. VALUE FUND FS-223 306
MARKET SHARES VALUE HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.08% Colgate-Palmolive Co. 273,000 $ 25,354,875 - ------------------------------------------------------------------------ INSURANCE (LIFE/HEALTH) - 0.32% Provident Companies, Inc. 95,000 3,942,500 - ------------------------------------------------------------------------ INSURANCE (MULTI-LINE) - 4.34% Ace, Ltd. 163,000 5,613,313 - ------------------------------------------------------------------------ American International Group, Inc. 430,000 41,548,750 - ------------------------------------------------------------------------ Hartford Financial Services Group, Inc. (The) 107,500 5,899,063 - ------------------------------------------------------------------------ 53,061,126 - ------------------------------------------------------------------------ INSURANCE (PROPERTY-CASUALTY) - 2.10% Allstate Corp. (The) 179,500 6,933,187 - ------------------------------------------------------------------------ EXEL Ltd.-Class A 145,000 10,875,000 - ------------------------------------------------------------------------ Progressive Corp. 46,000 7,791,250 - ------------------------------------------------------------------------ 25,599,437 - ------------------------------------------------------------------------ INVESTMENT BANKING/BROKERAGE - 0.22% Merrill Lynch & Co., Inc.(b) 40,000 2,670,000 - ------------------------------------------------------------------------ LODGING-HOTELS - 2.19% Carnival Corp. 412,400 19,795,200 - ------------------------------------------------------------------------ Royal Caribbean Cruises Ltd. 187,500 6,937,500 - ------------------------------------------------------------------------ 26,732,700 - ------------------------------------------------------------------------ MANUFACTURING (DIVERSIFIED) - 1.62% Tyco International Ltd. 262,000 19,764,624 - ------------------------------------------------------------------------ NATURAL GAS - 1.00% El Paso Energy Corp. 85,000 2,959,062 - ------------------------------------------------------------------------ Enron Corp. 111,000 6,333,937 - ------------------------------------------------------------------------ Williams Companies, Inc. (The) 92,000 2,869,250 - ------------------------------------------------------------------------ 12,162,249 - ------------------------------------------------------------------------ OIL (INTERNATIONAL INTEGRATED) - 0.25% Amoco Corp. 50,000 3,018,750 - ------------------------------------------------------------------------ PERSONAL CARE - 1.07% Avon Products, Inc. 295,000 13,053,750 - ------------------------------------------------------------------------ PHOTOGRAPHY/IMAGING - 1.74% Xerox Corp. 180,000 21,240,000 - ------------------------------------------------------------------------ PUBLISHING - 0.32% Dow Jones & Co., Inc. 82,000 3,946,250 - ------------------------------------------------------------------------ PUBLISHING (NEWSPAPERS) - 0.26% New York Times Co.-Class A (The) 90,000 3,121,875 - ------------------------------------------------------------------------ RAILROADS - 0.27% Kansas City Southern Industries, Inc. 66,000 3,246,375 - ------------------------------------------------------------------------ RETAIL (BUILDING SUPPLIES) - 0.83% Lowe's Companies, Inc. 198,000 10,135,125 - ------------------------------------------------------------------------ RETAIL (DEPARTMENT STORES) - 0.21% Federated Department Stores, Inc.(a) 58,000 2,526,625 - ------------------------------------------------------------------------
MARKET SHARES VALUE RETAIL (FOOD CHAINS) - 2.09% Albertson's, Inc. 30,000 $ 1,910,624 - ------------------------------------------------------------------------------ Kroger Co.(a) 200,000 12,100,000 - ------------------------------------------------------------------------------ Safeway, Inc.(a) 188,000 11,456,249 - ------------------------------------------------------------------------------ 25,466,873 - ------------------------------------------------------------------------------ RETAIL (GENERAL MERCHANDISE) - 5.17% Costco Companies, Inc.(a) 205,000 14,798,437 - ------------------------------------------------------------------------------ Dayton Hudson Corp. 432,000 23,436,000 - ------------------------------------------------------------------------------ Wal-Mart Stores, Inc. 307,600 25,050,174 - ------------------------------------------------------------------------------ 63,284,611 - ------------------------------------------------------------------------------ SERVICES (ADVERTISING/MARKETING) - 1.61% Omnicom Group, Inc. 340,000 19,720,000 - ------------------------------------------------------------------------------ SERVICES (COMMERCIAL & CONSUMER) - 0.34% Stewart Enterprises, Inc.-Class A 187,000 4,160,750 - ------------------------------------------------------------------------------ SERVICES (COMPUTER SYSTEMS) - 0.63% SunGard Data Systems, Inc.(a) 195,300 7,750,969 - ------------------------------------------------------------------------------ SERVICES (DATA PROCESSING) - 0.36% Ceridian Corp.(a) 25,000 1,745,313 - ------------------------------------------------------------------------------ Equifax, Inc. 78,000 2,666,625 - ------------------------------------------------------------------------------ 4,411,938 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.61% AirTouch Communications, Inc.(a) 272,000 19,617,999 - ------------------------------------------------------------------------------ TELECOMMUNICATIONS (LONG DISTANCE) - 4.86% MCI WorldCom, Inc.(a) 827,413 59,366,882 - ------------------------------------------------------------------------------ TELEPHONE - 1.36% BellSouth Corp. 192,000 9,576,000 - ------------------------------------------------------------------------------ SBC Communications, Inc. 131,000 7,024,875 - ------------------------------------------------------------------------------ 16,600,875 - ------------------------------------------------------------------------------ TOBACCO - 1.09% Philip Morris Companies, Inc. 248,000 13,268,000 - ------------------------------------------------------------------------------ WASTE MANAGEMENT - 1.90% Waste Management, Inc. 496,998 23,172,532 - ------------------------------------------------------------------------------ Total Domestic Common Stocks (Cost $733,092,819) 1,044,294,227 - ------------------------------------------------------------------------------ FOREIGN STOCKS & OTHER EQUITY INTERESTS - 4.67% CANADA - 0.40% Royal Bank of Canada (Banks-Major Regional) 97,000 4,853,170 - ------------------------------------------------------------------------------ FINLAND - 3.56% Nokia Oyj A.B.-Class A (Communications Equipment) 1,000 121,652 - ------------------------------------------------------------------------------ Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 360,000 43,357,500 - ------------------------------------------------------------------------------ 43,479,152 - ------------------------------------------------------------------------------ SWEDEN - 0.25% Telefonaktiebolaget LM Ericsson-ADR (Communications Equipment) 130,000 3,111,875 - ------------------------------------------------------------------------------
AIM V.I. VALUE FUND FS-224 307
MARKET SHARES VALUE UNITED KINGDOM - 0.46% British Petroleum Co. PLC-ADR (Oil-International Integrated) 32,500 $ 2,912,813 - -------------------------------------------------------------------------------- WPP Group PLC (Services-Advertising/Marketing) 440,000 2,674,495 - -------------------------------------------------------------------------------- 5,587,308 - -------------------------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests (Cost $37,148,648) 57,031,505 - -------------------------------------------------------------------------------- Total Investments, excluding repurchase agreements (Cost $770,241,467) 1,101,325,732 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT REPURCHASE AGREEMENTS - 10.83%(c) Goldman Sachs & Co., 4.40%, 01/04/99(d) $77,768,447 77,768,447 - -------------------------------------------------------------------------------- J.P. Morgan Securities Inc., 4.75%, 01/04/99(e) 54,514,006 54,514,006 - -------------------------------------------------------------------------------- Total Repurchase Agreements (Cost $132,282,453) 132,282,453 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS - 101.00% 1,233,608,185 - -------------------------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS - (1.00%) (12,224,640) - -------------------------------------------------------------------------------- TOTAL NET ASSETS - 100.00% $1,221,383,545 ================================================================================
(a) Non-income producing security. (b) A portion of this security is subject to call options written. See Note 7. (c) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (d) Joint repurchase agreement entered into 12/3198 with a maturing value of $700,342,222. Collateralized by $646,494,000 U.S. Government obligations, 0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at 12/31/98 of $714,694,897. (e) Joint repurchase agreement entered into 12/31/98 with a maturing value of $500,263,889. Collateralized by $606,702,000 U.S. Government obligations, 0% to 7.55% due 01/04/99 to 10/03/22 with an aggregate market value at 12/31/98 of $510,001,764. Abbreviation: ADR - American Depositary Receipt See Notes to Financial Statements. AIM V.I. VALUE FUND FS-225 308 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 ASSETS: Investments, excluding repurchase agreements, at market value (cost $770,241,467) $1,101,325,732 - ------------------------------------------------------------------------ Repurchase Agreements (cost $132,282,453) 132,282,453 - ------------------------------------------------------------------------ Receivables for: Investments sold 2,519,615 - ------------------------------------------------------------------------ Capital stock sold 1,390,091 - ------------------------------------------------------------------------ Dividends and interest 499,599 - ------------------------------------------------------------------------ Forward currency contracts 348,763 - ------------------------------------------------------------------------ Investment for deferred compensation plan 26,193 - ------------------------------------------------------------------------ Other assets 18,530 - ------------------------------------------------------------------------ Total assets 1,238,410,976 - ------------------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 15,933,766 - ------------------------------------------------------------------------ Fund shares reacquired 238,496 - ------------------------------------------------------------------------ Forward currency contracts 24,155 - ------------------------------------------------------------------------ Deferred compensation 26,193 - ------------------------------------------------------------------------ Options written (premiums received $83,771) 76,250 - ------------------------------------------------------------------------ Accrued advisory fees 592,834 - ------------------------------------------------------------------------ Accrued directors' fees 200 - ------------------------------------------------------------------------ Accrued operating expenses 135,537 - ------------------------------------------------------------------------ Total liabilities 17,027,431 - ------------------------------------------------------------------------ Net assets applicable to shares outstanding $1,221,383,545 ======================================================================== CAPITAL SHARES, $0.001 PAR VALUE PER SHARE: Authorized 250,000,000 - ------------------------------------------------------------------------ Outstanding 46,535,623 ======================================================================== Net asset value, offering and redemption price per share $26.25 ========================================================================
STATEMENT OF OPERATIONS For the year ended December 31, 1998 INVESTMENT INCOME: Dividends (net of $166,301 foreign withholding tax) $ 7,033,962 - ------------------------------------------------------------------------------- Interest 5,125,076 - ------------------------------------------------------------------------------- Total investment income 12,159,038 - ------------------------------------------------------------------------------- EXPENSES: Advisory fees 5,570,566 - ------------------------------------------------------------------------------- Administrative services fees 191,309 - ------------------------------------------------------------------------------- Custodian fees 93,826 - ------------------------------------------------------------------------------- Directors' fees and expenses 14,121 - ------------------------------------------------------------------------------- Other 108,257 - ------------------------------------------------------------------------------- Total expenses 5,978,079 - ------------------------------------------------------------------------------- Less: Expenses paid indirectly (3,727) - ------------------------------------------------------------------------------- Net expenses 5,974,352 - ------------------------------------------------------------------------------- Net investment income 6,184,686 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FORWARD CURRENCY CONTRACTS, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities 35,892,808 - ------------------------------------------------------------------------------- Foreign currencies 54,577 - ------------------------------------------------------------------------------- Forward currency contracts (2,231,868) - ------------------------------------------------------------------------------- Futures contracts (2,938,668) - ------------------------------------------------------------------------------- Option contracts (301,361) - ------------------------------------------------------------------------------- 30,475,488 - ------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of: Investment securities 229,992,325 - ------------------------------------------------------------------------------- Foreign currencies 10,564 - ------------------------------------------------------------------------------- Forward currency contracts 324,688 - ------------------------------------------------------------------------------- Option contracts (214,285) - ------------------------------------------------------------------------------- 230,113,292 - ------------------------------------------------------------------------------- Net gain on investment securities, foreign currencies, futures and option contracts 260,588,780 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations $266,773,466 ===============================================================================
See Notes to Financial Statements. AIM V.I. VALUE FUND FS-226 309 STATEMENT OF CHANGES IN NET ASSETS For the years ended December 31, 1998 and 1997
1998 1997 -------------- ------------ OPERATIONS: Net investment income $ 6,184,686 $ 5,578,959 - ------------------------------------------------------------------------------ Net realized gain from investment securities, foreign currencies, forward currency contracts, futures and option contracts 30,475,488 47,871,104 - ------------------------------------------------------------------------------ Net unrealized appreciation of investment securities, foreign currencies, forward currency contracts, futures and option contracts 230,113,292 51,486,076 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 266,773,466 104,936,139 - ------------------------------------------------------------------------------ Dividends to shareholders from net investment income (5,622,957) (6,026,082) - ------------------------------------------------------------------------------ Distributions to shareholders from net realized gains (49,732,413) (18,500,854) - ------------------------------------------------------------------------------ Net increase from capital stock transactions 319,123,956 240,697,144 - ------------------------------------------------------------------------------ Net increase in net assets 530,542,052 321,106,347 - ------------------------------------------------------------------------------ NET ASSETS: Beginning of year 690,841,493 369,735,146 - ------------------------------------------------------------------------------ End of year $1,221,383,545 $690,841,493 ============================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 855,502,720 $536,384,006 - ------------------------------------------------------------------------------ Undistributed net investment income 6,191,169 5,579,627 - ------------------------------------------------------------------------------ Undistributed net realized gain from investment securities, foreign currencies, forward currency contracts, futures and option contracts 28,274,001 47,575,497 - ------------------------------------------------------------------------------ Unrealized appreciation of investment securities, foreign currencies, forward currency contracts, futures and option contracts 331,415,655 101,302,363 - ------------------------------------------------------------------------------ $1,221,383,545 $690,841,493 ==============================================================================
See Notes to Financial Statements. AIM V.I. VALUE FUND FS-227 310 NOTES TO FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation organized on January 22, 1993, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of fifteen portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the AIM V.I. Value Fund (the "Fund"). The Fund's investment objective is to achieve long-term growth of capital by investing primarily in equity securities judged by AIM to be undervalued relative to the current or projected earnings of the companies issuing the securities or relative to current market values of assets owned by the companies issuing the securities or relative to the equity market generally. Income is a secondary objective. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations are either not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1998 additional paid-in capital was decreased by $5,242, undistributed net investment income was increased by $49,813 and undistributed net realized gains was decreased by $44,571 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassifications discussed above. C. Federal Income Taxes - The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash, and/or by securing a standby letter of credit from a major commercial bank, as collateral, for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contract may not correlate with changes in the securities being hedged. E. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign AIM V.I. VALUE FUND FS-228 311 currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts - A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. Outstanding forward currency contracts at December 31, 1998 were as follows:
CONTRACT TO UNREALIZED SETTLEMENT ---------------------- APPRECIATION DATE DELIVER RECEIVE VALUE (DEPRECIATION) ---------- ------- --------------------------------- 1/13/99 CAD 2,200,000 $ 1,425,378 1,437,868 $(12,490) 2/10/99 CAD 2,600,000 1,696,630 1,699,368 (2,738) 2/26/99 CAD 700,000 451,715 457,574 (5,859) 1/19/99 FIM 21,000,000 4,232,653 4,124,647 108,006 1/20/99 FIM 78,500,000 15,439,796 15,419,146 20,650 1/21/99 FIM 29,000,000 5,789,467 5,696,548 92,919 1/22/99 FIM 26,000,000 5,149,996 5,107,522 42,474 1/19/99 GBP 1,200,000 2,034,264 1,990,805 43,459 1/20/99 GBP 1,000,000 1,671,000 1,658,852 12,148 2/16/99 GBP 200,000 330,720 331,024 (304) 1/19/99 SEK 14,500,000 1,816,382 1,787,275 29,107 2/16/99 SEK 4,000,000 490,883 493,647 (2,764) -------------------------------------------------------------- $40,528,884 40,204,276 $324,608 ==============================================================
G. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services and other administrative services to the Fund. During the year ended December 31, 1998, AIM was reimbursed $191,309 for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Fund's shares. Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the year ended December 31, 1998, the Fund incurred legal fees of $5,050 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - INDIRECT EXPENSES The Fund received reductions in custodian fees of $3,727 under an expense offset arrangement. The effect of the above arrangement resulted in a reduction of the Fund's total expenses of $3,727 during the year ended December 31, 1998. NOTE 4 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the year ended December 31, 1998 was $1,106,685,292 and $810,337,550, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1998 is as follows: Aggregate unrealized appreciation of investment securities $332,234,972 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (5,428,239) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $326,806,733 ===========================================================================
Cost of investments for tax purposes is $906,801,452. AIM V.I. VALUE FUND FS-229 312 NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold 13,690,852 $321,377,374 12,245,239 $244,753,656 - ------------------------------------------------------------------------------ Issued as reinvestment of distributions 2,225,788 55,355,370 1,188,320 24,526,936 - ------------------------------------------------------------------------------ Reacquired (2,542,811) (57,608,788) (1,424,104) (28,583,448) - ------------------------------------------------------------------------------ 13,373,829 $319,123,956 12,009,455 $240,697,144 ==============================================================================
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN Transactions in call option contracts written during the year ended December 31, 1998 are summarized as follows:
CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------------- Beginning of period 2,102 $ 941,588 - ------------------------------------------- Written 8,349 4,655,767 - ------------------------------------------- Closed (2,906) (1,495,359) - ------------------------------------------- Exercised (4,463) (3,094,748) - ------------------------------------------- Expired (2,882) (923,477) - ------------------------------------------- End of period 200 $ 83,771 ===========================================
Open call option contracts written at December 31, 1998 were as follows:
CONTRACT STRIKE NUMBER OF PREMIUM DECEMBER 31, 1998 UNREALIZED ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION - ----- ------------------------------------------------------- Merrill Lynch & Co., Inc. Jan. 99 65 200 $83,771 $76,250 $7,521
NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of the Fund during each of the years in the three-year period ended December 31, 1998, the eleven months ended December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993 (date operations commenced) through January 31, 1994.
