-----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, SQSXNrsrpWc2P8VNzcjq9w4RkmecJD1f5qCK0JtcF+w61I5jGriXmD8N6s/4pT+3 ahNH+y+yxlPRV314ujeWVQ== 0000899243-96-000364.txt : 19960430 0000899243-96-000364.hdr.sgml : 19960430 ACCESSION NUMBER: 0000899243-96-000364 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 41 FILED AS OF DATE: 19960429 EFFECTIVENESS DATE: 19960429 SROS: NONE 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-57340 FILM NUMBER: 96552620 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07452 FILM NUMBER: 96552621 BUSINESS ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: STE 1919 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7132141785 MAIL ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: SUITE 1919 CITY: HOUSTON STATE: TX ZIP: 77046 485BPOS 1 PE AMT #7 TO FORM N-1A WITH PE AMT #8--40 ACT As filed with the Securities and Exchange Commission on April 29, 1996 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. 7 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 8 [X] (Check appropriate box or boxes.) AIM VARIABLE INSURANCE FUNDS, INC. (Exact Name of Registrant as Specified in Charter) 11 Greenway Plaza, Suite 1919, 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 1919, Houston, TX 77046-1173 (Name and Address of Agent for Service) Copy to: Nancy L. Martin, Esquire A I M Advisors, Inc. 11 Greenway Plaza, Suite 1919 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) [X] on May 1, 1996 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 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. Registrant continues its election to register an indefinite number of shares of Common Stock pursuant to Rule 24f-2 under the Investment Company Act of 1940 and accordingly, filed its Rule 24f-2 Notice for the eleven months ended December 31, 1995 on April 19, 1996. CROSS REFERENCE SCROSS REFERENCE SHEET (AS REQUIRED BY RULE 481(a))
N-1A ITEM NO. PROSPECTUS LOCATION - -------- ------------------- PART A Item 1. Cover Page................................. Cover Page Item 2. Synopsis................................... Not Applicable Item 3. Condensed Financial Information............ Financial Highlights; Performance Item 4. General Description of Registrant.......... Cover Page; About the Funds; Investment Objectives and Programs; Risk Factors; General Information Item 5. Management of the Fund..................... Management; General Information Item 5A. Management's Discussion of Fund Performance Not Applicable Item 6. Capital Stock and Other Securities......... Dividends, Distributions and Tax Matters; General Information Item 7. Purchase of Securities Being Offered....... Purchase and Redemption of Shares; Determination of Net Asset Value; Management Item 8. Redemption or Repurchase................... Purchase and Redemption of Shares Item 9. Pending Legal Proceedings.................. Not Applicable STATEMENT OF ADDITIONAL INFORMATION LOCATION ---------------------------------------------- PART B Item 10. Cover Page................................. Cover Page Item 11. Table of Contents.......................... Table of Contents Item 12. General Information and History............ Introduction; General Information About the Funds; Miscellaneous Information Item 13. Investment Objectives and Policies......... Investment Programs; Hedging and Other Investment Techniques; Investment Restrictions Item 14. Management of the Fund..................... Management Item 15. Control Persons and Principal Holders of Securities...................... Miscellaneous Information Item 16. Investment Advisory and Other Services..... Management; Miscellaneous Information Item 17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage Item 18. Capital Stock and Other Securities......... General Information about the Funds Item 19. Purchase, Redemption and Pricing of Securities Being Offered................... Determination of Net Asset Value Item 20. Tax Status................................. Dividends, Distributions, and Tax Matters Item 21. Underwriters............................... Management Item 22. Calculations of Performance Data........... Performance Item 23. Financial Statements....................... Financial Statements
PART C Information required to be set forth in Part C is set forth under the appropriate item, so numbered, in Part C of the Registration Statement. [AIM LOGO APPEARS HERE] PROSPECTUS AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. CAPITAL APPRECIATION FUND May 1, 1996 AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. MONEY MARKET FUND AIM V.I. VALUE FUND AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Global Utilities Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund and AIM V.I. Value Fund (the "Funds") are nine investment portfolios comprising series of AIM Variable Insurance Funds, Inc. (the "Company"), an open-end, series, management investment company. Shares of the Funds are currently offered only to insurance company separate accounts to fund the benefits of variable annuity contracts and variable life insurance policies. Shares of the Funds may be offered, in the future, to certain pension or retirement plans. The investment objectives of the Funds are described on the inside cover page. The address for AIM Variable Insurance Funds, Inc. is 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, and its telephone number is (713) 626-1919. UP TO 50% OF THE SECURITIES IN WHICH THE AIM V.I. DIVERSIFIED INCOME FUND INVESTS MAY BE SECURITIES RATED IN THE LOWER RATING CATEGORIES OF NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROS"), OR ARE UNRATED, AND ARE COMMONLY KNOWN AS "JUNK BONDS." INVESTMENT IN NON-INVESTMENT GRADE DEBT SECURITIES ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST, AND MAY ENTAIL OTHER RISKS THAT ARE DIFFERENT FROM OR MORE PRONOUNCED THAN THOSE INVOLVED IN HIGHER-RATED SECURITIES. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS FUND. SEE "RISK FACTORS" UNDER "INVESTMENT PROGRAMS." This prospectus sets forth basic information about the Funds that prospective investors should know before investing. It should be read and retained for future reference. A Statement of Additional Information dated May 1, 1996, has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Statement of Additional Information is available without charge upon written request to the Company at the address shown above. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUNDS' SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE IS NO ASSURANCE THAT THE AIM V.I. MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. TABLE OF CONTENTS About the Funds......................... 2 Financial Highlights.................... 3 Performance............................. 8 Investment Objectives and Programs...... 8 Risk Factors............................ 16 Management.............................. 17 Purchase and Redemption of Shares....... 20
Determination of Net Asset Value........ 20 Dividends, Distributions and Tax Matters............................ 21 General Information..................... 22 Appendix A.............................. A-1 Appendix B.............................. B-1 Appendix C.............................. C-1
- ------------------------------------------------------------------------------- ABOUT THE FUNDS The following is a brief description of the investment objectives and programs of the Funds: AIM V.I. CAPITAL APPRECIATION FUND ("CAPITAL APPRECIATION FUND") is a diversified portfolio which seeks to provide capital appreciation through investments in common stocks, with emphasis on medium-sized and smaller emerging growth companies. AIM V.I. DIVERSIFIED INCOME FUND ("DIVERSIFIED INCOME FUND") is a diversified portfolio which seeks to achieve a high level of current income primarily by investing in a diversified portfolio of foreign and U.S. government and corporate debt securities, including lower rated high yield debt securities (commonly known as "junk bonds"). AIM V.I. GLOBAL UTILITIES FUND ("GLOBAL UTILITIES FUND") is a non- diversified portfolio which seeks to achieve a high level of current income, and as a secondary objective to achieve capital appreciation, by investing primarily in common and preferred stocks of public utility companies (either domestic or foreign). AIM V.I. GOVERNMENT SECURITIES FUND ("GOVERNMENT FUND") is a diversified portfolio which seeks to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the U.S. Government. AIM V.I. GROWTH FUND ("GROWTH FUND") is a diversified portfolio which seeks to provide growth of capital through investments primarily in common stocks of leading U.S. companies considered by AIM to have strong earnings momentum. AIM V.I. GROWTH AND INCOME FUND ("GROWTH & INCOME FUND") is a diversified portfolio which seeks to provide growth of capital, with current income as a secondary objective by investing primarily in dividend paying common stocks which have prospects for both growth of capital and dividend income. AIM V.I. INTERNATIONAL EQUITY FUND ("INTERNATIONAL FUND") is a diversified portfolio which seeks to provide long-term growth of capital by investing in international equity securities, the issuers of which are considered by AIM to have strong earnings momentum. AIM V.I. MONEY MARKET FUND ("MONEY MARKET FUND") is a diversified portfolio which seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity by investing in a diversified portfolio of money market instruments. AIM V.I. VALUE FUND ("VALUE FUND") is a diversified portfolio which seeks to achieve long-term growth of capital by investing primarily in equity securities judged by AIM to be undervalued relative to the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity markets generally. Income is a secondary objective. The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM logo), AIM and Design, AIM, AIM LINK and AIM Institutional Funds are registered service marks of A I M Management Group Inc. 2 The Capital Appreciation Fund, Diversified Income Fund, Global Utilities Fund, Government Fund, Growth Fund, Growth & Income Fund, International Fund, Money Market Fund and Value Fund are separate series of shares of AIM Variable Insurance Funds, Inc., a Maryland corporation organized on January 22, 1993 and registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company (see "General Information--Organization of the Company"). Each Fund has its own investment objective(s) and policies designed to meet specific investment goals, operates as an open-end management investment company and expects to be treated as a regulated investment company for federal income tax purposes. Each Fund is diversified except Global Utilities Fund. For more information on diversification, see "Risk Factors" in this Prospectus. Each Fund invests in securities of different issuers and industry classifications in an attempt to spread and reduce the risks inherent in all investing. Each Fund continuously offers new shares for sale to separate accounts of participating life insurance companies ("Participating Insurance Companies"), and stands ready to redeem its outstanding shares for cash at their net asset value. A I M Advisors, Inc. ("AIM"), the investment advisor for each Fund, continuously reviews and, from time to time, changes the portfolio holdings of each of the Funds in pursuit of each Fund's objective(s). - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share outstanding of each of the Funds (except the Global Utilities Fund and the Growth & Income Fund) for the period May 5, 1993 (date operations commenced) through January 31, 1994, for the fiscal year ended January 31, 1995 and for the eleven months ended December 31, 1995. Financial highlights for a share outstanding of each of the Global Utilities Fund and the Growth & Income Fund for the period May 2, 1994 (date operations commenced) through January 31, 1995 and for the eleven months ended December 31, 1995, are also shown below. The financial highlights have been audited by Tait, Weller & Baker, independent auditors, whose unqualified reports thereon are included in the Statement of Additional Information. Additional information about the performance of the Funds is contained in the Funds' annual report to shareholders, which may be obtained without charge upon request. AIM V.I. CAPITAL APPRECIATION FUND
January 31, December 31, ----------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period...... $ 12.05 $ 12.58 $ 10.00 -------- ------- ------- Income from investment operations: Net investment income................... 0.04 0.05 -- Net gains (losses) on securities (both realized and unrealized)............... 4.46 (0.54) 2.59 -------- ------- ------- Total from investment operations...... 4.50 (0.49) 2.59 -------- ------- ------- Less distributions: Dividends from net investment income.... -- (0.04) (0.01) -------- ------- ------- Net asset value, end of period............ $ 16.55 $ 12.05 $ 12.58 ======== ======= ======= Total return(a)........................... 37.38% (3.91)% 25.90% ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted).. $212,152 $88,177 $35,354 ======== ======= ======= Ratio of expenses to average net assets... 0.75%(b) 0.84% 1.06%(c) ======== ======= ======= Ratio of net investment income to average net assets............................... 0.39%(b) 0.46% 0.07%(c) ======== ======= ======= Portfolio turnover rate................... 37% 81% 34% ======== ======= =======
- ------- (a)Total returns are not annualized for periods less than one year. (b)Ratios are annualized and based on average net assets of $148,432,750. (c)Annualized. 3 AIM V.I. DIVERSIFIED INCOME FUND
January 31, December 31, ----------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period....... $ 9.12 $ 10.46 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income.................... 0.69 0.76 0.54 Net gains (losses) on securities (both realized and unrealized)................ 0.94 (1.42) 0.29 ------- ------- ------- Total from investment operations....... 1.63 (0.66) 0.83 ------- ------- ------- Less distributions: Dividends from net investment income..... (0.75) (0.68) (0.35) Distributions from net realized capital gains................................... -- -- (0.02) ------- ------- ------- Total distributions.................... (0.75) (0.68) (0.37) ------- ------- ------- Net asset value, end of period............. $ 10.00 $ 9.12 $ 10.46 ======= ======= ======= Total return(a)............................ 18.11% (6.35)% 8.33% ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)... $44,630 $25,271 $14,530 ======= ======= ======= Ratio of expenses to average net assets(c). 0.88%(b) 0.91% 1.05%(e) ======= ======= ======= Ratio of net investment income to average net assets(d)............................. 7.65%(b) 8.07% 6.78%(e) ======= ======= ======= Portfolio turnover rate.................... 72% 100% 57% ======= ======= =======
- ------- (a) Total returns for periods less than one year are not annualized. (b) Ratios are annualized and based on average net assets of $35,153,645. (c) After waiver of advisory fee and expense reimbursement. Ratios of expenses to average net assets prior to waiver of advisory fees and/or expense reimbursements are 1.03% and 1.69% (annualized) for January 31, 1995 and 1994, respectively. (d) After waiver of advisory fee and expense reimbursement. Ratios of net investment income to average net assets prior to waiver of advisory fees and/or expense reimbursements are 7.95% and 6.14% (annualized) for January 31, 1995 and 1994, respectively. (e) Annualized. AIM V.I. GLOBAL UTILITIES FUND
December 31, January 31, 1995 1995 ------------ ----------- Net asset value, beginning of period............. $ 9.69 $10.00 ------ ------ Income from investment operations: Net investment income.......................... 0.29 0.27 Net gains (losses) on securities (both realized and unrealized)............................... 1.98 (0.33) ------ ------ Total from investment operations............. 2.27 (0.06) ------ ------ Less distributions: Dividends from net investment income........... (0.31) (0.25) Distributions from capital gain................ (0.01) -- ------ ------ Total distributions.......................... (0.32) (0.25) ------ ------ Net asset value, end of period................... $11.64 $ 9.69 ====== ====== Total return(a).................................. 23.73% (0.56)% ====== ====== Ratios/supplemental data: Net assets, end of period (000s omitted)......... $8,394 $2,958 ====== ====== Ratio of expenses to average net assets.......... 1.47%(b) 1.31%(c)(d) ====== ====== Ratio of net investment income to average net assets.......................................... 3.76%(b) 4.39%(c)(d) ====== ====== Portfolio turnover rate.......................... 58% 69% ====== ======
- ------- (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $5,261,394. Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees and expense reimbursements are 2.44% and 2.79%, respectively. (c) Annualized. (d) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees and expense reimbursements are 2.80% and 2.90%, respectively. 4 AIM V.I. GOVERNMENT SECURITIES FUND
January 31, December 31, ------------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period..... $ 9.39 $ 10.24 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income.................. 0.54 0.53 0.38 Net gains (losses) on securities (both realized and unrealized).............. 0.74 (0.88) 0.10 ------- ------- ------- Total from investment operations..... 1.28 (0.35) 0.48 ------- ------- ------- Less distributions: Dividends from net investment income... (0.50) (0.50) (0.24) ------- ------- ------- Total distributions.................. (0.50) (0.50) (0.24) ------- ------- ------- Net asset value, end of period........... $ 10.17 $ 9.39 $ 10.24 ======= ======= ======= Total return(a).......................... 13.84% (3.42)% 4.78% ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted). $19,545 $12,887 $10,643 ======= ======= ======= Ratio of expenses to average net assets.. 1.19%(b) 0.95%(c) 1.00%(c) ======= ======= ======= Ratio of net investment income to average net assets.............................. 5.78%(b) 5.51%(d) 4.74%(d) ======= ======= ======= Portfolio turnover rate.................. 41% 29% 0% ======= ======= =======
- ------- (a) Total returns for periods less than one year are not annualized. (b) Ratios are annualized and based on average net assets of $15,535,425. (c) Ratios of expenses to average net assets prior to waiver of advisory fees and/or expense reimbursements are 1.10% and 1.80% (annualized) for January, 1995 and 1994, respectively. (d) Ratios of net investment income to average net assets prior to waiver of advisory fees and/or expense reimbursements are 5.35% and 3.94% (annualized) for January, 1995 and 1994, respectively. AIM V.I. GROWTH FUND
January 31, December 31, ----------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period...... $ 10.71 $ 11.59 $ 10.00 -------- ------- ------- Income from investment operations: Net investment income................... 0.09 0.06 0.02 Net gains (losses) on securities (both realized and unrealized)............... 3.65 (0.88) 1.59 -------- ------- ------- Total from investment operations...... 3.74 (0.82) 1.61 -------- ------- ------- Less distributions: Dividends from net investment income.... (0.01) (0.06) (0.02) -------- ------- ------- Net asset value, end of period............ $ 14.44 $ 10.71 $ 11.59 ======== ======= ======= Total return.............................. 34.89%(a) (7.11)% 16.07%(a) ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted).. $102,600 $45,497 $25,115 ======== ======= ======= Ratio of expenses to average net assets... 0.84%(b) 0.95% 0.85%(c) ======== ======= ======= Ratio of net investment income to average net assets............................... 0.95%(b) 0.71% 0.51%(c) ======== ======= ======= Portfolio turnover rate................... 125% 179% 99% ======== ======= =======
- ------- (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $73,070,671. (c) Ratios are annualized and based on average net assets of $9,997,693. Annualized ratios of expenses and net investment income (loss) to average net assets prior to waiver of advisory fees are 1.50% and (0.14)%, respectively. 5 AIM V.I. GROWTH AND INCOME FUND
December 31, January 31, 1995 1995 ------------ ----------- Net asset value, beginning of period............. $ 9.98 $10.00 ------- ------ Income from investment operations: Net investment income.......................... 0.14 0.11 Net gains (losses) on securities (both realized and unrealized)............................... 3.11 (0.02) ------- ------ Total from investment operations............. 3.25 0.09 ------- ------ Less distributions: Dividends from net investment income........... (0.14) (0.11) Distributions from capital gains............... (0.41) -- ------- ------ Total distributions........................ (0.55) (0.11) ------- ------ Net asset value, end of period................... $ 12.68 $ 9.98 ======= ====== Total return(a).................................. 32.65% 0.90% ======= ====== Ratios/supplemental data: Net assets, end of period (000s omitted)......... $38,567 $7,380 ======= ====== Ratio of expenses to average net assets.......... 0.78%(b) 1.07%(c)(d) ======= ====== Ratio of net investment income to average net assets.......................................... 1.92%(b) 1.95%(c)(d) ======= ====== Portfolio turnover rate.......................... 145% 96% ======= ======
- -------- (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $19,135,889. Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.17% and 1.53%, respectively. (c) Annualized. (d) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.72% and 1.30%, respectively. AIM V.I. INTERNATIONAL EQUITY FUND
January 31, December 31, ------------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period. $ 11.03 $ 12.49 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income.............. 0.07 0.06 -- Net gains (losses) on securities (both realized and unrealized).... 2.58 (1.49) 2.49 ------- ------- ------- Total from investment operations. 2.65 (1.43) 2.49 ------- ------- ------- Less distributions: Dividends from net investment income............................ (0.02) (0.03) -- ------- ------- ------- Net asset value, end of period....... $ 13.66 $ 11.03 $ 12.49 ======= ======= ======= Total return......................... 24.04%(a) (11.48)% 24.90%(a) ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)............................ $82,257 $55,019 $23,533 ======= ======= ======= Ratio of expenses to average net assets.............................. 1.15%(b) 1.27%(c) 1.98%(d)(e) ======= ======= ======= Ratio of net investment income to average net assets.................. 0.75%(b) 0.60%(c) (0.15)%(d)(e) ======= ======= ======= Portfolio turnover rate.............. 67% 64% 26% ======= ======= =======
- -------- (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $66,670,268. (c) Ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.28% and 0.59%, respectively. (d) Annualized. (e) Annualized ratios of expenses and net investment income (loss) to average net assets prior to waiver of advisory fees are 3.06% and (1.23)%, respectively. 6 AIM V.I. MONEY MARKET FUND
January 31, December 31, ------------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- Income from investment operations: Net investment income............... 0.05 0.04 0.02 ------- ------- ------- Less distributions: Dividends from net investment income............................. (0.05) (0.04) (0.02) ------- ------- ------- Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= Total return.......................... 5.69%(a) 3.98% 2.27%(a) ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)............................. $65,506 $31,017 $13,891 ======= ======= ======= Ratio of expenses to average net assets............................... 0.53%(b) 0.63%(c) 0.95%(a)(d) ======= ======= ======= Ratio of net investment income to average net assets................... 5.40%(b) 4.14%(c) 2.29%(a)(d) ======= ======= =======
- -------- (a) Annualized. (b) Ratios are annualized and based on average net assets of $46,144,418. (c) Ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 0.70% and 4.07%, respectively. (d) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.53% and 1.70%, respectively. AIM V.I. VALUE FUND
January 31, December 31, ------------------ 1995 1995 1994 ------------ -------- ------- Net asset value, beginning of period..... $ 11.83 $ 12.17 $ 10.00 -------- -------- ------- Income from investment operations: Net investment income.................. 0.11 0.10 0.02 Net gains (losses) on securities (both realized and unrealized).............. 4.18 (0.35) 2.17 -------- -------- ------- Total from investment operations..... 4.29 (0.25) 2.19 -------- -------- ------- Less distributions: Dividends from net investment income... (0.01) (0.09) (0.02) -------- -------- ------- Net asset value, end of period........... $ 16.11 $ 11.83 $ 12.17 ======== ======== ======= Total return(a).......................... 36.25% (2.03)% 21.94% ======== ======== ======= Ratios/supplemental data: Net assets, end of period (000s omitted). $257,212 $109,257 $38,255 ======== ======== ======= Ratio of expenses to average net assets.. 0.75%(b) 0.82% 1.00%(c) ======== ======== ======= Ratio of net investment income to average net assets.............................. 1.11%(b) 1.17% 0.51%(c) ======== ======== ======= Portfolio turnover rate.................. 145% 143% 87% ======== ======== =======
- -------- (a) Total returns for periods less than one year are not annualized. (b) Ratios are annualized and based on average net assets of $181,240,121. (c) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees and/or expense reimbursements were 1.35% and 0.16%, respectively. 7 - ------------------------------------------------------------------------------- PERFORMANCE Each Fund's performance may be quoted in advertising in terms of yield or total return. See the Statement of Additional Information for further details concerning performance comparisons used in advertisements by the Funds. A Fund's total return shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. Total return is computed in accordance with a standardized formula described in the Statement of Additional Information. A cumulative total return reflects the Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if the Fund's performance had been constant over the entire period. Because average annual total returns tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year- by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual total returns into income results and capital gain or loss. Yield is computed in accordance with a standardized formula described in the Statement of Additional Information and can be expected to fluctuate from time to time. Accordingly, the yield information may not provide a basis for comparison with investments which pay a fixed rate of interest for a stated period of time. Yield is the annualized percentage rate of net income (exclusive of capital changes) earned by a Fund over a specified period. It is a function of the type and quality of a Fund's investments, its maturity and its operating expense ratio. A shareholder's investment in a Fund is not insured or guaranteed. These factors should be carefully considered by the investor before making an investment in a Fund. From time to time and in its discretion, AIM may waive all or a portion of its advisory fees and/or assume certain expenses of any Fund. Such a practice will have the effect of increasing the Fund's yield and total return. 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. Quotations of a Fund's performance will not reflect charges levied at the separate account level. - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND PROGRAMS Set forth in this section is a statement of each Fund's investment objective along with a description of the investment policies, strategies and practices of each Fund. The investment objective of each Fund is deemed to be a fundamental policy and, therefore, unless permitted by law, may not be changed without the approval of a majority of that Fund's outstanding shares (within the meaning of the 1940 Act). Each Fund's investment policies, strategies and practices are not fundamental. The Board of Directors of the Company reserves the right to change any of these non-fundamental investment policies, strategies or practices without shareholder approval. Each Fund has adopted investment restrictions, some of which are fundamental and cannot be changed without shareholder approval. See "Investment Restrictions" in the Statement of Additional Information. Individuals considering the purchase of shares of any Fund should recognize that there are risks in the ownership of any security and that no assurance can be given that any particular Fund will achieve its investment objective(s). AIM V.I. CAPITAL APPRECIATION FUND. The Fund's investment objective is to seek capital appreciation through investments in common stocks, with emphasis on medium-sized and smaller emerging growth companies. AIM will be particularly interested in companies that are likely to benefit from new or innovative products, services or processes that should enhance such companies' prospects for future growth in earnings. As a result of this policy, the market prices of many of the securities purchased and held by the Fund may fluctuate widely. Any income received from securities held by the Fund will be incidental, and an investor should not consider a purchase of shares of the Fund as equivalent to a complete investment program. The Capital Appreciation Fund's portfolio is primarily comprised of securities of two basic categories of companies: (1) "core" companies, which AIM considers to have experienced above-average and consistent long-term growth in earnings and to have excellent prospects for outstanding future growth, and (2) "earnings acceleration" companies which AIM believes are currently enjoying a dramatic increase in profits. AIM V.I. DIVERSIFIED INCOME FUND. The Fund's investment objective is to seek to achieve a high level of current income. The Fund will seek to achieve its investment objective by investing primarily in: (i) foreign government securities, (ii) foreign and domestic corporate debt securities, (iii) U.S. Government securities, including U.S. Government Agency Mortgage-Backed Securities and (iv) lower-rated or unrated high yield debt securities (commonly known as "junk bonds") of U.S. and foreign companies. Under normal circumstances, the Fund's assets will be invested in each of these four sectors. The Fund may invest up to 10% of its total assets in common stocks, preferred stocks, convertible securities and similar equity securities of U.S. and foreign companies. The Fund does not intend to invest more than 50% of its total assets in lower-rated or unrated high yield securities or more than 50% of its total assets in foreign debt securities. (For a description of the various rating categories of corporate debt securities in which the Fund may invest, see Appendix A to this Prospectus. For a description of U.S. Government Agency Mortgage-Backed Securities, see Appendix B to this Prospectus.) However, the Fund may from time to time invest up to 100% of its total assets in U.S. Government securities and, as a defensive measure, may invest up to 100% of its total assets in money market securities. For a discussion of the investment risks associated with investments in high yield securities and foreign securities, see "Risk Factors" in this Prospectus. For further discussion of the extent of the Fund's intended investment, see "Certain Investment Strategies and Techniques" in this Prospectus. 8 During the eleven months ended December 31, 1995, the percentage of average annual assets of the Portfolio calculated on a dollar weighted basis, which was invested in securities within the various rating categories (based on the higher of Standard and Poor's Corporation and Moody's Investors Service, Inc. ratings as described in Appendix A), and in unrated securities determined by AIM to be of comparable quality, was as follows:
PERCENTAGE ---------- AAA/Aaa........................................................ 36.13% AA/Aa.......................................................... 7.93% A/A............................................................ 10.09% BBB/Baa........................................................ 11.09% BB/Ba.......................................................... 6.86% B/B............................................................ 24.88% CCC/Caa........................................................ 2.35% Unrated........................................................ 0.67% ------ Total Average Annual Assets.................................. 100%