DECEMBER 31, JANUARY 31, ------------------------------------------- ------------------ 1998 1997 1996 1995 1995 1994 ---------- -------- -------- -------- -------- ------- Net asset value, beginning of period $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00 - ------------------------ ---------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.09 0.08 0.30 0.11 0.10 0.02 - ------------------------ ---------- -------- -------- -------- -------- ------- Net gains (losses) on securities (both realized and unrealized) 6.59 4.05 2.09 4.18 (0.35) 2.17 - ------------------------ ---------- -------- -------- -------- -------- ------- Total from investment operations 6.68 4.13 2.39 4.29 (0.25) 2.19 - ------------------------ ---------- -------- -------- -------- -------- ------- Less distributions: Dividends from net investment income (0.13) (0.19) (0.10) (0.01) (0.09) (0.02) - ------------------------ ---------- -------- -------- -------- -------- ------- Distributions from net realized gains (1.13) (0.59) (0.92) -- -- -- - ------------------------ ---------- -------- -------- -------- -------- ------- Total distributions (1.26) (0.78) (1.02) (0.01) (0.09) (0.02) - ------------------------ ---------- -------- -------- -------- -------- ------- Net asset value, end of period $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17 ======================== ========== ======== ======== ======== ======== ======= Total return(a) 32.41% 23.69% 15.02% 36.25% (2.03)% 21.94% ======================== ========== ======== ======== ======== ======== ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,221,384 $690,841 $369,735 $257,212 $109,257 $38,255 ======================== ========== ======== ======== ======== ======== ======= Ratio of expenses to average net assets 0.66%(b) 0.70% 0.73% 0.75%(c) 0.82% 1.00%(c)(d) ======================== ========== ======== ======== ======== ======== ======= Ratio of net investment income to average net assets 0.68%(b) 1.05% 2.00% 1.11%(c) 1.17% 0.51%(c)(d) ======================== ========== ======== ======== ======== ======== ======= Portfolio turnover rate 100% 127% 129% 145% 143% 87% ======================== ========== ======== ======== ======== ======== =======
(a) Total returns are not annualized for periods less than one year. (b) Ratios are based on average net assets of $907,594,296. (c) Annualized. (d) After fee waivers and/or expense reimbursements. Ratios of expenses and net investment income to average net assets prior to fee waivers and/or expense reimbursements were 1.35% (annualized) and 0.16% (annualized), respectively. AIM V.I. VALUE FUND FS-230 313 PART C OTHER INFORMATION Item 23. Exhibits Exhibit Number Description ------- ----------- a (1) - (a) Articles of Incorporation of Registrant, as filed with the State of Maryland on January 22, 1993, were filed as an Exhibit to Registrant's Initial Registration Statement on January 25, 1993, and were filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by reference. - (b) Amendment to Articles of Incorporation of Registrant, as filed with the State of Maryland on April 13, 1993, was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (c) Amendment to Articles of Incorporation of Registrant, as filed with the State of Maryland on April 15, 1993, was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (d) Amendment to Articles of Incorporation of Registrant, as filed with the State of Maryland on April 12, 1995, was filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 on April 26, 1995, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (e) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the State of Maryland on April 12, 1994, were filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and were filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by reference. - (f) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the State of Maryland on February 4, 1998 was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (g) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the State of Maryland on September 30, 1998, was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. C-1 314 - (h) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the State of Maryland on July 8, 1999, was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999, and is incorporated herein by reference. - (i) Articles Supplementary to Articles of Incorporation of Registrant, as filed with the State of Maryland on September 27, 1999, is hereby filed electronically. b (1) - (a) By-Laws of Registrant were filed as an Exhibit to Registrant's Initial Registration Statement on January 25, 1993 and were filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. - (b) First Amendment, dated March 14, 1995, to By-Laws of Registrant was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. (2) - Amended and Restated Bylaws, dated effective December 11, 1996, were filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997 and are incorporated herein by reference. c - Instruments Defining Rights of Security Holders - None. d (1) - Investment Advisory Agreement, dated March 31, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. (2) - (a) Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. - (b) Amendment, dated April 28, 1994, to Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. (3) - (a) Master Investment Advisory Agreement, dated February 28, 1997, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997 and incorporated herein by reference. - (b) Amendment No. 1, dated April 15, 1998, to Master Investment Advisory Agreement, dated February 28, 1997, between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998 and incorporated herein by reference. C-2 315 - (c) Amendment No. 2, dated December 14, 1998, to Master Investment Advisory Agreement, dated February 28, 1997, between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. - (d) Amendment No. 3, dated September 24, 1999, to Master Investment Advisory Agreement, dated February 28, 1997, between Registrant and A I M Advisors, Inc. is hereby filed electronically. - (e) Form of Amendment No. 4 to Master Investment Advisory Agreement, dated February 28, 1997, between Registrant and A I M Advisors, Inc. is hereby filed electronically. (4) - (a) Foreign Country Selection and Mandatory Securities Depository Responsibilities Delegation Agreement, dated September 9, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and incorporated herein by reference. - (b) Amendment No. 1, dated September 28, 1998, to Foreign Country Selection and Mandatory Securities Depository Responsibilities Delegation Agreement between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. - (c) Amendment No. 2, dated December 14, 1998, to Foreign Country Selection and Mandatory Securities Depository Responsibilities Delegation Agreement between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (5) - Form of Sub-Advisory Agreement between A I M Advisors, Inc. and H.S. Dent Advisors, Inc. is hereby filed electronically. e (1) - (a) Master Distribution Agreement, dated October 18, 1993, between Registrant and A I M Distributors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. - (b) Amendment, dated April 28, 1994, to Master Distribution Agreement, dated October 18, 1993, between Registrant and AIM Distributors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. C-3 316 (2) - (a) Master Distribution Agreement, dated February 28, 1997, between Registrant and A I M Distributors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997 was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998 and incorporated herein by reference. - (b) Amendment No. 1, dated April 15, 1998, to Master Distribution Agreement, dated February 28, 1997, between Registrant and A I M Distributors, Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998 and incorporated herein by reference. - (c) Amendment No. 2, dated December 14, 1998, to Master Distribution Agreement, dated February 28, 1997, between Registrant and A I M Distributors, Inc. was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999 and is hereby incorporated by reference. - (d) Amendment No. 3, dated September 24, 1999, to Master Distribution Agreement, dated February 28, 1997, between Registrant and A I M Distributors, Inc. is hereby filed electronically. - (e) Form of Amendment No. 4 to Master Distribution Agreement, dated February 28, 1997, between Registrant and A I M Distributors, Inc. is hereby filed electronically. (3) - Distribution Agreement, dated March 31, 1993, between Registrant and A I M Distributors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. f (1) - Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994. (2) - Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, as restated September 18, 1995, was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. (3) - Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994. (4) - Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors, as approved on December 5, 1995, was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. C-4 317 (5) - Form of Deferred Compensation Agreement was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. g (1) - (a) Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (b) Amendment No. 1, dated April 25, 1994, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (c) Amendment No. 2, dated September 19, 1995, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (d) Amendment, dated September 9, 1998, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. h (1) - Administrative Services Agreement, dated March 31, 1993, between the Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. (2) - (a) Master Administrative Services Agreement, dated October 18, 1993, between the Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. - (b) Amendment No. 1, dated April 28, 1994, to Master Administrative Services Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. (3) - Master Administrative Services Agreement, dated February 28, 1997, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 8 on April 23, 1997. C-5 318 (4) - (a) Master Administrative Services Agreement, as amended, dated May 1, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated December 14, 1998, to Master Administrative Services Agreement, as amended, dated May 1, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. - (c) Amendment No. 2, dated September 24, 1999, to Master Administrative Services Agreement, as amended, dated May 1, 1998, between Registrant and A I M Advisors, Inc. is hereby filed electronically. - (d) Form of Amendment No. 3 to Master Administrative Services Agreement, as amended, dated May 1, 1998, between Registrant and A I M Advisors, Inc. is hereby filed electronically. (5) - (a) Transfer Agency Agreement, dated March 19, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (b) Amendment No.1, dated April 25, 1994, to Transfer Agency Agreement, dated March 19, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. (6) - Participation Agreement, dated February 25, 1993, between Registrant, Connecticut General Life Insurance Company and A I M Distributors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. (7) - (a) Participation Agreement, dated February 10, 1995, between Registrant and Citicorp Life Insurance Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on February 28, 1995, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (b) Amendment No. 1, dated February 3, 1997, to Participation Agreement dated February 10, 1995, between Registrant and Citicorp Life Insurance Company was filed electronically as an Exhibit to Post- C-6 319 Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (8) - (a) Participation Agreement, dated February 10, 1995, between Registrant and First Citicorp Life Insurance Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on February 28, 1995 and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (b) Amendment No. 1, dated February 3, 1997, to Participation Agreement, dated February 10, 1995, between Registrant and First Citicorp Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (9) - (a) Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. - (a)(i) Side Letter Agreement, dated December 1, 1995, among Registrant and Glenbrook Life and Annuity Company was filed as an Exhibit to Post-Effective Amendment No. 8, and is incorporated herein by reference. - (b) Amendment No. 1, dated November 7, 1997, to Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (c) Amendment No. 2, dated September 2, 1997, to Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (d) Amendment No. 3, dated January 26, 1998, to Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (e) Amendment No. 4, dated May 1, 1998, to Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. C-7 320 - (f) Amendment No. 5, dated January 12, 1999, to the Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (10) - Participation Agreement, dated March 4, 1996, between Registrant and IDS Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. (11) - (a) Participation Agreement, dated October 7, 1996, between Registrant and IDS Life Insurance Company (supersedes and replaces Participation Agreement dated March 4, 1996) was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. - (a)(i) Side Letter Agreement, dated September 27, 1996, between Registrant, IDS Life Insurance Company and IDS Life Insurance Company of New York was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (b) Amendment 1, dated November 11, 1997, the Participation Agreement, dated October 7, 1996, between registrant and IDS Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (12) - (a) Participation Agreement, dated October 7, 1996, between Registrant and IDS Life Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. (b) Amendment No. 1, dated November 11, 1997, to the Participation Agreement, dated October 7, 1996 between registrant and IDS Life Insurance Company of New York was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (13) - Participation Agreement, dated April 8, 1996, between Registrant and Connecticut General Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and is incorporated herein by reference. (14) - (a) Participation Agreement, dated September 21, 1996, between Registrant and Pruco Life Insurance Company was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. C-8 321 - (b) Amendment No. 1, dated July 1, 1997, to Participation Agreement, dated September 21, 1996, between Registrant and Pruco Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (c) Amendment No. 2, dated August 1, 1998, to Participation Agreement, dated September 21, 1996, between Registrant and Pruco Life Insurance Company was filed as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (15) - (a) Participation Agreement, dated October 1, 1996, between Registrant and Allstate Life Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. - (a)(i) Side Letter Agreement, dated October 1, 1996, between Registrant and Allstate Life Insurance Company of New York was filed as Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated November 7, 1997, to Participation Agreement, dated October 1, 1996, between Registrant and Allstate Life Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 12 on April 29, 1999, and is incorporated herein by reference. (16) - (a) Participation Agreement, dated December 18, 1996, between Registrant and Merrill Lynch Life Insurance Company was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997 and is incorporated herein by reference. - (a)(i) Side Letter Agreement, dated December 18, 1996, between Registrant and Merrill, Lynch, Pierce, Fenner & Smith, Incorporated was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. - (b) Amendment No. 1, dated May 1, 1997, to Participation Agreement, dated December 18, 1996, between Registrant and Merrill Lynch Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (17) - (a) Participation Agreement, dated December 18, 1996, between Registrant and ML Life Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. C-9 322 - (b) Amendment No. 1, dated May 1, 1997, to Participation Agreement, dated December 18, 1996, by and between Registrant and ML Life Insurance Company of New York was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (18) - Participation Agreement, dated February 14, 1997, between Registrant and Pruco Life Insurance Company of New Jersey was filed as an Exhibit to Post-Effective Amendment No. 8 on April 23, 1997, and is incorporated herein by reference. (19) - Participation Agreement, dated April 30, 1997, between Registrant and Prudential Insurance Company of America was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (20) - Participation Agreement, dated October 30, 1997, between Registrant and American Centurion Life Assurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (21) - (a) Participation Agreement, dated October 30, 1997, between Registrant and American Enterprise Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (a)(i) Letter Agreement, dated October 30, 1997, between American Enterprise Life Insurance Company and American Centurion Life Assurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (22) - Participation Agreement, dated November 20, 1997, between Registrant and AIG Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (23) - Participation Agreement, dated November 20, 1997, between Registrant and American International Life Assurance Company of New York was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (24) - (a) Participation Agreement, dated November 4, 1997, between Registrant and Nationwide Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated June 15, 1998, to Participation Agreement, dated November 4, 1997, between Registrant and Nationwide Life Insurance Company was filed electronically as an C-10 323 Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (25) - (a) Participation Agreement, dated December 3, 1997, between Registrant and Security Life of Denver was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated June 23, 1998, to Participation Agreement, dated December 3, 1997, between Registrant and Security Life of Denver was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (c) Amendment No. 2, dated May 20, 1999, to the Participation Agreement, dated December 3, 1997, between Registrant and Security Life of Denver Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. (26) - Participation Agreement, dated December 31, 1997, between Registrant and Cova Financial Services Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. (27) - (a) Participation Agreement, dated December 31, 1997, between Registrant and Cova Financial Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 9 on February 13, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated April 23, 1999, to the Participation Agreement, dated December 31, 1997, between Registrant and Cova Financial Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. (28) - (a) Participation Agreement, dated February 2, 1998, between Registrant and The Guardian Insurance & Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated July 1, 1999, between Registrant and The Guardian Life Insurance & Annuity Company is hereby filed electronically. (29) - (a) Participation Agreement, dated February 17, 1998, between Registrant and Sun Life Assurance Company of Canada (U.S.) was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. C-11 324 (b) Amendment No. 1, dated December 11, 1998, to the Participation Agreement, dated February 17, 1998, between Registrant and Sun Life Assurance Company of Canada (U.S.) was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (30) - Participation Agreement, dated April 1, 1998, between Registrant and United Life & Annuity Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (31) - (a) Participation Agreement, dated April 21, 1998, between Registrant and Keyport Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (b) Amendment No. 1, dated December 28, 1998, to the Participation Agreement, dated April 21, 1998, between Registrant and Keyport Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (32) - (a) Participation Agreement, dated May 1, 1998, between Registrant and PFL Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated June 30, 1998, to Participation Agreement, dated May 1, 1998, between Registrant and PFL Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (c) Amendment No. 2, dated November 27, 1998, to the Participation Agreement, dated May 1, 1998, between Registrant and PFL Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999 and is hereby incorporated by reference. (33) - Participation Agreement, dated May 1, 1998, between Registrant and Fortis Benefits Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (34) - (a) Participation Agreement, dated June 1, 1998, between Registrant and American General Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. C-12 325 - (b) Amendment No. 1, dated January 1, 1999, to the Participation Agreement, dated June 1, 1998, between Registrant and American General Life Insurance Company was filed as an Exhibit to Post-Effective Amendment No. 12 on April 29, 1999, and is incorporated herein by reference. (35) - (a) Participation Agreement, dated June 16, 1998, between Registrant and Lincoln National Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (b) Amendment No. 1, dated November 20, 1998, to the Participation Agreement, dated June 16, 1998, between Registrant and Lincoln National Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (36) - Participation Agreement, dated June 30, 1998, between Registrant and Aetna Life Insurance and Annuity Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (37) - Participation Agreement, dated July 1, 1998, between Registrant and The Union Central Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (38) - Participation Agreement, dated July 1, 1998, between Registrant and United Investors Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999, and is hereby incorporated by reference. (39) - Participation Agreement, dated July 2, 1998, between Registrant and Hartford Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (40) - (a) Participation Agreement, dated July 13, 1998, between Registrant and Keyport Benefit Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (b) Amendment No. 1, dated December 28, 1998 to the Participation Agreement, dated July 13, 1998, between Registrant and Keyport Benefit Life Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999 and is hereby incorporated by reference. (41) - Participation Agreement, dated July 27, 1998, between Registrant and Allmerica Financial Life Insurance and Annuity Company was filed C-13 326 electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (42) - Participation Agreement, dated July 27, 1998, between Registrant and First Allmerica Financial Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. (43) - Participation Agreement, dated October 15, 1998, between Registrant and Lincoln Life & Annuity Insurance Company of New York was filed as an Exhibit to Post-Effective Amendment No. 12 on April 29, 1999, and is incorporated herein by reference. (44) - (a) Participation Agreement, dated November 23, 1998, between Registrant and American General Annuity Insurance Company was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999 and is hereby incorporated by reference. - (b) Amendment No. 1, dated July 1, 1999, to the Participation Agreement, dated November 23, 1998, between Registrant and American General Annuity Insurance Company is hereby filed electronically. (45) - Participation Agreement, dated December 1, 1998, between Registrant and the Prudential Insurance Company of America was filed electronically as an Exhibit to Registrant's Post-Effective Amendment No. 11 on February 18, 1999 and is hereby incorporated by reference. (46) - Participation Agreement, dated February 1, 1999, between Registrant and Sage Life Assurance of America, Inc. was filed as an Exhibit to Post-Effective Amendment No. 12 on April 29, 1999, and is incorporated herein by reference. (47) - Participation Agreement, dated April 1, 1999, between Registrant and Liberty Life Assurance Company of Boston was filed as an Exhibit to Post-Effective Amendment No. 12 on April 29, 1999, and is incorporated herein by reference. (48) - Participation Agreement, dated April 13, 1999, between Registrant and Western-Southern Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. (49) - Participation Agreement, dated May 1, 1999, between Registrant and Columbus Life Insurance Company was filed electronically as an C-14 327 Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. (50) - Participation Agreement, dated April 26, 1999, between Registrant and First Variable Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. (51) - Participation Agreement, dated August 21, 1999, between Registrant and Life Investors Insurance Company of America is hereby filed electronically. (52) - Participation Agreement, dated June 8, 1999, between Registrant and The Principal Life Insurance Company was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. (53) - Participation Agreement, dated June 8, 1999, between Registrant and Principal Life Insurance Company is hereby filed electronically. (54) - Participation Agreement, dated June 14, 1999, between Registrant and Security First Life Insurance Company is hereby filed electronically. (55) - Participation Agreement, dated July 1, 1999, between Registrant and Allstate Life Insurance Company is hereby filed electronically. (56) - Participation Agreement, dated July 27, 1999, between Registrant and Allianz Life Insurance Company of North America is hereby filed electronically. (57) - Participation Agreement, dated July 27, 1999, between Registrant and Preferred Life Insurance Company of New York is hereby filed electronically. (58) - Participation Agreement, dated August 31, 1999, between Registrant and John Hancock Mutual Life Insurance Company is hereby filed electronically. (59) - Participation Agreement, dated August 31, 1999, between Registrant and The United States Life Insurance Company in the City of New York is hereby filed electronically. (60) - Accounting Services Agreement, dated March 31, 1993, between the Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996. i (1) - (a) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I. Capital Appreciation Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Government Securities Fund, the AIM V.I. Growth Fund, the AIM V.I. International Equity Fund, the AIM V.I. Money Market Fund and the AIM V.I. Value Fund was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993 and is incorporated herein by reference. C-15 328 - (b) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I. Growth and Income Fund and the AIM V.I. Utilities Fund (presently the AIM V.I. Global Utilities Fund) was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994 and is incorporated herein by reference. - (c) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I. Global Utilities Fund name change was filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 on April 26, 1995 and is incorporated herein by reference. - (d) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding AIM V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital Development Fund and AIM V.I. High Yield Fund was filed as an Exhibit to Registrant's Post-Effective Agreement No. 9 on February 13, 1998 and is incorporated herein by reference. - (e) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding AIM V.I. Global Growth and Income Fund and AIM V.I. Telecommunications Fund was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (f) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding AIM V.I. Blue Chip Fund was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on July 13, 1999 and is incorporated herein by reference. - (g) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding AIM V.I. Dent Demographic Trends Fund is hereby filed electronically. (2) - Consent of Messrs. Tait, Weller & Baker is hereby filed electronically. j - Other Opinions, Appraisals or Rulings and Consents - None. k - Financial Statements omitted from Item 22 - None. l (1) - (a) Agreements Concerning Initial Capitalization of the AIM V.I. Capital Appreciation Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Government Securities Fund, the AIM V.I. Growth Fund, the AIM V.I. International Equity Fund, the AIM V.I. Money Market Fund, and the AIM V.I. Value Fund were filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and were filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by reference. - (b) Agreements Concerning Initial Capitalization of the AIM V.I. Growth and Income Fund and the AIM V.I. Utilities Fund were filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on C-16 329 November 3, 1994, and were filed electronically as an Exhibit to Post-Effective Amendment No. 7 on April 29, 1996, and are incorporated herein by reference. - (c) Agreement Concerning Initial Capitalization of the AIM V.I. Aggressive Growth Fund, the AIM V.I. Balanced Fund, the AIM V.I. Capital Development Fund and the AIM V.I. High Yield Fund was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on October 2, 1998, and is incorporated herein by reference. - (d) Agreement Concerning Initial Capitalization of the AIM V.I. Blue Chip Fund is hereby filed electronically. - (e) Form of Agreement Concerning Initial Capitalization of the AIM V.I. Dent Demographic Trends Fund is hereby filed electronically. m - Registrant's Plan pursuant to Rule 12b-1 under the 1940 Act - None. n - Multiple Class Plan (Rule 18f-3) - None. o(1) - The AIM Management Group Code of Ethics adopted May 1, 1981 and as amended August 17, 1999 relating to A I M Management Group Inc. and A I M Advisors, Inc. is filed herewith. (2) Code of Ethics of Registrant effective as of February 25, 1993 is filed herewith electronically. Item 24. Persons Controlled by or Under Common Control with Registrant Provide a list or diagram of all persons directly or indirectly controlled by or under common control with the Registrant. For any person controlled by another person, disclose the percentage of voting securities owned by the immediately controlling person or other basis of that person's control. For each company, also provide the state or other sovereign power under the laws of which the company is organized. None. Item 25. Indemnification State the general effect of any contract, arrangements or statute under which any director, officer, underwriter or affiliated person of the Registrant is insured or indemnified against any liability incurred in their official capacity, other than insurance provided by any director, officer, affiliated person or underwriter for their own protection. Under the terms of the Maryland General Corporation Law and the Registrant's Charter and By-Laws, the Registrant may indemnify any person who was or is a director, officer, employee or agent of the Registrant to the maximum extent permitted by the Maryland General Corporation Law. The specific terms of such indemnification are reflected in the Registrant's Charter and By-Laws, which are incorporated herein as part of this Registration Statement. No indemnification will be provided by the Registrant to any director or officer of the Registrant for any liability to the Registrant or shareholders to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty. C-17 330 In addition, under the terms of the agreements described in response to Item 24(b) of this Part C, various third parties have agreed to indemnify the registrant, its directors and officers, and, in some cases, its investment advisor and/or principal underwriter, against certain liabilities that may arise in connection with the performance of the agreements. The specific terms of such indemnification are set out in the agreements, and are incorporated herein by reference. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereby, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such Act and will be governed by the final adjudication of such issue. Insurance coverage is provided under a joint Mutual Fund & Investment Advisory Professional Directors & Officers Liability Policy, issued by ICI Mutual Insurance Company, with a $35,000,000 limit of liability. Item 26. Business and Other Connections of Investment Advisor Describe any other business, profession, vocation or employment of a substantial nature that each investment advisor of the Registrant, and each director, officer or partner of the advisor, is or has been engaged within the last two fiscal years for his or her own account or in the capacity of director, officer, employee, partner, or trustee. The only employment of a substantial nature of the Advisor's directors and officers is with the Advisor and its affiliated companies. Reference is also made to the caption "Fund Management--The Advisor" of the Prospectus which comprises Part A of this Registration Statement, and to the discussion under the caption "Management" of the Statement of Additional Information which comprises Part B of this Registration Statement, and to Item 29(b) of this Part C of the Registration Statement. Item 27. Principal Underwriters (a)State the name of each investment company (other than the Registrant) for which each principal underwriter currently distributing the Registrant's securities also acts as a principal underwriter, depositor, or investment advisor. AIM Advisor Funds, Inc. AIM Equity Funds, Inc. (Retail Classes) AIM Funds Group AIM Growth Series C-18 331 AIM International Funds, Inc. AIM Investment Funds AIM Investment Securities Funds (Retail Classes) AIM Series Trust AIM Special Opportunities Funds AIM Summit Fund, Inc. AIM Tax-Exempt Funds, Inc. GT Global Floating Rate Fund, Inc. d/b/a AIM Floating Rate Fund (b) Provide the information required by the following table for each director, officer, or partner of each principal underwriter named in the response to item 20:
Name and Principal Position and Offices Position and Offices Business Address* with Principal Underwriter with Registrant - ----------------- -------------------------- --------------- Charles T. Bauer Chairman of the Board of Directors Chairman & Director Michael J. Cemo President & Director None Gary T. Crum Director Senior Vice President Robert H. Graham Senior Vice President & Director President & Director William G. Littlepage Senior Vice President & Director None James L. Salners Executive Vice President None John Caldwell Senior Vice President None Gordon J. Sprague Senior Vice President None Michael C. Vessels Senior Vice President None Marilyn M. Miller Senior Vice President None Gene L. Needles Senior Vice President None B. J. Thompson First Vice President None Ofelia M. Mayo Vice President, General Counsel Assistant Secretary & Assistant Secretary James R. Anderson Vice President None Dawn M. Hawley Vice President & Treasurer None
- -------------- * 11 Greenway Plaza, Suite 100, Houston, Texas 77046 C-19 332
Name and Principal Position and Offices Position and Offices Business Address* with Principal Underwriter with Registrant - ----------------- -------------------------- --------------- Mary K. Coleman Vice President None Mary A. Corcoran Vice President None Melville B. Cox Vice President & Chief Compliance Officer Vice President Sidney M. Dilgren Vice President None Tony D. Green Vice President None Charles N. McLaughlin Vice President None Terri L. Ransdell Vice President None Carol F. Relihan Vice President Senior Vice President & Secretary Kamala C. Sachidanandan Vice President None Frank V. Serebrin Vice President None Christopher T. Simutis Vice President None Gary K. Wendler Vice President None Kathleen J. Pflueger Secretary Assistant Secretary David E. Hessel Assistant Vice President, None Assistant Treasurer & Controller Luke P. Beausoleil Assistant Vice President None Shelia R. Brown Assistant Vice President None Scott E. Burman Assistant Vice President None Tisha Christopher Assistant Vice President None Glenda Dayton Assistant Vice President None Mary E. Gentempo Assistant Vice President None Simon R. Hoyle Assistant Vice President None Kathryn A. Jordon Assistant Vice President None Kim T. McAuliffe Assistant Vice President None
- -------------- * 11 Greenway Plaza, Suite 100, Houston, Texas 77046 C-20 333
Name and Principal Position and Offices Position and Offices Business Address* with Principal Underwriter with Registrant - ----------------- -------------------------- --------------- Ivy B. McLemore Assistant Vice President None David B. O'Neil Assistant Vice President None Rebecca Starling-Klatt Assistant Vice President None Nicholas D. White Assistant Vice President None Norman W. Woodson Assistant Vice President None Nancy L. Martin Assistant General Counsel & Assistant Secretary Assistant Secretary Samuel D. Sirko Assistant General Counsel & Assistant Secretary Assistant Secretary P. Michelle Grace Assistant Secretary Assistant Secretary Lisa A. Moss Assistant Secretary Assistant Secretary Stephen I. Winer Assistant Secretary Assistant Secretary
(c) Not Applicable Item 28. Location of Accounts and Records State the name and address of each person maintaining physical possession of each account, book, or other document required to be maintained by section 31(a) [15 U.S.C. 80a-30(a)] and the rules under that section. A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, will maintain physical possession of each such account, book or other document of the Registrant at its principal executive offices, except for those maintained by the Registrant's Custodian and Transfer Agent State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. Item 29. Management Services Provide a summary of the substantive provisions of any management-related service contract not discussed in Part A or B, disclosing the parties to the contract and the total amount paid and by whom for the Registrant's last three fiscal years. Not Applicable - -------------- * 11 Greenway Plaza, Suite 100, Houston, Texas 77046 C-21 334 Item 30. Undertakings In initial registration statements filed under the Securities Act, provide an undertaking to file an amendment to the registration statement with certified financial statements showing the initial capital received before accepting subscriptions from more than 25 persons if the Registrant intends to raise its initial capital under section 14(a)(3) [15 U.S.C. 80a-14(a)(3)]. Not Applicable C-22 335 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Houston, Texas on the 27th day of September, 1999. REGISTRANT: AIM VARIABLE INSURANCE FUNDS, INC. By: /s/ ROBERT H. GRAHAM ---------------------------------- Robert H. Graham, President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURES TITLE DATE ---------- ----- ---- /s/ CHARLES T. BAUER Chairman & Director September 27, 1999 - ---------------------------- (Charles T. Bauer) /s/ ROBERT H. GRAHAM Director & President September 27, 1999 - ----------------------------- (Principal Executive Officer) (Robert H. Graham) /s/ BRUCE L. CROCKETT Director September 27, 1999 - ---------------------------- (Bruce L. Crockett) /s/ OWEN DALY II Director September 27, 1999 - ---------------------------- (Owen Daly II) /s/ EDWARD K. DUNN, JR. Director September 27, 1999 - ---------------------------- (Edward K. Dunn, Jr.) /s/ JACK FIELDS Director September 27, 1999 - ---------------------------- (Jack Fields) /s/ CARL FRISCHLING Director September 27, 1999 - ---------------------------- (Carl Frischling) /s/ PREMA MATHAI-DAVIS Director September 27, 1999 - ---------------------------- (Prema Mathai-Davis) /s/ LEWIS F. PENNOCK Director September 27, 1999 - ---------------------------- (Lewis F. Pennock) /s/ LOUIS S. SKLAR Director September 27, 1999 - ---------------------------- (Louis S. Sklar) /s/ DANA R. SUTTON Vice President & September 27, 1999 - ---------------------------- Treasurer (Principal Financial (Dana R. Sutton) and Accounting Officer)
336 INDEX TO EXHIBITS
Exhibit No. ------- a(1)(i) Articles Supplementary to Articles of Incorporation of Registrant as filed with the State of Maryland on September 27, 1999 d(3)(d) Amendment No. 3, dated September 24, 1999, to Master Investment Advisory Agreement between Registrant and A I M Advisors, Inc. d(3)(e) Form of Amendment No. 4 to Master Investment Advisory Agreement between Registrant and A I M Advisors, Inc. d(5) Form of Sub-Advisory Agreement between A I M Advisors, Inc. and H.S. Dent Advisors, Inc. e(2)(d) Amendment No. 3, dated September 24, 1999, to Master Distribution Agreement between Registrant and A I M Distributors, Inc. e(2)(e) Form of Amendment No. 4 to Master Distribution Agreement between Registrant and A I M Distributors, Inc. h(4)(c) Amendment No. 2, dated September 24, 1999, to Master Administrative Services Agreement between Registrant and A I M Advisors, Inc. h(4)(d) Form of Amendment No. 3 to Master Administrative Services Agreement, as amended May 1, 1998, between Registrant and A I M Advisors, Inc. h(28)(b) Amendment No. 1, dated July 1, 1999, to the Participation Agreement, dated February 2, 1998, between Registrant and The Guardian Insurance & Annuity Company, Inc. h(44)(b) Amendment No. 1, dated July 2, 1999, to the Participation Agreement, dated November 23, 1998, between Registrant and American General Annuity Insurance Company h(51) Participation Agreement, dated August 21, 1999, between Registrant and Life Investors Insurance Company of America h(53) Participation Agreement, dated June 8, 1999, between Registrant and Principal Life Insurance Company h(54) Participation Agreement, dated June 14, 1999, between Registrant and Security First Life Insurance Company h(55) Participation Agreement, dated July 1, 1999, between Registrant and Allstate Life Insurance Company
337 h(56) Participation Agreement, dated July 27, 1999, between Registrant and Allianz Life Insurance Company of North America h(57) Participation Agreement, dated July 27, 1999, between Registrant and Preferred Life Insurance Company of New York h(58) Participation Agreement dated August 31, 1999, between Registrant and John Hancock Mutual Life Insurance Company h(59) Participation Agreement, dated August 31, 1999, between Registrant and The United States Life Insurance Company in the City of New York i(1)(g) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds i(2) Consent of Messrs. Tait, Weller & Baker l(d) Agreement Concerning Initial Capitalization of the AIM V.I. Blue Chip Fund l(e) Form of Agreement Concerning Initial Capitalization of the AIM V.I. Dent Demographic Trends Fund o(1) The A I M Management Group Code of Ethics o(2) Code of Ethics of Registrant
EX-99.A1.I 2 ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORP. 1 EXHIBIT a(1)(i) AIM VARIABLE INSURANCE FUNDS, INC. ARTICLES SUPPLEMENTARY AIM VARIABLE INSURANCE FUNDS, INC., a Maryland corporation, having its principal office in the State of Maryland in Baltimore City (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The aggregate number of shares of Common Stock of the Corporation is increased by two hundred fifty million (250,000,000) shares, which are classified and allocated as follows: two hundred fifty million (250,000,000) shares to AIM V.I. Dent Demographic Trends Fund. The shares of the AIM V.I. Dent Demographic Trends Fund, as so classified by the Board of Directors shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as set forth in the FIFTH ARTICLE, paragraph (b) of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally. SECOND: Immediately before the increase in the aggregate number of shares as set forth in the FIRST ARTICLE hereto, the Corporation was authorized to issue 4,250,000,000 shares of the par value of $.001 each and of the aggregate par value of $4,250,000, of which 250,000,000 shares were initially classified as AIM V.I. Aggressive Growth Fund shares, 250,000,000 shares were initially classified as AIM V.I. Balanced Fund shares, 250,000,000 shares were initially classified as AIM V.I. Blue Chip Fund shares, 250,000,000 shares were initially classified as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares were initially classified as AIM V.I. Capital Development Fund shares, 250,000,000 shares were initially classified as AIM V.I. Diversified Income Fund shares, 250,000,000 shares were initially classified as AIM V.I. Global Growth and Income Fund shares, 250,000,000 shares were initially classified as AIM V.I. Global Utilities Fund shares, 250,000,000 shares were initially classified as AIM V.I. Government Securities Fund shares, 250,000,000 shares were initially classified as AIM V.I. Growth Fund shares, 250,000,000 shares were initially classified as AIM V.I. Growth and Income Fund shares, 250,000,000 shares were initially classified as AIM V.I. High Yield Fund shares, 250,000,000 shares were initially classified as AIM V.I. International Equity Fund shares, 250,000,000 shares were initially classified as AIM V.I. Money Market Fund shares, 250,000,000 shares were initially classified as AIM V.I. Telecommunications Fund shares, 250,000,000 shares were initially classified as AIM V.I. Value Fund shares, and the balance of which were unclassified. THIRD: As hereby increased, the total number of shares of stock which the Corporation has authority to issue is 4,500,000,000 shares of the par value of $.001 each and of the aggregate par value of $4,500,000, of which 250,000,000 shares are classified as AIM V.I. Aggressive Growth -1- 2 Fund shares, 250,000,000 shares are classified as AIM V.I. Balanced Fund shares, 250,000,000 shares are classified as AIM V.I. Blue Chip Fund shares, 250,000,000 shares are classified as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares are classified as AIM V.I. Capital Development Fund shares, 250,000,000 shares are classified as AIM V.I. Dent Demographic Trends Fund shares, 250,000,000 shares are classified as AIM V.I. Diversified Income Fund shares, 250,000,000 shares are classified as AIM V.I. Global Growth and Income Fund shares, 250,000,000 shares are classified as AIM V.I. Global Utilities Fund shares, 250,000,000 are classified as AIM V.I. Government Securities Fund shares, 250,000,000 are classified as AIM V.I. Growth Fund shares, 250,000,000 are classified as AIM V.I. Growth and Income Fund shares, 250,000,000 shares are classified as AIM V.I. High Yield Fund shares, 250,000,000 are classified as AIM V.I. International Equity Fund shares, 250,000,000 are classified as AIM V.I. Money Market Fund shares, 250,000,000 shares are classified as AIM V.I. Telecommunications Fund shares, 250,000,000 are classified as AIM V.I. Value Fund shares, and the balance of which are unclassified. FOURTH: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940, as amended. FIFTH: The Board of Directors of the Corporation increased the total number of shares of Common Stock the Corporation has authority to issue pursuant to Section 2-105(c) of the Maryland General Corporation Law and classified the shares of the AIM V.I. Dent Demographic Trends Fund under authority contained in the Charter of the Corporation. The undersigned President acknowledges these Articles Supplementary to be the corporate act of the Corporation and states that to the best of his knowledge, information and belief the matters and facts set forth in these Articles with respect to authorization and approval are true in all material respects and that this statement is made under the penalties of perjury. IN WITNESS WHEREOF, AIM VARIABLE INSURANCE FUNDS, INC. has caused these Articles Supplementary to be executed in its name and on its behalf by its President and witnessed by its Assistant Secretary on September 24, 1999. AIM VARIABLE INSURANCE FUNDS, INC. By: /s/ ROBERT H. GRAHAM ------------------------------- President Witness: /s/ P. MICHELE GRACE - ------------------------------------ Assistant Secretary -2- EX-99.D3.D 3 AMEND. #3 TO MASTER INVESTMENT ADVISORY AGREEMENT 1 EXHIBIT d(3)(d) AMENDMENT NO. 3 TO MASTER INVESTMENT ADVISORY AGREEMENT This amendment dated as of September 24, 1999, amends the Master Investment Advisory Agreement (the "Agreement"), dated February 28, 1997, between AIM Variable Insurance Funds, Inc., a Maryland corporation, and A I M Advisors, Inc., a Delaware corporation. W I T N E S S E T H: WHEREAS, the parties desire to amend the Agreement to add one new portfolio, AIM V.I. Blue Chip Fund; NOW, THEREFORE, the parties agree as follows: 1. Appendix A to the Agreement is hereby deleted in its entirety and replaced with the following: APPENDIX A TO MASTER INVESTMENT ADVISORY AGREEMENT OF AIM VARIABLE INSURANCE FUNDS, INC. The Company shall pay the Advisor as full compensation for all services rendered and all facilities furnished hereunder, a management fee for each Fund by applying the following annual rates to the average daily net assets of each Fund for the calendar year computed in the manner used for the determination of the net asset value of shares of each Fund. AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND AIM V.I. GLOBAL UTILITIES FUND AIM V.I. VALUE FUND
ANNUAL NET ASSETS RATE - ---------- ------ 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%
2 AIM V.I. BALANCED FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $150 million....................................................................................... 0.75% Over $150 million........................................................................................ 0.50%
AIM V.I. BLUE CHIP FUND AIM V.I. CAPITAL DEVELOPMENT FUND
ANNUAL NET ASSETS RATE - ---------- ------ 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
NET ASSETS - ---------- Average Daily Net Assets................................................................................. 1.00%
AIM V.I. GOVERNMENT SECURITIES FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $250 million....................................................................................... .50% Over $250 million........................................................................................ .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%
3 AIM V.I. INTERNATIONAL EQUITY FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $250 million ..................................................................................... 0.75% Over $250 million....................................................................................... 0.70%
AIM V.I. MONEY MARKET FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $250 million...................................................................................... 0.40% Over $250 million....................................................................................... 0.35%
2. In all other respects, the Agreement is hereby confirmed and remains in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers on the date first written above. Date: September 24, 1999 ------------------- AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM ---------------------------- ------------------------------- Assistant Secretary President [SEAL] A I M ADVISORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM ---------------------------- ------------------------------- Assistant Secretary President [SEAL] EX-99.D3.E 4 FORM OF AMEND. #4 TO MASTER INVEST. ADVISORY AGMT. 1 EXHIBIT d(3)(e) AMENDMENT NO. 4 TO MASTER INVESTMENT ADVISORY AGREEMENT This amendment dated as of ______________, 1999, amends the Master Investment Advisory Agreement (the "Agreement"), dated February 28, 1997, between AIM Variable Insurance Funds, Inc., a Maryland corporation, and AIM Advisors, Inc., a Delaware corporation. W I T N E S S E T H: WHEREAS, the parties desire to amend the Agreement to add one new portfolio, AIM V.I. Dent Demographic Trends Fund; NOW, THEREFORE, the parties agree as follows: 1. Appendix A to the Agreement is hereby deleted in its entirety and replaced with the following: APPENDIX A TO MASTER INVESTMENT ADVISORY AGREEMENT OF AIM VARIABLE INSURANCE FUNDS, INC. The Company shall pay the Advisor as full compensation for all services rendered and all facilities furnished hereunder, a management fee for each Fund by applying the following annual rates to the average daily net assets of each Fund for the calendar year computed in the manner used for the determination of the net asset value of shares of each Fund. AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND AIM V.I. GLOBAL UTILITIES FUND AIM V.I. VALUE FUND
ANNUAL NET ASSETS RATE - ---------- ------ 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%
2 AIM V.I. BALANCED FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $150 million......................................... 0.75% Over $150 million.......................................... 0.50%
AIM V.I. BLUE CHIP FUND AIM V.I. CAPITAL DEVELOPMENT FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $350 million.......................................... 0.75% Over $350 million........................................... 0.625%
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $2 billion............................................ 0.85% Over $2 billion............................................. 0.80%
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......................................... .50% Over $250 million.......................................... .45%
3 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%
AIM V.I. MONEY MARKET FUND
ANNUAL NET ASSETS RATE - ---------- ------ First $250 million ......................................... 0.40% Over $250 million .......................................... 0.35%
2. In all other respects, the Agreement is hereby confirmed and remains in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers on the date first written above. Date: , 1999 --------------------- AIM VARIABLE INSURANCE FUNDS, INC. Attest: By: ----------------------------- --------------------------------- Assistant Secretary President (SEAL) A I M ADVISORS, INC. Attest: By: ----------------------------- --------------------------------- Assistant Secretary President (SEAL) EX-99.D5 5 FORM OF SUB-ADVISORY AGREEMENT - H.S. DENT 1 EXHIBIT d(5) AIM V.I. DENT DEMOGRAPHIC TRENDS FUND SUB-ADVISORY AGREEMENT THIS AGREEMENT is made and entered into this _______ day of _________, 1999, by and between A I M Advisors, Inc., a Delaware corporation (the "Adviser"), and H.S. Dent Advisors, Inc., a Delaware corporation (the "Sub-Adviser"). RECITALS WHEREAS, AIM V.I. Dent Demographic Trends Fund (the "Fund") is a series of AIM Variable Insurance Funds, Inc. (the "Company"), a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end, diversified management investment company; WHEREAS, the Adviser is registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as an investment adviser and engages in the business of acting as an investment adviser; WHEREAS, the Sub-Adviser is also registered under the Advisers Act, and engages in the business of acting as an investment adviser; WHEREAS, the Adviser expects to enter into an investment advisory agreement with the Fund (the "Investment Advisory Agreement") pursuant to which the Adviser will act as investment adviser with respect to the Fund; and WHEREAS, the Adviser wishes to retain the Sub-Adviser for purposes of rendering advisory services to the Adviser in connection with the Fund upon the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. Appointment of Sub-Adviser. The Adviser hereby appoints the Sub-Adviser to render investment research and advisory services to the Adviser with respect to the Fund under the supervision of the Adviser, and the Sub-Adviser hereby accepts such appointment, all subject to the terms and conditions contained herein. The Sub-Adviser shall use its best judgment, efforts and facilities in rendering its services as investment adviser. 2. Advisory Services. The duties of the Sub-Adviser shall be limited to the following: (a) Rendering investment research and advisory services to the Adviser with respect to the Fund, under the supervision of the Adviser and subject to the approval and direction of the Board of Directors of the Fund; (b) Analyzing and recommending appropriate industry and sector allocations and weightings for the Fund's investment portfolio, in accordance with the philosophies of Harry S. 2 Dent, Jr. ("Mr. Dent") concerning industry and sector allocations based on demographic principles. The duties of the Sub-Adviser shall not include selection of specific securities within the recommended industry or sectors for purchase or sale. (c) Providing, on a monthly basis, recommendations of the appropriate industry and sector allocations and weightings for the Fund. The Sub-Adviser, at its sole and absolute discretion, may elect to make such recommendations more frequently based on market conditions. The Sub-Adviser shall make Mr. Dent available for discussions with respect to industry and sector allocations and weightings of the Fund upon reasonable request by the Adviser. (d) Providing written materials concerning industry and sector allocations and weightings for the Fund to the Board of Directors of the Company upon request by the Board. (e) Making Mr. Dent available to speak at promotional meetings on 25 days selected by mutual agreement of the Adviser and Sub-Adviser. Mr. Dent may agree, at his sole discretion, to appear at more than one meeting on any day upon request by the Adviser. (f) Making Mr. Dent available, upon request by the Adviser and subject to Mr. Dent's availability, for telephone conference calls intended to educate persons involved in distribution of the Fund's shares on the investment principles of the Fund and for other educational and promotional activities not requiring travel. 3. Control by Board of Directors. Any investment program recommended by the Sub-Adviser pursuant to this Agreement, as well as any other activities undertaken by the Sub-Adviser with respect to the Fund, shall at all times be subject to any directives of the Board of Directors of the Fund. 4. Compliance with Applicable Requirements. In carrying out its obligations under this Agreement, the Sub-Adviser shall at all times conform to: (a) all applicable provisions of the 1940 Act and Advisers Act and any rules and regulations adopted thereunder; (b) the provisions of the registration statement of the Fund, as the same may be amended from time to time, under the Securities Act of 1933 and the 1940 Act; (c) the provisions of the corporate charter and by-laws of the Fund, as the same may be amended from time to time; and (d) any other applicable provisions of state or federal law. 3 5. Compensation. The Adviser shall pay the Sub-Adviser, as compensation for services rendered hereunder, an amount per annum based upon the net asset value of the Fund as follows:
Assets Basis Points ------ ------------ Up to $1 billion.............................................. 13 Over $1 billion to and including $2 billion.................. 10 Over $2 billion............................................... 7
The Adviser will begin payment of such fees when the net asset value of the Fund has reached $50 million, and the fee will be paid on a monthly basis thereafter. 6. Expenses of the Fund. All of the ordinary business expenses incurred in the operations of the Fund and the offering of its shares shall be borne by the Fund unless specifically provided otherwise in this Agreement. These expenses borne by the Fund include but are not limited to brokerage commissions, taxes, legal, auditing, governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to directors and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Fund in connection with membership in investment company organizations and the cost of printing copies of prospectuses and statements of additional information distributed to the Fund's shareholders. 7. Exclusivity. Sub-Adviser shall not render investment advice or similar services directly or indirectly to any investment company that offers or has offered its shares for sale in a public offering, other than (i) the Fund and other investment companies that are advised or distributed by A I M Management Group Inc. or its affiliates and (ii) unit investment trusts identified on Exhibit A to this Agreement. It is understood and agreed that Exhibit A may be amended from time to time by mutual agreement of the Adviser and Sub-Adviser and that officers or directors of the Sub-Adviser are not prohibited from engaging in any other business activity or from rendering any other services to any other person, or from serving as partners, officers, directors or trustees of any other firm or trust, including other investment advisory companies so long as such activity or service is unrelated to the rendering of investment advice to investment companies that offer or have offered their shares for sale in a public offering. 8. Trading Practices. The Adviser and Sub-Adviser each agree to comply with the requirement of Rule 17j-1 under the 1940 Act and that they shall not engage in any conduct or practice prohibited by said Rule. 9. Term and Approval. This Agreement shall become effective if approved by the shareholders of the Fund, and if so approved, this Agreement shall thereafter continue in force and effect for two (2) years and may be continued from year to year thereafter, provided that the continuation of the Agreement is specifically approved at least annually by the Fund's Board of Directors. 4 10. Termination. (a) This Agreement shall automatically terminate in the event of its assignment, the term "assignment" for purposes of this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act. (b) This Agreement may be terminated as follows: (i) At any time, without the payment of any penalty, by the vote of the Fund's Board of Directors or by vote of a majority of the Fund's outstanding voting securities. (ii) The Sub-Adviser may terminate this Agreement if the Fund does not commence a public offering of its shares on or before December 31, 1999. (iii) By either party in the event that certain Servicemark License Agreement of even date herewith between Harry S. Dent, Jr. and A I M Management Group Inc. is terminated or expires. (iv) By either party upon the occurrence of a material breach of the terms of the Agreement by the other party that remains uncured for a period of 30 days after notice thereof is given by the terminating party. (c) The party electing to terminate the Agreement under paragraph 10(b) must provide 60 days' prior written notice to the other party and to the Fund of such election. The notice provided for herein may be waived by either party. 11. Liability of Sub-Adviser. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Sub-Adviser or any of its officers, directors or employees, the Sub-Adviser shall not be subject to liability to the Adviser for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 12. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to such address as may be designated for the receipt of such notice, with a copy to the Fund. Until further notice, it is agreed that the address of the Fund and that of the Adviser shall be Eleven Greenway Plaza, Suite 100, Houston, Texas 77046 and that of the Sub-Adviser shall be H.S. Dent Advisors, Inc., P.O. Box 914, Moss Beach, CA 94038. 13. Questions of Interpretation; Applicable Law. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act or the Advisers Act shall be resolved by reference to such term or provision of the 1940 Act or the Advisers Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Acts. In addition, where the effect of a requirement of the 1940 Act or the Advisers Act reflected in any provision of the Agreement is revised by rule, regulation or order of the Securities and Exchange Commission, such provision shall be deemed to incorporate the effect of such rule, 5 regulation or order. Texas law shall apply to all matters of construction or interpretation of this Agreement not addressed by the 1940 Act or Advisers Act. 14. Dispute Resolution. All claims, disputes and other matters in question between the parties to this Agreement, arising out of or relating to this Agreement or the breach thereof, shall be decided by arbitration in accordance with the rules of the American Arbitration Association then in effect unless the parties mutually agree otherwise. (a) Any such claim, dispute, or other matter shall be submitted to one arbitrator designated by the Adviser, provided that if the Sub-Adviser objects to the Adviser's arbitrator, each of the Adviser and the Sub-Adviser will designate an arbitrator who will jointly designate a third arbitrator, and the matter shall be submitted to all three arbitrators for decision; otherwise one arbitrator shall be used. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. (b) Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. (c) The award rendered by the arbitrators shall be final, and judgement may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. The prevailing party in any arbitration under this Agreement shall be awarded its reasonable attorneys fees and costs associated with the arbitration. (d) The location for settlement for any and all claims, controversies or disputes arising out of or relating to this Agreement or any breach thereof when decided by arbitration shall be in Houston, Texas. 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their respective officers on the day and year first written above. A I M Advisors, Inc. Attest: By: - ------------------------------- ------------------------------ Assistant Secretary President (SEAL) Attest: H.S. Dent Advisors, Inc. By: - ------------------------------- ------------------------------ Assistant Secretary President (SEAL) 7 EXHIBIT A PERMITTED INVESTMENT COMPANY ADVISORY CLIENTS
Name of Company Sponsor --------------- ------- Roaring 2000's Unit Investment Trusts Van Kampen Funds, Inc.