AIM V.I. GLOBAL UTILITIES FUND. The Fund's investment objective is to achieve a high level of current income, and as a secondary objective the Fund seeks to achieve capital appreciation, by investing primarily in the common and preferred stocks of public utility companies (either domestic or foreign). Under normal circumstances, at least 65% of the Fund's total assets will be invested in securities of public utility companies (either domestic or foreign). Public utility companies include companies that provide electricity, natural gas or water and other sanitary services to the public, and telephone or telegraph companies and other companies providing public communications services. The Fund may also invest in developing utility technology companies and in holding companies which derive a substantial portion of their revenues from utility-related activities. Generally, a holding company will be considered to derive a substantial portion of its revenues from utility- related activities if such activities account for at least 40% of its revenues. When AIM deems it appropriate, the Fund may also purchase the bonds of such companies. Investments in bonds, however, will not exceed 25% of the Fund's total assets. The Fund may invest up to 10% of its total assets in lower-rated or unrated high yield securities. (For a description of the various rating categories of corporate debt securities in which the Fund may invest, see Appendix A to this Prospectus.) During the eleven months ended December 31, 1995, the Fund invested less than 5% of its net assets in below investment grade debt securities. The Fund may also invest up to 80% of its total assets in securities of foreign companies, including investments in American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and underlying securities of foreign issuers. For a discussion of the investment risks associated with investments in non-investment grade debt securities and foreign securities, see "Risk Factors" in this Prospectus. For a further discussion of the Fund's intended investments, see "Certain Investment Strategies and Techniques" in this Prospectus. A portfolio of utility company securities is subject to a different degree of volatility than a more broadly diversified portfolio. Economic, operational or regulatory changes that affect utility companies will have a material impact upon the value of the securities that the Fund owns. Events, such as changing weather patterns, emergencies involving nuclear power plants, or rapidly changing fuel prices that have no direct connection with companies whose securities are owned by the Fund may affect the prices of those securities. Moreover, a portfolio of utilities industry securities is subject to the risks unique to that industry, such as inflationary or other increases in fuel and operating expenses, possible increases in the interest costs of loans needed for capital construction programs, compliance with environmental regulations, possible adverse changes in the regulatory climate and availability of fuel sources. A description of the utilities industry is contained in the Statement of Additional Information. AIM V.I. GOVERNMENT SECURITIES FUND. The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the United States Government. The government securities which may be purchased by the Fund include but are not limited to (1) U.S. Treasury obligations such as Treasury Bills (maturities of one year or less), Treasury Notes (maturities of one to ten years) and Treasury Bonds (generally maturities of greater than ten years) and (2) obligations issued or guaranteed by U.S. Government agencies and instrumentalities ("Agency Securities") which are supported by any of the following: (a) the full faith and credit of the U.S. Treasury, such as obligations of the Government National Mortgage Association ("GNMA"), (b) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. Treasury, such as obligations of the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Bank and the U.S. Postal Service or (c) the credit of the agency or instrumentality, such as obligations of the Federal Home Loan Mortgage Corporation ("FHLMC") and Federal Farm Credit System. Although their close relationship with the U.S. Government is believed to make them high-quality securities with minimal credit risks, the U.S. Government is not required by law to support the agencies and intrumentalities listed in (b) and (c), above. Accordingly, such securities may involve risk of loss of principal and interest; however, historically there have not been any defaults of such issues. For a listing of some of the types of Agency Securities in which the Fund may invest, see Appendix B to this Prospectus. 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. 9 The composition and weighted average maturity of the Fund's portfolio will vary from time to time, based upon the determination of AIM of how best to further the Fund's investment objective. The Fund may invest in government securities of all maturities, short-term, intermediate-term and long-term. The Fund intends to maintain a dollar-weighted average portfolio maturity of between three and ten years. This policy regarding portfolio maturity is a non-fundamental policy of the Fund. AIM V.I. GROWTH FUND. The Fund's investment objective is to seek growth of capital principally through investment in common stocks of seasoned and better capitalized companies considered by AIM to have strong earnings momentum. Current income will not be an important criterion of investment selection, and any such income should be considered incidental. It is anticipated that common stocks will be the principal form of investment by the Fund. For other types of investments, see "Certain Investment Strategies and Techniques" in this Prospectus. 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. AIM V.I. GROWTH AND INCOME FUND. The Fund's investment objective is to seek growth of capital, with current income as a secondary objective. Although the amount of the Fund's current income will vary from time to time, it is anticipated that the current income realized by the Fund will generally be greater than that realized by mutual funds whose sole objective is growth of capital. The Fund seeks to achieve its objective by generally investing at least 65% of its net assets in stocks of companies believed by management to have the potential for above average growth in revenues and earnings. The Fund generally will also invest at least 80% of its net assets in securities which pay income to the Fund. AIM V.I. INTERNATIONAL EQUITY FUND. The Fund's investment objective is to seek to provide long-term growth of capital by investing in a diversified portfolio of international equity securities the issuers of which are considered by AIM to have strong earnings momentum. Any income realized by the Fund will be incidental and will not be an important criterion in the selection of portfolio securities. In managing the Fund, AIM seeks to apply to a diversified portfolio of international equity securities substantially the same investment strategy which it applies to the Growth Fund with respect to that Fund's investment in United States equities markets. The Fund will utilize to the extent practicable a fully managed investment policy providing for the selection of securities which meet certain quantitative standards determined by AIM. AIM will review carefully the earnings history and prospects for growth of each company considered for investment by the Fund. It is expected that the Fund's portfolio, when fully invested, will generally be comprised of two basic categories of foreign companies: (1) "core" companies, which AIM considers to have experienced consistent long-term growth in earnings and to have strong prospects for outstanding future growth, and (2) companies that AIM believes are currently experiencing a greater than anticipated increase in earnings. If a particular foreign company meets the quantitative standards determined by AIM, its securities may be acquired by the Fund regardless of the location of the company or the percentage of the Fund's investments in the company's country or region. However, AIM will also consider other factors in making investment decisions for the Fund, including such factors as the prospects for relative economic growth among countries or regions, economic and political conditions, currency exchange fluctuations, tax considerations and the liquidity of a particular security. For a discussion of the investment risks associated with investments in foreign securities, see "Risk Factors" in this Prospectus. For a discussion of the extent of the Fund's intended investment in foreign countries, see "Certain Investment Strategies and Techniques" in this Prospectus. AIM V.I. MONEY MARKET FUND. The Fund's investment objective is to seek to provide as high a level of current income as is consistent with the preservation of capital and liquidity. The Fund seeks to achieve its objective by investing in a diversified portfolio of high quality U.S. dollar denominated money market instruments and other similar instruments with maturities of 397 days or less from the date of purchase, and will maintain a dollar weighted-average portfolio maturity of 90 days or less. Securities subject to repurchase agreements may bear longer maturities. The Fund invests in a broad range of U.S. Government and foreign government obligations, and bank and commercial instruments that may be available in the money markets. Such obligations include U.S. Treasury obligations and repurchase agreements secured by such obligations. The Money Market Fund intends to invest in bankers' acceptances, certificates of deposit, repurchase agreements, time deposits and commercial paper, and U.S. Government direct obligations and U.S. Government agencies' securities. Bankers' acceptances, certificates of deposit and time deposits may be purchased from U.S. or foreign banks. All of these instruments, which are collectively referred to as "Money Market Obligations," are briefly described in Appendix C to this Prospectus and are described more fully in the Statement of Additional Information. The Fund will limit investments in Money Market Obligations to those which are denominated in U.S. dollars and which at the date of purchase are "First Tier" securities as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. Generally, "First Tier" securities are securities that are rated in the highest rating category by two NRSROs, or, if only rated by one NRSRO, are rated in the highest rating category by that NRSRO, or, if unrated, are determined by AIM (under the supervision of and pursuant to guidelines established by the Board of Directors) to be of comparable quality to a rated security that meets the foregoing quality standards. For a more complete definition of a "First Tier" security, see the definition set forth in the Statement of Additional Information. 10 The Money Market Fund may invest up to 100% of its total assets in obligations issued by banks. While the Fund will limit its investments in bank instruments to U.S. dollar denominated obligations, it may invest in Eurodollar obligations (i.e., U.S. dollar-denominated obligations issued by a foreign branch of a domestic bank), Yankee dollar obligations (i.e., U.S. dollar-denominated obligations issued by a domestic branch of a foreign bank) and obligations of foreign branches of foreign banks. The Money Market Fund will limit its aggregate investments in foreign bank obligations, including Eurodollar obligations and Yankee dollar obligations, to 25% of its total assets at the time of purchase, provided that there is no limitation upon the Fund's investments in (a) Eurodollar obligations, if the domestic parent of the foreign branch issuing the obligation is unconditionally liable in the event that the foreign branch for any reason fails to pay on the Eurodollar obligation; and (b) Yankee dollar obligations, if the U.S. branch of the foreign bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar and other foreign bank obligations include time deposits, which are non-negotiable deposits maintained in a bank for a specified period of time at a stated interest rate. For a discussion of the risks pertaining to investments in foreign securities, see "Risk Factors" in this Prospectus. AIM V.I. VALUE FUND. The Fund's investment objective is to achieve long-term growth of capital by investing primarily in equity securities judged by AIM to be undervalued relative to the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity market generally. Income is a secondary objective and would be satisfied principally from the income (interest and dividends) generated by the common stocks, convertible bonds and convertible preferred stocks that make up the Fund's portfolio. The Fund should not be purchased by those who seek income as their primary investment objective. 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, illiquid securities and Rule 144A securities; the Diversified Income Fund and the Government Fund may invest in U.S. Government Agency Mortgage-Backed Securities; each of the Funds may purchase or sell securities on a delayed delivery or when-issued basis and may borrow money; each of the Funds, other than the Money Market Fund, may lend portfolio securities and make short sales "against the box." A short sale is "against the box" to the extent that the Fund contemporaneously owns or has the right to obtain securities identical to those sold short without payment of any further consideration. Each of the Funds, other than the Money Market Fund, may write (i.e., sell) "covered" put and call options and buy put and call options on domestic and foreign securities, securities indices and currencies. Each of the Funds, other than the Money Market Fund, may use exchange-traded financial futures contracts, options thereon, and forward contracts as a hedge to protect against possible changes in market values. A brief description of these investment instruments and their risks appears below. See "Hedging and Other Investment Techniques" in the Statement of Additional Information for more detailed information. Money Market Obligations. When deemed appropriate for temporary or defensive purposes, each of the Funds may hold cash or cash equivalent Money Market Obligations. Of course, the Money Market Fund invests exclusively in Money Market Obligations. 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. In addition to the Money Market Obligations described above, as a temporary or defensive measure, and without regard to their respective investment objectives, AIM may invest all or substantially all of the assets of the Diversified Income Fund, the Global Utilities Fund and the International Fund in cash or Money Market Obligations, including repurchase agreements, denominated in foreign currencies. U.S. Government Agency Mortgage-Backed Securities. The Diversified Income Fund and the Government Fund may invest in U.S. Government Agency Mortgage- Backed Securities. These securities are obligations issued or guaranteed by the United States Government or by one of its agencies or instrumentalities, including but not limited to GNMA, FNMA, or FHLMC. U.S. Government Agency Mortgage-Backed Certificates provide for the pass-through to investors of their pro-rata share of monthly payments (including any principal prepayments) made by the individual borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of such securities and the servicers of the underlying mortgage loans. GNMA, FNMA and FHLMC each guarantee timely distributions of interest to certificate holders. GNMA and FNMA guarantee timely distributions of scheduled principal. FHLMC has in the past guaranteed 11 only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC Gold Participation Certificates now guarantee timely payment of monthly principal reductions. Although their close relationship with the U.S. Government is believed to make them high-quality securities with minimal credit risks, the U.S. Government is not obligated by law to support either FNMA or FHLMC. However, historically there have not been any defaults of FNMA or FHLMC issues. See Appendix B for a more complete description of GNMA securities. Mortgage-backed securities consist of interests in underlying mortgages generally with maturities of up to thirty years. However, due to early unscheduled payments of principal on the underlying mortgages, the securities have a shorter average life and, therefore, less volatility than a comparable thirty-year bond. The value of U.S. Government Agency Mortgage-Backed Securities, like other traditional debt instruments, will tend to move in the opposite direction compared to interest rates. 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 each Fund (except the Value Fund, the Diversified Income Fund, the Global Utilities Fund and, the International Fund); (ii) 25% of the value of the total assets of the Value Fund; (iii) 50% of the value of the total assets of the Diversified Income Fund; and (iv) 80% of the value of the total assets of the Global Utilities Fund. The Diversified Income Fund may invest in debt obligations which may be denominated in the U.S. dollar or in other currencies issued or guaranteed by foreign corporations, certain supranational entities (such as the World Bank, Asian Development Bank and European Economic Community), and foreign governments (including political subdivisions having taxing authority) or their agencies or instrumentalities. The Diversified Income Fund may also invest in debt obligations issued by U.S. corporations denominated in non-U.S. dollar currencies. No more than 25% of the Diversified Income Fund's total assets, at the time of purchase, will be invested in government securities of any one foreign country. At the present time, AIM does not intend to invest more than 10% of the Diversified Income Fund's total assets in securities issued by foreign governments or foreign companies located in developing countries in various regions of the world. A "developing country" is a country in the initial stages of its industrial cycle. Investments in emerging markets or developing countries involve exposure to economic structures that are generally less diverse and mature and to political systems which can be expected to have less stability than those of more developed countries. Such countries may have relatively unstable governments, economies based on only a few industries, and securities markets which trade only a small number of securities. Historical experience indicates that emerging markets have been more volatile than the markets of more mature economies; such markets have also from time to time provided higher rates of return and greater risks to investors. AIM believes that these characteristics of emerging markets can be expected to continue in the future. The Global Utilities Fund may invest up to 80% of its total assets in securities of foreign companies, including investments in ADRs, EDRs and other securities representing underlying securities of foreign issuers. Under normal market conditions, the Global Utilities Fund will be invested in securities of issuers located in at least four countries, one of which will be the United States, although for defensive purposes, it may invest 100% of its total assets in securities of U.S. issuers. In some foreign countries, utility companies are partially owned by government agencies. In some cases, foreign government agencies may have significant investments in businesses other than utility companies. Also, investments in securities of foreign issuers may involve other risks which are not ordinarily associated with investments in domestic issuers. See "Risk Factors" in this Prospectus. In addition, investors should also be aware that the Global Utilities Fund may invest in companies located within emerging or developing countries. Under normal market conditions the International Fund will invest at least 80% of its total assets in marketable equity securities (including common and preferred stock, depositary receipts for stock and securities exchangeable for or convertible into stock) of foreign companies which, with their predecessors, have been in continuous operation for three years or more and (except in the case of ADRs, EDRs and other securities representing underlying securities of foreign issuers) which are listed on a recognized foreign securities exchange or traded in a foreign over-the-counter market. Under normal market conditions, the International Fund intends to invest in the securities of foreign companies located in at least four countries outside the United States. The International Fund will emphasize investment in foreign companies in the developed countries of Western Europe and the Pacific Basin, but the Fund may also invest to a lesser extent in the securities of companies located in developing countries in various regions of the world. At the present time, AIM does not intend to invest more than 20% of the International Fund's total assets in securities issued by foreign governments or foreign companies located in developing countries. For a discussion of the risks pertaining to investments in foreign obligations, see "Risk Factors" in this Prospectus. ADRs and EDRs. To the extent consistent with their respective investment objectives each of the Funds (except the International Fund which is discussed separately below) 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. 12 The International Fund normally will invest at least 80% of its total assets in marketable equity securities, including common and preferred stock and other securities having the characteristics of stock (such as an equity or ownership interest in a company). The International Fund may satisfy the foregoing requirement in part through the ownership of securities which are convertible into, or exchangeable for, common stocks, or by investment in the securities of foreign issuers which are in the form of ADRs, EDRs and other securities representing underlying securities of foreign issuers. Repurchase Agreements. Each of the Funds may enter into repurchase agreements with institutions believed by the Company's Board of Directors to present minimal credit risk. A repurchase agreement is an instrument under which the Fund acquires ownership of a debt security and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the Fund's holding period. With regard to repurchase transactions, in the event of a bankruptcy or other default of a seller of a repurchase agreement (such as the sellers' failure to repurchase the obligation in accordance with the terms of the agreement), a Fund could experience both delays in liquidating the underlying securities and losses, including: (a) a possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. Repurchase agreements are considered to be loans by the Fund under the 1940 Act. Repurchase agreements will be secured by U.S. Treasury securities, U.S. Government agency securities (including, but not limited to, those which have been stripped of their interest payments and mortgage-backed securities) and commercial paper. For additional information on the use of repurchase agreements, see the Statement of Additional Information. Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale by the Fund of a portfolio security at an agreed upon price, date and interest payment. The Funds will each enter into reverse repurchase agreements solely for temporary or defensive purposes to facilitate the orderly sale of portfolio securities to accommodate abnormally heavy redemption requests should they occur. The Funds will use reverse repurchase agreements when the interest income to be earned from the securities that would otherwise have to be liquidated to meet redemption requests is greater than the interest expense of the reverse repurchase transaction. Each of the Funds may enter into reverse repurchase agreements in amounts not exceeding 33 1/3% of the value of their respective total assets. To comply with certain state law requirements, the Capital Appreciation Fund has no current intention of entering into reverse repurchase agreements in amounts in excess of 25% of the value of the Fund's total assets. Reverse repurchase agreements involve the risk that the market value of securities retained by the Fund in lieu of liquidation may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. This risk, if encountered, could cause a reduction in the net asset value of the Fund's shares. Reverse repurchase agreements are considered to be borrowings under the 1940 Act. See "Borrowing" in this Prospectus for percentage limitations on borrowings. Delayed Delivery Agreements and When-Issued Securities. Each Fund may enter into delayed delivery agreements and may purchase securities on a "when- issued" basis. Delayed delivery agreements are commitments by a Fund to dealers or issuers to acquire securities beyond the customary settlement date for such securities. These commitments fix the payment price and interest rate to be received on the investment. Delayed delivery agreements will not be used as a speculative or leverage technique. Rather, from time to time, the Fund's investment adviser can anticipate that cash for investment purposes will result from scheduled maturities of existing portfolio instruments or from net sales of shares of the Fund and may enter into delayed delivery agreements to assure that the Fund will be as fully invested as possible in instruments meeting its investment objective. Debt securities are sometimes offered on a "when-issued" basis; that is, the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. The Funds will only make commitments to purchase such debt securities with the intention of actually acquiring the securities, but a Fund may sell these securities before the settlement date if it is deemed advisable. If a Fund enters into a delayed delivery agreement or purchases a when- issued security, the Fund will direct its custodian bank to segregate cash or other high grade securities (including Money Market Obligations) in an amount equal to its delayed delivery agreements or when-issued commitments. If the market value of such securities declines, additional cash or securities will be segregated on a daily basis so that the market value of the account will equal the amount of such Fund's delayed delivery agreements and when-issued commitments. To the extent that funds are segregated, they will not be available for new investment or to meet redemptions. Investment in securities on a when-issued basis and use of delayed delivery agreements may increase the Fund's exposure to market fluctuation, or may increase the possibility that the Fund will incur a short-term loss, if the Fund must engage in portfolio transactions in order to honor a when-issued commitment or accept delivery of a security under a delayed delivery agreement. The Fund will employ techniques designed to minimize these risks. No additional delayed delivery agreements or when-issued commitments will be made by a Fund if, as a result, more than 25% of the Fund's net assets would become so committed. Dollar Roll Transactions. In order to enhance portfolio returns and manage prepayment risks, the Diversified Income Fund and the Government Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage security held in the portfolio to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage securities that are repurchased will bear the same interest rate as 13 those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the sold security. Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event the buyer of securities under a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. See "Borrowing," below for the applicable limitation on dollar roll transactions. Borrowing. Each of the Funds may borrow money to a limited extent from banks (including the Funds' custodian bank) for temporary or emergency purposes subject to the limitations under the 1940 Act. Each Fund will restrict borrowings, reverse repurchase agreements and dollar roll transactions to an aggregate of 33 1/3% of the Fund's total assets at the time of the transaction. To comply with certain state law requirements, the Capital Appreciation Fund will restrict borrowings, reverse repurchase agreements and dollar roll transactions not to exceed 25% of the value of the Fund's total assets. No Fund will purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets. Illiquid Securities. None of the Funds will invest more than 15% of their respective net assets in illiquid securities, including restricted securities which are illiquid. The Money Market Fund will not invest more than 10% of its net assets in illiquid securities. Rule 144A Securities. Each of the Funds may invest in securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "1933 Act"). These securities are sometimes referred to as private placements. Although securities which may be resold only to "qualified institutional buyers" in accordance with the provisions of Rule 144A under the 1933 Act are technically considered "restricted securities," the Funds may each purchase Rule 144A securities without regard to the limitation on investments in illiquid securities described above under "Illiquid Securities," provided that a determination is made that such securities have a readily available trading market. AIM will determine the liquidity of Rule 144A securities under the supervision of the Company's Board of Directors. The liquidity of Rule 144A securities will be monitored by AIM and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities. Lending of Portfolio Securities. Each Fund (except the Money Market Fund) may, from time to time, lend securities from their respective portfolios, with a value not exceeding 33 1/3% of their respective total assets, to banks, brokers and other financial institutions, and receive in return collateral in the form of cash or securities issued or guaranteed by the U.S. Government which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. During the period of the loan, the applicable Fund receives the income on both the loaned securities and the collateral (or a fee) and thereby increases its yield. In the event that the borrower defaults on its obligation to return loaned securities because of insolvency or otherwise, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent that the value of the collateral falls below the market value of the loaned securities. Short Sales. Each Fund (except the Money Market Fund), may make short sales "against the box." A short sale is a transaction in which a party sells a security it does not own in anticipation of a decline in the market value of that security. A short sale is "against the box" to the extent that the Fund contemporaneously owns or has the right to obtain securities identical to those sold short without payment of any further consideration. The Funds will enter into such transactions only to the extent the aggregate value of all securities sold short does not represent more than 10% of the applicable Fund's total assets at any given time. Options. Each of the Funds, other than the Money Market Fund, may write (sell) "covered" put and call options and buy put and call options, including securities index and foreign currency options. A call option is a contract that gives to the holder the right to buy a specified amount of the underlying security at a fixed or determinable price (called the exercise or strike price) upon exercise of the option. A put option is a contract that gives the holder the right to sell a specified amount of the underlying security at a fixed or determinable price upon exercise of the option. In the case of index options, exercises are settled through the payment of cash rather than the delivery of property. A call option is covered if, for example, the Fund owns the underlying security covered by the call or, in the case of a call option on an index, holds securities the price changes of which are expected to substantially replicate the movement of the index. A put option is covered if, for example, the Fund maintains in a segregated account with its custodian cash, U.S. Treasury bills or other high-grade short-term debt obligations with a value equal to the exercise price of the put option. These Funds may write call options on securities or securities indexes for the purpose of increasing their return (through receipt of premiums) or to provide a partial hedge against a decline in the value of their portfolio securities or both. These Funds may write put options on securities or securities indexes in order to earn additional income or (in the case of put options written on individual securities) to purchase the underlying security at a price below the current market price. If a Fund writes an option which expires unexercised or is closed out by the Fund at a profit, it will retain all or part of the premium received for the option, which will increase its gross income. If the price of the underlying security moves adversely to the Fund's position, the option may be exercised and the Fund will be required to sell or purchase the underlying security at a disadvantageous price, or, in the case of index options, deliver an amount of cash, which loss may only be partially offset by the amount of premium received. 14 Each of the Funds noted above may also purchase put or call options on securities and securities indexes in order to hedge against changes in interest rates or stock prices which may adversely affect the prices of securities that the Fund wants to purchase at a later date, to hedge its existing investments against a decline in value, or to attempt to reduce the risk of missing a market or industry segment advance. In the event that the expected changes in interest rates or stock prices occur, the Fund may be able to offset the resulting adverse effect on the Fund by exercising or selling the options purchased. The premium paid for a put or call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise or liquidation of the option. Unless the price of the underlying security or level of the securities index changes by an amount in excess of the premium paid, the option may expire without value to the Fund. These Funds may also purchase and write options in combination with each other to adjust the risk and return characteristics of certain portfolio security positions. This technique is commonly referred to as a "straddle." Options purchased or written by a Fund may be traded on the national securities exchanges or negotiated with a dealer. Options traded in the over- the-counter market may not be as actively traded as those on an exchange, so it may be more difficult to value such options. In addition, it may be difficult to enter into closing transactions with respect to such options. Such options and the securities used as "cover" for such options, unless otherwise indicated, would be considered illiquid securities. In instances in which a Fund has entered into agreements with primary dealers with respect to the over-the-counter options it has written, and such agreements would enable the Fund to have an absolute right to repurchase at a pre-established formula price the over-the-counter option written by it, the Fund would treat as illiquid only securities equal in amount to the formula price described above less the amount by which the option is "in-the-money," i.e., the price of the option exceeds the exercise price. Each of the Funds, except the Money Market Fund, may purchase put and call options and write covered put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. Such investment strategies will be used as a hedge and not for speculation. As in the case of other types of options, the writing of an option on foreign currency will constitute a hedge, however it differs in that it is only a partial hedge, up to the amount of the premium received. Moreover, the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, it may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies may be traded on the national securities exchanges or in the over-the-counter market. As described above, options traded in the over-the-market may not be as actively traded as those on an exchange, so it may be more difficult to value such options. In addition, it may be difficult to enter into closing transactions with respect to options traded over-the-counter. Options are subject to certain risks, including the risk of imperfect correlation between the option and the applicable Fund's other investments and the risk that there may not be a liquid secondary market for the option when the Fund seeks to hedge against adverse market movements. This may cause the Fund to lose the entire premium on purchase options or reduce its ability to effect closing transactions at favorable prices. The Funds will not write options if, immediately after such sale, the aggregate value of the securities or obligations underlying the outstanding options exceeds 25% of the applicable Fund's total assets. The Funds will not purchase options if, at the time of the investment, the aggregate premiums paid for outstanding options will exceed 5% of the applicable Fund's total assets. Futures and Forward Contracts. Each of the Funds, other than the Money Market Fund, may purchase and sell futures contracts on debt securities and on indexes of debt securities to hedge against anticipated changes in interest rates that might otherwise have an adverse effect on the value of their assets or assets they intend to acquire. In addition, they may purchase and sell stock index futures contracts to hedge the equity portion of their assets or equity assets they intend to acquire against changes in market conditions as distinguished from stock-specific risk. These Funds may also purchase put and call options on futures contracts and write "covered" put and call options on futures contracts in order to hedge against changes in interest rates or stock prices. Although the Funds are authorized to invest in futures contracts and related options with respect to non-U.S. instruments, they will limit such investments to those which have been approved by the Commodity Futures Trading Commission ("CFTC") for investment by U.S. investors. These Funds may enter into futures contracts and buy and sell related options, provided that the futures contracts and related options investments are made for "bona fide hedging" purposes, as defined under CFTC regulations. When a Fund purchases or sells a futures contract or writes a put or call option on a futures contract, the Fund will cover such positions by, for example, segregating with its custodian cash or cash equivalents (less any related margin deposits) equal to the cost of the futures contract it intends to sell or purchase. No more than 5% of a Fund's total assets will be committed to initial margin deposits required pursuant to futures