EX-99.E2.D 6 AMEND. #3 TO MASTER DISTRO. AGREEMENT 1 EXHIBIT e(2)(d) AMENDMENT NO. 3 TO MASTER DISTRIBUTION AGREEMENT The Master Distribution Agreement (the "Agreement"), dated as of February 28, 1997 by and between AIM Variable Insurance Funds, Inc., a Maryland corporation and A I M Distributors, Inc., a Delaware corporation, is hereby amended as follows: Schedule A of the Agreement is hereby deleted in its entirety and replaced with the following: "SCHEDULE A TO MASTER DISTRIBUTION AGREEMENT OF AIM VARIABLE INSURANCE FUNDS, INC. o AIM V.I. Aggressive Growth Fund o AIM V.I. Balanced Fund o AIM V.I. Blue Chip Fund o AIM V.I. Capital Appreciation Fund o AIM V.I. Capital Development Fund o AIM V.I. Diversification Income Fund o AIM V.I. Global Growth and Income Fund o AIM V.I. Global Utilities Fund o AIM V.I. Government Securities Fund o AIM V.I. Growth Fund o AIM V.I. Growth and Income Fund o AIM V.I. High Yield Fund o AIM V.I. International Equity Fund o AIM V.I. Money Market Fund o AIM V.I. Telecommunications Fund o AIM V.I. Value Fund" All other terms and provisions of the Agreement not amended herein shall remain in full force and effect. Dated: September 24, 1999 ------------------- AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM ---------------------- ---------------------------- Assistant Secretary President A I M DISTRIBUTORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO ---------------------- ---------------------------- Assistant Secretary President EX-99.E2.E 7 FORM OF AMEND. #4 TO MASTER DISTRO. AGREEMENT 1 EXHIBIT e(2)(e) AMENDMENT NO. 4 TO MASTER DISTRIBUTION AGREEMENT The Master Distribution Agreement (the "Agreement"), dated as of February 28, 1997 by and between AIM Variable Insurance Funds, Inc., a Maryland corporation and A I M Distributors, Inc., a Delaware corporation, is hereby amended as follows: Schedule A of the Agreement is hereby deleted in its entirety and replaced with the following: "SCHEDULE A TO MASTER DISTRIBUTION AGREEMENT OF AIM VARIABLE INSURANCE FUNDS, INC. o AIM V.I. Aggressive Growth Fund o AIM V.I. Balanced Fund o AIM V.I. Blue Chip Fund o AIM V.I. Capital Appreciation Fund o AIM V.I. Capital Development Fund o AIM V.I. Dent Demographic Trends Fund o AIM V.I. Diversification Income Fund o AIM V.I. Global Growth and Income Fund o AIM V.I. Global Utilities Fund o AIM V.I. Government Securities Fund o AIM V.I. Growth Fund o AIM V.I. Growth and Income Fund o AIM V.I. High Yield Fund o AIM V.I. International Equity Fund o AIM V.I. Money Market Fund o AIM V.I. Telecommunications Fund o AIM V.I. Value Fund" All other terms and provisions of the Agreement not amended herein shall remain in full force and effect. Dated: , 1999 ----------------- AIM VARIABLE INSURANCE FUNDS, INC. Attest: By: --------------------------- --------------------------------- Assistant Secretary President A I M DISTRIBUTORS, INC. Attest: By: --------------------------- --------------------------------- Assistant Secretary President EX-99.H4.C 8 AMEND. #2 TO MASTER ADMIN. SERVICES AGMT. 1 EXHIBIT h(4)(c) AMENDMENT NO. 2 TO MASTER ADMINISTRATIVE SERVICES AGREEMENT This Amendment, dated as of September 24, 1999, is made to the Master Administrative Services Agreement, (the "Agreement"), as amended, dated May 1, 1998, by and between A I M Advisors, Inc. (the "Administrator") and AIM Variable Insurance Funds, Inc. (the "Company") to add the following Fund to the provisions of the agreement: AIM V. I. Blue Chip Fund IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed by their officers designated below, as of the day and year first above written. A I M ADVISORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM ------------------------- ------------------------------ Assistant Secretary President AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM ------------------------- ------------------------------ Assistant Secretary President EX-99.H4.D 9 FORM OF AMEND. #3 TO MASTER ADMIN. SEVICES AGMT. 1 EXHIBIT h(4)(d) AMENDMENT NO. 3 TO MASTER ADMINISTRATIVE SERVICES AGREEMENT This Amendment, dated as of __________________, 1999, is made to the Master Administrative Services Agreement, (the "Agreement"), as amended, dated May 1, 1998, by and between A I M Advisors, Inc. (the "Administrator") and AIM Variable Insurance Funds, Inc. (the "Company") to add the following Fund to the provisions of the agreement: AIM V. I. Dent Demographic Trends Fund IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed by their officers designated below, as of the day and year first above written. A I M ADVISORS, INC. Attest: By: -------------------------- ----------------------------- Assistant Secretary President AIM VARIABLE INSURANCE FUNDS, INC. Attest: By: -------------------------- ----------------------------- Assistant Secretary President EX-99.H28.B 10 AMEND. #1 TO PARTICIPATION AGMT. - GUARDIAN LIFE 1 EXHIBIT h(28)(b) AMENDMENT NO. 1 PARTICIPATION AGREEMENT The Participation Agreement (the "Agreement"), dated February 2, 1998, by and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M Distributors, Inc., a Delaware corporation, The Guardian Insurance & Annuity Company, Inc., a Delaware life insurance company and Guardian Investor Services Corporation, a New York corporation, is hereby amended as follows: Schedule A of the Agreement is hereby deleted in its entirety and replaced with the following: SCHEDULE A
- -------------------------------------------------------------------------------------------------------------------- FUNDS AVAILABLE UNDER THE SEPARATE ACCOUNTS CONTRACTS FUNDED BY THE POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS - --------------------------------------- ------------------------------------------- -------------------------------- AIM V.I. Capital Appreciation Fund Separate Account K o Park Avenue Life AIM V.I. Value Fund ------------------------------------------- -------------------------------- Separate Account M o Park Avenue VUL - --------------------------------------- ------------------------------------------- -------------------------------- AIM V.I. Capital Appreciation Fund Separate Account E o The Guardian Investor AIM V.I. Global Utilities Fund Retirement Asset Manager AIM V.I. Value Fund Variable Annuity Contract - --------------------------------------------------------------------------------------------------------------------
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect. Effective Date: July 1, 1999 AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM --------------------------- ----------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title: Assistant Secretary Title: President (SEAL) A I M DISTRIBUTORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/MICHAEL J. CEMO --------------------------- ----------------------------- Name: Nancy L. Martin Name: Michael J. Cemo Title: Assistant Secretary Title: President (SEAL) 1 of 2 2 THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC. Attest: /s/ SHERI L. KOCEN By: /s/ JOHN M. SMITH --------------------------- ----------------------------- Name: Sheri L. Kocen Name: John M. Smith --------------------------- ----------------------------- Title: Counsel Title: Executuve Vice President --------------------------- ----------------------------- (SEAL) GUARDIAN INVESTOR SERVICES CORPORATION Attest: /s/SHERI L. KOCEN By: /s/ JOHN M. SMITH --------------------------- ----------------------------- Name: Sheri L. Kocen Name: John M. Smith --------------------------- ----------------------------- Title: Counsel Title: Executive Vice President --------------------------- ----------------------------- (SEAL) 2 of 2 EX-99.H44.B 11 AMEND. #1 TO PARTICIPATION AGMT. - AGAIC 1 EXHIBIT h(44)(b) AMENDMENT NO. 1 PARTICIPATION AGREEMENT The Participation Agreement (the "Agreement"), dated November 23, 1998, by and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M Distributors, Inc., a Delaware Corporation, American General Annuity Insurance Company, a Texas life insurance company and A.G. Distributors, Inc. (formally known as AGA Brokerage Services, Inc.), is hereby amended as follows: Schedule A of the Agreement is hereby deleted in its entirety and replaced with the following: SCHEDULE A
- ------------------------------------------------------------------------------------------------------------------------------- FUNDS AVAILABLE UNDER SEPARATE ACCOUNTS POLICIES/CONTRACTS FUNDED BY THE THE POLICIES UTILIZING SOME OR SEPARATE ACCOUNTS ALL OF THE FUNDS - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund AG Separate Account A o VA61-94 AIM V.I. Diversified Income Fund o VA61-T5-94 AIM V.I. International Equity Fund o VA63-94 AIM V.I. Value Fund o VA63-T5-94 o VA64-T5-94 o VA124-99R - -------------------------------------------------------------------------------------------------------------------------------
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect. Effective Date: July 2, 1999 ------------------------- AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/NANCY L. MARTIN By: /s/ROBERT H. GRAHAM ----------------------------- -------------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title: Assistant Secretary Title: President (SEAL) 1 of 2 2 A I M DISTRIBUTORS, INC. Attest: /s/NANCY L. MARTIN By: /s/MICHAEL J. CEMO ----------------------------- -------------------------------- Name: Nancy L. Martin Name: Michael J. Cemo Title: Assistant Secretary Title: President (SEAL) AMERICAN GENERAL ANNUITY INSURANCE COMPANY Attest: /s/CYNTHIA A. TOLES By: /s/JOHN E. ARANT ----------------------------- -------------------------------- Name: Cynthia A. Toles Name: John E. Arant ----------------------------- ------------------------------ Title: Secretary Title: Executive VP - Sales ----------------------------- ----------------------------- (SEAL) A.G. DISTRIBUTORS, INC. Attest: /S/CYNTHIA A. TOLES By: /s/BRUCE R. ABRAMS ----------------------------- -------------------------------- Name: Cynthia A. Toles Name: Bruce R. Abrams ----------------------------- ------------------------------ Title: Secretary Title: President and CEO ----------------------------- ----------------------------- (SEAL) 2 of 2 EX-99.H51 12 PARTICIPATION AGREEMENT - LIFE INVESTORS INS. CO. 1 EXHIBIT h(51) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., LIFE INVESTORS INSURANCE COMPANY OF AMERICA ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND AFSG SECURITIES CORPORATION 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds.......................................................................................2 1.1 Availability....................................................................................2 1.2 Addition, Deletion or Modification of Funds.....................................................2 1.3 No Sales to the General Public..................................................................2 Section 2. Processing Transactions...............................................................................2 2.1 Timely Pricing and Orders.......................................................................2 2.2 Timely Payments.................................................................................3 2.3 Applicable Price................................................................................3 2.4 Dividends and Distributions.....................................................................4 2.5 Book Entry......................................................................................4 Section 3. Costs and Expenses....................................................................................4 3.1 General.........................................................................................4 3.2 Parties To Cooperate............................................................................4 Section 4. Legal Compliance......................................................................................4 4.1 Tax Laws........................................................................................4 4.2 Insurance and Certain Other Laws................................................................7 4.3 Securities Laws.................................................................................7 4.4 Notice of Certain Proceedings and Other Circumstances...........................................8 4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9 4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10 Section 5. Mixed and Shared Funding.............................................................................11 5.1 General........................................................................................11 5.2 Disinterested Directors........................................................................12 5.3 Monitoring for Material Irreconcilable Conflicts...............................................12 5.4 Conflict Remedies..............................................................................13 5.5 Notice to LIFE COMPANY.........................................................................14 5.6 Information Requested by Board of Directors....................................................14 5.7 Compliance with SEC Rules......................................................................14 5.8 Other Requirements.............................................................................14 Section 6. Termination..........................................................................................15 6.1 Events of Termination..........................................................................15 6.2 Notice Requirement for Termination.............................................................16 6.3 Funds To Remain Available......................................................................16 6.4 Survival of Warranties and Indemnifications....................................................16
i 3 Section 6.5 Continuance of Agreement for Certain Purposes........................................................17 Section 7. Parties To Cooperate Respecting Termination..........................................................17 Section 8. Assignment...........................................................................................17 Section 9. Notices..............................................................................................17 Section 10. Voting Procedures...................................................................................18 Section 11. Foreign Tax Credits.................................................................................18 Section 12. Indemnification.....................................................................................19 12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................19 12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF......................................................21 12.3 Effect of Notice...............................................................................23 12.4 Successors.....................................................................................23 Section 13. Applicable Law......................................................................................24 Section 14. Execution in Counterparts...........................................................................24 Section 15. Severability........................................................................................24 Section 16. Rights Cumulative...................................................................................24 Section 17. Headings............................................................................................24 Section 18. Confidentiality.....................................................................................24 Section 19. Trademarks and Fund Names...........................................................................25 Section 20. Parties to Cooperate................................................................................25 Section 21. Amendments..........................................................................................26
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 21st day of August, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), Life Investors Insurance Company of America, an Iowa life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and AFSG Securities Corporation, an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of fifteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and 1 5 WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. 2 6 (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. 3 7 (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule B, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification 4 8 of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY'S knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality 5 9 provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code 6 10 and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Iowa and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under Iowa Insurance Law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Iowa law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering 7 11 of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, 8 12 with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least fifteen (15) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers 9 13 or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least fifteen (15) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the 10 14 Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 11 15 5.2 DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board; (b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE 12 16 COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. 13 17 (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. 14 18 SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY'S obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's 15 19 noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 FUNDS TO REMAIN AVAILABLE. Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 16 20 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. 17 21 LIFE INVESTORS INSURANCE COMPANY OF AMERICA AFSG SECURITIES CORPORATION 4333 Edgewood Road NE Cedar Rapids, IA 52499 Facsimile: (319) 297-8290 Attn: General Counsel Financial Markets Division SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. 18 22 SECTION 12. INDEMNIFICATION 12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its affiliates, and each person, if any, who controls AVIF, or its affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or 19 23 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense 20 24 thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, or its affiliates or persons under its control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or 21 25 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) AVIF shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the 22 26 action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. 23 27 SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law 24 28 or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior written consent, the granting of which shall be at LIFE COMPANY's or UNDERWRITER's sole option. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 25 29 SECTION 21. AMENDMENTS No provision of this Agreement may be amended or modified in any manner except by a written agreement executed by all parties hereto. 26 30 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM -------------------------- ---------------------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President LIFE INVESTORS INSURANCE COMPANY OF AMERICA, on behalf of itself and its separate accounts Attest: /s/ JOHN D. CLEAVENGER By: /s/ illegible -------------------------- ---------------------------------------- Name: John D. Cleavenger Name: illegible ---------------------------- -------------------------------------- Title: VP-Division Gen. Counsel Title: V.P.-LIICA --------------------------- ------------------------------------- AFSG SECURITIES CORPORATION Attest: /s/ FRANK A. CAMP By: /s/ LARRY N. NORMAN -------------------------- ---------------------------------------- Name: Frank A. Camp Name: Larry N. Norman ---------------------------- -------------------------------------- Title: Secretary Title: President --------------------------- ------------------------------------- 27 31 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund AIM V.I. Government Securities Fund AIM V.I. Growth Fund AIM V.I. International Equity Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS Life Investors Variable Life Account A CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS Life Investors Insurance Company of America Policy Form No. APUL0600 699 28 32 SCHEDULE B EXPENSE ALLOCATIONS
======================================================================================================================= LIFE COMPANY AVIF / AIM - ----------------------------------------------------------------------------------------------------------------------- Preparing and filing the Account's registration statement preparing and filing the Fund's registration statement - ----------------------------------------------------------------------------------------------------------------------- text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements - ----------------------------------------------------------------------------------------------------------------------- text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements supplements (Account) (Fund) - ----------------------------------------------------------------------------------------------------------------------- printing Account and Fund prospectuses and supplements a camera ready Fund prospectus and printing costs of Fund Prospectus to existing policy owners with amounts allocated to the Fund - ----------------------------------------------------------------------------------------------------------------------- text composition and printing Account SAIs text composition and printing Fund SAIs - ----------------------------------------------------------------------------------------------------------------------- mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners upon request by policy owners upon request by policy owners - ----------------------------------------------------------------------------------------------------------------------- mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - ----------------------------------------------------------------------------------------------------------------------- text composition (Account), printing, mailing, and text composition of annual and semi-annual reports distributing annual and semi-annual reports for Account (Fund) (Fund and Account as, applicable) - ----------------------------------------------------------------------------------------------------------------------- text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to proxies related to the Account proxies related to the Fund - ----------------------------------------------------------------------------------------------------------------------- Preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required =======================================================================================================================
29 EX-99.H53 13 PARTICIPATION AGREEMENT - PRINCIPAL LIFE INS. 1 EXHIBIT h(53) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., PRINCIPAL LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND PRINCOR FINANCIAL SERVICES CORPORATION 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds.......................................................................................2 1.1 Availability....................................................................................2 1.2 Addition, Deletion or Modification of Funds.....................................................2 1.3 No Sales to the General Public..................................................................2 Section 2. Processing Transactions...............................................................................2 2.1 Timely Pricing and Orders.......................................................................2 2.2 Timely Payments.................................................................................3 2.3 Applicable Price................................................................................3 2.4 Dividends and Distributions.....................................................................4 2.5 Book Entry......................................................................................4 Section 3. Costs and Expenses....................................................................................4 3.1 General.........................................................................................4 3.2 Parties To Cooperate............................................................................4 Section 4. Legal Compliance......................................................................................4 4.1 Tax Laws........................................................................................4 4.2 Insurance and Certain Other Laws................................................................7 4.3 Securities Laws.................................................................................7 4.4 Notice of Certain Proceedings and Other Circumstances...........................................8 4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9 4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10 Section 5. Mixed and Shared Funding.............................................................................11 5.1 General........................................................................................11 5.2 Disinterested Directors........................................................................11 5.3 Monitoring for Material Irreconcilable Conflicts...............................................12 5.4 Conflict Remedies..............................................................................12 5.5 Notice to LIFE COMPANY.........................................................................14 5.6 Information Requested by Board of Directors....................................................14 5.7 Compliance with SEC Rules......................................................................14 5.8 Other Requirements.............................................................................14 Section 6. Termination..........................................................................................14 6.1 Events of Termination..........................................................................14 6.2 Notice Requirement for Termination.............................................................15 6.3 Funds To Remain Available......................................................................16
i 3
DESCRIPTION PAGE - ----------- ---- 6.4 Survival of Warranties and Indemnifications....................................................16 6.5 Continuance of Agreement for Certain Purposes..................................................16 Section 7. Parties To Cooperate Respecting Termination..........................................................16 Section 8. Assignment...........................................................................................17 Section 9. Notices..............................................................................................17 Section 10. Voting Procedures...................................................................................18 Section 11. Foreign Tax Credits.................................................................................18 Section 12. Indemnification.....................................................................................18 12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................18 12.2 Of LIFE COMPANY and UNDERWRITER by AVIF........................................................20 12.3 Effect of Notice...............................................................................23 12.4 Successors.....................................................................................23 Section 13. Applicable Law......................................................................................23 Section 14. Execution in Counterparts...........................................................................23 Section 15. Severability........................................................................................23 Section 16. Rights Cumulative...................................................................................24 Section 17. Headings............................................................................................24 Section 18. Confidentiality.....................................................................................24 Section 19. Trademarks and Fund Names...........................................................................25 Section 20. Parties to Cooperate................................................................................25
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 8th day of June, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), Principal Life Insurance Company, an Iowa life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and Princor Financial Services Corporation, an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of thirteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and 1 5 WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. (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 2 6 receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. Materiality and reprocessing cost reimbursement shall be determined in accordance with standards established by the Parties as provided in Schedule B, attached hereto and incorporated herein. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. 3 7 (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule C, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. 4 8 (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE 5 9 COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. 6 10 (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Iowa and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under Section 508A.1 of the Iowa Insurance Code and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Iowa law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. 7 11 (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each 8 12 Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for 9 13 use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. 10 14 (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2 DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board;(b) for a period 11 15 of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a 12 16 majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 13 17 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or 14 18 (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY's obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: 15 19 (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 FUNDS TO REMAIN AVAILABLE. Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant 16 20 to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. PRINCIPAL LIFE INSURANCE COMPANY 711 High Street Des Moines, IA 50392 Facsimile: 515-248-3011 Attn: Traci Weldon PRINCOR FINANCIAL SERVICES CORPORATION 680 8th Street Des Moines, IA 50392 Facsimile: 515-235-9235 Attn: Art Filean 17 21 SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION 12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its affiliates, and each person, if any, who controls AVIF, or its affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which 18 22 the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or 19 23 (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) 20 24 against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, or its affiliates or persons under its control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or 21 25 (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) AVIF shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 22 26 (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. 23 27 SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. 24 28 SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior written consent, the granting of which shall be at LIFE COMPANY's or UNDERWRITER's sole option. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. --------------------------- 25 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 PRINCIPAL LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ MELISSA CREW By: /s/ STEVEN BEKER ------------------------------- -------------------------------------- Name: Melissa Crew Name: Steven Beker ------------------------------- -------------------------------------- Title: Assistant Director Title: Assistant Director - Annuity Marketing ------------------------------- -------------------------------------- PRINCOR FINANCIAL SERVICES CORPORATION Attest: /s/ LAYNE A. RASMUSSEN By: /s/ ARTHUR S. FILEAN ------------------------------- ------------------------------------- Name: Layne A. Rasmussen Name: Arthur S. Filean ------------------------------- ------------------------------------- Title: Controller Title: Vice President ------------------------------- -------------------------------------
26 30 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Growth Fund AIM V.I. Growth and Income Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS Principal Life Insurance Company Separate Account B CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS The Principal Variable Annuity, a flexible variable annuity 27 31 SCHEDULE B AIM'S PRICING ERROR POLICIES Determination of Materiality In the event that AIM discovers an error in the calculation of the Fund's net asset value, the following policies will apply: If the amount of the error is less than $.01 per share, it is considered immaterial and no adjustments are made. If the amount of the error is $.01 per share or more, then the following thresholds are applied: a. If the amount of the difference in the erroneous net asset value and the correct net asset value is less than .5% of the correct net asset value, AIM will reimburse the affected Fund to the extent of any loss resulting from the error. No other adjustments shall be made. b. If the amount of the difference in the erroneous net asset value and the correct net asset value is .5% of the correct net asset value or greater, then AIM will determine the impact of the error to theaffected Fund and shall reimburse such Fund (and/or LIFE COMPANY, as appropriate, such as in the event that the error was not discovered until after LIFE COMPANY processed transactions using the erroneous net asset value) to the extent of any loss resulting from the error. To the extent that an overstatement of net asset value per share is detected quickly and LIFE COMPANY has not mailed redemption checks to Participants, LIFE COMPANY and AIM agree to examine the extent of the error to determine the feasibility of reprocessing such redemption transaction (for purposes of reimbursing the Fund to the extent of any such overpayment). Reprocessing Cost Reimbursement To the extent a reprocessing of Participant transactions is required pursuant to paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's reprocessing costs in an amount not to exceed $3.00 per contract affected by $10 or more. The Pricing Policies described herein may be modified by AVIF as approved by its Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at least five (5) days prior to any such meeting of the Board of Directors of AVIF to consider such proposed changes. 28 32 SCHEDULE C EXPENSE ALLOCATIONS
==================================================================================================================== LIFE COMPANY AVIF / AIM - -------------------------------------------------------------------------------------------------------------------- preparing and filing the Account's preparing and filing the Fund's registration registration statement statement - -------------------------------------------------------------------------------------------------------------------- text composition for Account prospectuses text composition for Fund prospectuses and and supplements supplements - -------------------------------------------------------------------------------------------------------------------- text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements (Account) supplements (Fund) - -------------------------------------------------------------------------------------------------------------------- printing Account and Fund prospectuses and a camera ready Fund prospectus supplements - -------------------------------------------------------------------------------------------------------------------- text composition and printing Account SAIs text composition and printing Fund SAIs - -------------------------------------------------------------------------------------------------------------------- mailing and distributing Account SAIs to mailing and distributing Fund SAIs to policy policy owners upon request by policy owners owners upon request by policy owners - -------------------------------------------------------------------------------------------------------------------- mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - -------------------------------------------------------------------------------------------------------------------- text composition (Account), printing, mailing, text composition of annual and semi-annual and distributing annual and semi-annual reports (Fund) reports for Account (Fund and Account as, applicable) - -------------------------------------------------------------------------------------------------------------------- text composition, printing, mailing, text composition, printing, mailing, distributing, and tabulation of proxy distributing and tabulation of proxy statements and voting instruction solicitation statements and voting instruction owners with respect to proxies related to the solicitation materials to policy materials to policy owners with respect to proxies related to the Fund Account - -------------------------------------------------------------------------------------------------------------------- preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required ====================================================================================================================
29 EX-99.H54 14 PARTICIPATION AGREEMENT - SECURITY FIRST LIFE INS. 1 EXHIBIT h(54) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., SECURITY FIRST LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND SECURITY FIRST FINANCIAL, INC. 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds.......................................................................................2 1.1 Availability....................................................................................2 1.2 Addition, Deletion or Modification of Funds.....................................................2 1.3 No Sales to the General Public..................................................................2 Section 2. Processing Transactions...............................................................................2 2.1 Timely Pricing and Orders.......................................................................2 2.2 Timely Payments.................................................................................3 2.3 Applicable Price................................................................................3 2.4 Dividends and Distributions.....................................................................4 2.5 Book Entry......................................................................................4 Section 3. Costs and Expenses....................................................................................4 3.1 General.........................................................................................4 3.2 Parties To Cooperate............................................................................4 Section 4. Legal Compliance......................................................................................4 4.1 Tax Laws........................................................................................4 4.2 Insurance and Certain Other Laws................................................................7 4.3 Securities Laws.................................................................................7 4.4 Notice of Certain Proceedings and Other Circumstances...........................................8 4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9 4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10 Section 5. Mixed and Shared Funding.............................................................................11 5.1 General........................................................................................11 5.2 Disinterested Directors........................................................................11 5.3 Monitoring for Material Irreconcilable Conflicts...............................................12 5.4 Conflict Remedies..............................................................................12 5.5 Notice to LIFE COMPANY.........................................................................14 5.6 Information Requested by Board of Directors....................................................14 5.7 Compliance with SEC Rules......................................................................14 5.8 Other Requirements.............................................................................14 Section 6. Termination..........................................................................................14 6.1 Events of Termination..........................................................................14 6.2 Notice Requirement for Termination.............................................................15 6.3 Funds To Remain Available......................................................................16
i 3
DESCRIPTION PAGE - ----------- ---- 6.4 Survival of Warranties and Indemnifications....................................................16 6.5 Continuance of Agreement for Certain Purposes..................................................16 Section 7. Parties To Cooperate Respecting Termination..........................................................16 Section 8. Assignment...........................................................................................17 Section 9. Notices..............................................................................................17 Section 10. Voting Procedures...................................................................................18 Section 11. Foreign Tax Credits.................................................................................18 Section 12. Indemnification.....................................................................................18 12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................18 12.2 Of LIFE COMPANY and UNDERWRITER by AVIF........................................................20 12.3 Effect of Notice...............................................................................23 12.4 Successors.....................................................................................23 Section 13. Applicable Law......................................................................................23 Section 14. Execution in Counterparts...........................................................................23 Section 15. Severability........................................................................................23 Section 16. Rights Cumulative...................................................................................24 Section 17. Headings............................................................................................24 Section 18. Confidentiality.....................................................................................24 Section 19. Trademarks and Fund Names...........................................................................25 Section 20. Parties to Cooperate................................................................................25
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 14th day of June, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), Security First Life Insurance Company, a Delaware life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and Security First Financial, Inc., an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of thirteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and 1 5 WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is 2 6 open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. 3 7 (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule B, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. 4 8 (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE 5 9 COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. 6 10 (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under Delaware Insurance Law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Delaware law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. 7 11 (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each 8 12 Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for 9 13 use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. 10 14 (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2 DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board;(b) for a period 11 15 of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a 12 16 majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 13 17 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or 14 18 (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY's obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: 15 19 (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 FUNDS TO REMAIN AVAILABLE. Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant 16 20 to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. SECURITY FIRST LIFE INSURANCE COMPANY SECURITY FIRST FINANCIAL, INC. 11365 West Olympic Blvd. Los Angeles, CA 90064 Facsimile: 310-312-6392 Attn: President 17 21 SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION 12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its affiliates, and each person, if any, who controls AVIF, or its affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which 18 22 the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or 19 23 (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) 20 24 against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, or its affiliates or persons under its control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or 21 25 (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) AVIF shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 22 26 (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. 23 27 SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. 24 28 SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior written consent, the granting of which shall be at LIFE COMPANY's or UNDERWRITER's sole option. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. --------------------------------- 25 29 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM -------------------------- ---------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President SECURITY FIRST LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ JAMES C. TURNER By: /s/ RICHARD C. PEARSON -------------------------- ---------------------------- Name: James C. Turner Name: Richard C. PEARSON Title: Asst. Secretary Title: President SECURITY FIRST FINANCIAL, INC. Attest: /s/ JAMES C. TURNER By: /s/ RICHARD C. PEARSON -------------------------- ---------------------------- Name: James C. Turner Name: Richard C. Pearson Title: Asst. Secretary Title: President 26 30 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Balanced Fund AIM V.I. Capital Appreciation Fund AIM V.I. International Equity Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS Security First Life Separate Account A CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS 27 31 SCHEDULE B EXPENSE ALLOCATIONS
======================================================================================================================= LIFE COMPANY AVIF / AIM - ----------------------------------------------------------------------------------------------------------------------- preparing and filing the Account's registration statement preparing and filing the Fund's registration statement - ----------------------------------------------------------------------------------------------------------------------- text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements - ----------------------------------------------------------------------------------------------------------------------- text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements supplements (Account) (Fund) - ----------------------------------------------------------------------------------------------------------------------- printing Account and Fund prospectuses and supplements a camera ready Fund prospectus, printing costs of Fund Prospectuses to existing policy owners with amounts allocated to the Fund* - ----------------------------------------------------------------------------------------------------------------------- text composition and printing Account SAIs text composition and printing Fund SAIs - ----------------------------------------------------------------------------------------------------------------------- mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners upon request by policy owners upon request by policy owners - ----------------------------------------------------------------------------------------------------------------------- mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - ----------------------------------------------------------------------------------------------------------------------- text composition (Account), printing, mailing, and text composition of annual and semi-annual reports distributing annual and semi-annual reports for Account (Fund) (Fund and Account as, applicable) - ----------------------------------------------------------------------------------------------------------------------- text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to proxies related to the Account proxies related to the Fund - ----------------------------------------------------------------------------------------------------------------------- preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required =======================================================================================================================
*With respect to any AVIF material printed in combination with any non-AVIF materials, the total costs of typesetting and printing shall be prorated as between AIM/AVIF on the one hand and LIFE COMPANY on the other based on the ratio of the number of pages of the combined prospectus, report, or other document, for each Fund listed on Schedule A hereto to the total number of pages in such combined prospectus, report, or other documents. 28 EX-99.H55 15 PARTICIPATION AGREEMENT - ALLSTATE LIFE INS. CO. 1 EXHIBIT h(55) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., A I M DISTRIBUTORS, INC. ALLSTATE LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND ALLSTATE LIFE FINANCIAL SERVICES, INC. 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds.................................................2 1.1 Availability..................................................2 1.2 Addition, Deletion or Modification of Funds...................2 1.3 No Sales to the General Public................................2 Section 2. Processing Transactions.........................................3 2.1 Timely Pricing and Orders.....................................3 2.2 Timely Payments...............................................3 2.3 Applicable Price..............................................4 2.4 Dividends and Distributions...................................4 2.5 Book Entry....................................................4 Section 3. Costs and Expenses..............................................4 3.1 General.......................................................4 3.2 Parties To Cooperate..........................................4 Section 4. Legal Compliance................................................5 4.1 Tax Laws......................................................5 4.2 Insurance and Certain Other Laws..............................7 4.3 Securities Laws...............................................8 4.4 Notice of Certain Proceedings and Other Circumstances.........9 4.5 LIFE COMPANY or UNDERWRITER To Provide Documents; Information About AVIF........................................9 4.6 AVIF or AIM To Provide Documents; Information About LIFE COMPANY.................................................10 Section 5. Mixed and Shared Funding.......................................12 5.1 General......................................................12 5.2 Disinterested Directors......................................12 5.3 Monitoring for Material Irreconcilable Conflicts.............12 5.4 Conflict Remedies............................................13 5.5 Notice to LIFE COMPANY.......................................14 5.6 Information Requested by Board of Directors..................14 5.7 Compliance with SEC Rules....................................15 5.8 Other Requirements...........................................15 Section 6. Termination....................................................15 6.1 Events of Termination........................................15
i 3
DESCRIPTION PAGE - ----------- ---- 6.2 Notice Requirement for Termination............................16 6.3 Funds To Remain Available.....................................17 6.4 Survival of Warranties and Indemnifications...................17 6.5 Continuance of Agreement for Certain Purposes.................17 Section 7. Parties To Cooperate Respecting Termination.....................17 Section 8. Assignment......................................................17 Section 9. Notices.........................................................18 Section 10. Voting Procedures...............................................18 Section 11. Foreign Tax Credits.............................................19 Section 12. Indemnification.................................................19 12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER...............19 12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM...............21 12.3 Effect of Notice..............................................24 12.4 Successors....................................................24 Section 13. Applicable Law..................................................24 Section 14. Execution in Counterparts.......................................24 Section 15. Severability....................................................24 Section 16. Rights Cumulative...............................................24 Section 17. Headings........................................................25 Section 18. Confidentiality.................................................25 Section 19. Trademarks and Fund Names.......................................25 Section 20. Parties to Cooperate............................................26 Section 21. Amendments......................................................26
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 1st day of July, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM") Allstate Life Insurance Company, an Illinois life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and Allstate Life Financial Services, Inc., an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of fifteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") and/or policies ("Policies") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts and Policies (hereinafter collectively, the "Policies"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Policies through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Policies will be registered as securities under the 1933 Act (or exempt therefrom); and 1 5 WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); WHEREAS, AIM is a broker-dealer registered with the SEC under the 1934 Act and a member in good standing of NASD; NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Policies, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. 2 6 SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value and (iii) LIFE COMPANY is open for business. (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) Each order to purchase or redeem Shares will separately describe the amount of Shares of each Fund to be purchased, redeemed or exchanged and will not be netted; provided however, with respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. Each order to purchase or redeem Shares shall also specify whether the order results from purchase payments, surrenders, partial withdrawals of charges or requests for other transactions under Policies (collectively, "Policy transactions"). (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. Materiality and reprocessing cost reimbursement shall be determined in accordance with standards established by the parties as provided in Schedule B, attached hereto and herein incorporated. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 3 7 2.3 APPLICABLE PRICE. (a) Share purchase and redemption orders that result from Policy transactions and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Policy transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided, that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice promptly to LIFE COMPANY any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule C, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. 4 8 SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified and will continue to qualify as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will comply and maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Policy owner, annuitant or participant under the Policies (collectively, "Participants"), that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure to so comply with Section 817(h) (hereinafter respectively referred to in this paragraph (c) as "failure" or "alleged failure"): (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent, provided that LIFE COMPANY shall not be required to make any such demonstration of inadvertence unless AVIF represents or provides an opinion of counsel, which representation or opinion shall be reasonably satisfactory to LIFE COMPANY, to the effect that a reasonable basis exists for making such demonstration; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding 5 9 any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences, discussions, proceedings, contests or appeals thereof; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto may from time to time agree, prior to the day on which such proposed materials are to be submitted and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by providing AVIF and its accounting and legal advisors with copies of any relevant books and records (or portions thereof) of LIFE COMPANY that may be reasonably requested by or on behalf of AVIF and that LIFE COMPANY is permitted to provide in accordance with applicable law) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative remedies, to appeal any adverse IRS or judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel approved by LIFE COMPANY, which approval shall not be unreasonably withheld, to the effect that a reasonable basis exists for taking such appeal (or, in the case of an appeal to the United States Supreme Court, that LIFE COMPANY should be more likely than not to prevail on such appeal) and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing 6 10 clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Policies currently are and at all times will be treated as annuity, endowment or life insurance contracts under applicable provisions of the Code. LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Policies have ceased to be so treated or that they might not be so treated in the future, provided that such notice shall be kept confidential during the period of LIFE COMPANY's investigation of any such circumstances to the extent permitted by applicable law. (e) LIFE COMPANY represents and warrants that each Account is and at all times will be a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF and AIM will use their best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Illinois and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under Section 245.21 of the Illinois Insurance Code and the regulations thereunder, and (iii) the Policies comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 7 11 (d) AIM represents and warrants that it is a Delaware corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (e) UNDERWRITER represents and warrants that it is a Delaware corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) LIFE COMPANY and UNDERWRITER represent and warrant that (i) interests in each Account pursuant to the Policies will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Policies will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Illinois law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Policies, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Policies under the 1940 Act from time to time as required in order to effect the continuous offering of its Policies or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF and AIM represent and warrant that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses 8 12 pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF and/or AIM will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Policies issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY and/or UNDERWRITER will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Policies or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Policies, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY OR UNDERWRITER TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) LIFE COMPANY and/or UNDERWRITER will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Policies, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY and/or UNDERWRITER will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material not prepared by AVIF or its affiliates, in which AVIF or any of its affiliates is named, at least ten 9 13 (10) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within ten (10) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates its investment advisor as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY the UNDERWRITER nor any of their respective affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Policies other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY and the UNDERWRITER shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF, AIM and their affiliates that is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Participants or offeree) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY AND THE UNDERWRITER. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 10 14 (b) AVIF will provide to LIFE COMPANY or UNDERWRITER a camera ready copy of all AVIF prospectuses and a printed copy, to be reproduced by LIFE COMPANY, of AVIF statements of additional information, additionally AVIF will provide printed copies of proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Policy value to a Fund. AVIF will provide such copies to LIFE COMPANY or UNDERWRITER in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, UNDERWRITER, or any of their respective affiliates is named, or that refers to the Policies, at least ten (10) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within ten (10) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, UNDERWRITER, each Account, or the Policies other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Policies, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Policies that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, UNDERWRITER and their respective affiliates that is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Participants or offerees) ("broker only materials") is so used, and neither LIFE COMPANY, UNDERWRITER nor any of their respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and 11 15 proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Policy is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2 DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the Rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board;(b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; 12 16 (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. 13 17 (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict (after consideration of all Participants), and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Policies. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Policies if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining 14 18 whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of AVIF or LIFE COMPANY upon the approval by (i) a majority of the Disinterested Directors or (ii) a majority vote of the Shares of the affected Fund that are held in the corresponding Subaccount of an Account (pursuant to the procedures set forth in Section 10 of this Agreement for voting Shares in accordance with Participant instructions); or (b) at the option of AVIF or AIM upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY's obligations under this Agreement or related to the sale of the Policies, the operation of each Account, or the purchase of Shares, if, in each case, AVIF or AIM reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences 15 19 on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Policies issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions (other than by reason of failure of the Policies issued by LIFE COMPANY to qualify as annuity or life insurance contracts under the Code, or the failure of any account or Policy to meet the definition of "segregated asset account" or "variable contract"; respectively, within the meaning of the Code) or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF or AIM if the Policies issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Policies are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and 16 20 (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 FUNDS TO REMAIN AVAILABLE. Except (a) as necessary to implement Participation-initiated transactions, (b) as required by state insurance laws or regulations, (c) as required pursuant to Section 5 of this Agreement, or (d) with respect to any Fund as to which this Agreement has terminated pursuant to Section 6.1 hereof, LIFE COMPANY shall not (i) redeem AVIF Shares attributable to the Policies (as opposed to AVIF Shares attributable to LIFE COMPANY's assets held in each Account), or (ii) prevent Participants from allocating payments to or transferring amounts from a Fund that was otherwise available under the Policies, until six (6) months after LIFE COMPANY shall have notified AVIF of its intention to do so and until 36 full calendar months shall have expired from the date on which an Account first invested in any Fund. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Policies in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. 17 21 SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. ALLSTATE LIFE INSURANCE COMPANY ALLSTATE LIFE FINANCIAL SERVICES, INC. 3100 Sanders Road, Suite J5D Northbrook, IL 60062 Facsimile: (847) 402-4371 Attn: Michael J. Velolta, Esq. SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants except with respect to matters as to which LIFE COMPANY has the right, under Rule 6e-2 or 6e-3(T) under the 1940 Act, to vote the Shares without regard to voting instructions from Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared 18 22 Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION 12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions are related to the sale or acquisition of AVIF's Shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Policies, or sales literature or advertising for the Policies (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, the Policies, or sales literature or advertising or otherwise for use in connection 19 23 with the sale of Policies or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Policies or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, AIM or their affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Policies issued by LIFE COMPANY to qualify as life insurance, endowment or annuity contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the 20 24 performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF or AIM. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions are related to the sale or acquisition of AVIF's Shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with 21 25 information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Policies, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, AIM or their affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, AIM or their affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Policies, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Policies, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services (including but not limited to, the provisions of correct net asset value) and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations 22 26 thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY or UNDERWRITER pursuant to the Policies, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and/or AIM in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF or AIM of any such action shall not relieve AVIF or AIM from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF and/or AIM will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall bear the fees and expenses of any additional counsel retained by it, and AVIF and AIM will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF or AIM be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity and/or variable life insurance contracts (with respect to which any 23 27 Fund serves as an underlying funding vehicle) as life insurance, endowment or annuity contracts under applicable provisions of the Code; provided however, that the limitation of liability contained in this paragraph (e) shall not apply if the breach or failures described in subparagraphs (i), (ii) and (iii), above, by LIFE COMPANY or any Participating Insurance Company resulted from failure of AVIF to comply with the requirements of Subchapter M or Section 817(h) of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. 24 28 SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service 25 29 mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior written consent, the granting of which shall be at LIFE COMPANY's or UNDERWRITER's sole option. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. SECTION 21. AMENDMENTS No provision of this Agreement may be amended or modified in any manner except by a written agreement executed by all parties hereto. ------------------------------ 26 30 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM ------------------------- ------------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President A I M DISTRIBUTORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO ------------------------- ------------------------------- Name: Nancy L. Martin Name: Michael J. Cemo Title: Assistant Secretary Title: President ALLSTATE LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ BRENDA D. SNEED By: /s/ MICHAEL J. VELATTA ------------------------- ------------------------------- Name: Brenda D. Sneed Name: Michael J. Velatta --------------------------- ----------------------------- Title: Asst. Secretary & Asst. Title: V.P., Secretary, & General General Counsel Counsel -------------------------- ---------------------------- ALLSTATE LIFE FINANCIAL SERVICES, INC. Attest: /s/ TERRY R. YOUNG By: /s/ MICHAEL J. VELATTA ------------------------- ------------------------------- Name: Terry R. Young Name: Michael J. Velatta --------------------------- ----------------------------- Title: General Counsel and Asst. Title: Director & Secretary Secretary ---------------------------- -------------------------- 27 31 SCHEDULE A FUNDS AVAILABLE UNDER THE POLICIES o AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund AIM V.I. Growth and Income Fund AIM V.I. International Equity Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS o Allstate Financial Advisors Separate Account I POLICIES FUNDED BY THE SEPARATE ACCOUNTS o LU4518 (and state variations) 28 32 SCHEDULE B AIM'S PRICING ERROR POLICIES Determination of Materiality In the event that AIM discovers an error in the calculation of the Fund's net asset value, the following policies will apply: If the amount of the error is less than $.01 per share, it is considered immaterial and no adjustments are made. If the amount of the error is $.01 per share or more, then the following thresholds are applied: a. If the amount of the difference in the erroneous net asset value and the correct net asset value is less than .5% of the correct net asset value, AIM will reimburse the affected Fund to the extent of any loss resulting from the error. No other adjustments shall be made. b. If the amount of the difference in the erroneous net asset value and the correct net asset value is .5% of the correct net asset value or greater, then AIM will determine the impact of the error to the affected Fund and shall reimburse such Fund (and/or LIFE COMPANY, as appropriate) to the extent of any loss resulting from the error. To the extent that an overstatement of net asset value per share is detected quickly and LIFE COMPANY has not mailed redemption checks to Participants, LIFE COMPANY and AIM agree to examine the extent of the error to determine the feasibility of reprocessing such redemption transaction (for purposes of reimbursing the Fund to the extent of any such overpayment). Reprocessing Cost Reimbursement To the extent a reprocessing of Participant transactions is required pursuant to paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's reprocessing costs in an amount not to exceed $3.00 per contract affected by $10 or more. The Pricing Policies described herein may be modified by AVIF as approved by its Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at least five (5) days prior to any such meeting of the Board of Directors of AVIF to consider such proposed changes. 29 33 SCHEDULE C EXPENSE ALLOCATIONS