contracts. Percentage investment limitations on a Fund's investment in options on futures contracts are set forth above under "Options." To the extent that any of the Funds invests in securities denominated in foreign currencies (which is substantially all of the securities held by the International Fund and a significant portion of securities held by the Diversified Income Fund and the Global Utilities Fund), the value of the Fund's portfolio will be affected by changes in exchange rates between currencies (including the U.S. dollar), as well as by changes in the market value of the securities themselves. In order to mitigate the effects of such changes, each of the Funds, other than the Money Market Fund, may enter into futures contracts on foreign currencies (and related options) and may 15 enter into forward contracts for the purchase or sale of a specific currency at a future date at a price set at the time of the contract. Forward contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions with respect to them. In managing their currency exposure, the Funds may each buy and sell currencies either in the spot (cash) market or in the forward market (through forward contracts generally expiring within one year). The Funds may each also enter into forward contracts with respect to a specific purchase or sale of a security, or with respect to its portfolio positions generally. When such a Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the applicable Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency. Unlike futures contracts, forward contracts are generally individually negotiated and privately traded. A forward contract obligates the seller to sell a specific security or currency at a specified price on a future date, which may be any fixed number of days from the date of the contract. The Global Utilities Fund and the International Fund may enter into forward contracts for transaction hedging purposes with respect to all or a substantial portion of their trades. The other Funds will commit no more than their respective portfolio investments in foreign securities to foreign exchange hedges. There are risks associated with hedging transactions. During certain market conditions, a hedging transaction may not completely offset a decline or rise in the value of the Fund's portfolio securities or currency being hedged. In addition, changes in the market value of securities or currencies may differ substantially from the changes anticipated by the Fund when hedged positions were established. Successful use of hedging transactions is dependent upon AIM's ability to predict correctly movements in the direction of the applicable markets. No assurance can be given that AIM's judgment in this respect will be correct. Accordingly, a Fund may lose the expected benefit of hedging if markets move in an unanticipated manner. Moreover, in the futures and options on futures markets, it may not always be possible to execute a put or sell at the desired price, or to close out an open position due to market conditions, limits on open positions, and/or daily price fluctuations. INVESTMENT RESTRICTIONS. Each of the Funds has adopted a number of investment restrictions, as set forth in the Statement of Additional Information, some of which restrictions may not be changed without shareholder approval. PORTFOLIO TURNOVER. (All Funds except the Money Market Fund.) Any particular security will be sold, and the proceeds reinvested, whenever such action is deemed prudent from the viewpoint of a Fund's investment objective(s), without regard to the impact on the portfolio turnover rate. Each Fund's historical portfolio turnover rates are included in the Financial Highlights tables above. A higher rate of portfolio turnover may result in higher transaction costs, including brokerage commissions. Also, to the extent that higher portfolio turnover results in a higher rate of net realized capital gains to a Fund, the portion of the Fund's distributions constituting taxable capital gains may increase. See "Dividends, Distributions and Tax Matters." - ------------------------------------------------------------------------------- RISK FACTORS Investors should consider carefully the following special factors before investing in any of the Funds. NON-INVESTMENT GRADE DEBT SECURITIES. The Diversified Income Fund, and to a lesser extent the Global Utilities Fund, seek to meet their respective investment objectives by investing in non-investment grade debt securities, commonly known as "junk bonds." While generally providing greater income and opportunity for gain, non-investment grade debt securities may be subject to greater risks than higher-rated securities. Economic downturns tend to disrupt the market for junk bonds and adversely affect their values. Such economic downturns may be expected to result in increased price volatility for junk bonds and of the value of shares of the above-named Funds, and increased issuer defaults on junk bonds. In addition, many issuers of junk bonds are substantially leveraged, which may impair their ability to meet their obligations. In some cases, junk bonds are subordinated to the prior payment of senior indebtedness, which potentially limits a Fund's ability to fully recover principal or to receive payments when senior securities are subject to a default. The credit rating of a junk bond does not necessarily address its market value risk, and ratings may from time to time change to reflect developments regarding the issuer's financial condition. Junk bonds have speculative characteristics which are likely to increase in number and significance with each successive lower rating category. When the secondary market for junk bonds becomes more illiquid, or in the absence of readily available market quotations for such securities, the relative lack of reliable objective data makes it more difficult for the Company's directors to value a Fund's securities, and judgment plays a more important role in determining such valuations. Increased illiquidity in the junk bond market also may affect a Fund's ability to dispose of such securities at desirable prices. In the event a Fund experiences an unexpected level of net redemptions, the Fund could be forced to sell its junk bonds without regard to their investment merits, thereby decreasing the asset base upon which the Fund's expenses can be spread and possibly 16 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. Political and Economic Risk. The economies of many of the countries in which the Fund may invest are not as developed as the United States economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Fund's investments. Regulatory Risk. Foreign companies are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Fund may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Fund's shareholders. Market Risk. The securities markets in many of the countries in which the Fund invests will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies and governments may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative difficulties (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States. In addition, there are risks associated with certain investment strategies employed by the 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.) - ------------------------------------------------------------------------------- MANAGEMENT The overall management of the business and affairs of the Funds is vested with the Company's Board of Directors. The Board of Directors approves all significant agreements between each of the Funds and persons or companies furnishing services to a Fund or the Company, including the Master Advisory Agreement with AIM, the Master Distribution Agreement with A I M Distributors, Inc. ("AIM Distributors"), the Custodian Agreement with State Street Bank and Trust Company (the "Custodian"), and the Transfer Agency Agreement with State Street Bank and Trust Company (the "Transfer Agent"). The day-to-day operations of each Fund are delegated to its officers and to AIM, subject always to the objectives and policies of the Fund and to the general supervision of the Company's Board of Directors. Certain directors and officers of the Company are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent of AIM. Information concerning the Board of Directors may be found in the Statement of Additional Information. INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, TX 77046-1173, serves as the investment advisor to each Fund pursuant to a new master investment advisory agreement (the "Advisory Agreement"), dated October 18, 1993, as amended April 28, 1994 to include the Global Utilities Fund and the Growth & Income Fund. AIM was organized in 1976, and, together with its affiliates, manages or advises 43 investment company portfolios (including the Funds). As of April 1, 1996, the total assets of the mutual funds advised or managed by AIM and its affiliates were approximately $48.2 billion. AIM is a wholly-owned subsidiary of AIM Management, a holding company. Under the terms of the Funds' Advisory Agreement, AIM supervises all aspects of each Fund's operations and provides investment advisory services to the Fund. The Advisory Agreement also provides that, upon the request of the Company's Board of Directors, AIM may perform or arrange for the provision of certain accounting and other administrative services to each Fund which are not required to be performed by AIM under the Advisory Agreement. Pursuant to a master administrative services agreement (the "Administrative Services Agreement") between the Company and AIM with respect to each Fund dated October 18, 1993, as amended April 28, 1994 to include the Global Utilities Fund and the Growth & Income Fund, AIM provides the services of the Company's principal financial 17 officer (including related office, facilities and equipment) and may provide other administrative services requested by the Company's Board of Directors from time to time. AIM is entitled to receive from each Fund reimbursement of its costs or such reasonable compensation as may be approved by the Company's Board of Directors. For a discussion of AIM's brokerage allocation policies and practices, see "Portfolio Transactions and Brokerage" in the Statement of Additional Information. In accordance with policies established by the directors, AIM may pay brokerage commissions to broker-dealers that may be affiliated with the Company and may take into account sales of shares of the Funds and other funds advised by AIM in selecting broker-dealers to effect portfolio transactions on behalf of the Funds. PORTFOLIO MANAGEMENT. AIM uses a team approach and a disciplined investment process in providing investment advisory services to all its accounts, including the Funds. AIM's investment staff consists of 85 individuals. While individual members of AIM's investment staff are assigned primary responsibility for the day-to-day management of each of AIM's accounts, all accounts are reviewed on a regular basis by AIM's Investment Policy Committee to ensure that they are being invested in accordance with the account's and AIM's investment policies. The individuals who are primarily responsible for the day-to-day management of the Funds (except the Money Market Fund, for which no such disclosure is required) and their titles, if any, with AIM or its affiliates and the Fund, the length of time they have been responsible for the management, their years of investment experience and prior experience (if they have been with AIM for less than five years) are shown below: Robert M. Kippes, Jonathan C. Schoolar and David P. Barnard are responsible for the day-to-day management of the CAPITAL APPRECIATION FUND'S portfolio securities. Mr. Kippes is Vice President of A I M Capital Management, Inc. ("AIM Capital"), a wholly-owned subsidiary of AIM, and has been responsible for the Fund since its inception in 1993. Mr. Kippes has been associated with AIM and/or its affiliates since 1989 and has over 6 years of experience as an investment professional. Mr. Schoolar is Senior Vice President and Director of AIM Capital, Vice President of AIM and Vice President of the Company and has been responsible for the Fund since its inception in 1993. He has been with AIM and/or its affiliates since 1986 and has 12 years of experience as an investment professional. Mr. Barnard is Vice President of AIM Capital and has been responsible for the Fund since 1993. Mr. Barnard has been associated with AIM and/or its affiliates since 1982 and has 21 years of experience as an investment professional. Robert G. Alley, John L. Pessarra and Carolyn L. Gibbs are responsible for day-to-day management of the DIVERSIFIED INCOME FUND'S portfolio securities. Mr. Alley is Senior Vice President of AIM Capital, Vice President of AIM and Vice President of the Company, and has been affiliated with AIM and/or its affiliates since 1992. Prior to that, Mr. Alley was Senior Fixed Income Money Manager for Waddell and Reed, Inc. Mr. Alley has been responsible for the Fund since its inception in 1993, and has 24 years of experience as an investment professional. Mr. Pessarra is currently Vice President of AIM Capital and has been associated with AIM and/or its affiliates since 1990. Mr. Pessarra has been responsible for the Fund since its inception in 1993, and has 12 years of experience as an investment professional. Ms. Gibbs is currently Assistant Vice President of AIM Capital and has been associated with AIM and/or its affiliates since 1992 and has 11 years of experience as an investment professional. Ms. Gibbs has been responsible for the Fund since 1995. Prior to joining AIM, she was a financial analyst for Northwest Airlines. Claude C. Cody IV, Robert G. Alley and Craig A. Smith are responsible for day-to-day management of the GLOBAL UTILITIES FUND'S portfolio securities. Mr. Cody is Vice President of AIM Capital and has been responsible for the Fund since its inception in 1994. Mr. Cody has been associated with AIM and/or its affiliates since 1992 and has 20 years of experience as an investment professional. Prior to that Mr. Cody was associated with Kinder-Care Corporation where he established an investment management operation and managed three portfolios. Mr. Alley has been responsible for the Fund since its inception in 1994. Mr. Alley's background is discussed above with respect to the management of the Diversified Income Fund. Mr. Smith is Vice President of AIM Capital and has been responsible for the Fund since 1996. Mr. Smith has been associated with AIM since 1989, and has 6 years of experience as an investment professional. Karen Dunn Kelley and Meggan M. Walsh are responsible for day-to-day management of the GOVERNMENT FUND'S portfolio securities. Ms. Kelley is Senior Vice President of AIM Capital, Vice President of AIM and Vice President of the Company and has been responsible for the Fund since its inception in 1993. Ms. Kelley has been associated with AIM and/or its affiliates since 1989 and has 13 years of experience as an investment professional. Ms. Walsh is Vice President of AIM Capital and has been responsible for the Fund since its inception in 1993. Ms. Walsh has been associated with AIM and/or its affiliates since 1991 and has 8 years of experience as an investment professional. Prior thereto, Ms. Walsh was Manager of Short-Term U.S. Commercial Paper and Euro-Commercial Paper Programs at Nationale-Nederlanden North America Corporation. Jonathan C. Schoolar, Robert M. Kippes and David P. Barnard are primarily responsible for day-to-day management of the GROWTH FUND'S portfolio securities. Mr. Schoolar's background is discussed above with respect to the management of the Capital Appreciation Fund. Mr. Schoolar has been responsible for the Fund since its inception in 1993. Mr. Kippes' background is discussed above with respect to the management of the Capital Appreciation Fund. Mr. Kippes has been responsible for the Fund since its inception in 1993. Mr. Barnard is Vice President of AIM Capital and has been responsible for the Fund since its inception in 1993. Mr. Barnard has been associated with AIM and/or its affiliates since 1982 and has 21 years experience as an investment professional. Lanny H. Sachnowitz and Joel E. Dobberpuhl are primarily responsible for day-to-day management of the GROWTH & INCOME FUND'S portfolio securities. Mr. Sachnowitz is Vice President of AIM Capital and has been responsible for the Fund since its inception 18 in 1994. Mr. Sachnowitz has 8 years of experience as an investment professional and has been associated with AIM and/or its affiliates since 1987. Mr. Dobberpuhl is Vice President of AIM Capital and has been responsible for the Fund since 1995. Mr. Dobberpuhl has 7 years of experience as an investment professional and has been associated with AIM and/or its affiliates since 1990. A. Dale Griffin III, Paul A. Rogge, Barrett K. Sides and Dominic H. R. Moross are responsible for day-to-day management of the INTERNATIONAL FUND'S portfolio securities. Mr. Griffin is Vice President of AIM Capital and has been responsible for the Fund since its inception in 1993. Mr. Griffin has been associated with AIM and/or its affiliates since 1989 and has 9 years experience as an investment professional. Mr. Rogge is Vice President of AIM Capital and has been associated with AIM and/or its affiliates since 1991. Mr. Rogge has been responsible for the Fund since its inception in 1993 and has 5 years of experience as an investment professional. Prior to joining AIM, Mr. Rogge served as an Assistant Portfolio Manager at Commerce Investment Management and a Global Strategy Analyst for UBS--Philips & Drew. Mr. Sides is Assistant Vice President of AIM Capital and has been associated with AIM and/or its affiliates since 1990. Mr. Sides has been responsible for the Fund since 1995 and has 6 years of experience as an investment professional. Mr. Moross is Assistant Vice President of AIM Capital and has been associated with AIM and/or its affiliates since 1993. Mr. Moross has been responsible for the Fund since 1995 and has 2 years of experience as an investment professional. Prior to joining AIM, he was a management graduate trainee with Maxwell Communications PLC. Joel E. Dobberpuhl and Claude Cody IV are responsible for day-to-day management of the VALUE FUND'S portfolio securities. Mr. Dobberpuhl's background is discussed above with respect to the management of the Growth & Income Fund. Mr. Dobberpuhl has been responsible for the Fund since its inception in 1993. Mr. Cody's background is discussed above with respect to the management of the Global Utilities Fund. Mr. Cody has been responsible for the Fund since its inception in 1993. ADVISORY FEES. As compensation for its services AIM is paid an investment advisory fee, which is calculated separately for each Fund at an annual rate of the applicable Fund's average daily net assets. For the eleven months ended December 31, 1995, compensation paid to AIM pursuant to the Advisory Agreement and the total expenses of each Fund (annualized) stated as a percentage of each Fund's average daily net assets, were as follows:
COMPENSATION EXPENSE COMPENSATION EXPENSE TO AIM RATIO TO AIM RATIO (AFTER WAIVER AND (AFTER WAIVER AND (BEFORE WAIVER AND (BEFORE WAIVER AND REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT) ----------------- ----------------- ------------------ ------------------ AIM V.I. Capital Appreciation Fund...... 0.65% 0.75% 0.65% 0.75% AIM V.I. Diversified Income Fund............ 0.60% 0.88% 0.60% 0.88% AIM V.I. Global Utilities Fund......... 0.00% 1.47% 0.65% 2.44% AIM V.I. Government Securities Fund........ 0.50% 1.19% 0.50% 1.19% AIM V.I. Growth Fund.... 0.65% 0.84% 0.65% 0.84% AIM V.I. Growth and Income Fund............ 0.26% 0.78% 0.65% 1.17% AIM V.I. International Equity Fund............ 0.75% 1.15% 0.75% 1.15% AIM V.I. Money Market Fund................... 0.40% 0.53% 0.40% 0.53% AIM V.I. Value Fund..... 0.65% 0.75% 0.65% 0.75%
AIM may from time to time voluntarily waive or reduce their respective fees. Fee waivers or reductions, other than those contained in the Advisory Agreement, may be modified or terminated at any time. ADMINISTRATOR. The Company has entered into an Administrative Services Agreement, with AIM, pursuant to which AIM has agreed to provide certain accounting and other administrative services to the Funds, including the services of a principal financial officer of the Funds and related staff. As compensation to AIM for its services under the Administrative Services Agreement, the Funds reimburse AIM for expenses incurred by AIM or its affiliates in connection with such services. AIM received reimbursement of administrative services costs from the Company on behalf of each of the Funds, pursuant to the Administrative Services Agreement for the eleven months ended December 31, 1995, as follows:
PERCENTAGE OF AVERAGE NET ASSETS* ----------- AIM V.I. Capital Appreciation Fund............................ 0.02% AIM V.I. Diversified Income Fund.............................. 0.11% AIM V.I. Global Utilities Fund................................ 0.70% AIM V.I. Government Securities Fund........................... 0.22% AIM V.I. Growth Fund.......................................... 0.05% AIM V.I. Growth and Income Fund............................... 0.18% AIM V.I. International Equity Fund............................ 0.03% AIM V.I. Money Market Fund.................................... 0.05% AIM V.I. Value Fund........................................... 0.02%
* Annualized 19 DISTRIBUTOR. The Company has entered into a master distribution agreement (the "Distribution Agreement"), dated October 18, 1993, as amended April 28, 1994 to include the Global Utilities Fund and the Growth & Income Fund, with AIM Distributors, a registered broker-dealer and a wholly-owned subsidiary of AIM, to act as the distributor of the shares of the Funds. The address of AIM Distributors is 11 Greenway Plaza, Suite 1919, Houston, TX 77046-1173. Certain directors and officers of the Company are affiliated with AIM Distributors and AIM Management. The Distribution Agreement provides that AIM Distributors has the exclusive right to distribute shares of the Funds to insurance company separate accounts. - ------------------------------------------------------------------------------- PURCHASE AND REDEMPTION OF SHARES The Company offers the shares of the Funds, on a continuous basis, to both registered and unregistered separate accounts of affiliated and unaffiliated life 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 more than one insurance company separate account invests in the Funds. For each day on which a Fund's net asset value is calculated, each separate account transmits to the Company any orders to purchase or redeem shares of such Fund based on the purchase payments, redemption (surrender) requests, and transfer requests from Contract owners, annuitants and beneficiaries which the separate account processes on that day. The separate accounts purchase and redeem shares of each Fund at the applicable Fund's net asset value per share calculated as of the previous business day. Any orders to purchase or redeem Fund shares that are not based on actions by Contract owners, annuitants, and beneficiaries will be effected at the Fund's net asset value per share next computed after the order is placed. Please refer to the appropriate separate account prospectus related to your Contract for more information regarding the Contract. The Company, in the future, may offer the shares of 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 Company does not foresee any disadvantage to purchasers of Contracts or Policies or to Plan participants arising out of these arrangements. Nevertheless, differences in treatment under tax and other laws, as well as other considerations, could cause the interests of various purchasers of Contracts and Policies (and the interests of any Plan participants) to conflict. For example, violation of the federal tax laws by one separate account investing in the Company could cause the Contracts and Policies funded through another separate account to lose their tax-deferred status, unless remedial action were taken. At the same time, the Company and the separate accounts (and any Plans investing in the Company) are subject to conditions imposed by the Securities and Exchange Commission and designed to prevent or remedy any conflict of interest. In this connection, the Board of Directors has the obligation to monitor events for any material irreconcilable conflict that may possibly arise and to determine what action, if any, should be taken to remedy or eliminate the conflict. - ------------------------------------------------------------------------------- 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 (generally 4:00 p.m. Eastern Time) on each "business day of the Fund." 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 New York Stock Exchange. A "business day of a Fund" is any day on which the New York Stock Exchange is open for business. It is expected that the New York Stock Exchange will be closed during the next twelve months on Saturdays and Sundays and on the observed holidays of New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per share of 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 20 that the net asset value of the shares of the Fund will remain constant at $1.00 per share. However, the Company can give no assurance that the Fund can maintain a $1.00 net asset value per share. FUTURES CONTRACTS. Initial margin deposits made upon entering into futures contracts are recognized as assets due from the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund that has entered into the futures contract records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS DIVIDENDS AND DISTRIBUTIONS. The Funds declare and distribute dividends representing substantially all net investment income as follows:
DIVIDENDS DIVIDENDS DECLARED PAID ---------- ---------- AIM V.I. Capital Appreciation Fund................... annually annually AIM V.I. Diversified Income Fund..................... annually annually AIM V.I. Global Utilities Fund....................... annually annually AIM V.I. Government Securities Fund.................. annually annually AIM V.I. Growth Fund................................. annually annually AIM V.I. Growth and Income Fund...................... annually annually AIM V.I. International Equity Fund................... annually annually AIM V.I. Money Market Fund........................... daily daily AIM V.I. Value Fund.................................. annually annually
Substantially all net realized capital gains, if any, are distributed on an annual basis, except for the Money Market Fund, which may distribute net realized short-term gains more frequently. All such distributions will be automatically reinvested, at the election of Participating Insurance Companies in shares of the Fund issuing the distribution at the net asset value determined on the reinvestment date. TAX MATTERS. Each series of shares of the Company is treated as a separate association taxable as a corporation. Each Fund intends to qualify under the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company ("RIC") for each taxable year. As a RIC, a Fund will not be subject to federal income tax to the extent it distributes to its shareholders its net investment income and net capital gains. In order to qualify as a regulated investment company, each Fund must satisfy certain requirements concerning the nature of its income, diversification of its assets and distribution of its income to shareholders. In order to ensure that individuals holding the Contracts whose assets are invested in a Fund will not be subject to federal income tax on distributions made by the Fund prior to the receipt of payments under the Contracts, each Fund intends to comply with additional requirements of Section 817(h) of the Code relating to both diversification of its assets and eligibility of an investor to be its shareholder. Certain of these requirements in the aggregate may limit the ability of a Fund to engage in transactions involving options, futures contracts, forward contracts and foreign currency and related deposits. Any Fund's transactions in non-equity options, forward contracts, futures contracts and foreign currency will be subject to special tax rules, the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments in the holding periods of fund securities and convert short- term capital losses into long-term capital losses. These losses could therefore affect the amount, timing and character of distributions. The holding of the foreign currencies and investments by a Fund in certain "passive foreign investment companies" may be limited in order to avoid imposition of a tax on such Fund. Each Fund investing in foreign securities may be subject to foreign withholding taxes on income from its investments. In any year in which more than 50% in value of a Fund's total assets at the close of the taxable year consists of securities of foreign corporations, the Fund may elect to treat any foreign taxes paid by it as if they had been paid by its shareholders. The insurance company segregated asset accounts holding Fund shares should consider the impact of this election. Holders of Contracts under which assets are invested in the Funds should refer to the prospectus for the Contracts for information regarding the tax aspects of ownership of such Contracts. 21 - ------------------------------------------------------------------------------- GENERAL INFORMATION ORGANIZATION OF THE COMPANY. The Company was organized on January 22, 1993 as a Maryland corporation, and is registered with the Securities and Exchange Commission as a diversified, open-end, series, management investment company. The Company currently consists of nine separate portfolios (i.e., the Funds). The authorized capital stock of the Company consists of 2,500,000,000 shares of common stock with a par value of $.001 per share, of which 250,000,000 shares are classified AIM V.I. CAPITAL APPRECIATION FUND shares, 250,000,000 shares are classified AIM V.I. DIVERSIFIED INCOME FUND shares, 250,000,000 shares are classified AIM V.I. GLOBAL UTILITIES FUND shares, 250,000,000 shares are classified AIM V.I. GOVERNMENT SECURITIES FUND shares, 250,000,000 are classified AIM V.I. GROWTH FUND shares, 250,000,000 shares are classified AIM V.I. GROWTH AND INCOME FUND shares, 250,000,000 shares are classified AIM V.I. INTERNATIONAL EQUITY FUND shares, 250,000,000 shares are classified AIM V.I. MONEY MARKET FUND shares, 250,000,000 shares are classified AIM V.I. VALUE FUND shares, and the balance of which are unclassified. The shares of each Fund have equal rights with respect to voting, except that (i) the holders of shares of all classes of a particular Fund voting together will have the exclusive right to vote on matters (such as advisory fees) pertaining solely to that Fund, and (ii) the holders of shares of a particular class will have the exclusive right to vote on matters pertaining to distribution plans, if any such plans are adopted, relating solely to such class. Shareholders of the Funds do not have cumulative voting rights. The Company understands that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. Fund shares held by a registered separate account as to which no instructions have been received will be voted for or against any proposition, or in abstention, in the same proportion as the shares of that separate account as to which instructions have been received. Fund shares held by a registered separate account that are not attributable to Contracts will also be voted for or against any proposition in the same proportion as the shares for which voting instructions are received by that separate account. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. Under Maryland law and the Company's By-Laws, the Company need not hold an annual meeting of shareholders unless a meeting is required under the 1940 Act to elect directors. Shareholders may remove directors from office, and a meeting of shareholders may be called at the request of the holders of 10% or more of the Company's outstanding shares. There are no preemptive or conversion rights applicable to any of the Company's shares. Each Fund's shares, when issued, are fully paid and non- assessable. As of April 1, 1996, Connecticut General Life Insurance Company owned more than 25 percent of the shares of one or more of the Funds and, therefore, could be deemed to "control" such Fund, as that term is defined in the Investment Company Act of 1940. As explained above, however, insurance company separate accounts vote their shares of a Fund in accordance with instructions received from Contract owners, annuitants and beneficiaries and, in this sense, would not "control" such Fund. CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110, serves as custodian for the Funds' portfolio securities and cash and also serves as the transfer agent and as dividend paying agent. LEGAL COUNSEL. Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the Company on certain federal securities law matters. OTHER INFORMATION. This Prospectus sets forth basic information that investors should know about the Funds prior to investing. A Statement of Additional Information has been filed with the Securities and Exchange Commission and is available upon request and without charge by writing or calling AIM Distributors. This Prospectus omits certain information contained in the registration statement filed with the Securities and Exchange Commission. Copies of the registration statement, including items omitted from this Prospectus, may be obtained from the Securities and Exchange Commission by paying the charges prescribed under its rules and regulations. 22 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 Corporation classifications are as follows: *AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. *AA -- Debt rated "AA" has a very stong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. *A -- Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. *BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher categories. BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "C" the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. A-1 BB -- Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB --" rating. B -- Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB --" rating. CCC -- Debt rated "CCC" has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The "CCC" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "B" or "B --" rating. CC -- The rating "CC" is typically applied to debt subordinated to senior debt that is assigned an actual or implied "CCC" rating. C -- The rating "C" is typically applied to debt subordinated to senior debt which is assigned an actual or implied "CCC--" debt rating. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. C1 -- The rating "C1" is reserved for income bonds on which no interest is being paid. D -- Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus (-): The rating from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major categories. Duff & Phelps fixed-income ratings are as follows: *AAA -- Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. *AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. *A+, A, A- -- Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress. *BBB+, BBB, BBB- -- Below average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles. BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+, B, B- -- Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in quality rating within this category or into a higher or lower quality rating grade. CCC -- Well below investment grade securities. May be in default or have considerable uncertainty as to timely payment of interest, preferred dividends and/or principal. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. Fitch Investors Service, Inc.'s bond ratings are as follows: *AAA -- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. *AA -- Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+". A-2 *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. CC -- Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C -- Bonds are in imminent default in payment of interest or principal. DDD, DD, and D -- Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA", "DDD", "DD", or "D" categories. A-3 APPENDIX B - ------------------------------------------------------------------------------- DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES The following list includes certain common Agency Securities, as defined in the Prospectus, and does not purport to be exhaustive. EXPORT-IMPORT BANK CERTIFICATES -- are certificates of beneficial interest and participation certificates issued and guaranteed by the Export-Import Bank of the United States. FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS -- are bonds issued by a cooperatively owned, nationwide system of banks and associations supervised by the Farm Credit Administration, an independent agency of the U. S. Government. FEDERAL HOME LOAN BANK NOTES AND BONDS -- are notes and bonds issued by the Federal Home Loan Bank System. FHA DEBENTURES -- are debentures issued by the Federal Housing Authority of the U. S. Government. FHA INSURED NOTES -- are bonds issued by the Farmers Home Administration of the U. S. Government. FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS -- are bonds issued and guaranteed by FHLMC, a corporate instrumentality of the U.S. Government. The Federal Home Loan Banks own all the capital stock of FHLMC, which obtains its funds by selling mortgages (as well as participation interests in the mortgages) and by borrowing funds through the issuance of debentures and otherwise. FHLMC PARTICIPATION CERTIFICATES OR "FREDDIE MACS" -- represent undivided interests in specified groups of conventional mortgage loans (and/or participation interests in those loans) underwritten and owned by FHLMC. At least 95% of the aggregate principal balance of the whole mortgage loans and/or participations in a group formed by FHLMC typically consists of single- family mortgage loans, and not more than 5% consists of multi-family loans. FHLMC Participation Certificates are not guaranteed by, and do not constitute a debt or obligation of, the U.S. Government or any Federal Home Loan Bank. FHLMC Participation Certificates are issued in fully registered form only, in original unpaid principal balances of $25,000, $100,000, $200,000, $500,000, $1 million and $5 million. FHLMC guarantees to each registered holder of a Participation Certificate, to the extent of such holder's pro rata share (i) the timely payment of interest accruing at the applicable certificate rate on the unpaid principal balance outstanding on the mortgage loans, and (ii) collection of all principal on the mortgage loans without any offset or deductions. Pursuant to these guaranties, FHLMC indemnifies holders of Participation Certificates against any reduction in principal by reason of charges for property repairs, maintenance, and foreclosure. FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS -- are bonds issued and guaranteed by FNMA, a federally chartered and privately-owned corporation. FNMA PASS-THROUGH CERTIFICATES OR "FANNIE MAES" -- are mortgage pass-through certificates issued and guaranteed by FNMA. FNMA Certificates represent a fractional undivided ownership interest in a pool of mortgage loans either provided from FNMA's own portfolio or purchased from primary lenders. The mortgage loans included in the pool are conventional, insured by the Federal Housing Administration or guaranteed by the Veterans Administration. FNMA Certificates are not backed by, nor entitled to, the full faith and credit of the U.S. Government. Loans not provided from FNMA's own portfolio are purchased only from primary lenders that satisfy certain criteria developed by FNMA, including depth of mortgage origination experience, servicing experience and financial capacity. FNMA may purchase an entire loan pool from a single lender, and issue Certificates backed by that loan pool alone, or may package a pool made up of loans purchased from various lenders. Various types of mortgage loans, and loans with varying interest rates, may be included in a single pool, although each pool will consist of mortgage loans related to one-family or two-to-four family residential properties. Substantially all FNMA mortgage pools currently consist of fixed interest rate and growing equity mortgage loans, although FNMA mortgage pools may also consist of adjustable interest rate mortgage loans or other types of mortgage loans. Each mortgage loan must conform to FNMA's published requirements or guidelines with respect to maximum principal amount, loan-to-value ratio, loan term, underwriting standards and insurance coverage. All mortgage loans are held by FNMA as trustee pursuant to a trust indenture for the benefit of Certificate holders. The trust indenture gives FNMA responsibility for servicing and administering the loans in a pool. FNMA contracts with the lenders or other servicing institutions to perform all services and duties customary to the servicing of mortgages, as well as duties specifically prescribed by FNMA, all under FNMA supervision. FNMA may remove service providers for cause. The pass-through rate on FNMA Certificates is the lowest annual interest rate borne by an underlying mortgage loan in the pool, less a fee to FNMA as compensation for servicing and for FNMA's guarantee. Lenders servicing the underlying mortgage loans receive as compensation a portion of the fee paid to FNMA, the excess yields on pooled loans with coupon rates above the lowest rate borne by any mortgage loan in the pool and certain other amounts collected, such as late charges. B-1 The minimum size of a FNMA pool is $1 million of mortgage loans. Registered holders purchase Certificates in amounts not less than $25,000. FNMA Certificates are marketed by the servicing lender banks, usually through securities dealers. The lender of a single lender pool typically markets all Certificates based on that pool, and lenders of multiple lender pools market Certificates based on a pro rata interest in the aggregate pool. The amount of FNMA Certificates currently outstanding is limited. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR "GINNIE MAES" -- are mortgage-backed securities which represent a partial ownership interest in a pool of mortgage loans issued by lenders such as mortgage bankers, commercial banks and savings and loan associations. Each mortgage loan included in the pool is either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. A "pool" or group of such mortgages is assembled, and, after being approved by GNMA, is offered to investors through securities dealers. GNMA is a U.S. Government corporation within the Department of Housing and Urban Development. GNMA Certificates differ from bonds in that the principal is paid back monthly by the borrower over the term of the loan rather than returned in a lump sum at maturity. GNMA Certificates are called "modified pass-through" securities because they entitle the holder to receive its proportionate share of all interest and principal payments owed on the mortgage pool, net of fees paid to the issuer and GNMA, regardless of whether or not the mortgagor actually makes the payment. Payment of principal of and interest on GNMA Certificates of the "modified pass-through" type is guaranteed by GNMA and backed by the full faith and credit of the U.S. Government. The average life of a GNMA Certificate is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return on the greater part of principal invested far in advance of the maturity of the mortgages in the pool. Foreclosures impose little risk to principal investment because of the GNMA guarantee. As the prepayment rates of individual mortgage pools will vary widely, it is not possible to accurately predict the average life of a particular issue of GNMA Certificates. However, statistics published by the FHA indicate that the average life of a single-family dwelling mortgage with 25- to 30-year maturity, the type of mortgage which backs the vast majority of GNMA Certificates, is approximately 12 years. It is therefore customary practice to treat GNMA Certificates as 30-year mortgage-backed securities which prepay fully in the twelfth year. As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates, the coupon rate of interest of GNMA Certificates is lower than the interest paid on the VA-guaranteed or FHA-insured mortgages underlying the Certificates. The yield which will be earned on GNMA Certificates may vary from their coupon rates for the following reasons: (i) Certificates may be issued at a premium or discount, rather than at par; (ii) Certificates may trade in the secondary market at a premium or discount after issuance; (iii) interest is earned and compounded monthly which has the effect of raising the effective yield earned on the Certificates; and (iv) the actual yield of each Certificate is affected by the prepayment of mortgages included in the mortgage pool underlying the Certificates and the rate at which principal so prepaid is reinvested. In addition, prepayment of mortgages included in the mortgage pool underlying a GNMA Certificate purchased at a premium may result in a loss to the Fund. Due to the large amount of GNMA Certificates outstanding and active participation in the secondary market by securities dealers and investors, GNMA Certificates are highly liquid instruments. Prices of GNMA Certificates are readily available from securities dealers and depend on, among other things, the level of market rates, the Certificate's coupon rate and the prepayment experience of the pool of mortgages backing each Certificate. GENERAL SERVICES ADMINISTRATION ("GSA") PARTICIPATION CERTIFICATES -- are participation certificates issued by the General Services Administration of the U.S. Government. MARITIME ADMINISTRATION BONDS -- are bonds issued and provided by the Department of Transportation of the U.S. Government. NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the provisions of Title IV of the Housing and Urban Development Act of 1968, as supplemented and extended by Title VII of the Housing and Urban Development Act of 1970, the payment of which is guaranteed by the U.S. Government. PUBLIC HOUSING NOTES AND BONDS -- are short-term project notes and long- term bonds issued by public housing and urban renewal agencies in connection with programs administered by the Department of Housing and Urban Development of the U.S. Government, the payment of which is secured by the U.S. Government. SBA DEBENTURES -- are debentures fully guaranteed as to principal and interest by the Small Business Administration of the U.S. Government. SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing Association. TITLE XI BONDS -- are bonds issued in accordance with the provisions of Title XI of the Merchant Marine Act of 1936, as amended, the payment of which is guaranteed by the U.S. Government. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by the Washington Metropolitan Area Transit Authority and are guaranteed by the Secretary of Transportation of the U.S. Government. B-2 APPENDIX C - ------------------------------------------------------------------------------- DESCRIPTION OF MONEY MARKET OBLIGATIONS The following list does not purport to be an exhaustive list of all Money Market Obligations, and the Funds reserve the right to invest in Money Market Obligations other than those listed below: 1. GOVERNMENT OBLIGATIONS. U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes, and bonds issued by the U.S. Treasury. U.S. GOVERNMENT AGENCIES SECURITIES -- Certain federal agencies such as the Government National Mortgage Association have been established as instrumentalities of the U.S. Government to supervise and finance certain types of activities. Issues of these agencies, while not direct obligations of the U.S. Government, are either backed by the full faith and credit of the United States or are guaranteed by the Treasury or supported by the issuing agencies' right to borrow from the Treasury. FOREIGN GOVERNMENT OBLIGATIONS -- These are U.S. dollar denominated obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by the Fund's investment advisor to be of comparable quality to the other obligations in which the Fund may invest. Such securities also include debt obligations of supranational entities. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank. The percentage of the Fund's assets invested in securities issued by foreign governments will vary depending on the relative yields of such securities, the economic and financial markets of the countries in which the investments are made and the interest rate climate of such countries. 2. BANK INSTRUMENTS. BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and accepted by a commercial bank. It is used by corporations to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument with a specific maturity. Certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market, prior to maturity. TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. EURODOLLAR OBLIGATIONS -- A Eurodollar obligation is a U.S. dollar- denominated obligation issued by a foreign branch of a domestic bank. YANKEE DOLLAR OBLIGATIONS -- A Yankee dollar obligation is a U.S. dollar- denominated obligation issued by a domestic branch of a foreign bank. 3. COMMERCIAL INSTRUMENTS. COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory notes issued by corporations and other entities. Maturities on these issues vary from a few days to nine months. VARIABLE RATE MASTER DEMAND NOTES -- Variable rate master demand notes are unsecured demand notes that permit investment of fluctuating amounts of money at variable rates of interest pursuant to arrangements with issuers who meet the foregoing quality criteria as discussed in the Statement of Additional Information under "Investment Programs." The interest rate on a variable amount 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. C-1 [THIS PAGE INTENTIONALLY LEFT BLANK] 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 1919 HOUSTON, TX 77046-1173 (713) 626-1919 AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. MONEY MARKET FUND AIM V.I. VALUE FUND THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING A I M DISTRIBUTORS, INC., P. O. BOX 4739, HOUSTON, TX 77210-4739 OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS) OR (800) 347-1919 (ALL OTHERS). --------------------- STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 1996 RELATING TO PROSPECTUS DATED: MAY 1, 1996 TABLE OF CONTENTS
PAGE INTRODUCTION......................................................... 1 GENERAL INFORMATION ABOUT THE FUNDS.................................. 1 The Company and Its Shares......................................... 1 PERFORMANCE.......................................................... 1 Total Return Calculations.......................................... 1 Historical Portfolio Results....................................... 2 Yield Information.................................................. 3 PORTFOLIO TRANSACTIONS AND BROKERAGE................................. 4 General Brokerage Policy........................................... 4 Section 28(e) Standards............................................ 5 Portfolio Turnover................................................. 6 Brokerage Commissions Paid......................................... 7 INVESTMENT PROGRAMS.................................................. 7 Money Market Obligations........................................... 7 Repurchase Agreements.............................................. 8 Lending of Portfolio Securities.................................... 8 Reverse Repurchase Agreements...................................... 9 Delayed Delivery Agreements........................................ 9 When-Issued Securities............................................. 9 Special Situations................................................. 10 Warrants........................................................... 10 Short Sales........................................................ 11 Rule 144A Securities............................................... 11 Utilities Industry................................................. 11 HEDGING AND OTHER INVESTMENT TECHNIQUES.............................. 12 INVESTMENT RESTRICTIONS.............................................. 14 Fundamental Restrictions........................................... 14 Non-fundamental Restrictions....................................... 15 MANAGEMENT........................................................... 16 Directors and Officers............................................. 16 Remuneration of Directors........................................ 19 AIM Funds Retirement Plan for Eligible Directors/Trustees........ 20 Deferred Compensation Agreements................................. 21 Investment Advisory and Administrative Services Agreements......... 22 The Distribution Agreement......................................... 25 DETERMINATION OF NET ASSET VALUE..................................... 25 DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS............................. 28 MISCELLANEOUS INFORMATION............................................ 29 Audit Reports...................................................... 29
i Legal Matters..................................................... 29 Custodian and Transfer Agent...................................... 29 Principal Holders of Securities................................... 29 Other Information................................................. 32 FINANCIAL STATEMENTS................................................ FS
ii INTRODUCTION AIM Variable Insurance Funds, Inc. (the "Company") is a mutual fund. The rules and regulations of the United States Securities and Exchange Commission (the "SEC") require all mutual funds to furnish prospective investors certain information concerning the activities of the fund being considered for investment. This information is included in Prospectuses dated May 1, 1996, which relate respectively to each of the nine series portfolios of the Company (referred to collectively as the "Funds" and separately as a "Fund"). One or more of the Company's nine Funds may not be available under a particular variable annuity contract or variable life insurance policy. To the extent, this Statement of Additional Information may contain information that is not relevant to the investment options under such a contract or policy. Additional copies of the Prospectuses of Funds available under a contract or policy and this Statement of Additional Information may be obtained without charge by writing the principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P. O. Box 4739, Houston, TX 77210-4739 or by calling (713) 626- 1919. Investors must receive a Prospectus before they invest. To the extent that this Statement of Additional Information contains information concerning a Fund that is not available under a contract or policy, the Statement of Additional Information does not constitute the offer of the shares of that Fund. This Statement of Additional Information is intended to furnish prospective investors with additional information concerning the Funds. Some of the information required to be in this Statement of Additional Information is also included in the Funds' current Prospectus; and, in order to avoid repetition, reference will be made to sections of the Prospectus. Additionally, the Prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement filed with the SEC. Copies of the Registration Statement, including items omitted from the Prospectus and this Statement of Additional Information, may be obtained from the SEC by paying the charges prescribed under its rules and regulations. GENERAL INFORMATION ABOUT THE FUNDS THE COMPANY AND ITS SHARES The Company was organized on January 22, 1993, as a Maryland corporation, and is registered with the SEC as an open-end, series, management investment company. The Company currently consists of nine separate portfolios (i.e., the "Funds") as follows: the AIM V.I. Capital Appreciation Fund ("Capital Appreciation Fund"), the AIM V.I. Diversified Income Fund ("Diversified Income Fund"), the AIM V.I. Global Utilities Fund ("Global Utilities Fund") (formerly known as the AIM V.I. Utilities Fund), the AIM V.I. Government Securities Fund ("Government Fund"), the AIM V.I. Growth Fund ("Growth Fund"), the AIM V.I. Growth and Income Fund ("Growth & Income Fund"), the AIM V.I. International Equity Fund ("International Fund"), the AIM V.I. Money Market Fund ("Money Market Fund"), and the AIM V.I. Value Fund ("Value Fund"). Each share of a Fund is entitled to one vote, to participate equally in dividends and distributions declared by the Board of Directors with respect to the Fund and, upon liquidation of the Fund, to participate in its proportionate share of the net assets allocable to the Fund remaining after satisfaction of outstanding liabilities of the Fund. Fund shares are fully paid, non-assessable and fully transferable when issued and have no preemptive, conversion or exchange rights. Fractional shares have proportionately the same rights, including voting rights, as are provided for a full share. Shareholders of the Funds do not have cumulative voting rights, and therefore the holders of more than 50% of the outstanding shares of all Funds voting together for election of directors may elect all of the members of the Board of Directors of the Company. In such event, the remaining holders cannot elect any directors of the Company. See "General Information" in the Prospectus. 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 1 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' average annual and cumulative total return for the eleven months ended December 31, 1995 and average annual and cumulative total returns for the period May 5, 1993 (commencement of operations) through December 31, 1995, were as follows:
Since Inception ------------------- Eleven Average Month Annual Cumulative Period Return Return ------ ------ --------- AIM V.I. Capital Appreciation Fund 37.38% 21.04% 66.18% AIM V.I. Diversified Income Fund 18.11% 7.04% 19.82% AIM V.I. Global Utilities Fund* 23.73% 13.30% 23.03% AIM V.I. Government Securities Fund 13.84% 5.46% 15.20% AIM V.I. Growth Fund 34.89% 15.12% 45.44% AIM V.I. Growth and Income Fund* 32.65% 19.20% 33.85% AIM V.I. International Equity Fund 24.04% 12.61% 37.14% AIM V.I. Money Market Fund 5.21% 4.06% 11.18% AIM V.I. Value Fund 36.25% 20.10% 62.76%
* 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 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. 2 The International Fund's performance may also be compared in advertising to performance of comparative benchmarks such as The Financial Times-Actuaries World Indices (a wide range of comprehensive measures of stock price performance for the major stock markets and regional areas), Morgan Stanley Capital International Indices, including the EAFE Index, Pacific Basin Index and Pacific Ex Japan Index (a widely recognized series of indices in international market performance), and indices of stocks comparable to those in which the Fund invests. Each Fund's advertising may from time to time include historical discussions of general economic conditions such as inflation rates and changes in the stock market, foreign and domestic interest rates and foreign and domestic political circumstances and events. In addition, each Fund's long-term performance may be described in advertising in relation to historical, political and/or economic events. From time to time, the Funds' sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. This includes, but is not limited to, literature addressing general information about mutual funds, variable annuities, 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 and unrealized appreciation and depreciation) 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. 3 The simple annualized yield and compounded effective yield for the Money Market Fund for the 7 days ended December 31, 1995 were 5.12% and 5.25%, respectively. PORTFOLIO TRANSACTIONS AND BROKERAGE GENERAL BROKERAGE POLICY Subject to policies established by the Board of Directors of the Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and sell securities for each Fund, for the selection of broker-dealers, for the execution of the Fund's investment portfolio transactions, for the allocation of brokerage fees in connection with such transactions and, where applicable, for the negotiation of commissions and spreads on transactions. AIM's primary consideration in effecting a security transaction is to obtain the best net price and the most favorable execution of the order. While AIM generally seeks reasonably competitive commission rates, each Fund does not necessarily pay the lowest commission or spread available. Purchases and sales of portfolio securities for the Diversified Income Fund, the Money Market Fund and the Government Fund are generally transacted with the issuer or a primary market maker. In addition, a portion of the securities in which the Funds invest may be traded in over-the-counter ("OTC") markets. In such transactions, the Fund deals directly with the dealers who make markets in the securities involved, except in those circumstances where better prices and executions are available elsewhere. Portfolio transactions placed through dealers serving as primary market makers are effected at net prices, without commissions as such, but which include compensation to the dealer in the form of mark up or mark down. Traditionally, commission rates have not been negotiated on stock markets outside the United States. In recent years, however, an increasing number of overseas stock markets have adopted a system of negotiated rates, although a number of markets continue to be subject to an established schedule of minimum commission rates. Foreign equity securities may be held by the Fund in the form of American Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"), or other securities representing underlying securities of foreign issuers, or securities convertible into foreign equity securities. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in the United States securities markets, and EDRs, in bearer form, are designed for use in European securities markets. ADRs and EDRs 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 AIM Funds. Also, a Fund may pay a higher price for securities or higher commissions in recognition of research services furnished by broker-dealers. AIM may from time to time determine target levels of commission business for AIM to transact with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be determined based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's attitude toward and interest in mutual funds in general and in the Funds and other mutual funds advised by AIM (collectively, the "AIM Funds") 4 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 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, as a factor in the selection of broker-dealers to execute portfolio transactions for a Fund. AIM will seek, whenever possible, to recapture for the benefit of a Fund any commissions, fees, brokerage or similar payments paid by the Fund on portfolio transactions. Normally, the only fees which may be recaptured are the soliciting dealer fees on the tender of a Fund's portfolio securities in a tender or exchange offer. AIM and its affiliates manage several other investment accounts, some of which may have investment objectives similar to those of the Funds. It is possible that, at times, identical securities will be appropriate for investment by one or more of such investment accounts. The position of each account, however, in the securities of the same issue may vary and the length of time that each account may choose to hold its investment in the securities of the same issue may likewise vary. The timing and amount of purchases by each account will also be determined by its cash position. If the purchase or sale of securities is consistent with the investment policies of a Fund(s) and one or more of these accounts is considered at or about the same time. AIM may combine such transactions, in accordance with applicable laws and regulations, in order to obtain the best net price and most favorable execution. Simultaneous transactions could, however, adversely affect the ability of a Fund to obtain or dispose of the full amount of a security which it seeks to purchase or sell. These combined transactions, and related brokerage charges, will be allocated among the Fund(s) and such accounts in a manner consistent with guidelines and procedures approved by the Company's Board of Directors that are designed to achieve an equitable manner of allocation. In some cases the procedure for allocating portfolio transactions among the various investment accounts advised by AIM could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, the main factors considered by AIM are the respective investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held and the judgments of the persons responsible for recommending the investment. From time to time, an identical security may be sold by an AIM Fund or another investment account advised by AIM or A I M Capital Management, Inc. ("AIM Capital") and simultaneously purchased by another investment account advised by AIM or AIM Capital, when such transactions comply with applicable rules and regulations and are deemed consistent with the investment objective(s) and policies of the investment accounts advised by AIM or AIM Capital. Procedures pursuant to Rule 17a-7 under the Investment Company Act of 1940, as amended (the "1940 Act") regarding transactions between investment accounts advised by AIM or AIM Capital have been adopted by the Boards of Directors/Trustees of the various AIM Funds, including the Company. Although such transactions may result in custodian, tax or other related expenses, no brokerage commissions or other direct transaction costs are generated by transactions among the investment accounts advised by AIM or AIM Capital. SECTION 28(e) STANDARDS As permitted by Section 28(e) of the Securities Exchange Act of 1934, AIM may cause a Fund to pay a broker that provides brokerage and research services to AIM an amount of commission for effecting a securities transaction for the Fund in excess of the commission another broker would have charged for effecting that transaction. To obtain the benefit of Section 28(e), AIM must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided . . . viewed in terms of either that particular transaction or [its] overall responsibilities with respect to the accounts as to which [it] exercises investment discretion" and that the services provided by a broker provide AIM with lawful and appropriate assistance in the performance of its investment decision-making responsibilities. Accordingly, the price to a Fund in any transaction may be less favorable than that available 5 from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. The Funds will not knowingly pay a higher spread than the lowest available in principal transactions as a result of its receipt of research services from a dealer. Broker-dealers utilized by AIM may furnish statistical, research and other information or services which are deemed by AIM to be beneficial to the Funds' investment programs. Research services received from brokers supplement AIM's own research (and the research of sub-advisors to other clients of AIM) and may include the following types of information: statistical and background information on industry groups and individual companies; forecasts and interpretations with respect to U.S. and foreign economies, securities markets, specific industry groups and individual companies; information on political developments; portfolio management strategies; performance information on securities and information concerning prices of securities; and information supplied by specialized services to AIM and to the Company's directors with respect to the performance, investment activities and fees and expenses of other mutual funds. Such information may be communicated electronically, orally or in written form. Research services may also include the providing of equipment used to communicate research information, the arranging of meetings with management of companies and the providing of access to consultants who supply research information. The outside research assistance is useful to AIM since the brokers utilized by AIM as a group tend to follow a broader universe of securities and other matters than AIM's staff can follow. In addition, this research provides AIM with a diverse perspective on financial markets. Research services which are provided to AIM by brokers are available for the benefit of all accounts managed or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In some cases, the research services are available only from the broker providing such services. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM is of the opinion that because the broker research supplements rather than replaces its research, the receipt of such research does not tend to decrease its expenses, but tends to improve the quality of its investment advice. However, to the extent that AIM would have purchased any such research services had such services not been provided by brokers, the expenses of such services to AIM could be considered to have been reduced accordingly. For the eleven months ended December 31, 1995, 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:
Commissions Transactions ----------- ------------ AIM V. I. Capital Appreciation Fund $13,683 $ 8,049,497 AIM V. I. Global Utilities Fund $ 285 $ 156,059 AIM V. I. Growth Fund $15,209 $10,270,040 AIM V. I. Growth & Income Fund $ 4,368 $ 3,298,290 AIM V. I. International Equity Fund $ 455 $ 262,696 AIM V. I. Value Fund $44,261 $29,219,088
The following information regarding securities acquired by the Funds of their regular bankers, as defined in Rule 10b-1 under the 1940 Act, is as of December 31, 1995. AIM V.I. Diversified Income Fund had entered into a repurchase agreement with Daiwa Securities America, Inc. having a market value of $1,348,008. AIM V.I. Government Securities Fund had entered into a repurchase agreement with Daiwa Securities America, Inc. having a market value of $1,231,821. AIM V.I. Money Market Fund had entered into repurchase agreements with Daiwa Securities America, Inc. and Goldman, Sachs & Co. having a market value of $8,519,331 and $15,000,000, respectively. AIM V.I. Money Market Fund held an amount of common stock issued by The Goldman Sachs Group, L.P. having a market value of $2,994,958. AIM V.I. Growth Fund held an amount of common stock issued by Morgan Stanley Group Inc. and PaineWebber Group, Inc. having a market value of $241,875 and $302,000, respectively. AIM V.I. Growth and Income Fund held an amount of common stock issued by Merrill Lynch & Co., Inc. having a market value of $204,000. PORTFOLIO TURNOVER The portfolio turnover rate of each Fund is shown under "Financial Highlights" in the Prospectus. In any particular year, however, market conditions could result in portfolio activity at a rate greater or lesser than anticipated. Higher portfolio turnover increases transaction costs to the Fund. 6 BROKERAGE COMMISSIONS PAID Brokerage commissions paid by each of the Funds listed below were as follows for the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995 and for the period May 5, 1993 (date operations commenced) through January 31, 1994.