- ----------------------------------------------------------------------------------------------------------- DESCRIPTION LIFE COMPANY AIM/AVIF - ----------------------------------------------------------------------------------------------------------- Registration Prepare and file registration Account registration statements Fund registration statements statements(1) Payment of fees Account fees Fund fees - ----------------------------------------------------------------------------------------------------------- Prospectuses Typesetting Account Prospectuses Fund Prospectuses Printing(2) Account Prospectuses Fund Prospectuses - ----------------------------------------------------------------------------------------------------------- SAIs Typesetting Account SAIs Fund SAIs Printing Account SAIs Fund SAIs - ----------------------------------------------------------------------------------------------------------- Supplements (to Prospectuses or SAIs) Typesetting and Printing Account Supplements (unless changes Fund Supplements (unless changes relate only to the Fund) relate only to the Account) Account Supplements (for changes that Fund Supplements (for changes that relate only to Fund) relate only to Account) - ------------------------------------------------------------------------------------------------------------------- Financial Reports Typesetting Account Reports Fund Reports Printing(2) Account Reports Fund Reports - -------------------------------------------------------------------------------------------------------------------
- ------------------------------ (1) Includes all filings and costs necessary to keep registrations current and effective; including, without limitation, filing Forms N-SAR and Rule 24f-2 Notices as required by law. (2) To the extent that documents prepared by LIFE COMPANY and AIM are printed together, the printing cost shall be allocated in proportion to the number of pages attributable to each document. 30 34
- ------------------------------------------------------------------------------------------------------------------- DESCRIPTION LIFE COMPANY AIM/AVIF - ------------------------------------------------------------------------------------------------------------------- Proxies(3) Typesetting, printing and Account and Fund Proxies where Account and Fund Proxies mailing of solicitation the matters submitted are solely where the matters submitted are solely materials and voting Account related Fund related instruction solicitation materials and tabulation of proxies to Participants - ------------------------------------------------------------------------------------------------------------------- Other (Sales Related) Contract owner Account related items Fund related items communication Distribution Policies Administration Account (Policies) - -------------------------------------------------------------------------------------------------------------------
- -------------------------------- (3) When proxy materials are required for both Account and Fund matters, the costs shall be split proportionately based upon those materials related solely to the Account and those materials related solely to the Fund. The cost with respect to joint materials shall be allocated evenly between LIFE COMPANY and AIM. 31 EX-99.H56 16 PARTICIPATION AGREEMENT - ALLIANZ LIFE INS. CO. 1 EXHIBIT h(56) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND NALAC FINANCIAL PLANS, LLC 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds.......................................................................................2 1.1 Availability....................................................................................2 1.2 Addition, Deletion or Modification of Funds.....................................................2 1.3 No Sales to the General Public..................................................................2 Section 2. Processing Transactions...............................................................................2 2.1 Timely Pricing and Orders.......................................................................2 2.2 Timely Payments.................................................................................3 2.3 Applicable Price................................................................................3 2.4 Dividends and Distributions.....................................................................4 2.5 Book Entry......................................................................................4 Section 3. Costs and Expenses....................................................................................4 3.1 General.........................................................................................4 3.2 Parties To Cooperate............................................................................4 Section 4. Legal Compliance......................................................................................4 4.1 Tax Laws........................................................................................4 4.2 Insurance and Certain Other Laws................................................................7 4.3 Securities Laws.................................................................................7 4.4 Notice of Certain Proceedings and Other Circumstances...........................................8 4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9 4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10 Section 5. Mixed and Shared Funding.............................................................................11 5.1 General........................................................................................11 5.2 Disinterested Directors........................................................................12 5.3 Monitoring for Material Irreconcilable Conflicts...............................................12 5.4 Conflict Remedies..............................................................................13 5.5 Notice to LIFE COMPANY.........................................................................14 5.6 Information Requested by Board of Directors....................................................14 5.7 Compliance with SEC Rules......................................................................14 5.8 Other Requirements.............................................................................15 Section 6. Termination..........................................................................................15 6.1 Events of Termination..........................................................................15 6.2 Notice Requirement for Termination.............................................................16 6.3 Funds To Remain Available......................................................................16 6.4 Survival of Warranties and Indemnifications....................................................17 6.5 Continuance of Agreement for Certain Purposes..................................................17 Section 7. Parties To Cooperate Respecting Termination..........................................................17 Section 8. Assignment...........................................................................................17 Section 9. Notices..............................................................................................17 Section 10. Voting Procedures...................................................................................18
i 3 Section 11. Foreign Tax Credits.................................................................................19 Section 12. Indemnification.....................................................................................19 12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................19 12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF......................................................21 12.3 Effect of Notice...............................................................................23 12.4 Successors.....................................................................................24 Section 13. Applicable Law......................................................................................24 Section 14. Execution in Counterparts...........................................................................24 Section 15. Severability........................................................................................24 Section 16. Rights Cumulative...................................................................................24 Section 17. Headings............................................................................................24 Section 18. Confidentiality.....................................................................................24 Section 19. Trademarks and Fund Names...........................................................................25 Section 20. Parties to Cooperate................................................................................26 Section 21. Amendments..........................................................................................26
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 27th day of July, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), Allianz Life Insurance Company of North America, a Minnesota life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of fifteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and 1 5 WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. 2 6 (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. 3 7 (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule B, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification 4 8 of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY'S knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality 5 9 provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code 6 10 and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Minnesota and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under Minnesota Insurance Law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Minnesota law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous 7 11 offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, 8 12 with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers 9 13 or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase 'sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the 10 14 Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase 'sales literature or other promotional material? includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 11 15 5.2 DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board;(b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE 12 16 COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. 13 17 (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. 14 18 SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY'S obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's 15 19 noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 FUNDS TO REMAIN AVAILABLE. Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 16 20 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. 17 21 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA NALAC FINANCIAL PLANS, LLC 1750 Hennepin Avenue Minneapolis, MN 55403-2195 Facsimile: (612) 337-6136 Attn: Thomas B. Clifford SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. 18 22 SECTION 12. INDEMNIFICATION 12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its affiliates, and each person, if any, who controls AVIF, or its affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or 19 23 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense 20 24 thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, or its affiliates or persons under its control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or 21 25 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) AVIF shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the 22 26 action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. 23 27 SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties" customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law 24 28 or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior written consent, the granting of which shall be at LIFE COMPANY's or UNDERWRITER's sole option. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 25 29 SECTION 21. AMENDMENTS No provision of this Agreement may be amended or modified in any manner except by a written agreement executed by all parties hereto. ----------------------------------------------- 26 30 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ P. MICHELLE GRACE By: /s/ ROBERT H. GRAHAM ------------------------- ----------------------------------- Name: P. Michelle Grace Name: Robert H. Graham Title Assistant Secretary Title: President ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA, on behalf of itself and its separate accounts Attest: /s/ MICHAEL D. ENGEL By: /s/ THOMAS B. CLIFFORD ------------------------- ----------------------------------- Name: Michael D. Engel Name: Thomas B. Clifford ------------------------- ----------------------------------- Title: Senior Counsel Title: Assistant Vice President ------------------------- ----------------------------------- NALAC FINANCIAL PLANS, LLC Attest: /s/ MICHAEL D. ENGEL By: /s/ THOMAS B. CLIFFORD ------------------------- ----------------------------------- Name: Michael D. Engel Name: Thomas B. Clifford ------------------------- ----------------------------------- Title: Senior Counsel Title: President ------------------------- ----------------------------------- 27 31 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM Variable Insurance Funds, Inc. AIM V.I. Growth Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS o Allianz Life Variable Account A o Allianz Life Variable Account B CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS Allianz Variable Account A o Allianz Value Life o Franklin Valuemark Life Allianz Variable Account B o Franklin Valuemark II o Franklin Valuemark III o Franklin Valuemark IV o Valuemark Income Plus o Franklin Valuemark Charter 28 32 SCHEDULE B EXPENSE ALLOCATIONS
========================================================================================================== LIFE COMPANY AVIF / AIM ========================================================================================================== Preparing and filing the Account's registration preparing and filing the Fund's registration statement statement ========================================================================================================== text composition for Account prospectuses and text composition for Fund prospectuses and supplements supplements ========================================================================================================== text alterations of prospectuses (Account) and supplements text alterations of prospectuses (Fund) and (Account) supplements (Fund) ========================================================================================================== printing Account and Fund prospectuses and supplements a camera ready Fund prospectus ========================================================================================================== text composition and printing Account SAIs text composition and printing Fund SAIs ========================================================================================================== mailing and distributing Account SAIs to mailing and distributing Fund SAIs to policy policy owners upon request by policy owners owners upon request by policy owners ========================================================================================================== mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers ========================================================================================================== text composition (Account), printing, mailing, and text composition of annual and semi-annual distributing annual and semi-annual reports for Account reports (Fund) (Fund and Account as, applicable) ========================================================================================================== text composition, printing, mailing, text composition, printing, mailing, distributing, and tabulation of proxy distributing and tabulation of proxy statements and voting instruction solicitation statements and voting instruction solicitation materials to policy owners with respect to materials to policy owners with respect to proxies related to the Account proxies related to the Fund ========================================================================================================== Preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent Required ==========================================================================================================
29 EX-99.H57 17 PARTICIPATION AGREEMENT - PREFERRED LIFE INS. CO. 1 EXHIBIT h(57) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., PREFERRED LIFE INSURANCE COMPANY OF NEW YORK ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND NALAC FINANCIAL PLANS, LLC 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds.......................................................................................2 1.1 Availability....................................................................................2 1.2 Addition, Deletion or Modification of Funds.....................................................2 1.3 No Sales to the General Public..................................................................2 Section 2. Processing Transactions...............................................................................2 2.1 Timely Pricing and Orders.......................................................................2 2.2 Timely Payments.................................................................................3 2.3 Applicable Price................................................................................3 2.4 Dividends and Distributions.....................................................................4 2.5 Book Entry......................................................................................4 Section 3. Costs and Expenses....................................................................................4 3.1 General.........................................................................................4 3.2 Parties To Cooperate............................................................................4 Section 4. Legal Compliance......................................................................................4 4.1 Tax Laws........................................................................................4 4.2 Insurance and Certain Other Laws................................................................7 4.3 Securities Laws.................................................................................7 4.4 Notice of Certain Proceedings and Other Circumstances...........................................8 4.5 LIFE COMPANY To Provide Documents; Information About AVIF.......................................9 4.6 AVIF To Provide Documents; Information About LIFE COMPANY......................................10 Section 5. Mixed and Shared Funding.............................................................................11 5.1 General........................................................................................11 5.2 Disinterested Directors........................................................................12 5.3 Monitoring for Material Irreconcilable Conflicts...............................................12 5.4 Conflict Remedies..............................................................................13 5.5 Notice to LIFE COMPANY.........................................................................14 5.6 Information Requested by Board of Directors....................................................14 5.7 Compliance with SEC Rules......................................................................14 5.8 Other Requirements.............................................................................14 Section 6. Termination..........................................................................................15 6.1 Events of Termination..........................................................................15 6.2 Notice Requirement for Termination.............................................................16 6.3 Funds To Remain Available......................................................................16 6.4 Survival of Warranties and Indemnifications....................................................16 6.5 Continuance of Agreement for Certain Purposes..................................................17 Section 7. Parties To Cooperate Respecting Termination..........................................................17 Section 8. Assignment...........................................................................................17 Section 9. Notices..............................................................................................17 Section 10. Voting Procedures....................................................................................18
i 3 Section 11. Foreign Tax Credits.................................................................................18 Section 12. Indemnification.....................................................................................19 12.1 Of AVIF by LIFE COMPANY and UNDERWRITER........................................................19 12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF......................................................21 12.3 Effect of Notice...............................................................................23 12.4 Successors.....................................................................................23 Section 13. Applicable Law......................................................................................24 Section 14. Execution in Counterparts...........................................................................24 Section 15. Severability........................................................................................24 Section 16. Rights Cumulative...................................................................................24 Section 17. Headings............................................................................................24 Section 18. Confidentiality.....................................................................................24 Section 19. Trademarks and Fund Names...........................................................................25 Section 20. Parties to Cooperate................................................................................26 Section 21. Amendments..........................................................................................26
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 27th day of July, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), Preferred Life Insurance Company of New York, a New York life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of fifteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and 1 5 WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. 2 6 (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. 3 7 (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule B, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification 4 8 of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY'S knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality 5 9 provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code 6 10 and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of New York and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under New York Insurance Law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New York law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous 7 11 offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, 8 12 with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers 9 13 or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the 10 14 Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 11 15 5.2 DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board; (b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE 12 16 COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. 13 17 (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. 14 18 SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY'S obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's 15 19 noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 FUNDS TO REMAIN AVAILABLE. Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 16 20 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. 17 21 PREFERRED LIFE INSURANCE COMPANY OF NEW YORK NALAC FINANCIAL PLANS, LLC 152 West 57th Street, 18th Floor New York, NY 10019 Facsimile: (212) 586-7733 Attn: Eugene K. Long SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. 18 22 SECTION 12. INDEMNIFICATION 12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its affiliates, and each person, if any, who controls AVIF, or its affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or 19 23 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense 20 24 thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, or its affiliates or persons under its control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or 21 25 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) AVIF shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the 22 26 action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. 23 27 SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or 24 28 property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior written consent, the granting of which shall be at LIFE COMPANY's or UNDERWRITER's sole option. 25 29 SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. SECTION 21. AMENDMENTS No provision of this Agreement may be amended or modified in any manner except by a written agreement executed by all parties hereto. ----------------------------------------------- 26 30 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM --------------------------- -------------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, on behalf of itself and its separate accounts Attest: /s/ MICHAEL D. ENGEL By: /s/ MICHAEL T. WESTERMEYER --------------------------- -------------------------------- Name: Michael D. Engel Name: Michael T. Westermeyer ----------------------------- ------------------------------ Title: Senior Counsel Title: Secretary ---------------------------- ----------------------------- NALAC FINANCIAL PLANS, LLC Attest: /s/ MICHAEL D. ENGEL By: /s/ THOMAS. B. CLIFFORD --------------------------- -------------------------------- Name: Michael D. Engel Name: Thomas B. Clifford ----------------------------- ------------------------------ Title: Senior Counsel Title: President ---------------------------- ----------------------------- 27 31 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Growth Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS o Preferred Life Variable Account C CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS o Franklin Valuemark II o Franklin Valuemark IV 28 32 SCHEDULE B EXPENSE ALLOCATIONS
=================================================================================================================== LIFE COMPANY AVIF / AIM - ------------------------------------------------------------------------------------------------------------------- Preparing and filing the Account's registration statement preparing and filing the Fund's registration statement - ------------------------------------------------------------------------------------------------------------------- text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements - ------------------------------------------------------------------------------------------------------------------- text alterations of prospectuses (Account) and supplements text alterations of prospectuses (Fund) and (Account) supplements (Fund) - ------------------------------------------------------------------------------------------------------------------- printing Account and Fund prospectuses and supplements a camera ready Fund prospectus - ------------------------------------------------------------------------------------------------------------------- text composition and printing Account SAIs text composition and printing Fund SAIs - ------------------------------------------------------------------------------------------------------------------- mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners upon request by policy owners upon request by policy owners - ------------------------------------------------------------------------------------------------------------------- mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - ------------------------------------------------------------------------------------------------------------------- text composition (Account), printing, mailing, and text composition of annual and semi-annual reports distributing annual and semi-annual reports for Account (Fund) (Fund and Account as, applicable) - ------------------------------------------------------------------------------------------------------------------- text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction solicitation materials to policy owners with respect to solicitation materials to policy owners with respect proxies related to the Account to proxies related to the Fund - ------------------------------------------------------------------------------------------------------------------- Preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent Required - -------------------------------------------------------------------------------------------------------------------
29 EX-99.H58 18 PARTICIPATION AGREEMENT - JOHN HANCOCK LIFE INS. 1 EXHIBIT h(58) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., A I M DISTRIBUTORS, INC., JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY AND CERTAIN OF ITS AFFILIATED INSURANCE COMPANIES, EACH ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND JOHN HANCOCK FUNDS, INC. 2 TABLE OF CONTENTS
DESCRIPTION PAGE - ----------- ---- SECTION 1. AVAILABLE FUNDS.......................................................................................2 1.1 AVAILABILITY........................................................................................2 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.........................................................2 1.3 NO SALES TO THE GENERAL PUBLIC......................................................................2 SECTION 2. PROCESSING TRANSACTIONS...............................................................................3 2.1 TIMELY PRICING AND ORDERS...........................................................................3 2.2 TIMELY PAYMENTS.....................................................................................3 2.3 APPLICABLE PRICE....................................................................................4 2.4 DIVIDENDS AND DISTRIBUTIONS.........................................................................4 2.5 BOOK ENTRY..........................................................................................4 SECTION 3. COSTS AND EXPENSES....................................................................................4 3.1 GENERAL.............................................................................................4 3.2 PARTIES TO COOPERATE................................................................................5 SECTION 4. LEGAL COMPLIANCE......................................................................................5 4.1 TAX LAWS............................................................................................5 4.2 INSURANCE AND CERTAIN OTHER LAWS....................................................................7 4.3 SECURITIES LAWS.....................................................................................8 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES...............................................9 4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF..........................................10 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY..........................................11 SECTION 5. MIXED AND SHARED FUNDING.............................................................................12 5.1 GENERAL............................................................................................12 5.2 DISINTERESTED DIRECTORS............................................................................12 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS...................................................13 5.4 CONFLICT REMEDIES..................................................................................14 5.5 NOTICE TO LIFE COMPANY.............................................................................15 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS........................................................15 5.7 COMPLIANCE WITH SEC RULES..........................................................................15 5.8 OTHER REQUIREMENTS.................................................................................15 SECTION 6. TERMINATION..........................................................................................16 6.1 EVENTS OF TERMINATION..............................................................................16 6.2 NOTICE REQUIREMENT FOR TERMINATION.................................................................17 6.3 FUNDS TO REMAIN AVAILABLE..........................................................................17 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS........................................................17 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES......................................................18 SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION..........................................................18 SECTION 8. ASSIGNMENT...........................................................................................18 SECTION 9. NOTICES..............................................................................................18 SECTION 10. VOTING PROCEDURES...................................................................................19