December 31, January 31, January 31, 1995 1995 1994 ------------ ------------ ----------- AIM V.I. Capital Appreciation Fund $400,895 $161,528 $48,753 AIM V.I. Diversified Income Fund $ 74,475 $ 17,471 $ -0- AIM V.I. Global Utilities Fund $ 24,107 $ 9,280* N/A AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- AIM V.I. Growth Fund $315,627 $173,691 $54,735 AIM V.I. Growth and Income Fund $177,420 $ 20,436* N/A AIM V.I. International Equity Fund $312,071 $ 89,187 $85,606 AIM V.I. Money Market Fund $ -0- $ -0- $ -0- AIM V.I. Value Fund $862,938 $362,162 $76,623
* Commissions paid are for the period May 2, 1994 (date operations commenced) through January 31, 1995. INVESTMENT PROGRAMS Information concerning each Fund's fundamental investment objective is set forth in the Prospectus under the heading "Investment Objectives and Programs." There can be no assurance that any Fund will achieve its objective. The principal features of each Fund's investment program and the primary risks associated with that investment program are discussed in the Prospectus under the heading "Investment Objectives and Programs--Certain Investment Strategies and Techniques." The following discussion of investment policies supplements the discussion of the investment objectives and policies set forth in the Prospectus. MONEY MARKET OBLIGATIONS As set forth in the Prospectus, the Money Market Fund will limit its purchases of Money Market Obligations to U.S. dollar denominated securities which are (i) "First Tier" securities, as such term is defined from time to time in Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), or (ii) securities guaranteed as to payment of principal and interest by the U.S. Government. As of the date of this Statement of Additional Information, Rule 2a-7 defines a "First Tier Security" as any "Eligible Security" (as defined in Rule 2a-7 and set forth in this Statement of Additional Information under "Determination of Net Asset Value") that: (i) is rated (or that has been issued by an issuer that is rated with respect to a class of short-term debt obligations, or any security within that class, that is comparable in priority and security with 7 the security) by the Requisite NRSROs(*) in the highest rating category for short-term debt obligations (within which there may be sub-categories or gradations indicating relative standing); or (ii) is a security described in paragraph (a)(5)(ii) of Rule 2a-7 (i.e. a security that at the time of issuance was a long-term security but that has a remaining maturity of 397 days or less) whose issuer has received from the Requisite NRSROs a rating, with respect to a class of short-term debt obligations (or any security within that class) that now is comparable in priority and security with the security, in the highest rating category for short-term debt obligations (within which there may be sub-categories or gradations indicating relative standing); or (iii) is an Unrated Security that is of comparable quality to a security meeting the requirements of clauses (i) and (ii) above, as determined by the Company's Board of Directors. 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. To the extent that the ratings applied by an NRSRO to Money Market Obligations may change as a result of changes in these rating systems, the Fund will attempt to use comparable ratings as standards for its investments in Money Market Obligations in accordance with the investment policies described herein. REPURCHASE AGREEMENTS The Funds may each enter into repurchase agreements. A repurchase agreement is an instrument under which a Fund acquires ownership of a debt security and the seller (usually a broker or bank) agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the Fund's holding period. Although the underlying collateral for repurchase agreements may have maturities exceeding one year, the Funds will not enter into repurchase agreements expiring in more than seven days. The Fund may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from the Fund on demand and the effective interest rate is negotiated on a daily basis. Repurchase agreements are considered to be loans by the Fund under the 1940 Act. Securities subject to repurchase agreements will be held in the custodian's account with the Federal Book-Entry System on behalf of the Fund. LENDING OF PORTFOLIO SECURITIES For the purpose of realizing additional income, each Fund (except the Money Market Fund) may lend portfolio securities in amounts not to exceed 33-1/3% of a Fund's total assets. Securities loans are made to banks, brokers and other financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent, marked to market on a daily basis. The collateral received will consist of cash, U.S. Government securities, letters of credit or such other collateral as may be permitted under each such Fund's investment program. While the securities are being lent, a Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the - --------------------------- (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 security, that NRSRO. At present the NRSROs are: Standard & Poor's Corp., Moody's Investors Service, Inc., Duff and Phelps, Inc., Fitch Investors Services, Inc. and, with respect to certain types of securities, IBCA Inc. Subcategories or gradations in ratings (such as a "+" or "-") do not count as rating categories. 8 securities, as well as interest on the investment of the collateral or a fee from the borrower. A Fund has a right to call each loan and obtain the securities on five business days' notice or, in connection with securities trading on foreign markets, within such longer period of time which coincides with the normal settlement period for purchases and sales of such securities in such foreign markets. A Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to persons deemed by AIM to be of good standing and will not be made unless, in the judgment of AIM, the consideration to be earned from such loans would justify the risk. REVERSE REPURCHASE AGREEMENTS Each of the Funds may enter into reverse repurchase agreements, which involve the sale of securities (i.e., money market instruments in the case of the Money Market Fund) held by the Fund, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. The Funds may employ reverse repurchase agreements when necessary to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions and only in amounts up to 33-1/3% of the value of each Fund's total assets at the time any such Fund enters into a reverse repurchase agreement. At the time it enters into a reverse repurchase agreement, a Fund will segregate high-quality debt securities having a dollar value equal to the repurchase price. The segregated securities will be marked-to-market, and additional securities will be segregated if necessary to maintain adequate coverage. The Funds will utilize reverse repurchase agreements when the interest income to be earned from portfolio investments which would otherwise have to be liquidated to meet redemptions is greater than the interest expense incurred as a result of the reverse repurchase transactions. DELAYED DELIVERY AGREEMENTS Each of the Funds may enter into delayed delivery agreements, which involve commitments by each such Fund to dealers or issuers to acquire securities or instruments at a specified future date beyond the customary settlement date for such securities. These commitments fix the payment price and interest rate to be received on the investment. Delayed delivery agreements will not be used as a speculative or leverage technique. Rather, from time to time, AIM can anticipate that cash for investment purposes will result from scheduled maturities of existing portfolio instruments or from net sales of shares of the Fund. Until the settlement date, the Fund will segregate cash or other high- quality debt securities of a dollar value sufficient at all times to make payment for the delayed delivery securities. The delayed delivery securities, which will not begin to accrue interest until the settlement date, will be recorded as an asset of the Fund and will be subject to the risks of market fluctuation. The purchase price of the delayed delivery securities is a liability of the Fund until settlement. If cash is not available to the Fund at the time of settlement, the Fund may be required to dispose of portfolio securities that it would otherwise hold to maturity in order to meet its obligation to accept delivery under a delayed delivery agreement. The Board of Directors has determined that entering into delayed delivery agreements does not present a materially increased risk of loss to shareholders, but the Board of Directors may restrict the use of delayed delivery agreements if the risk of loss is determined to be material or if it affects the constant net asset value of the Money Market Fund. WHEN-ISSUED SECURITIES Each of the Funds may purchase securities on a "when-issued" basis. Many new issues of debt securities are offered on a "when-issued" basis, that is, the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. The Funds will only make commitments to purchase such debt securities with the intention of actually acquiring such securities, but the Funds may each sell these securities before the settlement date if it is deemed advisable. The Fund holds, and maintains until the 9 settlement date segregated cash or other high quality debt securities of a dollar value sufficient at all times to make payment for the when-issued securities. The securities will be marked-to-market and additional cash or securities 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. 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. The Capital Appreciation Fund will not, however, purchase securities of any company with a record of less than three years' continuous operation (including that of predecessors) if such purchase would cause the Fund's investment in all such companies, taken at cost, to exceed 5% of the value of the Fund's total assets. WARRANTS The Growth & Income Fund may, from time to time, invest in warrants. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Of course, since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of a warrant, the current market value of the underlying security, the life of the warrant and various other investment factors. The investment in warrants by the Fund, valued at the lower of cost or market, may not exceed 5% of the value of its net assets and not more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges. 10 SHORT SALES Each of the Funds (except the Money Market Fund) may enter into short sales transactions from time to time. None of these Funds will make short sales of securities nor maintain a short position unless at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short. This is a technique known as selling short "against the box." Such short sales will be used by each of the Funds for the purpose of deferring recognition of gain or loss for federal income tax purposes. In no event may more than 10% of the value of any such Fund's total assets be deposited or pledged as collateral for such sales at any time. RULE 144A SECURITIES Each of the Funds may purchase securities which, while privately placed, are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities even though such securities are not registered under the 1933 Act. AIM, under the supervision of the Company's Board of Directors, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% of its assets (10% in the case of the Money Market Fund) in illiquid securities. Determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination AIM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, AIM could consider the (i) frequency of trades and quotes, (ii) number of dealers and potential purchasers, (iii) dealer undertakings to make a market, and (iv) nature of the security and of market place trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities will also be monitored by AIM and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not invest more than 15% of its assets (10% in the case of the Money Market Fund) in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of each Fund's investments in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. At the present time, it is not possible to predict with certainty how the market for Rule 144A securities will develop. 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. 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 11 companies is similar to that of electric companies. The performance of natural gas utilities may also be substantially affected by fluctuations in energy prices. Communications Industry. Most of the communications industry capacity is concentrated in the hands of a few very large publicly-held companies, unlike the situation in the electric and gas industries. Significant risks for the investor to overcome still exist, however, including risk relating to pricing at marginal versus embedded cost. New entrants may have lower costs of material due to newer technologies or lower standards of reliability than those heretofore imposed by American Telephone & Telegraph ("AT&T") on the industry. Accordingly, the marginal cost of incremental service is much lower than the costs embedded in an existing network. Communications companies are not subject to the Public Utility Holding Company Act of 1935. Interstate communications service may be subject to Federal Communications Commission regulation. Local service may be regulated by the states. In addition, AT&T and its former subsidiaries are still subject to judicial review pursuant to the settlement of the antitrust case brought against them by the Department of Justice. Water Utility Industry. The water utility industry is composed of regulated public utilities that are involved in the distribution of drinking water to densely populated areas. The industry is geographically diverse and subject to the same rate base and rate of return regulations as are other public utilities. Demand for water is most heavily influenced by the local weather, population growth in the service area and new construction. Supplies of clean, drinkable water are limited and are primarily a function of the amount of past rainfall. Other. In addition to the particular types of utilities industries described above, the Fund may invest in developing utility technology companies (such as cellular telephone, fiber optics and satellite communications firms) and in holding companies which derive a substantial portion of their revenues from utility-related activities. HEDGING AND OTHER INVESTMENT TECHNIQUES As described in the Prospectus under "Certain Investment Strategies and Techniques," each of the Funds, other than the Money Market Fund, may enter into transactions in options, futures and forward contracts on a variety of instruments and indexes, in order to protect against declines in the value of portfolio securities and increases in the cost of securities to be acquired as well as to increase a Fund's return. The discussion below supplements the discussion in the Prospectus. Options. A Fund may write covered call options both to reduce the risks associated with certain of its investments and to increase total investment return through the receipt of premiums. In return for the premium income, the Fund loses any opportunity to profit from an increase in the market price of the underlying securities, above the exercise price, while the contract is outstanding, except to the extent the premium represents a profit. The Fund also retains the risk of loss if the price of the security declines, although the premium is intended to offset that loss in whole or in part. As long as its obligations under the option continue, a Fund must assume that the call may be exercised at any time and that the net proceeds realized from the sale of the underlying securities pursuant to the call may be substantially below the prevailing market price. A Fund may enter into a "closing purchase transaction", by purchasing an option identical to the one it has written, and terminate its obligations under the covered call. The Fund will realize a gain (or loss) from a closing purchase transaction if the amount paid to purchase a call option is less (or more) than the premium received upon writing the corresponding call option. Any loss resulting from the exercise or closing out of a call option is likely to be offset in whole or in part by unrealized appreciation of the underlying security owned by the Fund primarily because a price increase of a call option generally reflects an increase in the market price of the securities on which the option is based. In order to sell portfolio securities that cover a call option, a Fund will effect a closing purchase transaction so as to close out any existing covered call option on those securities. A closing purchase transaction for exchange-traded options may be made only on a national securities 12 exchange. A liquid secondary market on an exchange may not always exist for any particular option, or at any particular time, and, for some options, such as over-the-counter options, no secondary market on an exchange may exist. If a Fund is unable to effect a closing purchase transaction, the Fund will not sell the underlying security until the option expires or the Fund delivers the underlying security upon exercise. A Fund may write put options to earn additional income in the form of option premiums if it expects the price of the underlying securities to remain stable or rise during the option period so that the option will not be exercised. A Fund may also write put options if it expects a decline in the price of the underlying securities and intends to exercise the option at a price which, offset by the option premium, is less than the current price. The risk of either strategy is that the price of the underlying securities may decline by an amount greater than the premium received. A Fund may effect a closing purchase transaction to realize a profit on an outstanding put option or to prevent an outstanding put option from being exercised. If a Fund is able to enter into a closing purchase transaction, the Fund will realize a profit (or loss) from that transaction if the cost of the transaction is less (or more) than the premium received from the writing of the option. After writing a put option, a Fund may incur a loss equal to the difference between the exercise price of the option and the sum of the market value of the underlying securities plus the premiums received from the sale of the option. The purchase of put options on securities enables a Fund to preserve, at least partially, unrealized gains in an appreciated security in its portfolio without actually selling the security. In addition, the Fund may continue to receive interest or dividend income on the security. An option on a securities index, unlike a stock option (which gives the holder the right to purchase or sell a specified stock at a specified price) gives the holder the right to receive a cash "exercise settlement amount" equal to (i) the difference between the exercise price of the option and the value of the underlying stock index on the exercise date, multiplied by (ii) a fixed "index multiplier." A securities index fluctuates with changes in the market values of the securities included in the index. For example, some securities index options are based on a broad market index such as the S&P 500 or the NYSE Composite Index, or a narrower market index such as the S&P 100. Indexes may also be based on an industry or market segment such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on stock indexes are currently traded on the following exchanges, among others: The Chicago Board Options Exchange, New York Stock Exchange, and American Stock Exchange. Options on indexes of debt securities and other types of securities indexes are not currently available. If such options are introduced and traded on exchanges in the future, the Funds may use them. The value of securities index options in any investment strategy depends upon the extent to which price movements in the portion of the underlying securities correlate with price movements in the selected securities index. Perfect correlation is not possible because the securities held or to be acquired by a Fund will not exactly match the composition of the securities indexes on which options are written. In the purchase of securities index options the principal risk is that the premium and transaction costs paid by a Fund in purchasing an option will be lost if the changes (increase in the case of a call, decrease in the case of a put) in the level of the index do not exceed the cost of the option. In writing securities index options, the principal risk is that a Fund could bear a loss on the options that would be only partially offset (or not offset at all) by the increased value or reduced cost of the hedged securities. Moreover, in the event the Fund were unable to close an option it had written, it might be unable to sell the securities used as cover. Futures Contracts. A futures contract is a bilateral agreement to buy or sell a security (or deliver a cash settlement price, in the case of an index future) for a set price in the future. When the contract is entered into a good faith deposit, known as initial margin, is made with the broker. Subsequent daily payments, known as variation margin, are made to and by the broker reflecting changes in the value of the security or level of the index. Futures contracts are authorized by boards of trade designated as "contracts markets" by the Commodity Futures Trading Commission ("CFTC"). Certain results may be accomplished more quickly, and with lower transaction costs, in the futures market (because of its greater liquidity) than in the cash market. 13 A Fund will incur brokerage fees when it purchases and sells futures contracts, and it will be required to maintain margin deposits. Positions taken in the futures markets are typically liquidated through offsetting transactions, which may result in a gain or a loss, before delivery or cash settlement is required. However, a Fund may close out a position by making or taking delivery of the underlying securities wherever it appears economically advantageous to do so. Purchases of options on futures contracts may present less risk than the purchase and sale of the underlying futures contracts, since the potential loss is limited to the amount of the premium plus related transaction costs. A call option on a futures contract gives the purchaser the right, in return for the premium paid, to purchase a futures contract (assume a "long" position) at a specified exercise price at any time before the option expires. A put option gives the purchaser the right, in return for the premium paid, to sell a futures contract (assume a "short" position), for a specified exercise price, at any time before the option expires. Positions in futures contracts may be closed out only on an exchange or a board of trade which provides the market for such futures. Although the Funds intend to purchase or sell futures only on exchanges or boards of trade where there appears to be an active market, there may not always be a liquid market, and it may not be possible to close a futures position at that time; in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of maintenance margin. Whenever futures positions are used to hedge portfolio securities, however, any increase in the price of the underlying securities held by the Fund may partially or completely offset losses on the futures contracts. If a broker or clearing member of an options or futures clearing corporation were to become insolvent, the Funds could experience delays and might not be able to trade or exercise options or futures purchased through that broker. In addition, the Funds could have some or all of their positions closed out without their consent. If substantial and widespread, these insolvencies could ultimately impair the ability of the clearing corporations themselves. While the principal purpose of engaging in these transactions is to limit the effects of adverse market movements, the attendant expense may cause the Funds' returns to be less than if the transactions had not occurred. Their overall effectiveness, therefore, depends on AIM's accuracy in predicting future changes in interest rate levels or securities price movements, as well as on the expense of engaging in these transactions. INVESTMENT RESTRICTIONS FUNDAMENTAL RESTRICTIONS The following restrictions apply to all of the Funds and are fundamental. Unless permitted by law, they will not be changed for any Fund without approval of that Fund's voting securities. None of the Funds will: (1) invest for the purpose of exercising control over or management over a company; (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, 14 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) invest in securities of any other investment company except as part of a merger, consolidation or acquisition of assets and except for the investment in such securities of funds representing compensation otherwise payable to Directors of the Company pursuant to any deferred compensation plan existing at any time between the Company and one or more of its Directors. Additionally, the International Fund may purchase such securities of investment companies, provided that such purchase does not cause the Fund (i) to have more than 5% of the Fund's total assets, taken at market value, invested in any one such company, (ii) to have an aggregate investment in such companies of more than 10% of its total assets, taken at market value, or (iii) to own more than 3% of the total outstanding voting stock of any such company; (7) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets at market value at the time of each investment, except that the Money Market Fund may invest up to 100% of its assets in obligations issued by banks. This limitation does not apply to the Global Utilities Fund or to investments in obligations of the U.S. Government or any of its agencies or instrumentalities but will apply to foreign government obligations unless the Securities and Exchange Commission permits their exclusion; (8) issue senior securities, except to the extent permitted by the 1940 Act, including permitted borrowings; (9) purchase securities of an issuer (other than investments in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities), if as a result with respect to 75% of the value of the Fund's total assets, taken at market value, (i) more than 5% of the Fund's total assets taken at market value would be invested in the securities of such issuer, except that up to 25% of the Fund's total assets may be invested in securities issued or guaranteed by any foreign government or its agencies or instrumentalities, or (ii) such purchase would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund. As a matter of operating policy, the Money Market Fund will invest no more than 5% of the value of that Fund's total assets in securities, other than U.S. Government securities of any one issuer, except that the Money Market Fund may invest up to 25% of its total assets in First Tier Securities (as defined in Rule 2a-7 under the 1940 Act) of a single issuer for a period of up to three business days after the purchase of such security. This restriction does not apply to the Global Utilities Fund; and (10) Each Fund may, not withstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and limitations as that Fund. NON-FUNDAMENTAL RESTRICTIONS The following investment restrictions apply to all of the Funds but are not fundamental. They may be changed for any Fund without approval of that Fund's voting securities. (1) None of the Funds will invest more than 15% (10% for the Money Market Fund) of its assets in securities restricted as to disposition under federal securities laws, or securities otherwise considered illiquid or not readily marketable, including repurchase agreements having a maturity of more than seven days. 15 (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. MANAGEMENT DIRECTORS AND OFFICERS The directors and officers of the Company and their principal occupations during the last five years are set forth below. Unless otherwise indicated, the address of each director and officer is 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173. *CHARLES T. BAUER, Director and Chairman (77) Director and Chairman and Chief Executive Officer, A I M Management Group Inc.; Chairman of the Board of Directors, A I M Advisors, Inc., A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund Management Company. BRUCE L. CROCKETT, Director (52) COMSAT Corporation 6560 Rock Spring Drive Bethesda, MD 20817 Director, President and Chief Executive Officer, COMSAT Corporation (includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video Enterprises, COMSAT RSI and COMSAT International Ventures.) Previously, President and Chief Operating Officer, COMSAT Corporation; President, World Systems Division, COMSAT Corporation; and Chairman, Board of Governors of INTELSAT, (each of the COMSAT companies listed above is an international communication, information and entertainment-distribution services company). OWEN DALY II, Director (71) Six Blythewood Road Baltimore, MD 21210 Director, Cortland Trust Inc. (investment company). Formerly, Director, CF & I Steel Corp., Monumental Life Insurance Company and Monumental General Insurance Company; and Chairman of the Board of Equitable Bancorporation. *CARL FRISCHLING, Director (59) 919 Third Avenue New York, NY 10022 Partner, Kramer, Levin, Naftalis, Nessan, Kamin & Frankel (law firm). Formerly, Partner, Reid & Priest (law firm); and, prior thereto, Partner, Spengler Carlson Gubar Brodsky & Frischling (law firm). - --------------------- * A director who is an "interested person" of the Company as defined in the 1940 Act. 16 **ROBERT H. GRAHAM, Director and President (49) Director, President and Chief Operating 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 Institutional Fund Services, Inc., A I M Fund Services, Inc. and Fund Management Company. JOHN F. KROEGER, Director (71) 37 Pippins Way Morristown, NJ 07960 Director, Flag Investors International Trust, Flag Investors Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc., Flag Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American Government Bond Fund, Inc. (investment companies). Formerly, Consultant, Wendell & Stockel Associates, Inc. (consulting firm). LEWIS F. PENNOCK, Director (53) 8955 Katy Freeway, Suite 204 Houston, TX 77024 Attorney in private practice in Houston, Texas. IAN W. ROBINSON, Director (73) 183 Rivers Drive Tequesta, FL 33469 Formerly, Executive Vice President and Chief Financial Officer, Bell Atlantic Management Services, Inc. (provider of centralized management services to telephone companies); Executive Vice President, Bell Atlantic Corporation (parent of seven telephone companies); Vice President and Chief Financial Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone Company. LOUIS S. SKLAR, Director (56) Transco Tower, 50th Floor 2800 Post Oak Road Houston, TX 77056 Executive Vice President, Development and Operations, Hines Interests Limited Partnership (real estate development). ***JOHN J. ARTHUR, Senior Vice President and Treasure (51) Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice President and Treasurer, A I M Management Group Inc., A I M Distributors, Inc., A I M Capital Management, Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc., and Fund Management Company. - ------------------------ ** A director who is an "interested person" of the Company and AIM as defined in the 1940 Act. *** Mr. Arthur and Ms. Relihan are married to each other. 17 GARY T. CRUM, Senior Vice President (48) Director and President, A I M Capital Management, Inc.; Director and Senior Vice President, A I M Management Group Inc., A I M Advisors, Inc., and Director, A I M Distributors, Inc. SCOTT G. LUCAS, Senior Vice President (36) Director and Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M Management Group Inc. and A I M Advisors, Inc. ***CAROL F. RELIHAN, Secretary and Senior Vice President (41) Senior Vice President, General Counsel and Secretary, A I M Advisors, Inc.; Vice President, General Counsel and Secretary, A I M Management Group Inc.; Vice President and General Counsel, Fund Management Company; Vice President, A I M Distributors, Inc.; and Vice President, A I M Capital Management, Inc., A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc. DANA R. SUTTON, Vice President and Assistant Treasurer (37) Vice President and Fund Controller, A I M Advisors, Inc.; and Assistant Vice President and Assistant Treasurer, Fund Management Company. ROBERT G. ALLEY, Vice President (47) Senior Vice President, A I M Capital Management, Inc. and Vice President, A I M Advisors, Inc. Formerly, Senior Fixed Income Money Manager, Waddell and Reed, Inc. STUART W. COCO, Vice President (40) Senior Vice President, A I M Capital Management, Inc. and Vice President, A I M Advisors, Inc. MELVILLE B. COX, Vice President (52) Vice President, A I M Advisors, Inc., A I M Capital Management, Inc., A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and Assistant Vice President, A I M Distributors, Inc. and Fund Management Company. Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary, Charles Schwab Family of Funds and Schwab Investments; Chief Compliance Officer, Charles Schwab Investment Management, Inc.; and Vice President, Integrated Resources Life Insurance Co. and Capitol Life Insurance Co. KAREN DUNN KELLEY, Vice President (35) Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. JONATHAN C. SCHOOLAR, Vice President (34) Director and Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. The standing committees of the Board of Directors are the Audit Committee, the Investments Committee and the Nominating and Compensation Committee. - ------------------ *** Mr. Arthur and Ms. Relihan are married to each other. 18 The members of the Audit Committee are Messrs. Daly, Kroeger (Chairman), Pennock and Robinson. The Audit Committee is responsible for meeting with the Company's auditors to review audit procedures and results and to consider any matters arising from an audit to be brought to the attention of the directors as a whole with respect to the Company's fund accounting or its internal accounting controls, or for considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors and such Committee. The members of the Investments Committee are Messrs. Bauer, Crockett, Daly (Chairman), Kroeger and Pennock. The Investments Committee is responsible for reviewing portfolio compliance, brokerage allocation, portfolio investment pricing issues, interim dividend and distribution issues, or considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors and such Committee. The members of the Nominating and Compensation Committee are Messrs. Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and Compensation Committee is responsible for considering and nominating individuals to stand for election as directors who are not interested persons, reviewing from time to time the compensation payable to the disinterested directors, or considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors of such Committee. All of the Company's directors also serve as directors or trustees of some or all of the other mutual funds advised or managed by AIM. All of the Company's executive officers hold similar offices with some or all of such mutual funds. Remuneration of Directors Each director is reimbursed for expenses incurred in connection with each meeting of the Board of Directors or any Committee attended. The directors of the Company who do not serve as officers of the Company are compensated for their services according to a fee schedule which recognizes the fact that they also serve as directors or trustees 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. 19 Set forth below is information regarding compensation paid or accrued during the eleven months ended December 31, 1995 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 7,154 3,655 57,750 - --------------------------------------------------------------------------- Owen Daly II 8,091 18,662 58,125 - --------------------------------------------------------------------------- Carl Frischling 8,051 11,323 57,250 - --------------------------------------------------------------------------- Robert H. Graham 0 0 0 - --------------------------------------------------------------------------- John F. Kroeger 7,691 22,313 58,125 - --------------------------------------------------------------------------- Lewis F. Pennock 7,014 5,067 58,125 - --------------------------------------------------------------------------- Ian W. Robinson 7,090 15,381 56,750 - --------------------------------------------------------------------------- Louis S. Sklar 8,121 6,632 57,250 - ---------------------------------------------------------------------------
- -------------------------- (1) The total amount of compensation deferred by all Directors of the Company during the eleven months ended December 31, 1995, including interest earned thereon, was $29,920. (2) During the eleven months ended December 31, 1995, the total amount of expenses allocated to the Company in respect of such retirement benefits was $1,293. Data reflects compensation estimated for the calendar year ended December 31, 1995. (3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a Director or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling, Robinson and Sklar each serves as a Director or Trustee of a total of 10 AIM Funds. Data reflects compensation estimated for the calendar year ended December 31, 1995. 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 "AIM Funds"). Each eligible director is entitled to receive an annual benefit from the AIM Funds commencing on the first day of the calendar quarter coincident with or following his date of retirement equal to 75% of the retainer paid or accrued by the 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 AIM Funds and the director) for the number of such director's years of service (not in excess of 10 years of service) completed with respect to any of the AIM Funds. Such benefit 20 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 various compensation and years of service classifications. The estimated credited years of service as of December 31, 1995 for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar are 8, 9, 18, 18, 14, 8 and 6 years, respectively.
Number of Annual Compensation Years of Paid By All AIM Funds Service With the AIM Funds $55,000 $60,000 $65,000 - ---------------------------------------------------------------------- 10 $41,250 $45,000 $48,750 - ---------------------------------------------------------------------- 9 $37,125 $40,500 $43,875 - ---------------------------------------------------------------------- 8 $33,000 $36,000 $39,000 - ---------------------------------------------------------------------- 7 $28,875 $31,500 $34,125 - ---------------------------------------------------------------------- 6 $24,750 $27,000 $29,250 - ---------------------------------------------------------------------- 5 $20,625 $22,500 $24,375 - ----------------------------------------------------------------------
Deferred Compensation Agreements Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this paragraph only, the "deferring directors") have each executed a Deferred Compensation Agreement (collectively, the "Agreements"). Pursuant to the Agreements, the deferring directors elected to defer receipt of 100% of their compensation payable by the Company, and such amounts are placed into a deferral account. Currently, the deferring directors may select various AIM Funds in which all or part of their deferral account shall be deemed to be invested. Distributions from the deferring directors' deferral accounts will be paid in cash, in generally equal quarterly installments over a period of ten years 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. During the eleven months ended December 31, 1995, AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Global Utilities Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund and AIM V.I. Value Fund each paid $2,703, $2,435, $2,355, $1,602, $2,229, $2,379, $2,241, $2,457 and $2,788, respectively, in legal fees to Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, the law firm in which Mr. Frischling, a director of the Company, is a partner, as counsel to the Board of Directors. 21 INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS Each Fund has entered into a master investment advisory agreement (the "Advisory Agreement") and a master administrative services agreement (the "Administrative Services Agreement") with AIM. See "Management" in the Prospectus. AIM was organized in 1976, and along with its affiliates, manages or advises 43 investment company portfolios. As of April 1, 1996, the total assets advised or managed by AIM and its affiliates were approximately $48.2 billion. AIM and the Company have adopted a Code of Ethics (the "Code") which requires investment personnel and certain other employees (a) to pre-clear personal securities transactions subject to the Code, (b) to file reports 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. The Code also prohibits investment personnel and 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). Violations of the Code may result in censure, monetary penalties, suspension or termination of employment. The Advisory Agreement for the Funds provides that each Fund will pay all expenses of the Fund, including, without limitation: brokerage commissions, taxes, legal, auditing, or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to directors and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Company on behalf of the Funds in connection with membership in investment company organizations, the cost of printing copies of prospectuses and statements of additional information distributed to the Fund's shareholders; and all other charges and costs of the Fund's operations unless otherwise explicitly provided. The Advisory Agreement for the Funds provides that the agreement will remain in effect for the initial term and continue in effect from year to year thereafter only if such continuance is specifically approved at least annually (i) by the Company's Board of Directors or by the vote of a majority of the outstanding voting securities of the Funds (as defined in the 1940 Act); and (ii) by the affirmative vote of a majority of the directors who are not parties to the agreement or "interested persons" of any such party (the "Non-Interested Directors") by votes cast in person at a meeting called for such purpose. The Advisory Agreement was initially approved by the Company's Board of Directors (including the affirmative vote of all of the Non-Interested Directors) on July 19, 1993. The Board of Directors of the Company approved the continuance of the Agreement until June 30, 1996. The Advisory Agreement became effective on October 18, 1993 and was amended April 28, 1994 to include the Global Utilities Fund and the Growth & Income Fund. The Advisory Agreement provides that the Company or AIM may terminate such agreement with respect to any Fund(s) on sixty (60) days' written notice without penalty. The Advisory Agreement terminates automatically in the event of its assignment. Pursuant to the Advisory Agreement, AIM receives a fee from each of AIM V.I. Capital Appreciation Fund, AIM V.I. Global Utilities Fund, AIM V.I. Growth Fund, AIM V.I. Growth and Income Fund and AIM V.I. Value Fund calculated at the following annual rate, based on the average daily net assets of the Fund during the year: Net Assets Annual Rate ---------- ----------- First $250,000,000 0.65% Over $250,000,000 0.60% 22 Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I. Diversified Income Fund calculated at the following annual rate, based on the average daily net assets of the Fund during the year: Net Assets Annual Rate ---------- ----------- First $250,000,000 0.60% Over $250,000,000 0.55% Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I. Government Securities Fund calculated at the following annual rate, based on the average daily net assets of the Fund during the year: Net Assets Annual Rate ---------- ----------- First $250,000,000 0.50% Over $250,000,000 0.45% Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I. International Equity Fund calculated at the following annual rate, based on the average daily net assets of the Fund during the year: Net Assets Annual Rate ---------- ----------- First $250,000,000 0.75% Over $250,000,000 0.70% Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I. Money Market Fund calculated at the following annual rate, based on the average daily net assets of the Fund during the year: Net Assets Annual Rate ---------- ----------- First $250,000,000 0.40% Over $250,000,000 0.35% Each Fund paid to AIM a management fee (net of fee waivers) for the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995 and for the period May 5, 1993 (date operations commenced) through January 31, 1994, under the Advisory Agreement and a prior, substantially identical advisory agreement, as follows:
December 31, January 31, January 31, 1995 1995 1994 ------------ ----------- ----------- AIM V.I. Capital Appreciation Fund $ 882,870 $402,307 $23,119 AIM V.I. Diversified Income Fund $ 193,008 $ 98,044 $ -0- AIM V.I. Global Utilities Fund $ -0- $ -0-* $ N/A AIM V.I. Government Securities Fund $ 71,080 $ 42,430 $ -0- AIM V.I. Growth Fund $ 434,620 $231,152 $ -0- AIM V.I. Growth and Income Fund $ 46,017 $ -0-* $ N/A AIM V.I. International Equity Fund $ 457,559 $317,747 $ -0- AIM V.I. Money Market Fund $ 168,901 $ 85,967 $ -0- AIM V.I. Value Fund $1,078,007 $489,030 $27,729
* Fees paid were for the period May 2, 1994 (date operations commenced) through January 31, 1995. 23 For the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995 and for the period May 5, 1993 (date operations commenced) through January 31, 1994, AIM waived management fees for each Fund as follows:
December 31, January 31, January 31, 1995 1995 1994 ------------ ------------ ----------- AIM V.I. Capital Appreciation Fund $ -0- $ -0- $35,486 AIM V.I. Diversified Income Fund $ -0- $25,046 $28,217 AIM V.I. Global Utilities Fund $32,703 $ 9,264* N/A AIM V.I. Government Securities Fund $ -0- $18,907 $16,775 AIM V.I. Growth Fund $ -0- $ -0- $48,427 AIM V.I. Growth and Income Fund $67,802 $20,806* N/A AIM V.I. International Equity Fund $ -0- $ 5,010 $39,537 AIM V.I. Money Market Fund $ -0- $18,531 $19,489 AIM V.I. Value Fund $ -0- $ -0- $31,977
* Fees waived were for the period May 2, 1994 (date operations commenced) through January 31, 1995. In addition to the management fees paid by each Fund for the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995 and for the period May 5, 1993 (date operations commenced) through January 31, 1994, AIM absorbed other expenses, as follows:
December 31, January 31, January 31, 1995 1995 1994 ------------ ------------ ----------- AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- AIM V.I. Diversified Income Fund $ -0- $ -0- $ 2,000 AIM V.I. Global Utilities Fund $13,800 $12,000* N/A AIM V.I. Government Securities Fund $ -0- $ -0- $10,000 AIM V.I. Growth Fund $ -0- $ -0- $ -0- AIM V.I. Growth and Income Fund $ -0- $ -0-* N/A AIM V.I. International Equity Fund $ -0- $ -0- $17,600 AIM V.I. Money Market Fund $ -0- $ -0- $ 8,800 AIM V.I. Value Fund $ -0- $ -0- $ -0-
* Fee amounts are for the period May 2, 1994 (date operations commenced) through January 31, 1995. 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. 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 Board of Directors of the Company approved the continuance of the Agreement until June 30, 1996. The Administrative Services Agreement was initially approved by the Company's Board of Directors (including the 24 Non-Interested Directors) on July 19, 1993. The agreement terminates automatically in the event of its assignment. For the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995 and for the period May 5, 1993 (date operations commenced) through January 31, 1994, AIM received reimbursement of administrative services costs from each of the Funds pursuant the Administrative Services Agreement and a prior, substantially identical administrative services agreement, as follows:
December 31, January 31, January 31, 1995 1995 1994 ------------ ------------ ----------- AIM V.I. Capital Appreciation Fund $33,560 $23,992 $12,770 AIM V.I. Diversified Income Fund $36,406 $35,441 $12,736 AIM V.I. Global Utilities Fund $33,582 $13,577* N/A AIM V.I. Government Securities Fund $30,769 $23,230 $10,458 AIM V.I. Growth Fund $32,425 $23,537 $12,766 AIM V.I. Growth and Income Fund $31,484 $13,596* N/A AIM V.I. International Equity Fund $21,068 $12,000 $ 7,000 AIM V.I. Money Market Fund $22,997 $21,019 $11,288 AIM V.I. Value Fund $35,540 $21,568 $13,572
* Fees paid were for the period May 2, 1994 (date operations commenced) through January 31, 1995. THE DISTRIBUTION AGREEMENT The Funds have entered into a master distribution agreement (the "Distribution Agreement") with AIM Distributors, dated October 18, 1993 and was amended April 28, 1994. The Distribution Agreement was amended on April 28, 1994 to include the Global Utilities Fund and the Growth & Income Fund. Information concerning AIM Distributors and the continuous offering of the Funds' shares is set forth in the Prospectus under the heading "Management." The Distribution Agreement was initially approved by the Board of Directors (including the affirmative vote of all the directors who were not parties to the Distribution Agreement or "interested persons" of any such party) of the Company on July 19, 1993. 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 until June 30, 1996, 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 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 Company or AIM Distributors may terminate its Distribution Agreement on sixty (60) days' written notice without penalty. The Distribution Agreement will terminate automatically in the event of its assignment. DETERMINATION OF NET ASSET VALUE For the Money Market Fund: The net asset value per share of the Fund is determined daily as of the close of trading of the New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on each 25 business day of the Fund. Net asset value per share is determined by dividing the value of the Fund's securities, cash and other assets (including interest accrued but not collected), less all its liabilities (including accrued expenses and dividends payable), by the number of shares outstanding of the Fund and rounding the resulting per share net asset value to the nearest one cent. Determination of the Fund's net asset value per share is made in accordance with generally accepted accounting principles. The securities of the Fund are valued on the basis of amortized cost. This method values a security at its cost on the date of purchase and thereafter assumes a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the security. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if the security were sold. During such periods, the daily yield on shares of the Fund computed as described under "Yield Information" may differ somewhat from an identical computation made by another investment company with identical investments utilizing available indications as to the market value of its portfolio securities. The valuation of the portfolio instruments based upon their amortized cost and the concomitant maintenance of the net asset value per share of $1.00 for the Fund is permitted in accordance with applicable rules and regulations of the SEC which require the Fund to adhere to certain conditions. These rules require, among other things, that the Fund maintain a dollar-weighted average portfolio maturity of 90 days or less, purchase only instruments having remaining maturities of 397 calendar days or less and invest only in securities determined by the Board of Directors to be "Eligible Securities" and to present minimal credit risk to the Fund. Rule 2a-7, promulgated under the 1940 Act, which governs the operation of money market funds, defines an "Eligible Security" as follows: (i)a security with a remaining maturity of 397 days or less that is rated (or that has been issued by an issuer that is rated with respect to a class of short-term debt obligations, or any security within that class, that is comparable in priority and security with the security) by the Requisite NRSROs in one of the two highest rating categories for short-term debt obligations (within which there may be sub-categories or gradations indicating relative standing); or (ii)a security: (A)that at the time of issuance was a long-term security but that has a remaining maturity of 397 calendar days or less; and (B)whose issuer has received from the Requisite NRSROs a rating, with respect to a class of short-term debt obligations (or any security within that class) that is now comparable in priority and security with the security, in one of the two highest rating categories for short-term debt obligations (within which there may be sub-categories or gradations indicating relative standing); or (iii)an unrated security that is of comparable quality to a security meeting the requirements of paragraphs (a)(5)(i) or (ii) of this section, as determined by the money market fund's board of directors; provided, however, that: (A)the board of directors may base its determination that a standby commitment is an Eligible Security upon a finding that the issuer of the commitment presents a minimal risk of default; and 26 (B)a security that at the time of issuance was a long-term security but that has a remaining maturity of 397 calendar days or less and that is an unrated security(1) is not an Eligible Security if the security has a long- term rating from any NRSRO that is not within the NRSRO's two highest categories (within which there may be sub-categories or gradations indicating relative standing). 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 of the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Company. Net asset value per share is determined by dividing the value of the Fund's securities, cash and other assets (including interest accrued but not collected), less all its liabilities (including accrued expenses and dividends payable), by the total number of shares outstanding. Determination of the Fund's net asset value per share is made in accordance with generally accepted accounting principles. Each equity security held by the Fund is valued at its last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Exchange listed convertible debt securities are valued at the mean between the last bid and asked prices obtained from broker- dealers or a comparable alternative, such as Bloomberg or Telerate. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean between the closing bid and asked prices on that day. Non- convertible 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 - ------------------------- (1) An "unrated security" is a security (i) issued by an issuer that does not have a current short-term rating from any NRSRO, either as to the particular security or as to any other short-term obligations of comparable priority and security; (ii) that was a long-term security at the time of issuance and whose issuer has not received from any NRSRO a rating with respect to a class of short-term debt obligations now comparable in priority and security; or (iii) a security that is rated but which is the subject of an external credit support agreement not in effect when the security was assigned its rating, provided that a security is not an unrated security if any short-term debt obligation issued by the issuer and comparable in priority and security is rated by any NRSRO. 27 under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued on the basis of amortized cost. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such foreign securities used in computing the net asset value of each Fund's shares are determined at such times as trading is completed. Foreign currency exchange rates are also generally determined prior the close of the NYSE. Occasionally, events affecting the values of such foreign securities and such foreign securities exchange rates may occur after the time at which such values are determined and prior to the close of the NYSE that will not be reflected in the computation of a Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS Each Fund is treated as a separate association taxable as a corporation. Each Fund intends to qualify under the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company ("RIC") for each taxable year. Accordingly, each Fund must, among other things, meet the following requirements: A. Each Fund must generally derive (i) 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 and (ii) less than 30% of its gross income from the sale or disposition, generally, of (a) stocks or securities, (b) options, futures or forward contracts (other than options, futures or forward contracts on foreign currencies) and (c) foreign currencies (or options, futures or forward contracts on foreign currencies) that are not directly related to the Company's business of investing in stock or securities. 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). 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 28 result in taxation of and treatment of the Contract holders investing in a corresponding division other than as described in the applicable prospectuses of the various insurance company separate accounts. MISCELLANEOUS INFORMATION AUDIT REPORTS The Company furnishes semi-annual reports containing information about the Funds and their operations, including a list of the investments held in each Fund's portfolio and their respective financial statements. Financial statements, audited by independent auditors, will be issued annually. The firm of Tait, Weller & Baker, Two Penn Center Plaza, Philadelphia, PA 19102, serves as the auditors of each Fund. LEGAL MATTERS Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the Company on certain federal securities law matters. CUSTODIAN AND TRANSFER AGENT State Street Bank and Trust Company ("State Street"), 225 Franklin Street, Boston, MA 02110, is custodian of all securities and cash of the Funds. The custodian attends to the collection of principal and income, pays and collects all monies for securities bought and sold by the Portfolios, and performs certain other ministerial duties. State Street also acts as transfer and dividend disbursing agent for the Funds. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets. The Funds pay State Street such compensation as may be agreed upon from time to time. PRINCIPAL HOLDERS OF SECURITIES To the best of the knowledge of each Fund, the names of the record holders of 5% or more of the outstanding shares of the Fund as of April 1, 1996, 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 1919, Houston TX, 77046. The address of Connecticut General Life Insurance Company and CG Variable Annuity Separate Account is 900 Cottage Grove Road, Bloomfield, CT: 29 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 - --------------------- ---------------- ------------ -------------- CG Variable Annuity -0- -0- 97.93%* Separate Account
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 - -------------- ---------------- ------------ -------------- CG Variable Annuity -0- -0- 96.60%* Separate Account 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 - ------------- ---------------- ------------ -------------- CG Variable Annuity -0- -0- 87.40%* Separate Account Connecticut General Life 5.97% -0- -0- Insurance Company A I M Advisors, Inc. 5.78% -0- -0-
- ----------------------------- * 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. 30 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 - -------------------------------------- ----------------- ------------ -------------- CG Variable Annuity -0- -0- 93.99%* Separate Account Connecticut General Life 5.71% -0- -0- Insurance Company
AIM V.I. GROWTH FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY - -------------------------------------- ----------------- ------------ -------------- CG Variable Annuity -0- -0- 98.47%* Separate Account
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 - -------------------------------------- ----------------- ------------ -------------- CG Variable Annuity -0- -0- 91.35%* Separate Account
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 - -------------------------------------- ----------------- ------------ -------------- CG Variable Annuity -0- -0- 99.12%* Separate Account
- ----------------------------- * 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. 31 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 - -------------------------------------- ----------------- ------------ -------------- CG Variable Annuity -0- -0- 98.14%* Separate Account
AIM V.I. VALUE FUND
PERCENT OWNED PERCENT OWNED NAME OF OF RECORD BENEFICIALLY PERCENT OWNED RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY - -------------------------------------- ----------------- ------------ -------------- CG Variable Annuity -0- -0- 99.02%* Separate Account
As of April 1, 1996, 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 Securities and Exchange Commission 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 Securities and Exchange Commission in Washington, D.C. - ----------------------------- * A shareholder who beneficially owns more than 25% of the voting securities of a Fund may be presumed to "control" the Fund. The Funds understand that insurance company separate accounts owning shares of the Funds will vote their shares in accordance with instructions received from Contract owners, annuitants and beneficiaries. If an insurance company determines, however, that it is permitted to vote any such shares of the Funds in its own right, it may elect to do so, subject to the then current interpretation of the 1940 Act and the rules thereunder. 32 FINANCIAL STATEMENTS FS REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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, 1995, by correspondence with the custodian and brokers. Where brokers did not reply to our confirmation requests, we carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Capital Appreciation Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 January 26, 1996 FS-1 AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL MARKET APPRECIATION FUND SHARES VALUE SCHEDULE OF ------ ------ INVESTMENTS COMMON STOCKS - 85.08% December 31, 1995 ADVERTISING/BROADCASTING - 0.31% 17,500 Infinity Broadcasting Corp. - Class A(a)................. $ 651,875 ----------- AUTOMOBILE/TRUCK PARTS & TIRES - 0.34% 11,400 Echlin Inc. ............................................. 416,100 15,400 Mark IV Industries, Inc. ................................ 304,150 ----------- 720,250 ----------- BEVERAGES - 0.13% 8,600 Canandaigua Wine Co., Inc. - Class A(a).................. 280,575 ----------- BUSINESS SERVICES - 1.10% 6,800 Equifax, Inc. ........................................... 145,350 18,400 Healthcare COMPARE Corp.(a).............................. 800,400 2,000 Interim Services Inc.(a)................................. 69,500 10,000 Manpower Inc. ........................................... 281,250 18,700 Olsten Corp. ............................................ 738,650 11,126 Value Health, Inc(a)..................................... 305,965 ----------- 2,341,115 ----------- CHEMICALS (SPECIALTY) - 0.40% 25,200 Airgas Inc.(a)........................................... 837,900 ----------- COMPUTER MINI/PCS - 2.68% 12,500 CDW Computer Centers Inc.(a)............................. 506,250 28,300 COMPAQ Computer Corp.(a)................................. 1,358,400 57,600 Dell Computer Corp.(a)................................... 1,994,400 40,000 Sun Microsystems, Inc.(a)................................ 1,825,000 ----------- 5,684,050 ----------- COMPUTER NETWORKING - 7.31% 13,000 ALANTEC Corp.(a)......................................... 757,250 14,700 Ascend Communications, Inc.(a)........................... 1,192,538 43,800 Bay Networks, Inc.(a).................................... 1,801,275 14,000 Cabletron Systems, Inc.(a)............................... 1,134,000 14,500 Cascade Communications Corp.(a).......................... 1,236,125 23,400 Cheyenne Software, Inc.(a)............................... 611,325 15,000 Cidco, Inc.(a)........................................... 382,500 31,900 Cisco Systems, Inc.(a)................................... 2,380,538 22,300 Fore Systems, Inc.(a).................................... 1,326,850 13,637 Madge N.V. .............................................. 610,256 16,600 Network Equipment Technologies, Inc.(a).................. 454,425 13,000 Newbridge Networks Corp.(a).............................. 537,875 13,900 Optical Data Systems, Inc.(a) ........................... 350,975 10,500 Sync Research, Inc.(a)................................... 475,125 48,400 3Com Corp.(a)............................................ 2,256,650 ----------- 15,507,707 ----------- COMPUTER PERIPHERALS - 3.28% 20,000 Adaptec, Inc.(a)......................................... 820,000 17,850 Alliance Semiconductor Corp.(a).......................... 207,506 21,200 Cerner Corp.(a).......................................... 434,600 11,100 Digi International, Inc.(a).............................. 210,900 55,000 EMC Corp.(a)............................................. 845,625 6,900 Filenet Corp.(a)......................................... 324,300 6,500 Komag Inc.(a)............................................ 299,812 27,500 Microchip Technology, Inc.(a)............................ 1,003,750
FS-2 AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE ------ ------ COMPUTER PERIPHERALS - (CONTINUED) 8,400 Oak Technology, Inc.(a).................................. $ 354,900 17,100 Read-Rite Corp.(a)....................................... 397,575 15,900 Seagate Technology, Inc.(a).............................. 755,250 14,800 U.S. Robotics Corp.(a)................................... 1,298,700 ----------- 6,952,918 ----------- COMPUTER SOFTWARE & SERVICES - 11.97% 12,700 Adobe Systems, Inc....................................... 787,400 25,800 BMC Software, Inc.(a).................................... 1,102,950 20,800 Broderbund Software Inc.(a).............................. 1,263,600 33,700 Cadence Design Systems, Inc.(a).......................... 1,415,400 19,400 Ceridian Corp.(a)........................................ 800,250 27,000 Computer Associates International, Inc. ................. 1,535,625 55,200 Computervision Corp.(a).................................. 848,700 21,200 Corel Corp.(a)........................................... 275,600 5,400 Cycare Systems, Inc.(a).................................. 138,375 27,800 DST Systems, Inc.(a)..................................... 792,300 14,900 Electronic Arts, Inc.(a)................................. 389,262 11,100 Fiserv, Inc.(a).......................................... 333,000 17,900 FTP Software, Inc.(a).................................... 519,100 16,000 HBO & Co. ............................................... 1,226,000 9,800 Hyperion Software Corp.(a)............................... 208,250 5,500 IDX Systems Corp.(a)..................................... 191,125 32,400 Informix Corp.(a)........................................ 972,000 17,300 Microsoft Corp.(a)....................................... 1,518,075 15,200 Network General Corp.(a)................................. 507,300 48,850 Oracle Systems Corp.(a).................................. 2,070,019 19,500 Pairgain Technologies Inc.(a)............................ 1,067,625 27,900 Parametric Technology Corp.(a)........................... 1,855,350 6,200 Platinum Technology, Inc.(a)............................. 113,925 15,000 Policy Management Systems Corp.(a)....................... 714,375 12,300 Rational Software Corp.(a)............................... 275,212 24,300 SoftKey International Inc.(a)............................ 561,938 11,800 Sterling Software, Inc.(a)............................... 736,025 15,000 Sybase Inc.(a)........................................... 540,000 34,600 Symantec Corp.(a)........................................ 804,450 42,000 Synopsys, Inc.(a)........................................ 1,596,000 14,000 S3 Incorporated(a)....................................... 246,750 ----------- 25,405,981 ----------- CONGLOMERATES - 0.24% 13,968 Tyco Laboratories, Inc. ................................. 497,610 ----------- CONSUMER NONDURABLES - 0.12% 6,400 Department 56, Inc.(a)................................... 245,600 ----------- COSMETICS & TOILETRIES - 0.44% 40,800 General Nutrition Co.(a)................................. 938,400 -----------