i 3 SECTION 11. FOREIGN TAX CREDITS.................................................................................20 SECTION 12. INDEMNIFICATION.....................................................................................20 12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER....................................................20 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM....................................................22 12.3 EFFECT OF NOTICE...................................................................................25 12.4 SUCCESSORS.........................................................................................25 SECTION 13. APPLICABLE LAW......................................................................................25 SECTION 14. EXECUTION IN COUNTERPARTS...........................................................................27 SECTION 15. SEVERABILITY........................................................................................26 SECTION 16. RIGHTS CUMULATIVE...................................................................................26 SECTION 17. HEADINGS............................................................................................26 SECTION 18. CONFIDENTIALITY.....................................................................................26 SECTION 19. TRADEMARKS AND NAMES.......................................................................27 SECTION 20. PARTIES TO COOPERATE................................................................................27 SECTION 21. AMENDMENTS.................................................................................28 SECTION 22. WAIVERS....................................................................................28 SECTION 23. LIFE COMPANIES.............................................................................28
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 31st day of August, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"), John Hancock Mutual Life Insurance Company and John Hancock Variable Life Insurance Company, both Massachusetts corporations, and Investors Partner Life Insurance Company, a Delaware corporation, each on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and John Hancock Funds, Inc., an affiliate of such insurance companies and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of fifteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto, as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY (as such term is defined in Section 23 hereof) will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, interests under which Contracts, if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt 1 5 therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, AIM is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 and a member in good standing of the NASD; and WHEREAS, AIM currently serves as the distributor for the Shares; NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1. AVAILABILITY. AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2. ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3. NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. 2 6 SECTION 2. PROCESSING TRANSACTIONS 2.1. TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open to receive purchase and redemption orders. (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders for each Account with respect to each Fund and shall transmit one net payment per Fund per Account in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share, as well as such other compensation as is provided in Schedule C to this Agreement. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2. TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 3 7 2.3. APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4. DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5. BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1. GENERAL. Except as otherwise specifically provided in Schedule B, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 4 8 3.2. PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE 4.1. TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) Notwithstanding any other provision of this Agreement, LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; 5 9 (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative remedies, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing 6 10 clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be annuity contracts or life insurance contracts under applicable provisions of the Code and that it will use its best efforts to maintain such status; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be treated as such in the future. (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2. INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of its state of organization and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under the insurance laws of its state of organization and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and 7 11 legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (d) AIM represents and warrants that it is a Delaware corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3. SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and the law(s) of the Life Company's state(s) of organization and domicile, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are 8 12 not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4. NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF or AIM will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF and AIM will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY or UNDERWRITER will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY and UNDERWRITER will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 9 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 and that is relevant to the business contemplated hereunder, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its dissemination, or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such dissemination within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF, AIM, or their respective affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF, AIM and their respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF, AIM, nor any of their respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other 10 14 communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6. AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund and that is relevant to the business contemplated hereunder, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF or AIM will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be disseminated if LIFE COMPANY or its designated agent objects to such dissemination within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor AIM, nor any of their respective affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, any Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AIM shall adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to 11 15 Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. SECTION 5. MIXED AND SHARED FUNDING 5.1. GENERAL. The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2. DISINTERESTED DIRECTORS. AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board;(b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 12 16 5.3. MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 13 17 5.4. CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. 14 18 (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5. NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6. INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7. COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8. OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. 15 19 SECTION 6. TERMINATION 6.1. EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon ninety days' advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF or AIM upon institution of formal proceedings against LIFE COMPANY or UNDERWRITER by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY's or UNDERWRITER'S obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, AIM, or AVIF's investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's or AIM's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's 16 20 noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement by a Party not affiliated with the terminating party. 6.2. NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives written notice to the other Parties to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a), 6.1(b), 6.1(c) or 6.1(e) hereof, such written notice shall be given at least ninety days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such written notice shall be given as soon as reasonably possible, but in any event within ten days after the terminating Party learns of the event causing termination to be required. 6.3. FUNDS TO REMAIN AVAILABLE. Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. This Section 6.3, however, is qualified and limited by Sections 6.5 and 7 below. 6.4. SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 17 21 6.5. CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS, INC. A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. 18 22 JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY 200 Clarendon Street Boston, Massachusetts 02117 Facsimile No.: 617-572-5775 Attn: Michele G. Van Leer, Senior Vice President, JHMLICO [or President, JHVLICO] With a copy to: Ronald J. Bocage Vice President & Counsel John Hancock Mutual Life Insurance Company 200 Clarendon Street Boston, Massachusetts 02117 Facsimile No.: 617-572-9161 INVESTORS PARTNER LIFE INSURANCE COMPANY 200 Clarendon Street Boston, Massachusetts 02117 Facsimile No.: 617-572-0952 Attn: Randi M. Stern, Vice President With a copy to: Ronald J. Bocage Vice President & Counsel John Hancock Mutual Life Insurance Company 200 Clarendon Street Boston, Massachusetts 02117 Facsimile No.: 617-572-9161 JOHN HANCOCK FUNDS, INC. Notices to John Hancock Funds, Inc. will be given by giving notice as prescribed above to each LIFE COMPANY with whose Contracts the notice is concerned. 19 23 SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies by AVIF for the Shares held for such Participants. For this purpose, LIFE COMPANY'S making its own proxy solicitation with respect to the same matter is not considered to be a recommendation for action in connection with, or opposition to or interference with, AVIF's solicitation, if LIFE COMPANY does not delay or otherwise impede or interfere with AVIF's solicitation. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION 12.1. OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER. 20 24 (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions are related to the sale, holding, or acquisition of AVIF's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF, AIM, or their respective affiliates, for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (ee) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or 21 25 necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, AIM or their affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF or AIM. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement 22 26 for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2. OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of each indemnifying party from whom payment is to be sought under this Section 12.2) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise, insofar as such losses, claims, damages, liabilities or actions are related to the sale, holding or acquisition of AVIF's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, AIM or their affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, AIM or their affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (ee) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or 23 27 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and/or AIM in writing within a reasonable time after the summons or other first legal process giving 24 28 information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF or AIM of any such action shall not relieve AVIF or AIM from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF and/or AIM will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall bear the fees and expenses of any additional counsel retained by it, and AVIF and AIM will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF or AIM be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3. EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4. SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. 25 29 SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF and AIM acknowledge that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF and AIM agree that if they come into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF or AIM from information supplied to them by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF 26 30 will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY and UNDERWRITER acknowledge that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY and UNDERWRITER agree that if they come into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY or UNDERWRITER from information supplied to them by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY or UNDERWRITER, LIFE COMPANY and UNDERWRITER will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Neither AVIF nor AIM, nor any of their affiliates, shall use any designation comprised in whole or in part of the names or marks "Hancock," "John Hancock," "Investors Partner," or "IPL" or any other trademark relating to LIFE COMPANY without the prior written consent of LIFE COMPANY. Upon termination of this Agreement for any reason, AVIF and AIM shall cease all use of any such name or mark as soon as reasonably practicable. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records 27 31 (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. SECTION 21. AMENDMENTS No provision of this Agreement may be amended or modified in any manner except by a written agreement executed by all parties hereto. SECTION 22. WAIVERS No waiver of, or failure to enforce, any provision of this Agreement by any party shall result in any a waiver of any other violation of that or any other provision of this Agreement. SECTION 23. LIFE COMPANIES John Hancock Mutual Life Insurance Company ("JHMLICO"), John Hancock Variable Life Insurance Company ("JHVLICO") and Investors Partner Life Insurance Company ("IPL") are hereby made parties to this Agreement in order to permit their respective Accounts to acquire shares of AVIF on the same terms and conditions expressed in this Agreement. With respect only to the Accounts and Contracts of JHMLICO, the words "LIFE COMPANY" wherever used in this Agreement mean JHMLICO. With respect only to the Accounts and Contracts of JHVLICO, the words "LIFE COMPANY" wherever used in this Agreement mean JHVLICO. With respect only to the Accounts and Contracts of IPL, the words "LIFE COMPANY" wherever used in this Agreement mean IPL. -------------------------------------- IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President 28 32 A I M DISTRIBUTORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO --------------------------- ---------------------------- Name: Nancy L. Martin Name: Michael J. Cemo Title: Assistant Secretary Title: President JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ ANTONIETTE RICCI By: /s/ MICHELE G. VAN LEER --------------------------- ---------------------------- Name: Antoniette Ricci Name: Michele G. Van Leer Title: Assistant Secretary Title: Senior Vice President JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ J.E. ENTERKIN, JR. By: /s/ MICHELE G. VAN LEER --------------------------- ---------------------------- Name: J.E. Enterkin, Jr. Name: Michele G. Van Leer Title: Senior Counsel Title: President INVESTORS PARTNER LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ ZENON C. TENCZA By: /s/ RANDI M. STERRN --------------------------- ---------------------------- Name: Zenon C. Tencza Name: Randi M. Sterrn Title: Staff Counsel Title: Vice President, Product Development JOHN HANCOCK FUNDS, INC. Attest: /s/ ZENON C. TENCZA By: /s/ JOHN A. MORIN --------------------------- ---------------------------- Name: Zenon C. Tencza Name: John A. Morin Title: Staff Counsel Title: Vice President & Corporate Secretary 29 33 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Value AIM V.I. Growth SEPARATE ACCOUNTS UTILIZING THE FUNDS For John Hancock Mutual Life Insurance Company: John Hancock Variable Annuity Account H For John Hancock Variable Life Insurance Company: John Hancock Variable Annuity Account JF CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS For John Hancock Mutual Life Insurance Company: Revolution Variable Annuity Revolution Access Variable Annuity Revolution Extra Variable Annuity Revolution Value Variable Annuity For John Hancock Variable Life Insurance Company: Revolution Variable Annuity Revolution Access Variable Annuity Revolution Extra Variable Annuity Revolution Value Variable Annuity 30 34 SCHEDULE B EXPENSE ALLOCATIONS
==================================================================================================================== LIFE COMPANY AVIF / AIM preparing and filing the Account's registration statement preparing and filing the Fund's registration statement text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements (Account) supplements (Fund) printing Account and Fund prospectuses and supplements a camera ready Fund prospectus text composition and printing Account SAIs text composition and printing Fund SAIs mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy upon request by policy owners owners upon request by policy owners mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers text composition (Account), printing, mailing, and text composition of annual and semi-annual reports distributing annual and semi-annual reports for Account (Fund) (Fund and Account as, applicable) text composition, printing, mailing, distributing, and text composition, printing, mailing, statements and voting tabulation of proxy statements and voting instruction distributing and tabulation of proxy instruction solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to proxies related to the Account proxies related to the Fund preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required ====================================================================================================================
31 35 SCHEDULE C AIM'S PRICING ERROR POLICIES Determination of Materiality In the event that AIM discovers an error in the calculation of the Fund's net asset value, the following policies will apply: If the amount of the error is less than $.01 per share, it is considered immaterial and no adjustments are made. If the amount of the error is $.01 per share, or more, then the following thresholds are applied: a. If the amount of the difference in the erroneous net asset value and the correct net asset value is less than .5% of the correct net asset value, AIM will reimburse the affected Fund to the extent of any loss resulting from the error. No other adjustments shall be made. b. If the amount of the difference in the erroneous net asset value and the correct net asset value is .5% of the correct net asset value or greater, then AIM will determine the impact of the Rorer to the affected Fund and shall reimburse such Fund (and/or LIFE COMPANY, as appropriate, such as in the event that the error was not discovered until after LIFE COMPANY processed transactions using the erroneous net asset value) to the extent of any loss resulting from the error. To the extent that an overstatement of net asset value per share is detected quickly and LIFE COMPANY has not mailed redemption checks to Participants, LIFE COMPANY and AIM agree to examine the extent of the error to determine the feasibility of reprocessing such redemption transaction (for purposes of reimbursing the Fund to the extent of any such overpayment). Reprocessing Cost Reimbursement To the extent a reprocessing of Participant transactions is required pursuant to paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's reprocessing costs in an amount not to exceed $3.00 per contract affected by $10 or more. The Pricing Policies described herein may be modified by AVIF as approved by its Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at least five (5) days prior to any such meeting of the Board of Directors of AVIF to consider such proposed changes. 32 EX-99.H59 19 PARTICIPATION AGREEMENT - U.S. LIFE INS. CO. 1 EXHIBIT h(59) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., A I M DISTRIBUTORS, INC. THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND AGA BROKERAGE SERVICES, INC. 2 TABLE OF CONTENTS
DESCRIPTION PAGE 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
i 3 6.3 Funds To Remain Available......................................................................17 6.4 Survival of Warranties and Indemnifications....................................................17 6.5 Continuance of Agreement for Certain Purposes..................................................17 Section 7. Parties To Cooperate Respecting Termination.........................................................17 Section 8. Assignment..........................................................................................17 Section 9. Notices.............................................................................................18 Section 10. Voting Procedures...................................................................................18 Section 11. Foreign Tax Credits.................................................................................19 Section 12. Indemnification.....................................................................................19 12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER................................................19 12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM................................................21 12.3 Effect of Notice...............................................................................24 12.4 Successors.....................................................................................24 Section 13. Applicable Law......................................................................................24 Section 14. Execution in Counterparts...........................................................................24 Section 15. Severability........................................................................................24 Section 16. Rights Cumulative...................................................................................25 Section 17. Headings............................................................................................25 Section 18. Confidentiality.....................................................................................25 Section 19. Trademarks and Fund Names...........................................................................26 Section 20. Parties to Cooperate................................................................................26 Schedule A ......................................................................................................28 Schedule B.......................................................................................................29
ii 4 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 31st day of August, 1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM") The United States Life Insurance Company in the City of New York, a New York life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and American General Securities Incorporated, an affiliate of LIFE COMPANY and the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of fifteen separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and 1 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. 2 6 SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 5:30 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to provide the net asset value information by 6:00 p.m. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines) through no fault of LIFE COMPANY, LIFE COMPANY, on behalf of the separate accounts, shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2 TIMELY PAYMENTS. LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract 3 7 transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent, in proper form, shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided in Schedule B, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. 4 8 SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY 5 9 will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals 6 10 thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under the provisions of Section 817 of the Code and the regulations thereunder and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including, the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of New York and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under New York Insurance Law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 7 11 4.3 SECURITIES LAWS. (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New York law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 8 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 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 9 13 another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY. (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, 10 14 as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least fifteen (15) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects in writing to such use within ten (10) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 11 15 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; 12 16 (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each 13 17 Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO LIFE COMPANY. AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 14 18 5.7 COMPLIANCE WITH SEC RULES. If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY, or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY's obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or 15 19 (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 NOTICE REQUIREMENT FOR TERMINATION. No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 16 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 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. THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK c/o American General Independent Producers Division 2727-A Allen Parkway Houston, Texas 77019 Facsimile: (713) 831-3071 Attn: Steven Glover, Esq. A G A BROKERAGE SERVICES, INC. 2929 Allen Parkway Houston, Texas 77019 Facsimile: (713) 831-5931 Attn: Nori L. Gabert, Esq. SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the 18 22 solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION 12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that 19 23 this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, AIM or their affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or life insurance contracts under the Code, 20 24 otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF or AIM. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration 21 25 statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, AIM or their affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, AIM or their affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. 22 26 (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and/or AIM in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF or AIM of any such action shall not relieve AVIF or AIM from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF and/or AIM will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall bear the fees and expenses of any additional counsel retained by it, and AVIF and AIM will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF or AIM be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, 23 27 with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. 24 28 SECTION 16. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. 25 29 SECTION 19. TRADEMARKS AND FUND NAMES (a) Except as may otherwise be provided in a License Agreement among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of LIFE COMPANY or any of its affiliates, or any variation of any such trademark, trade name, service mark or logo, without LIFE COMPANY's prior written consent, the granting of which shall be at LIFE COMPANY's sole option. SECTION 20. PARTIES TO COOPERATE Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. ------------------------------ 26 30 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM -------------------------- --------------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President A I M DISTRIBUTORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO -------------------------- --------------------------------- Name: Nancy L. Martin Name: Michael J. Cemo Title: Assistant Secretary Title: President THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, on behalf of itself and its separate accounts Attest: /s/ JULIE A. COTTON By: /s/ DAVID DIETZ -------------------------- --------------------------------- Name: Julie A. Cotton Name: David Dietz ---------------------------- ------------------------------- Title: Assistant Secretary Title: President & CEO --------------------------- ------------------------------ AGA BROKERAGE SERVICES, INC. Attest: /s/ JULIE A. COTTON By: /s/ PAUL KOVACH -------------------------- --------------------------------- Name: Julie A. Cotton Name: Paul Kovach ---------------------------- ------------------------------- Title: Assistant Secretary Title: President --------------------------- ------------------------------ 27 31 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. International Equity Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS o The United States Life Insurance Company in the City of New York Separate Account USL VL-R CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS o Platinum Investor Flexible Payment Variable Life Insurance Policies, Form No. 97600N. 28 32 SCHEDULE B EXPENSE ALLOCATIONS
- ------------------------------------------------------------ ------------------------------------------------------------ LIFE COMPANY AVIF / AIM - ------------------------------------------------------------ ------------------------------------------------------------ preparing and filing the Account's registration statement preparing and filing the Fund's registration statement - ------------------------------------------------------------ ------------------------------------------------------------ text composition for Account prospectuses and supplements text composition for Fund prospectuses and supplements - ------------------------------------------------------------ ------------------------------------------------------------ text alterations of prospectuses (Account) and supplements text alterations of prospectuses (Fund) and supplements (Account) (Fund) - ------------------------------------------------------------ ------------------------------------------------------------ printing Account and Fund prospectuses and supplements a camera ready Fund prospectus - ------------------------------------------------------------ ------------------------------------------------------------ text composition and printing Account SAIs text composition and printing Fund SAIs - ------------------------------------------------------------ ------------------------------------------------------------ mailing and distributing Account SAIs to policy owners mailing and distributing Fund SAIs to policy owners upon upon request by policy owners request by policy owners - ------------------------------------------------------------ ------------------------------------------------------------ mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - ------------------------------------------------------------ ------------------------------------------------------------ text composition (Account), printing, mailing, and text composition of annual and semi-annual reports (Fund) distributing annual and semi-annual reports for Account (Fund and Account as, applicable) - ------------------------------------------------------------ ------------------------------------------------------------ text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to proxies related to the Account proxies related to the Fund - ------------------------------------------------------------ ------------------------------------------------------------ preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required - ------------------------------------------------------------ ------------------------------------------------------------