FS-3 AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE ------ ------ ELECTRONIC COMPONENTS - 2.15% 4,000 Ametek Inc. ............................................. $ 75,000 16,000 Amphenol Corp.(a)........................................ 388,000 23,200 Anixter International Inc.(a)............................ 432,100 3,700 AVX Corp. ............................................... 98,050 9,150 Methode Electronics, Inc. ............................... 130,388 1,562 Molex Inc. .............................................. 49,594 3,906 Molex Inc. - Class A..................................... 119,621 3,750 Parker-Hannifin Corp. ................................... 128,437 4,800 Recoton Corp.(a)......................................... 90,000 20,000 Symbol Technologies, Inc.(a)............................. 790,000 12,500 Tektronix Inc. .......................................... 614,062 66,100 Teradyne Inc.(a)......................................... 1,652,500 ----------- 4,567,752 ----------- ELECTRONIC/PC DISTRIBUTORS - 0.81% 17,000 Arrow Electronics, Inc.(a)............................... 733,125 22,200 Avnet, Inc. ............................................. 993,450 ----------- 1,726,575 ----------- FINANCE (CONSUMER CREDIT) - 4.64% 12,900 ADVANTA Corp. - Class A.................................. 469,238 13,300 ADVANTA Corp. - Class B.................................. 508,725 36,200 Credit Acceptance Corp.(a) .............................. 751,150 17,300 First USA, Inc. ......................................... 767,687 43,500 Green Tree Financial Corp. .............................. 1,147,313 16,600 Household International, Inc. ........................... 981,475 56,700 MBNA Corp. .............................................. 2,090,812 32,500 Medaphis Corp.(a)........................................ 1,202,500 111,800 Mercury Finance Co. ..................................... 1,481,350 16,900 United Companies Financial Corp. ........................ 445,737 ----------- 9,845,987 ----------- FUNERAL SERVICES - 1.39% 27,300 Loewen Group, Inc. ...................................... 691,031 40,200 Service Corp. International.............................. 1,768,800 13,500 Stewart Enterprises Inc. - Class A....................... 499,500 ----------- 2,959,331 ----------- GAMING - 0.61% 26,000 Mirage Resorts, Inc.(a).................................. 897,000 14,100 Players International, Inc.(a)........................... 150,694 11,900 Trump Hotels & Casino Resort(a).......................... 255,850 ----------- 1,303,544 ----------- HOMEBUILDING - 0.26% 21,875 Clayton Homes, Inc....................................... 467,578 2,000 Oakwood Homes Corp....................................... 76,750 ----------- 544,328 ----------- HOTEL/MOTELS - 0.84% 3,500 Doubletree Corp.(a)...................................... 91,875 13,000 Hospitality Franchise System, Inc.(a).................... 1,062,750 20,000 La Quinta Motor Inns, Inc. .............................. 547,500 3,750 Promus Hotel Corp.(a).................................... 83,437 ----------- 1,785,562 ----------- INSURANCE (LIFE & HEALTH) - 0.09% 6,000 Equitable of Iowa Companies.............................. 192,750 -----------
FS-4 AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE ------ ------ LEISURE & RECREATION - 0.20% 13,500 Mattel, Inc. ............................................ $ 415,125 ----------- MACHINE TOOLS - 0.12% 8,000 Kennametal Inc. ......................................... 254,000 ----------- MACHINERY (HEAVY) - 0.07% 2,800 AGCO Corp. .............................................. 142,800 ----------- MACHINERY (MISCELLANEOUS) - 0.38% 15,600 Thermo Electron Corp.(a)................................. 811,200 ----------- MEDICAL (DRUGS) - 1.59% 34,850 Cardinal Health, Inc. ................................... 1,908,038 4,500 Elan Corp. PLC-ADR(a).................................... 218,812 25,700 Mylan Laboratories, Inc. ................................ 603,950 5,300 Teva Pharmaceutical Industries Ltd.-ADR.................. 245,788 8,000 Watson Pharmaceuticals Inc.(a)........................... 392,000 ----------- 3,368,588 ----------- MEDICAL INSTRUMENTS/PRODUCTS - 2.72% 26,300 Biomet, Inc.(a).......................................... 470,113 26,800 Boston Scientific Corp.(a)............................... 1,313,200 9,600 Heart Technology, Inc.(a)................................ 315,600 13,100 Idexx Laboratories Inc.(a)............................... 615,700 16,200 Invacare Corp. .......................................... 409,050 10,900 Medtronic, Inc. ......................................... 609,037 12,000 Nellcor Inc.(a).......................................... 696,000 27,600 St. Jude Medical, Inc.(a)................................ 1,186,800 2,800 Stryker Corp. ........................................... 147,000 ----------- 5,762,500 ----------- MEDICAL SERVICES -10.92% 10,800 American Medical Response(a)............................. 351,000 43,900 Apria Healthcare Group Inc.(a)........................... 1,240,175 29,880 Columbia\HCA Healthcare Corp. ........................... 1,516,410 24,400 Community Health Systems Inc.(a)......................... 869,250 27,500 Foundation Health Corp.(a)............................... 1,182,500 17,200 Genesis Health Ventures, Inc.(a)......................... 627,800 44,600 Health Care & Retirement Corp.(a)........................ 1,561,000 45,675 Health Management Associates, Inc.(a).................... 1,193,259 39,800 Healthsource, Inc.(a).................................... 1,432,800 73,100 Healthsouth Corp.(a)..................................... 2,129,038 32,700 Horizon Healthcare Corp.(a).............................. 825,675 25,200 Integrated Health Services, Inc. ........................ 630,000 33,900 Lincare Holdings, Inc.(a)................................ 847,500 14,800 Living Centers of America Inc.(a)........................ 518,000 37,300 Manor Care, Inc. ........................................ 1,305,500 16,000 Omnicare, Inc. .......................................... 716,000 40,000 OrNda HealthCorp(a)...................................... 930,000 18,000 Oxford Health Plans, Inc.(a)............................. 1,329,750 3,000 Pacificare Health Systems, Inc. - Class A(a)............. 261,000 3,100 Pacificare Health Systems, Inc. - Class B(a)............. 269,700 9,000 Phycor Inc.(a)........................................... 455,062 13,000 Quorum Health Group, Inc.(a)............................. 286,000 47,200 Sybron International Corp.(a)............................ 1,121,000 10,000 Theratx, Inc.(a)......................................... 120,000 44,700 Vencor, Inc.(a).......................................... 1,452,750 ----------- 23,171,169 -----------
FS-5 AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE ------ ------ OFFICE AUTOMATION - 0.83% 18,800 Corporate Express Inc.(a)................................ $ 566,350 32,400 Danka Business Systems PLC-ADR........................... 1,198,800 ----------- 1,765,150 ----------- OFFICE PRODUCTS - 0.45% 7,100 Avery Dennison Corp. .................................... 355,888 15,400 Reynolds & Reynolds Co. - Class A........................ 598,675 ----------- 954,563 ----------- OIL EQUIPMENT & SUPPLIES - 0.10% 9,300 Smith International, Inc.(a)............................. 218,550 ----------- POLLUTION CONTROL - 0.27% 5,900 Asyst Technologies, Inc.(a).............................. 207,975 19,400 USA Waste Services, Inc.(a).............................. 366,175 ----------- 574,150 ----------- RESTAURANTS - 0.72% 11,900 Applebee's International, Inc. .......................... 270,725 14,500 Lone Star Steakhouse & Saloon(a)......................... 556,437 19,600 Outback Steakhouse, Inc.(a).............................. 703,150 ----------- 1,530,312 ----------- RETAIL (FOOD & DRUG) - 1.46% 6,400 Casey's General Stores, Inc.............................. 140,000 19,300 Eckerd (Jack) Corp.(a)................................... 861,263 27,400 Kroger Co. (The)(a)...................................... 1,027,500 20,800 Safeway, Inc.(a)......................................... 1,071,200 ----------- 3,099,963 ----------- RETAIL STORES - 7.23% 17,500 AutoZone, Inc.(a)........................................ 505,313 10,900 Baby Superstore, Inc.(a)................................. 621,300 25,500 Bed Bath & Beyond, Inc.(a)............................... 989,719 5,600 Boise Cascade Office Products Corp.(a)................... 239,400 6,700 Circuit City Stores, Inc................................. 185,088 26,200 Consolidated Stores Corp.(a)............................. 569,850 41,950 Dollar General Corp...................................... 870,462 10,900 Gap Inc. (The)........................................... 457,800 24,200 Gymboree Corp(a)......................................... 499,125 17,300 Kohls' Corp.(a).......................................... 908,250 8,500 Mac Frugal's Bargains Close-Outs Inc.(a)................. 119,000 24,600 Micro Warehouse, Inc.(a)................................. 1,063,950 7,100 Oakley, Inc.(a).......................................... 241,400 41,200 Office Depot, Inc.(a).................................... 813,700 7,400 Petco Animal Supplies, Inc.(a)........................... 216,450 16,600 PetSmart Inc.(a)......................................... 514,600 55,050 Staples, Inc.(a)......................................... 1,341,844 46,800 Sunglass Hut International, Inc.(a)...................... 1,111,500 21,400 Talbots, Inc............................................. 615,250 6,800 Tandy Corp............................................... 282,200 14,200 Tech Data Corp.(a)....................................... 213,000 22,650 Men's Wearhouse (The) Inc.(a)............................ 583,238 33,500 Sports Authority (The) Inc.(a)........................... 682,562 36,600 Viking Office Products Inc.(a)........................... 1,701,900 ----------- 15,346,901 -----------
FS-6 AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE ------ ------ SCIENTIFIC INSTRUMENTS - 0.73% 20,000 Millipore Corp.......................................... $ 822,500 15,000 Varian Associates, Inc.................................. 716,250 ----------- 1,538,750 ----------- SEMICONDUCTORS - 12.33% 32,000 Altera Corp.(a)......................................... 1,592,000 42,150 Analog Devices, Inc.(a)................................. 1,491,056 51,800 Applied Materials, Inc.(a).............................. 2,039,625 9,400 ASM Lithography Holding N.V.(a)......................... 312,550 67,200 Atmel Corp.(a).......................................... 1,503,600 12,450 Credence Systems Corp.(a)............................... 284,794 54,900 Cypress Semiconductor Corp.(a).......................... 699,975 14,000 Electroglas, Inc.(a).................................... 343,000 6,300 Gasonics International Corp.(a)......................... 85,050 56,200 Integrated Device Technology, Inc.(a)................... 723,576 15,500 Intel Corp.............................................. 879,625 51,600 International Rectifier Corp.(a)........................ 1,290,000 21,700 KLA Instruments Corp.(a)................................ 565,556 25,300 LAM Research Corp.(a)................................... 1,157,475 25,300 Lattice Semiconductor Corp.(a).......................... 825,412 34,100 Linear Technology Corp.................................. 1,338,425 55,500 LSI Logic Corp.(a)...................................... 1,817,625 25,400 Maxim Integrated Products, Inc.(a)...................... 977,900 26,100 MEMC Electronic Materials, Inc.(a)...................... 851,512 17,000 Novellus Systems, Inc.(a)............................... 918,000 14,000 SCI Systems, Inc.(a).................................... 434,000 35,200 Sierra Semiconductor Corp.(a)........................... 488,400 10,900 Silicon Valley Group, Inc.(a)........................... 275,225 30,000 Solectron Corp.(a)...................................... 1,323,750 7,800 Tencor Instruments(a)................................... 190,125 6,600 Texas Instruments Inc................................... 341,550 17,100 Ultratech Stepper, Inc.(a).............................. 440,325 13,700 Vishay Intertechnology, Inc.(a)......................... 431,550 43,800 VLSI Technology Inc.(a)................................. 793,875 41,500 Xilinx, Inc.(a)......................................... 1,265,750 13,200 Zilog Inc.(a)........................................... 483,450 ----------- 26,164,756 ----------- SHOES & RELATED APPAREL - 0.31% 12,500 Nine West Group, Inc.(a)................................ 468,750 6,000 Wolverine World Wide, Inc............................... 189,000 ----------- 657,750 ----------- TELECOMMUNICATIONS - 4.89% 9,800 ADC Telecommunications, Inc.(a)......................... 357,700 22,400 Allen Group, Inc. ...................................... 501,200 26,875 Andrew Corp.(a)......................................... 1,027,969 18,600 Aspect Telecommunications Corp.(a)...................... 623,100 15,550 Glenayre Technologies, Inc.(a).......................... 967,987 8,200 Nokia Corp.-ADR......................................... 318,775 13,600 Octel Communications Corp.(a)........................... 438,600 29,200 Premisys Communications, Inc.(a)........................ 1,635,200 14,300 Scientific-Atlanta, Inc................................. 214,500 16,300 Stratacom, Inc.(a)...................................... 1,198,050
FS-7 AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE ------ ------ TELECOMMUNICATIONS - (CONTINUED) 500 Tekelec(a)...................................... $ 5,250 73,320 Telefonaktiebolaget L.M. Ericsson-ADR........... 1,429,740 18,300 Tellabs, Inc.(a)................................ 677,100 2,600 Transpro, Inc................................... 27,625 9,300 U.S. Long Distance Corp.(a)..................... 130,200 23,400 Worldcom, Inc.(a)............................... 824,850 ------------ 10,377,846 ------------ TELEPHONE - 0.02% 1,000 Century Telephone Enterprises, Inc.............. 31,750 ------------ TEXTILES - 0.55% 13,950 Nautica Enterprises, Inc.(a).................... 610,312 12,900 Tommy Hilfiger Corp.(a)......................... 546,638 ------------ 1,156,950 ------------ TRUCKING - 0.08% 8,400 TNT Freightways Corp............................ 169,050 ------------ Total Common Stocks............................. 180,501,633 ------------ PRINCIPAL AMOUNT --------- U.S. TREASURY SECURITIES - 5.58% U.S. TREASURY BILL(b) $12,000,000(c) 5.32%, 04/11/96................................. 11,838,360 ------------ REPURCHASE AGREEMENT - 9.17%(d) Daiwa Securities America, Inc., 5.92%, 19,442,968 01/02/96(e).................................... 19,442,968 ------------ TOTAL INVESTMENT SECURITIES - 99.83%............ 211,782,961 OTHER ASSETS LESS LIABILITIES - 0.17%........... 369,462 ------------ NET ASSETS - 100.00%............................ $212,152,423 ============ NOTES TO SCHEDULE OF INVESTMENTS: (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 amount was pledged as collateral for open futures contracts at 12/31/95. See Note 6 to Financial Statements. (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 managed by the investment advisor. (e) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. Abbreviations: ADR - American Depositary Receipt See Notes to Financial Statements.
FS-8 AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. CAPITAL ASSETS: APPRECIATION FUND STATEMENT OF ASSETS Investments, at market value (cost $172,435,151).................. $211,782,961 AND LIABILITIES Receivables for: December 31, 1995 Investments sold................................................ 289,100 Capital stock sold.............................................. 274,270 Dividends and interest.......................................... 47,007 Variation margin................................................ 13,300 Investment for deferred compensation plan......................... 8,220 Organizational costs, net......................................... 6,749 Other assets...................................................... 788 ------------ Total assets.................................................. 212,422,395 ------------ LIABILITIES: Payables for: Investments purchased........................................... 126,516 Deferred compensation plan...................................... 8,220 Accrued advisory fees............................................. 114,542 Accrued directors' fees........................................... 1,790 Accrued administrative services fees.............................. 2,997 Accrued operating expenses........................................ 15,907 ------------ Total liabilities............................................. 269,972 ------------ Net assets applicable to shares outstanding....................... $212,152,423 ============ Capital shares, $.001 par value per share: Authorized...................................................... 250,000,000 ============ Outstanding..................................................... 12,822,408 ============ Net asset value, offering and redemption price per share.......... $ 16.55 ============
See Notes to Financial Statements. FS-9 AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL INVESTMENT INCOME: APPRECIATION FUND STATEMENT OF Dividends (net of $1,304 foreign withholding tax).............. $ 286,021 OPERATIONS Interest....................................................... 1,270,163 For the eleven ----------- months ended Total investment income....................................... 1,556,184 December 31, 1995 ----------- EXPENSES: Advisory fees.................................................. 882,870 Custodian fees................................................. 50,526 Administrative services fees................................... 33,560 Directors' fees and expenses................................... 6,477 Organizational costs........................................... 2,651 Other.......................................................... 47,497 ----------- Total expenses................................................ 1,023,581 ----------- Net investment income............................................ 532,603 ----------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain from: Investment securities.......................................... 926,418 Futures contracts.............................................. 2,594,825 ----------- 3,521,243 ----------- Unrealized appreciation (depreciation) of: Investment securities.......................................... 33,768,471 Futures contracts.............................................. (564,483) ----------- 33,203,988 ----------- Net gain on investment securities and futures contracts.......... 36,725,231 ----------- Net increase in net assets resulting from operations............. $37,257,834 =========== DECEMBER 31, JANUARY 31, AIM V.I. CAPITAL 1995 1995 APPRECIATION FUND ------------ ----------- STATEMENT OF CHANGES IN NET ASSETS OPERATIONS: For the eleven months ended Net investment income............................. $ 532,603 $ 285,894 December 31, 1995 Net realized gain (loss) from investment and the year ended securities and futures contracts................. 3,521,243 (3,834,141) January 31, 1995 Net unrealized appreciation of investment securities and futures contracts................. 33,203,988 2,142,566 ------------ ----------- Net increase (decrease) in net assets resulting from operations................................. 37,257,834 (1,405,681) Net increase from capital stock transactions........ 86,762,686 54,473,386 Distributions to shareholders from net investment income............................................. (45,369) (244,886) ------------ ----------- Net increase in net assets....................... 123,975,151 52,822,819 NET ASSETS: Beginning of period............................... 88,177,272 35,354,453 ------------ ----------- End of period..................................... $212,152,423 $88,177,272 ============ =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)........ $172,910,083 $86,147,397 Undistributed net investment income............... 516,011 28,777 Undistributed net realized gain (loss) from investment securities and futures contracts ..... (491,023) (4,012,266) Unrealized appreciation of investment securities and futures contracts............................ 39,217,352 6,013,364 ------------ ----------- $212,152,423 $88,177,272 ============ ===========
See Notes to Financial Statements. FS-10 AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. CAPITAL NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES APPRECIATION FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a NOTES TO FINANCIAL Maryland corporation organized on January 22, 1993, and is STATEMENTS registered under the Investment Company Act of 1940 (the December 31, 1995 "1940 Act"), as amended, as an open-end, series, management investment company consisting of nine portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year was changed from January 31 to December 31. 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. 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 - Equity securities, including warrants, that are traded on a national securities exchange or NASDAQ National Market System are valued at the last reported sales price or, in the case of over- the-counter securities or if there has been no sale that day, at the mean between the closing bid and asked prices on that day. Securities traded in the over-the- counter market, except (i) securities for which representative exchange prices are available, and (ii) 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. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost which approximates market value. Short-term securities that mature in more than 60 days are valued at current market quotations. 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 authority 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. 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 $232,410, which expires, if not previously utilized, through the year 2003. 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. Organizational Costs - Organizational costs for the Fund of $14,461 are being amortized over five years. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% 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. This agreement requires AIM to reduce its fees or, if FS-11 AIM V.I. CAPITAL APPRECIATION FUND necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $33,560 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,703 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $125,715,589 and $46,151,022, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1995 is as follows: Aggregate unrealized appreciation of investment securities......... $44,147,361 Aggregate unrealized (depreciation) of investment securities......... (5,188,622) ----------- Net unrealized appreciation of investment securities............ $38,958,739 ===========
Cost of investments for tax purposes is $172,824,222. NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 ---------------------- ---------------------- Shares Amount Shares Amount --------- ----------- --------- ----------- Sold........................... 6,155,688 $96,675,587 4,817,657 $58,178,417 Issued as reinvestment of distributions................. 2,823 45,369 20,683 244,886 Reacquired..................... (654,458) (9,958,270) (330,372) (3,949,917) --------- ----------- --------- ----------- 5,504,053 $86,762,686 4,507,968 $54,473,386 ========= =========== ========= ===========
NOTE 6 - OPEN FUTURES CONTRACTS On December 31, 1995 $417,036 principal amount of U.S. Treasury Bills were pledged as collateral to cover margin requirements for open futures contracts: Open futures contracts at December 31, 1995 were as follows:
UNREALIZED NO. OF APPRECIATION CONTRACT CONTRACTS/MONTH/COMMITMENT (DEPRECIATION) S&P 500 Index 38 contracts/March 96/Buy $(130,458)
FS-12 AIM V.I. CAPITAL APPRECIATION FUND NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
January 31, ----------------- December 31, 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period...... $ 12.05 $ 12.58 $ 10.00 -------- ------- ------- Income from investment operations: Net investment income................... 0.04 0.05 -- Net gains (losses) on securities (both realized and unrealized)............... 4.46 (0.54) 2.59 -------- ------- ------- Total from investment operations....... 4.50 (0.49) 2.59 -------- ------- ------- Less distributions: Dividends from net investment income.... -- (0.04) (0.01) -------- ------- ------- Net asset value, end of period............ $16.55 $12.05 $12.58 ======== ======= ======= Total return(a)........................... 37.38% (3.91)% 25.90% ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted).. $212,152 $88,177 $35,354 ======== ======= ======= Ratio of expenses to average net assets... 0.75%(b) 0.84% 1.06%(c) ======== ======= ======= Ratio of net investment income to average net assets............................... 0.39%(b) 0.46% 0.07%(c) ======== ======= ======= Portfolio turnover rate................... 37% 81% 34% ======== ======= =======
------ (a) Total returns are not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $148,432,750. (c) Annualized. FS-13 AIM V.I. CAPITAL APPRECIATION FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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, 1995, by correspondence with the custodian and brokers. Where brokers did not reply to our confirmation requests, we carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Diversified Income Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 January 26, 1996
FS-14 AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. DIVERSIFIED PRINCIPAL MARKET INCOME FUND AMOUNT(a) VALUE SCHEDULE OF --------- ------ INVESTMENTS U.S. DOLLAR DENOMINATED NON-CONVERTIBLE December 31, 1995 BONDS & NOTES - 46.56% AUTOMOBILE/TRUCK PARTS & TIRES - 0.23% $ 100,000 Harvard Industries, Sr. Notes, 11.125%, 08/01/05..... $ 100,000 ----------- AUTOMOBILE (MANUFACTURERS) - 1.11% 400,000 General Motors Corp., Deb., 8.80%, 03/01/21 ......... 493,012 ----------- BANKING - 0.68% 300,000 Mercantile Bank, Sub. Notes, 6.375%, 01/15/04 ....... 300,936 ----------- CABLE TELEVISION - 3.85% 160,000 CAI Wireless Systems Inc., Sr. Notes, 12.25%, 09/15/02............................................ 170,800 700,000 Marcus Cable Operating Co., Sr. Disc. Notes, 13.50%, 08/01/04(b)......................................... 526,750 500,000 Viacom Inc., Sr. Notes, 7.75%, 06/01/05.............. 530,985 490,000 Videotron Ltd., Sr. Disc. Notes, 11.125%, 07/01/04(b)......................................... 341,775 140,000 Wireless One Inc., Units, 13.00%, 10/15/03(c)........ 147,700 ----------- 1,718,010 ----------- CHEMICALS - 0.74% 180,000 Crain Industries, Sr. Sub. Notes, 13.50%, 08/15/05 (acquired 08/22/95; cost $180,000)(d)............... 182,700 150,000 RBX Corp., Sr. Sub. Notes, 11.25%, 10/15/05 (acquired 01/06/95-10/12/95; cost $151,113)(d)...... 147,375 ----------- 330,075 ----------- CONGLOMERATES - 1.74% 750,000 ITT Corp., Gtd. Deb., 7.375%, 11/15/15............... 774,845 ----------- CONTAINERS - 1.17% Ivex Packaging Corp., Sr. Sub. Notes, 12.50%, 390,000 12/15/02............................................ 413,400 100,000 Owens-Illinois Inc., Sr. Sub. Notes, 10.50%, 06/15/02............................................ 106,250 ----------- 519,650 ----------- CONSUMER NON-DURABLES - 0.33% 140,000 Hines Horticulture, Sr. Sub. Notes, 11.75%, 10/15/05 (acquired 10/16/95-10/20/95; cost $141,425)(d)...... 146,300 ----------- FINANCE (CONSUMER CREDIT) - 6.57% 750,000 Associates Corp., Deb., 7.95%, 02/15/10.............. 853,553 750,000 GMAC, Notes, 9.00%, 10/15/02......................... 867,397 370,000 GPA Delaware Inc., Deb., 8.75%, 12/15/98............. 347,800 300,000 Loehmann's Holdings, Inc., Sr. Sub. Notes, 13.75%, 02/15/99............................................ 282,000 150,000 Olympic Financial Ltd., Deb., 13.00%, 05/01/00....... 163,875 400,000 Sea Containers, Sr. Sub. Deb., 12.50%, 12/01/04...... 418,000 ----------- 2,932,625 ----------- FOOD PROCESSING - 0.91% 300,000 American Rice Inc., Sec. Notes, 13.00%, 07/31/02..... 283,500 120,000 Curtice-Burns Foods Inc., Sr. Sub. Notes, 12.25%, 02/01/05............................................ 123,600 ----------- 407,100 ----------- FOREIGN GOVERNMENT - 2.77% 700,000 Province of Manitoba, Yankee Bond, 7.75%, 07/17/16... 777,329 450,000 United Mexican States, Deb., 11.187%, 07/21/97 (acquired 07/12/95; cost $450,000)(d)............... 460,971 ----------- 1,238,300 ----------- GAMING - 0.90% 110,000 Aztar Corp., Sr. Sub. Notes, 11.00%, 10/01/02........ 110,000 260,000 Showboat, Inc., Sr. Sub. Notes, 13.00%, 08/01/09..... 292,500 ----------- 402,500 -----------