29 EX-99.I1.G 20 OPINION OF MESSRS. FREEDMAN, LEVY, KROLL & SIMONDS 1 EXHIBIT i(1)(g) September 27, 1999 OPINION AND CONSENT OF COUNSEL AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046-1173 Executives: This opinion is given in connection with the filing with the Securities and Exchange Commission ("SEC") by AIM Variable Insurance Funds, Inc., a Maryland corporation (the "Fund"), of Post-Effective Amendment No. 14 under the Securities Act of 1933 ("1933 Act") and Amendment No. 15 under the Investment Company Act of 1940 ("1940 Act") to the Fund's Registration Statement on Form N-1A (File No. 33-57340 and No. 811-7452, the "Registration Statement"), relating to an indefinite number of the Fund's 4.50 billion authorized shares of common stock, par value $.001 per share, which includes, among others, 250 million authorized shares of the AIM V.I. Dent Demographic Trends Fund (the "Dent Fund"), a separate series of the Fund's common stock. The Fund's authorized shares of common stock relating to the Dent Fund are hereinafter referred to collectively as the "Shares." We have examined the following: the Fund's Articles of Incorporation, dated January 22, 1993; the Fund's Articles of Amendment, as filed with the State of Maryland on April 13, 1993, April 15, 1993, and April 12, 1995; the Fund's Articles Supplementary, as filed with the State of Maryland on April 12, 1994, February 4, 1998, September 30, 1998, July 8, 1999, and September 27, 1999; the Fund's By-Laws; relevant resolutions of the Fund's Board of Directors, dated September 24, 1999 and certified by the Fund's Assistant Secretary on September 24, 1999, authorizing the creation of the Dent Fund and the issuance of the Shares; the Notification of Registration on Form N-8A filed with the SEC under the 1940 Act on January 25, 1993; the Registration Statement as originally filed with the SEC under the 1933 Act and the 1940 Act on the same date, and the amendments thereto filed with the SEC, including Post-Effective Amendment No. 14 to the Registration Statement substantially in the form in which it is to be filed with the SEC; a Certificate of Good Standing issued by the State of Maryland on September 23, 1999; pertinent provisions of the laws of Maryland; and such other records, certificates, documents and statutes that we have deemed relevant in order to render the opinion expressed herein. 2 AIM Variable Insurance Funds, Inc. September 27, 1999 Page 2 Based on the foregoing examination, we are of the opinion that: 1. The Fund is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland; and 2. The Shares to be offered for sale by the Fund, when issued in the manner contemplated by the Registration Statement, as amended, will be legally issued, fully-paid, and non-assessable. This letter expresses our opinion as to the Maryland General Corporation Law, addressing matters such as due formation and, in effect, the authorization and issuance of shares of common stock, but does not extend to the securities or "Blue Sky" laws of Maryland or to federal securities or other laws. We consent to the use of this opinion as an Exhibit to the Registration Statement, as amended. Very truly yours, /s/ FREEDMAN, LEVY, KROLL & SIMONDS ----------------------------------- Freedman, Levy, Kroll & Simonds EX-99.I2 21 CONSENT OF MESSRS. TAIT, WELLER & BAKER 1 EXHIBIT i(2) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the reference to our firm in the Statement of Additional Information included in Post-Effective Amendment No. 14 of AIM Variable Insurance Funds, Inc. /s/ TAIT, WELLER & BAKER ------------------------ TAIT, WELLER & BAKER Philadelphia, Pennsylvania September 20, 1999 EX-99.LD 22 AGMT. INITIAL CAPITALIZATION - AIM V.I. DENT DEMO. 1 EXHIBIT l(d) November 15, 1999 Board of Directors AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 100 Houston, Texas 77046-1173 Re: Initial Capital Investment in the New Portfolio of AIM Variable Insurance Funds, Inc. (the "Fund") Gentlemen: We are purchasing shares of the Fund for the purpose of providing initial investment for the new investment portfolio of the Fund, the AIM V.I. Blue Chip Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment. 1. We hereby agree to purchase shares equal to $1,000,000.00 for the AIM V.I. Blue Chip Fund. 2. We understand that the initial net asset value per share for the portfolio named above will be $10.00. 3. We hereby represent that we are purchasing these shares solely for our own account and solely for investment purposes without any intent of distributing or reselling said shares. We further represent that disposition of said shares will only be by direct redemption to or repurchase by the Fund. 4. We hereby agree to provide the Fund with at least 3 days' advance notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place a burden on the Fund and to facilitate normal portfolio management of the Fund. Sincerely yours, A I M ADVISORS, INC. By: /s/ ROBERT H. GRAHAM ---------------------------------- EX-99.LE 23 FORM OF AGREEMENT CONCERNING INIT. CAPITALIZATION 1 EXHIBIT l(e) November 15, 1999 Board of Directors AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 100 Houston, Texas 77046-1173 Re: Initial Capital Investment in the New Portfolio of AIM Variable Insurance Funds, Inc. (the "Fund") Gentlemen: We are purchasing shares of the Fund for the purpose of providing initial investment for the new investment portfolio of the Fund, the AIM V.I. Dent Demographic Trends Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment. 1. We hereby agree to purchase shares equal to $1,000,000.00 of the AIM V.I. Dent Demographic Trends Fund. 2. We understand that the initial net asset value per share for the Fund above will be $10.00. 3. We hereby represent that we are purchasing these shares solely for our own account and solely for investment purposes without any intent of distributing or reselling said shares. We further represent that disposition of said shares will only be by direct redemption to or repurchase of the Fund. 4. We hereby agree to provide the Fund with at least 3 days' advance notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place a burden on the Fund and to facilitate normal portfolio management of the Fund. Sincerely yours, A I M ADVISORS, INC. By: ---------------------------- EX-99.O1 24 THE AIM MANAGEMENT GROUP CODE OF ETHICS 1 EXHIBIT o(1) THE AIM MANAGEMENT GROUP CODE OF ETHICS (ADOPTED MAY 1, 1981) (AS LAST AMENDED AUGUST 17, 1999) WHEREAS, the members of the AIM Management Group are A I M Management Group Inc. ("AIM Management") and A I M Advisors, Inc. ("AIM Advisors") and its wholly owned and indirect subsidiaries (individually and collectively referred to as "AIM"); and WHEREAS, certain members of AIM provide investment advisory services to AIM's investment companies and other clients; and WHEREAS, certain members of AIM provide distribution services as principal underwriters for AIM's investment company clients; and WHEREAS, certain members of AIM provide shareholder services as the transfer agent, dividend disbursing agent and shareholder processing agent for AIM's investment company clients; and WHEREAS, the investment advisory business involves decisions and information which may have at least a temporary impact on the market price of securities, thus creating a potential for conflicts of interest between the persons engaged in such business and their clients; and WHEREAS, the members of AIM have a fiduciary relationship with respect to each portfolio under management and the interests of the client accounts and of the shareholders of AIM's investment company clients must take precedence over the personal interests of the employees of AIM, thus requiring a rigid adherence to the highest standards of conduct by such employees; and WHEREAS, every practical step must be taken to ensure that no intentional or inadvertent action is taken by an employee of AIM which is, or appears to be, adverse to the interests of AIM or any of its client accounts, including the defining of standards of behavior for such employees, while at the same time avoiding unnecessary interference with the privacy or personal freedom of such employees; and WHEREAS, the members of AIM originally adopted a Code of Ethics ("the Code") on May 1, 1981, and adopted amendments thereto in January 1989, October 1989, April 1991, December 6, 1994 and December 5, 1995, December 10, 1996, and now deem it advisable to update and revise said Code in light of new investment company products developed by AIM and changing circumstances in the securities markets in which AIM conducts business; and NOW, THEREFORE, the Boards of Directors of AIM Management and AIM Advisors hereby adopt the following revised Code pursuant to the provisions of Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act"), with the intention that certain provisions of the Code shall become applicable to the officers, directors and employees of AIM. I. Applicability A. The provisions of AIM's Code shall apply to certain officers, directors and employees (as hereinafter designated) of AIM. Unless otherwise indicated, the term "employee" as used herein means: (i) all officers, directors and employees of AIM Advisors and its wholly owned and indirect subsidiaries and (ii) officers, directors and employees of AIM Management who -1- 2 have an active part in the management, portfolio selection, underwriting or shareholder functions with respect to AIM's investment company clients or provide one or more similar services for AIM's non-investment company clients. The term "employee" does not include directors of AIM Management who do not maintain an office at the home office of AIM Management and who do not regularly obtain information concerning the investment recommendations or decisions made by AIM on behalf of client accounts ("independent directors"). B. The Code shall also apply to any person or entity appointed as a sub-advisor for an AIM investment company client account unless such person or entity has adopted a code of ethics in compliance with Section 17(j) of the 1940 Act; or, in the event that such person or entity is domiciled outside of the United States, has adopted employee standards of conduct that provide equivalent protections to AIM's client accounts. In performing sub-advisory services, such person or entity will be subject to the direction and supervision of AIM, and subject to the policies and control of the Boards of Directors/Trustees of the respective AIM investment company client(s). II. Interpretation and Enforcement A. The Chief Executive Officer of AIM Management shall appoint a Code of Ethics Committee ("Committee"). The Committee shall have the responsibility for interpreting the provisions of the Code, for adopting and implementing Procedures for the enforcement of the provisions of the Code, and for determining whether a violation of the provisions of the Code, or of any such related Procedures has occurred. The Committee will appoint an officer to monitor personal investment activity by "Covered Persons" (as defined in the Procedures adopted hereunder), both before and after any trade occurs and to prepare periodic and annual reports, conduct education seminars and obtain employee certifications as deemed appropriate. In the event of a finding that a violation has occurred requiring significant remedial action, the Committee shall take such action as it deems appropriate on the imposition of sanctions or initiation of disgorgement proceedings. The Committee shall also make recommendations and submit reports to the Boards of Directors/Trustees of AIM's investment company clients. B. If a sub-advisor has adopted a code of ethics in accordance with Section 17(j) of the 1940 Act, then pursuant to a sub-advisory agreement with AIM, it shall be the duty of such sub-advisor to furnish AIM with a copy of the following: o code of ethics and related procedures of the sub-advisor, and a statement as to its employees' compliance therewith; o any statement or policy on insider trading adopted pursuant to Section 204A under the 1940 Act; and the procedures designed to prevent the misuse of material non-public information by any person associated with such sub-advisor; and o such other information as may reasonably be necessary for AIM to report to the Boards of Directors/Trustees of its investment company client account(s) as to such sub-advisor's adherence to the Boards' policies and controls referenced in Section I.B. above. III. Procedures Adopted Under the Code From time to time, AIM's Committee shall adopt Procedures to carry out the intent of the Code. Among other things, the Procedures require certain new employees to complete an Asset Disclosure Form, a Brokerage Accounts Listing Form and such other forms as deemed appropriate by the Committee. Such Procedures are hereby incorporated into the Code and are made a part of the Code. Therefore, a violation of the Procedures shall be deemed a violation of the Code itself. -2- 3 IV. Compliance with Governing Laws, Regulations and Procedures A. Each employee shall have and maintain knowledge of and shall comply strictly with all applicable federal and state laws and all rules and regulations of any governmental agency or self-regulatory organization governing his/her actions as an employee. B. Each employee shall comply with all laws and regulations, and AIM's prohibition against insider trading. Trading on or communicating material non-public information, or "inside information", of any sort, whether obtained in the course of research activities, through a client relationship or otherwise, is strictly prohibited. C. Each employee shall comply with the procedures and guidelines established by AIM to ensure compliance with applicable federal and state laws and regulations of governmental agencies and self-regulatory organizations. No employee shall knowingly participate in, assist, or condone any act in violation of any statute or regulation governing AIM or any act that would violate any provision of this Code, or of the Procedures adopted hereunder. D. Each employee shall have and maintain knowledge of and shall comply with the provisions of this Code and any Procedures adopted hereunder. E. Each employee having supervisory responsibility shall exercise reasonable supervision over employees subject to his/her control, with a view to preventing any violation by such persons of applicable statutes or regulations, AIM's corporate procedures, or the provisions of the Code, or the Procedures adopted hereunder. F. Any employee obtaining evidence that an act in violation of applicable statutes, regulations or provisions of the Code or of any Procedures adopted hereunder has occurred shall immediately report such evidence to the Chief Compliance Officer of AIM. Such action by the employee will remain confidential, unless the employee waives confidentiality or federal or state authorities compel disclosure. Failure to report such evidence may result in disciplinary proceedings and may include sanctions as set forth in Section VI hereof. V. Ethical Standards A. Employees shall conduct themselves in a manner consistent with the highest ethical and fiduciary standards. They shall avoid any action, whether for personal profit or otherwise, that results in an actual or potential conflict of interest with AIM or its client accounts, or which may be otherwise detrimental to the interests of the members of AIM or its client accounts.(1) B. Employees shall act in a manner consistent with their fiduciary obligation to clients of AIM, and shall not deprive any client account of an investment opportunity in order to personally benefit from that opportunity. - -------------------------- (1) Conflicts of interest generally result from a situation in which an individual has a personal interest in a matter that is or may be competitive with his or her responsibilities to other persons or entities (such as AIM or its client accounts) or where an individual has or may have competing obligations or responsibilities to two or more persons or entities. In the case of the relationship between a client account on the one hand, and AIM, its officers, directors and employees, on the other hand, such conflict may result from the purchase or sale of securities for a client account and for the personal account of the individual involved or the account of any "affiliate" of such individual, as such term is defined in the 1940 Act. Such conflict may also arise from the purchase or sale for a client account of securities in which an officer, director or employee of AIM has an economic interest. Moreover, such conflict may arise in connection with vendor relationships in which such employee has any direct or indirect financial interest, family interests or other personal interest. To the extent of conflicts of interest between AIM and a vendor, such conflicts must be resolved in a manner that is not disadvantageous to AIM. In any such case, potential or actual conflicts must be disclosed to AIM and the first preference and priority must be to avoid such conflicts of interest wherever possible and, where they unavoidably occur, to resolve them in a manner that is not disadvantageous to a client. -3- 4 C. Without the knowledge and approval of the Chief Executive Officer of AIM Management, employees shall not engage in a business activity or practice for compensation in competition with the members of AIM. Each employee, who is deemed to be a "Covered Person" as defined in the Procedures adopted hereunder, shall obtain the written approval of AIM Management's Chief Executive Officer to participate on a board of directors/trustees of any of the following organizations: o publicly traded company, partnership or trust; o hospital or philanthropic institution;* o local or state municipal authority;* and/or o charitable organization.* * These restrictions relate to organizations that have or intend to raise proceeds in a public securities offering. In the relatively small number of instances in which board approval is authorized, investment personnel serving as directors shall be isolated from those making investment decisions through AIM's "Chinese Wall" Procedures. D. Each employee, in making an investment recommendation or taking any investment action, shall exercise diligence and thoroughness, and shall have a reasonable and adequate basis for any such recommendation or action. E. Each employee shall not attempt to improperly influence for such person's personal benefit any investment strategy to be followed or investment action to be taken by the members of AIM for its client accounts. F. Each employee shall not improperly use for such person's personal benefit any knowledge, whether obtained through such person's relationship with AIM or otherwise, of any investment recommendation made or to be made, or of any investment action taken or to be taken by AIM for its client accounts. G. Employees shall not disclose any non-public information relating to a client account's portfolio or transactions or to the investment recommendations of AIM, nor shall any employee disclose any non-public information relating to the business or operations of the members of AIM, unless properly authorized to do so. H. Employees shall not accept, directly or indirectly, from a broker/dealer or other vendor who transacts business with AIM or its client accounts, any gifts, gratuities or other things of more than de minimis value or significance that their acceptance might reasonably be expected to interfere with or influence the exercise of independent and objective judgment in carrying out such person's duties or otherwise gives the appearance of a possible impropriety. For this purpose, gifts, gratuities and other things of value shall not include unsolicited entertainment so long as such unsolicited entertainment is not so frequent or extensive as to raise any question of impropriety. I. Employees who are registered representatives and/or principals of AIM shall not acquire securities for an account for which he/she has a direct or indirect beneficial interest in an initial public offering ("IPO") or on behalf of any person, entity or organization that is not an AIM client. All other employees shall not acquire securities for an account for which he/she has a direct or indirect beneficial interest offered in an IPO or on behalf of any person, entity or organization that is not an AIM client account except in those circumstances where different amounts of such offerings are specified for different investor types (e.g., private investors and institutional investors) and such transaction has been pre-cleared by the Compliance Office. -4- 5 J. All personal securities transactions by employees must be conducted consistent with this Code and the Procedures adopted hereunder, and in such a manner as to avoid any actual or potential conflicts of interest or any abuse of such employee's position of trust and responsibility. Unless an exemption is available, employees who are deemed to be "Covered Persons" as defined in the Procedures adopted hereunder, shall pre-clear all personal securities transactions in securities in accordance with the Procedures adopted hereunder. K. Each employee, who is deemed to be a "Covered Person" as defined in the Procedures adopted hereunder, (or registered representative and/or principal of AIM), shall refrain from engaging in personal securities transactions in connection with a security that is not registered under Section 12 of the Securities Act of 1933 (i.e., a private placement security) unless such transaction has been pre-approved by the Chief Compliance Officer or the Director of Investments (or their designees). L. Employees, who are deemed to be "Covered Persons" as defined in the Procedures adopted hereunder, may not engage in a transaction in connection with the purchase or sale of a security within seven calendar days before and after an AIM investment company client trades in that same (or equivalent) security unless the de minimis exemption is available. M. Each employee, who is deemed to be a "Covered Person" as defined in the Procedures adopted hereunder, may not purchase and voluntarily sell, or sell and voluntarily purchase the same (or equivalent) securities of the same issuer within 60 calendar days unless such employee complies with the disgorgement procedures adopted by the Code of Ethics Committee. Subject to certain limited exceptions set forth in the related Procedures, any transaction under this provision may result in disgorgement proceedings for any profits received in connection with such transaction by such employee. VI. Sanctions Employees violating the provisions of AIM's Code or any Procedures adopted hereunder may be subject to sanctions, which may include, among other things, restrictions on such person's personal securities transactions; a letter of admonition, education or formal censure; fines, suspension, re-assignment, demotion or termination of employment; or other significant remedial action. Employees may also be subject to disgorgement proceedings for transactions in securities that are inconsistent with Sections V.L. and V.M. above. VII. Additional Disclosure This Code and the related Procedures cannot, and do not, cover every situation in which choices and decisions must be made, because other company policies, practices and procedures (as well as good common sense) and good business judgment also apply. Every person subject to this Code should read and understand these documents thoroughly. They present important rules of conduct and operating controls for all employees. Employees are also expected to present questions to the attention of their supervisors and to the Chief Compliance Officer (or designee) and to report suspected violations as specified in these documents. For the Boards of Directors: The AIM Management Group by: /s/CHARLES T. BAUER ------------------------------------------------- Charles T. Bauer AUGUST 17, 1999 ------------------------------------------------- Date -5- EX-99.O2 25 CODE OF ETHICS OF REGISTRANT 1 EXHIBIT o(2) CODE OF ETHICS OF AIM VARIABLE INSURANCE FUNDS, INC. WHEREAS, AIM Variable Insurance Funds, Inc. (the "Company") is a registered investment company under the Investment Company Act of 1940, as amended (the "ICA"); WHEREAS, Rule 17j-1 under the ICA requires the Company to adopt a Code of Ethics; NOW, THEREFORE, the Company hereby adopts the following Code of Ethics, effective as of February 25, 1993; I. DEFINITIONS For the purpose of the Code of Ethics the following terms shall have the meanings set forth below: (a) "Access person" means any director, officer, or advisory person of the Company; provided, however, that any person who is an access person of any investment advisor of, or principal underwriter for, any registered investment company and who is required by Rule 17j-1 of the ICA to report his or her securities transactions to such investment advisor or principal underwriter, shall not be deemed an access person of the Company. (b) "Advisory person" means (i) any employee of the Company, its investment advisor or administrator (or of any entity in a control relationship with the Company, its investment advisor or administrator, as defined in (d) hereof), who, in connection with his or her regular functions or duties, makes, participates in, or obtains information (other than publicly available information) regarding the purchase or sale of a security by the Company, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person directly or indirectly owning, controlling, or holding with power to vote, 25% or more of the outstanding voting securities of the Company, its investment advisor or administrator, who obtains information (other than publicly available information) concerning recommendations made by the Company, its investment advisor or administrator with regard to the purchase or sale of a security. 2 Code of Ethics of: Page 2 AIM Variable Insurance Funds, Inc. (c) "Affiliated persons"or "Affiliates" means (i) any employee or access person of the Company, and any member of the immediate family (defined as spouse, child, mother, father, brother, sister, in-law or any other relative) of any such person who lives in the same household as such person or who is financially dependent upon such person; (ii) any account for which any of the persons described in (c)(i) hereof is a custodian, trustee or otherwise acting in a fiduciary capacity, or with respect to which any such person either has the authority to make investment decisions or from time to time give investment advice; and (iii) any partnership, corporation, joint venture, trust or other entity in which any employee of the Company or access person of the Company directly or indirectly, in the aggregate, has a 10% or more beneficial interest or for which any such person is a general partner or an executive officer. (d) "Control" means the power to exercise a controlling influence over the management or policies of a corporation. Any person who owns beneficially, either directly or through one or more controlled corporations, more than 25% of the voting securities' of a corporation shall be presumed to control such corporation. (e) "Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral- trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt of, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing; provided, however, that "security" shall not mean securities issued or guaranteed by the Government of the United States, its agencies or instrumentalities, bankers' acceptances, bank certificates of deposit, commercial paper and shares of registered open-end investment companies. (f) "Purchase or sale of a security" includes the writing of an option to purchase or sell a security. (g) "Security held or to be acquired" by the Company means any security which, within the most recent fifteen (15) days, (i) is or has been held by the Company, or (ii) is being or has been considered by the Company for purchase by the Company. 3 Code of Ethics of: Page 3 AIM Variable Insurance Funds, Inc. (h) "Beneficial ownership of a security" by any person includes securities held by: (a) a spouse, minor children or relatives who share the same home with such person; (b) an estate for such person's benefit; (c) a trust, of which (i) such person is a trustee or such person or members of such person's immediate family have a vested interest in the income or corpus of the trust, or (ii) such person owns a vested beneficial interest, or (iii) such person is the settlor and such person has the power to revoke the trust without the consent of all the beneficiaries; (d) a partnership in which such person is a partner; (e) a corporation (other than with respect to treasury shares of the corporation) of which such person is an officer, director or 10% stockholder; (f) any other person if, by reason of contract, understanding, relationship, agreement or other arrangement, such person obtains therefrom benefits substantially equivalent to those of ownership; or (g) such person's spouse or minor children or any other person, if, even though such person does not obtain therefrom the above-mentioned benefits of ownership, such person can vest or revest title in himself at once or at some future time. A beneficial owner of a security also includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power and/or investment power with respect to such security. Voting power includes the power to vote, or to direct the voting of such security, and investment power includes the power to dispose, or to direct the disposition of such security. A person is the beneficial owner of a security if he has the right to acquire beneficial ownership of such security at any time within sixty (60) days. II. IDENTIFICATION OF ACCESS PERSONS (a) The Company will maintain a list of all access persons and will notify each access person in writing that such person is an access person. once a person has been so identified he or she shall continue to be an access person until otherwise notified in writing by the Company; provided. however. if such person is an access person solely because he or she is a director of the Company, such person shall cease to be an access person at the time such person ceases to be a director. (b) Each access person will be given a copy of the Code of Ethics at the time such person becomes an access person. III. COMPLIANCE WITH GOVERNING LAWS, REGULATIONS AND PROCEDURES (a) Each access person shall comply strictly with all applicable Federal and state laws and all rules and regulations of any governmental agency or self-regulatory organization governing his or her activities. (b) Each access person shall comply strictly with procedures established by the Company to ensure compliance with applicable Federal and state laws and regulations of governmental agencies and self-regulatory organizations. 4 Code of Ethics of: Page 4 AIM Variable Insurance Funds, Inc. (c) Access persons shall not knowingly participate in, assist, or condone any acts in violation of any statute or regulation governing securities matters, nor any act which would violate any provision of this Code of Ethics or any rules adopted thereunder. IV. CONFIDENTIALITY OF TRANSACTIONS (a) Information relating to the Company's portfolio and research and studies activities is confidential until publicly available. Whenever statistical information or research is supplied to or requested by the Company, such information must not be disclosed to any persons other than as duly authorized by the President or the Board of Directors of the Company. If the Company is considering a particular purchase or sale of a security, this must not be disclosed except to such duly authorized persons. (b) If any access person should obtain information concerning the Company's portfolio (including, the consideration by the Company of acquiring, or recommending any security for the Company's portfolio), whether in the course of such person's duties or otherwise, such person shall respect the confidential nature of this information and shall not divulge it to anyone unless it is properly part of such person's services to the Company to do so or such person is specifically authorized to do so by the President of the Company. V. ETHICAL STANDARDS (a) Access persons shall conduct themselves in a manner consistent with the highest ethical standards. They shall avoid any action, whether for personal profit or otherwise, that results in an actual or potential conflict of interest, or the appearance of a conflict of interest, with the Company or which may be otherwise detrimental to the interests of the Company. (b) Conflicts of interest generally result from a situation in which an individual has personal interests in a matter that is or may be competitive with his responsibilities to another person or entity (such as the Company) or where an individual has or may have competing obligations or responsibilities to two or more persons or entities. In the case of the relationship between the Company on the one hand, and its employees and access persons and their respective affiliates, on the other hand, such conflicts may result from the purchase or sale of securities for the account of the Company and for the account of any affiliated person or from the purchase or sale for the account of the Company of securities in which an access person or employee of the Company, or his or her affiliates has an interest. In these cases, all potential or actual conflicts must be disclosed and the first preference and priority must be to avoid such conflicts of interest whenever possible and, where they unavoidably occur, to resolve them in a manner not disadvantageous to the Company. 5 Code of Ethics of: Page 5 AIM Variable Insurance Funds, Inc. VI. ACTIVITIES AND TRANSACTIONS OF ACCESS PERSONS (a) No access person shall recommend to, or cause or attempt to cause, the Company to acquire, dispose of, or hold any security (including, any option, warrant or other right or interest relating to such security) which such access person or an affiliate of such access person has direct or indirect beneficial ownership, unless the access person shall first disclose to the Board of Directors all facts reasonably necessary to identify the nature of the ownership of such access person or his or her affiliate in such security. (b) No access person or affiliate of such access person shall engage in a purchase or sale of a security (including, any option, warrant or other right or interest relating to such security), other than on behalf of the Company, with respect to any security, which, to the actual knowledge of such access person at the time of such purchase or sale, is (i) being considered for purchase or sale by the Company; or (ii) being purchased or sold by the Company. (c) The prohibitions of Section VI(b) above shall not apply to: (i) Purchases or sales effected in any account over which the access person has no direct or indirect influence or control. (ii) Purchases or sales which are nonvolitional on the part of either the access person or the Company. (iii) Purchases which are part of an automatic dividend reinvestment plan. (iv) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. (v) Purchases or sales which receive the prior approval of the President of the Company because they are only remotely potentially harmful to the Company because they would be very unlikely to affect trading in or the market value of the security, or because they clearly are not related economically to the securities to be purchased, sold or held by the Company. (d) If, in compliance with the limitations and procedures set forth in this Section VI, any access person or an affiliate of such person shall engage in a purchase or sale of a security held or to be acquired by the Company, first preference and priority must be given to any transactions which involve the Company, and the Company must have the benefit of the best price obtainable on acquisition and the best price obtainable on disposition of such securities. 6 Code of Ethics of: Page 6 AIM Variable Insurance Funds, Inc. (e) If, as a result of fiduciary obligations to other persons or entities, an access person believes that such person or an affiliate of such person is unable to comply with certain provisions of the Code, such access person shall so advise the Board of Directors in writing, setting forth with reasonable specificity the nature of such fiduciary obligations and the reasons why such access person believes such person is unable to comply with any such provisions. The Board of Directors may, in its discretion, exempt such access person or an affiliate of such person from any such provisions, if the Board of Directors shall determine that the services of such access person are valuable to the Company and the failure to grant such exemption is likely to cause such access person to be unable to render services to the Company. Any access person granted an exemption (including, an exception for an affiliate of such person) pursuant to this Section VI(e) shall, within three business days after engaging in a purchase or sale of a security held or to be acquired by a client, furnish the Board of Directors with a written report concerning such transaction, setting forth the information specified in Section VII(b) hereof. VII. REPORTING PROCEDURES (a) Except as provided by Sections VII(c) and (d) hereof, every access person shall report to the Board of Directors the information described in Section VII(b) hereof with respect to transactions in any security in which such access person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security (whether or not such security is a security held or to be acquired by a client); provided, however, that any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates. (b) Every report required to be made pursuant to Section VII(a) hereof shall be made not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected and shall contain the following information: (i) The date of the transaction, the title and the number of shares, and the principal amount of each security involved; (ii) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (iii) The price at which the transaction was effected; and (iv) The name of the broker, dealer or bank with or through whom the transaction was effected. (c) Notwithstanding the provisions of Section VII(a) and (b) hereof, no person shall be required to make a report with respect to transactions effected for any account over which such person does not have any direct or indirect influence or control. 7 Code of Ethics of: Page 7 AIM Variable Insurance Funds, Inc. (d) Notwithstanding the provisions of Section VII(a) and (b) hereof, an access person who is not an "interested person" of the Company within the meaning of Section 2(a)(19) of the ICA, and who would be required to make a report solely by reason of being a director of the Company, need only report a transaction in a security if such director at the time of the transaction, knew or, in the ordinary course of fulfilling his official duties as a director of the Company, should have known, that, during the 15-day period immediately preceding or after the date of the transaction by the director, such security is or was purchased or sold, or considered by the Company or its investment advisor for purchase or sale by the Company. (e) Every access person who beneficially owns, directly or indirectly, 1/2% or more of the stock of any company the securities of which are eligible for purchase by the Company shall report such holdings to the Company. VIII. REVIEW PROCEDURES (a) The reports submitted by access persons pursuant to Section VII(b) hereof shall be reviewed at least quarterly by the Board of Directors or such other persons or committees as shall be designated by the Board of Directors in order to monitor compliance with this Code of Ethics. (b) If it is determined by the Board of Directors that a violation of this Code of Ethics has occurred and that the person violating this Code of Ethics has purchased or sold a security at a more advantageous price than that obtained by the Company, such person shall be required to offer to sell to or purchase from the Company, as the case may be, such security at the more advantageous price. If this cannot be consummated, then the Board of Directors shall take such other course of action as it may deem appropriate. With respect to any violation of this Code of Ethics, the Board of Directors may take any preventative, remedial or other action which it may deem appropriate. In determining whether or not there has been, or may be, a conflict of interest between the Company and any person subject to this Code of Ethics, the Board of Directors shall consider all of the relevant facts and circumstances. IX. SANCTIONS Persons violating this Code of Ethics or related procedures may be subject to sanctions. Sanctions could include, for example, restrictions on a person's personal securities transactions, a letter of censure, fines or suspension. In addition, civil and criminal penalties may be imposed against persons for violating the Insider Act. -----END PRIVACY-ENHANCED MESSAGE-----