FS-15 AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL MARKET AMOUNT(a) VALUE --------- ------ HOTELS/MOTELS - 1.24% $ 550,000 John Q. Hammons Hotels Inc., Gtd. First Mortgage Notes, 9.75%, 10/01/05 (acquired 10/06/95-11/16/95; cost $550,938)(d)................................... $ 554,125 ----------- INSURANCE (LIFE & HEALTH) - 0.63% 200,000 American Life Holdings Co., Sr. Sub. Notes, 11.25%, 09/15/04............................................ 210,000 75,000 Americo Life Inc., Sr. Sub. Notes, 9.25%, 06/01/05... 71,438 ----------- 281,438 ----------- LEISURE & RECREATION - 0.36% 150,000 Icon Health & Fitness Inc., Sr. Sub. Notes, 13.00%, 07/15/02............................................ 162,375 ----------- MACHINERY (HEAVY) - 0.33% 100,000 Fairfield Manufacturing, Sr. Sub. Notes, 11.375%, 07/01/01............................................ 97,500 50,000 Primeco Inc., Sr. Sub. Notes, 12.75%, 03/01/05....... 51,500 ----------- 149,000 ----------- MACHINERY (MISCELLANEOUS) - 1.35% 210,000 AM General Corp., Sr. Notes, 12.875%, 05/01/02....... 210,525 200,000 Interlake Corp., Sr. Notes, 12.00%, 11/15/01......... 202,000 190,000 MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02........... 190,475 ----------- 603,000 ----------- MEDICAL INSTRUMENTS/PRODUCTS - 0.21% 90,000 Graphic Controls Corp., Sr. Sub. Notes, 12.00%, 09/15/05 (acquired 09/21/95; cost $90,000)(d)....... 93,600 ----------- MEDICAL (PATIENT SERVICES) - 1.26% 500,000 OrNda Healthcorp., Sr. Sub. Notes, 11.375%, 08/15/04. 562,500 ----------- METALS (MISCELLANEOUS) - 0.84% 370,000 Rio Algom Ltd., Yankee Deb., 7.05%, 11/01/05......... 376,549 ----------- NATURAL GAS PIPELINE - 2.21% 450,000 Enron Corp., Sr. Sub. Deb., 6.75%, 07/01/05.......... 459,886 500,000 Talisman Energy Inc., Yankee Deb., 7.125%, 06/01/07.. 524,680 ----------- 984,566 ----------- OIL & GAS - 0.69% 190,000 HS Resources Inc., Sr. Sub. Notes, 9.875%, 12/01/03.. 187,625 40,000 United Meridian Corp., Gtd. Sr. Sub. Notes, 10.375%, 10/15/05............................................ 42,300 80,000 Wainoco Oil Corp., Sr. Notes, 12.00%, 08/01/02....... 77,200 ----------- 307,125 ----------- OIL EQUIPMENT & SUPPLIES - 0.14% 60,000 Falcon Drilling Co. Inc., Sr. Notes, 9.75%, 01/15/01. 61,650 ----------- PAPER & FOREST PRODUCTS - 0.52% 90,000 Pacific Lumber Co., Sr. Notes, 10.50%, 03/01/03...... 85,275 150,000 Rapp International Finance, Gtd. Yankee Sec. Notes, 11.50%, 12/15/00.................................... 149,437 ----------- 234,712 ----------- PUBLISHING - 3.78% 750,000 News America Holdings, Gtd. Sr. Deb., 9.25%, 02/01/13............................................ 883,380 750,000 Time Warner Inc., Notes, 8.18%, 08/15/07............. 805,598 ----------- 1,688,978 ----------- RAILROADS - 0.37% 180,000 Johnstown America Industries Inc., Sr. Sub. Notes, 11.75%, 08/15/05.................................... 163,800 -----------
FS-16 AIM V.I. DIVERSIFIED INCOME FUND PRINCIPAL MARKET AMOUNT(a) VALUE --------- ------ RETAIL (FOOD & DRUG) - 2.80% $ 200,000 Grand Union Co., Sr. Notes, 12.00%, 09/01/04......... $ 173,000 500,000 Great Atlantic & Pacific, Yankee Notes, 7.78%, 11/01/00 (acquired 10/18/95; cost $500,000)(d)...... 507,005 390,000 Penn Traffic Co., Sr. Notes, 10.65%, 11/01/04........ 372,450 200,000 Ralph's Grocery Co., Sr. Notes, 11.00%, 06/15/05..... 198,000 ----------- 1,250,455 ----------- RETAIL (STORES) - 2.67% 400,000 Apparel Retailer Inc., Sr. Disc. Deb., 12.75%, 08/15/05(b)......................................... 244,000 200,000 County Seat Stores, Sr. Sub. Notes, 12.00%, 10/01/02. 150,000 175,000 Fleming Companies Inc., Sr. Notes, 10.625%, 12/15/01. 169,750 150,000 Pamida Inc., Sr. Sub. Notes, 11.75%, 03/15/03........ 115,500 150,000 Samsonite Corp., Sr. Sub. Notes, 11.125%, 07/15/05... 144,000 275,000 Specialty Retailers, Inc., Sr. Sub. Notes, 11.00%, 08/15/03............................................ 250,250 110,000 United Stationer Supply, Sr. Sub. Notes, 12.75%, 05/01/05............................................ 120,175 ----------- 1,193,675 ----------- SCHOOLS - 0.12% 50,000 Herff Jones Inc., Sr. Sub. Notes, 11.00%, 08/15/05... 53,625 ----------- STEEL - 0.79% 185,000 GS Technologies Inc., Sr. Notes, 12.00%, 09/01/04.... 183,613 190,000 Gulf States Steel Corp., First Mortgage Notes, 13.50%, 04/15/03.................................... 171,000 ----------- 354,613 ----------- TELECOMMUNICATIONS - 3.27% 140,000 A+ Network Inc., Sr., Sub. Notes, 11.875%, 11/01/05.. 141,750 70,000 Cellular Inc., Sr. Sub. Notes, 11.75%, 09/01/03(b)... 55,650 110,000 Clearnet Communications, Yankee Units, 14.75%, 12/15/05(b)(e)...................................... 57,200 100,000 Dictaphone Corp., Gtd. Sr. Sub. Notes, 11.75%, 08/01/05............................................ 99,000 100,000 Northern Telecom, Notes, 6.00%, 09/01/03............. 99,540 850,000 TCI Communications Inc., Sr. Notes, 8.00%, 08/01/05.. 902,266 170,000 Telewest PLC, Yankee Sr. Disc. Deb., 11.00%, 10/01/07(b)......................................... 102,638 ----------- 1,458,044 ----------- TEXTILES - 0.71% 350,000 Consoltex Group, Sr. Sub. Notes, 11.00%, 10/01/03.... 315,875 ----------- TRANSPORTATION (MISCELLANEOUS) - 1.27% 230,000 Stena AB, Yankee Sr. Notes, 10.50%, 12/15/05......... 235,462 320,000 Trans Ocean Container, Sr. Sub. Notes, 12.25%, 07/01/04............................................ 332,800 ----------- 568,262 ----------- Total U.S. Dollar Denominated Non-Convertible Bonds & Notes............................................. 20,781,320 ----------- U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES - 0.69% FINANCE (CONSUMER CREDIT) - 0.69% 300,000 Henderson Capital, Conv. Bonds, 4.50%, 10/27/96...... 308,250 ----------- Total U.S. Dollar Denominated Convertible Bonds & Notes............................................... 308,250 ----------- NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS & NOTES(f) - 6.86% CANADA - 2.62% CAD 735,000 Bell Canada (Telecommunications), Deb., 13.875%, 05/01/00............................................. 562,486 300,000 Canadian Oil Debco Inc. (Oil & Gas), Deb., 11.00%, 10/31/00............................................. 251,161 250,000 IPL Energy Inc. (Oil Equipment & Supplies), Series A Deb., 9.67%, 02/23/00................................ 200,247 250,000 Rogers Cablesystem, Inc. (Cable Television), Sr. Sec. 2nd Priority Deb., 9.65%, 01/15/14................... 154,705 --------- 1,168,599 ---------
FS-17 AIM V.I. DIVERSIFIED INCOME FUND PRINCIPAL MARKET AMOUNT(a) VALUE --------- ------ GERMANY - 2.77% International Bank for Reconstruction & Development (Supranational Organization), DEM 1,000,000 Unsub. Global Bonds, 5.875%, 11/10/03........ $ 700,279 725,000 Unsub. Global Bonds, 7.125%, 04/12/05........ 538,380 ----------- 1,238,659 ----------- ITALY - 1.47% ITL 1,000,000,000 KFW International Finance Inc. (Finance- Consumer Credit) Gtd. Notes, 11.625%, 11/27/98..................................... 654,703 ----------- Total Non-U.S. Dollar Denominated Non- Convertible Bonds & Notes.................... 3,061,961 ----------- NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES(f) - 3.90% CANADA - 1.14% CAD 700,000 Repap Enterprises, Inc. (Paper & Forest Products), Conv. Deb., 9.00%, 06/30/98....... 510,070 ----------- FRANCE - 0.71% FRF 1,419,000 Societe Generale (Banking), Conv. Deb., 3.50%, 01/01/00..................................... 314,484 ----------- UNITED KINGDOM - 2.05% BPS 320,000 ELF Enterprise Finance PLC (Finance-Consumer Credit), Gtd. Conv. Bonds, 8.75%, 06/27/06... 494,487 300,000 Lasmo PLC (Oil Equipment & Supplies), Conv. Deb., 7.75%, 10/04/05........................ 421,067 ----------- 915,554 ----------- Total Non-U.S. Dollar Denominated Convertible Bonds & Notes................................ 1,740,108 ----------- NON-U.S. DOLLAR DENOMINATED GOVERNMENT BONDS & NOTES(f) - 20.99% AUSTRALIA - 7.12% AUD 1,600,000 Australian Government, Gtd. Deb., 9.00%, 09/15/04..................................... 1,252,671 Queensland Treasury Corp., 820,000 Gtd. Notes, 8.875%, 11/08/96................. 616,889 1,000,000 Gtd. Notes, 6.50%, 06/14/05.................. 652,542 850,000 Western Australia Treasury Corp., Gtd. Notes, 9.00%, 04/15/99.............................. 657,654 ----------- 3,179,756 ----------- CANADA - 2.48% CAD 500,000 British Columbia Municipal Finance Authority, Deb., 7.75%, 12/01/05........................ 377,517 850,000 New Brunswick (Province of), Deb., 8.94%, 01/15/05..................................... 646,604 100,000 Quebec (Province of), Sr. Deb., 9.375%, 01/16/23..................................... 81,490 ----------- 1,105,611 ----------- DENMARK - 2.70% DKK 6,250,000 Kingdom of Denmark, Deb., 8.00%, 11/15/01..... 1,206,551 ----------- GERMANY - 4.12% Bundesrepublik Deutschland, DEM 1,500,000 Deb., 6.75%, 07/15/04........................ 1,098,989 1,000,000 Deb., 6.875%, 05/12/05....................... 738,341 ----------- 1,837,330 ----------- FRANCE - 3.01% FRF 6,500,000 French Treasury Bill, Notes, 5.75%, 11/12/98.. 1,341,015 -----------
FS-18 AIM V.I. DIVERSIFIED INCOME FUND PRINCIPAL MARKET AMOUNT(a) VALUE --------- ------ UNITED KINGDOM - 1.56% BPS 465,000 Ontario Province, Sr. Unsub. Notes, 6.875%, 09/15/00........................................ 694,756 ----------- Total Non-U.S. Dollar Denominated Government Bonds & Notes................................... 9,365,019 ----------- SHARES ------ WARRANTS - 0.01% LEISURE & RECREATION - 0.01% 150 Boomtown Inc., - Wt., expiring 11/01/98(g) (acquired 11/03/93; cost $150)(d)............... 225 150 IHF Holdings, - Wt., expiring 11/14/99(g)........ 3,750 ----------- 3,975 ----------- RETAIL (STORES) - 0.00% 200 County Seat, Inc. - Wt., expiring 10/01/01(g).... 1,000 ----------- STEEL - 0.00% 190 Gulf States Steel Corp. - Wt., expiring 04/15/03(g)..................................... 950 ----------- Total Warrants................................. 5,925 ----------- PRINCIPAL AMOUNT --------- U.S. TREASURY SECURITIES - 15.76% $2,300,000 Notes, 7.50%, 02/15/05........................... 2,610,201 3,000,000 Notes, 6.50%, 08/15/05........................... 3,199,440 1,000,000 Bonds, 7.625%, 02/15/25.......................... 1,222,300 ----------- Total U.S. Treasury Securities................. 7,031,941 ----------- REPURCHASE AGREEMENT(h) - 3.02% 1,348,008 Daiwa Securities America, Inc. 5.92%, 01/02/96(i).............................. 1,348,008 ----------- TOTAL INVESTMENTS - 97.79%....................... 43,642,532 OTHER ASSETS LESS LIABILITIES - 2.21%............ 987,613 ----------- NET ASSETS - 100.00%............................. $44,630,145 =========== NOTES TO SCHEDULE OF INVESTMENTS: (a) Principal amount is in U.S. Dollars, except as indicated by note (f). (b) Discounted bond at purchase. Interest rate represents coupon rate at which the bond will accrue at a specified future date. (c) Issued as a unit. This unit consists of $1,000,000 Sr. Notes plus 3 warrants to purchase one share of common stock at $11.55 per share per warrant. (d) Restricted securities. 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 December 31, 1995 was $2,092,301 which represented 4.69% of the Fund's net assets. (e) Issued as a unit. This unit consists of ten $1,000,000 Sr. Disc. Notes plus 33 warrants to purchase shares of common stock. (f) Foreign denominated security. Par value and coupon are denominated in currency of country indicated. (g) Non-income producing security acquired as part of a unit with or in exchange for other securities. (h) 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 managed by the investment advisor. (i) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. Abbreviations: AUD - Australian Dollar Disc. -Discounted Sr. - Senior BPS - British Pound Sterling DKK - Danish Krone Sub. - Subordinated CAD - Canadian Dollar FRF - French Franc Unsub. - Unsubordinated Conv.- Convertible Gtd. - Guaranteed Wt. - Warrant Deb. - Debentures ITL - Italian Lire DEM - German Deutschemark Sec. - Secured See Notes to Financial Statements.
FS-19 AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. DIVERSIFIED ASSETS: INCOME FUND STATEMENT OF Investments, at market value (cost $42,232,557).................... $43,642,532 ASSETS AND Foreign currencies, at value (cost $22,000)........................ 21,896 LIABILITIES Receivables for: December 31, 1995 Forward contracts................................................ 25,045 Interest......................................................... 985,728 Investment for deferred compensation plan.......................... 7,721 Organizational costs, net.......................................... 6,749 Other assets....................................................... 578 ----------- Total assets................................................... 44,690,249 ----------- LIABILITIES: Payables for: Capital stock redeemed........................................... 17,298 Deferred compensation plan....................................... 7,721 Accrued advisory fees.............................................. 22,049 Accrued administrative service fees................................ 2,031 Accrued directors' fees............................................ 1,054 Accrued operating expenses......................................... 9,951 ----------- Total liabilities.............................................. 60,104 ----------- Net assets applicable to shares outstanding........................ $44,630,145 =========== Capital shares, $.001 par value per share: Authorized....................................................... 250,000,000 =========== Outstanding...................................................... 4,461,727 =========== Net asset value, offering and redemption price per share........... $ 10.00 ===========
See Notes to Financial Statements. FS-20 AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. DIVERSIFIED INVESTMENT INCOME: INCOME FUND STATEMENT OF Interest........................................................ $2,745,013 OPERATIONS ---------- For the eleven months EXPENSES: ended December 31, 1995 Advisory fees................................................... 193,008 Custodian fees.................................................. 16,422 Administrative service fees..................................... 36,406 Directors' fees and expenses.................................... 4,800 Organizational costs............................................ 2,651 Other........................................................... 31,317 ---------- Total expenses................................................. 284,604 ---------- Net investment income............................................. 2,460,409 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FORWARD CONTRACTS TRANSACTIONS: Net realized gain (loss) from: Investment securities........................................... 407,035 Foreign currencies.............................................. 302,188 Forward contracts............................................... (33,329) ---------- 675,894 ---------- Unrealized appreciation (depreciation) of: Investment securities........................................... 2,405,295 Foreign currencies.............................................. 44,280 Forward contracts............................................... (8,795) ---------- 2,440,780 ---------- Net gain on investment securities, foreign currencies and forward contract transactions............................................ 3,116,674 ---------- Net increase in net assets resulting from operations.............. $5,577,083 ========== AIM V.I. DIVERSIFIED DECEMBER 31, JANUARY 31, INCOME FUND 1995 1995 STATEMENT OF ------------ ----------- CHANGES IN NET ASSETS OPERATIONS: For the eleven months ended December 31, 1995 Net investment income.............................. $ 2,460,409 $ 1,655,141 and the year ended Net realized gain (loss) from investment January 31, 1995 securities, foreign currencies, and forward contracts......................................... 675,894 (1,542,084) Net unrealized appreciation (depreciation) of investment securities, foreign currencies, and forward contracts................................. 2,440,780 (1,156,094) ----------- ----------- Net increase (decrease) in net assets resulting from operations.................................. 5,577,083 (1,043,037) Net equalization credits............................. 653,844 286,609 Net increase from capital stock transactions......... 16,007,644 12,953,629 Distributions to shareholders from net investment income.............................................. (2,879,611) (1,455,969) ----------- ----------- Net increase in net assets........................ 19,358,960 10,741,232 NET ASSETS: Beginning of period................................ 25,271,185 14,529,953 ----------- ----------- End of period...................................... $44,630,145 $25,271,185 =========== =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)......... $43,080,526 $27,072,882 Undistributed net investment income................ 987,410 752,768 Undistributed net realized gain (loss) on investment securities, foreign currencies and forward contract transactions..................... (871,395) (1,547,289) Unrealized appreciation (depreciation) of investment securities, foreign currencies and forward contracts................................. 1,433,604 (1,007,176) ----------- ----------- $44,630,145 $25,271,185 =========== ===========
See Notes to Financial Statements. FS-21 AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. DIVERSIFIED NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES INCOME FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation NOTES TO organized on January 22, 1993, and is registered under the Investment Company FINANCIAL STATEMENTS Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management December 31, 1995 investment company consisting of nine portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year was changed from January 31 to December 31. 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. 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--Non-convertible bonds and notes 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. Convertible bonds are valued at the mean between the closing bid and asked prices obtained from a broker-dealer. 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. 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 is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Foreign Currency Translation - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. C. Forward Currency Contracts - A forward currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a forward contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund
FS-22 AIM V.I. DIVERSIFIED INCOME FUND NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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. 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 market discounts and premiums on bonds for financial reporting purposes. Realized gains or losses from securities transactions are recorded on the identified cost basis. 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 $1,025,093, which expires, if not previously utilized, through the year 2003. F. Equalization - The Fund follows the accounting practice known as equalization by which a portion of the proceeds from sales and the costs of repurchases of fund shares, equivalent on a per share basis to the amount of undistributed net investment income, is credited or charged to undistributed net income when the transaction is recorded so that undistributed net investment income per share is unaffected by sales or redemptions of Fund shares. G. Organizational Costs - Organizational costs of the Fund of $14,461 are being amortized over five years. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of the first $250 million of the Fund's average daily net assets, plus 0.55% of such Fund's average daily net assets in excess of $250 million. This agreement requires AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $36,406 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,435 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $39,826,472 and $24,192,267, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1995 is as follows:
Aggregate unrealized appreciation of investment securities.......... $1,783,025 Aggregate unrealized (depreciation) of investment securities........ (373,050) ---------- Net unrealized appreciation of investment securities................ $1,409,975 ========== Investments have the same cost for tax and financial statement purposes.
FS-23 AIM V.I. DIVERSIFIED INCOME FUND NOTE 5 - OPEN FORWARD CURRENCY CONTRACTS Outstanding contracts at December 31, 1995 were as follows:
Contract to Unrealized Settlement Date Deliver Receive Value Appreciation --------------- ------------- ---------- ---------- ------------ 01/25/96........ DEM 1,860,000 $1,297,951 $1,322,996 $25,045 ========== ========== =======
NOTE 6 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 ---------------------- ---------------------- Shares Amount Shares Amount --------- ----------- --------- ----------- Sold........................... 1,807,566 $17,087,317 1,633,696 $15,317,067 Issued as reinvestment of distributions................. 293,522 2,823,374 155,537 1,431,155 Reacquired..................... (409,796) (3,903,047) (408,146) (3,794,593) --------- ----------- --------- ----------- 1,691,292 $16,007,644 1,381,087 $12,953,629 ========= =========== ========= ===========
NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
January 31, December 31, ----------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period....... $ 9.12 $ 10.46 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income.................... 0.69 0.76 0.54 Net gains (losses) on securities (both realized and unrealized)................ 0.94 (1.42) 0.29 ------- ------- ------- Total from investment operations........ 1.63 (0.66) 0.83 ------- ------- ------- Less distributions: Dividends from net investment income..... (0.75) (0.68) (0.35) Distributions from net realized capital gains................................... -- -- (0.02) ------- ------- ------- Total distributions..................... (0.75) (0.68) (0.37) ------- ------- ------- Net asset value, end of period............. $ 10.00 $ 9.12 $ 10.46 ======= ======= ======= Total return(a)............................ 18.11% (6.35)% 8.33% ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)... $44,630 $25,271 $14,530 ======= ======= ======= Ratio of expenses to average net assets(c). 0.88%(b) 0.91% 1.05%(e) ======= ======= ======= Ratio of net investment income to average net assets(d)............................. 7.65%(b) 8.07% 6.78%(e) ======= ======= ======= Portfolio turnover rate.................... 72% 100% 57% ======= ======= ======= ------ (a) Total returns for periods less than one year are not annualized. (b) Ratios are annualized and based on average net assets of $35,153,645. (c) After waiver of advisory fee and expense reimbursement. Ratios of expenses to average net assets prior to waiver of advisory fees and/or expense reimbursements are 1.03% and 1.69% (annualized) for January 31, 1995 and 1994, respectively. (d) After waiver of advisory fee and expense reimbursement. Ratios of net investment income to average net assets prior to waiver of advisory fees and/or expense reimbursements are 7.95% and 6.14% (annualized) for January 31, 1995 and 1994, respectively. (e) Annualized.
FS-24 AIM V.I. DIVERSIFIED INCOME FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended and the statement of changes in net assets and financial highlights for the eleven month period then ended 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, 1995, by correspondence with the custodian and brokers. Where brokers did not reply to our confirmation requests, we carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Global Utilities Fund, as of December 31, 1995, the results of operations for the eleven month period then ended and the changes in its net assets and the financial highlights for the eleven month period then ended and the period May 2, 1994 through January 31, 1995, in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ----------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 26, 1996
FS-25 AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GLOBAL MARKET UTILITIES FUND SHARES VALUE SCHEDULE OF ------ ------ INVESTMENTS December 31, 1995 DOMESTIC COMMON STOCKS - 53.53% COMPUTER NETWORKING - 0.64% 500 Ascend Communications, Inc.(a)........................... $ 40,563 476 Network Equipment Technologies, Inc.(a).................. 13,035 ----------- 53,598 ----------- COMPUTER SOFTWARE/SERVICES - 0.46% 700 Objective Systems Integrators, Inc.(a)................... 38,325 ----------- CONGLOMERATES - 0.41% 700 Tenneco Inc. ............................................ 34,737 ----------- ELECTRIC SERVICES - 26.99% 1,500 Allegheny Power System, Inc. ............................ 42,938 1,900 Boston Edison Co. ....................................... 56,050 1,200 Carolina Power & Light Co. .............................. 41,400 500 CMS Energy Corp. ........................................ 14,938 1,200 Consolidated Edison Co. of New York, Inc. ............... 38,400 1,800 Detroit Edison Co. ...................................... 62,100 5,700 DPL, Inc. ............................................... 141,077 4,400 DQE, Inc. ............................................... 135,302 3,200 Duke Power Co. .......................................... 151,600 4,400 FPL Group, Inc. ......................................... 204,050 4,600 General Public Utilities Corp. .......................... 156,400 8,500 Houston Industries, Inc. ................................ 206,125 5,500 Illinova Corp. .......................................... 165,000 400 LG & E Energy Corp. ..................................... 16,900 3,200 NIPSCO Industries, Inc. ................................. 122,400 4,500 Northern States Power Co. ............................... 221,062 4,800 Pinnacle West Capital Corp. ............................. 138,000 6,000 Southern Co. (The)....................................... 147,750 3,200 Teco Energy, Inc. ....................................... 82,000 2,600 Unicom Corp. ............................................ 85,150 1,200 Wisconsin Energy Corp. .................................. 36,752 ----------- 2,265,394 ----------- GAS DISTRIBUTION - 1.35% 3,200 Public Service Co. of Colorado........................... 113,200 ----------- NATURAL GAS PIPELINE - 5.87% 1,100 Columbia Gas System, Inc.(a)............................. 48,262 3,500 Enron Corp. ............................................. 133,437 1,000 KN Energy, Inc. ......................................... 29,125 600 Pacific Enterprises...................................... 16,950 3,100 Panhandle Eastern Corp. ................................. 86,414 1,200 Sonat Inc. .............................................. 42,750 3,100 Williams Companies Inc. (The)............................ 136,014 ----------- 492,952 ----------- REAL ESTATE INVESTMENTS TRUSTS - 1.81% 1,500 Bay Apartment Communities................................ 36,375 600 Meditrust................................................ 20,925 500 National Health Investors, Inc. ......................... 16,562 200 Nationwide Health Properties, Inc. ...................... 8,400 900 Oasis Residential Inc. .................................. 20,475 1,000 Patriot American Hospitality, Inc. ...................... 25,750 900 Public Storage, Inc. .................................... 17,100 400 RFS Hotel Investors Inc. ................................ 6,150 ----------- 151,737 -----------
FS-26 AIM V.I. GLOBAL UTILITIES FUND MARKET SHARES VALUE ------ ------ TELECOMMUNICATIONS - 2.46% 1,800 A T & T Corp. .......................................... $ 116,550 2,900 Frontier Corp. ......................................... 87,000 200 Tel-Save Holdings, Inc.(a).............................. 2,775 ----------- 206,325 ----------- TELEPHONE - 13.54% 4,600 Ameritech Corp. ........................................ 271,400 700 Bell Atlantic Corp. .................................... 46,812 4,900 BellSouth Corp. ........................................ 213,150 2,300 Century Telephone Enterprises, Inc. .................... 73,025 3,900 Cincinnati Bell, Inc. .................................. 135,525 800 GTE Corp. .............................................. 35,200 1,600 NYNEX Corp. ............................................ 86,402 3,100 SBC Communications, Inc. ............................... 178,250 1,000 Southern New England Telecommunications Corp. .......... 39,750 1,600 US West, Inc. .......................................... 57,200 ----------- 1,136,714 ----------- Total Domestic Common Stocks.......................... 4,492,982 ----------- DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.17% OIL & GAS-SERVICES - 0.71% 2,500 Enron Corp.-$1.36 Conv. Pfd. ........................... 60,000 ----------- TELECOMMUNICATIONS - 0.46% 800 MFS Communications Co., Inc.-$2.68 Conv. Pfd. .......... 38,950 ----------- Total Domestic Convertible Preferred Stocks........... 98,950 ----------- FOREIGN STOCKS & OTHER EQUITY INTERESTS - 16.70% ARGENTINA - 0.74% 7,700 Central Costanera S.A. - Class B (Electric Services).... 23,711 2,200 Central Puerto S.A. - Class B (Electric Services)....... 8,358 1,100 Telefonica de Argentina-ADR (Telephone)................. 29,975 ----------- 62,044 ----------- AUSTRIA - 0.19% 270 Oesterreichisch Elektrizitatswirtschafts-AG (Verbundgesellschaft) Class A (Electric Services)...... 16,234 ----------- BRAZIL - 0.45% 800 Telecommunicacoes Brasileiras S/A Telebras-ADR (Telecommunications)................................... 37,900 ----------- CANADA - 0.38% 2,200 Westcoast Energy, Inc. (Natural Gas Pipeline)........... 32,175 ----------- CHILE - 0.90% 500 Compania de Telecomunicaciones de Chile S.A.-ADR (Telecommunications)................................... 41,437 1,200 Enersis S.A.-ADR (Electric Services).................... 34,200 ----------- 75,637 ----------- DENMARK - 0.30% 900 Tele Danmark A/S-ADR (Telephone)........................ 24,862 ----------- GERMANY - 0.55% 1,060 Veba A.G. (Electric Services)........................... 45,001 -----------
FS-27 AIM V.I. GLOBAL UTILITIES FUND MARKET SHARES VALUE ------ ------ HONG KONG - 0.13% 600 Hong Kong Telecom Ltd.-ADR (Telephone).................. $ 10,650 ----------- INDONESIA - 0.30% 700 PT Indostat-ADR(a) (Telephone).......................... 25,550 ----------- ISRAEL - 0.19% 700 ECI Telecom Ltd. (Telecommunications)................... 15,968 ----------- ITALY - 0.61% 15,325 Telecom Italia Mobile S.p.A. (Telephone)................ 26,922 15,825 Telecom Italia S.p.A. (Telephone)....................... 24,542 ----------- 51,464 ----------- KOREA - 0.38% 1,200 Korea Electric Power Corp.-ADR (Electric Services)...... 32,100 ----------- NETHERLANDS - 0.98% 700 Elsag Baily Process Automation N.V.-ADR $2.75 Conv. Pfd. TOPRS(b) (Acquired 12/14/95; cost $35,000) (Electronic Components - Miscellaneous)............................ 35,087 995 Royal PTT Nederland N.V.-ADR(b) (Acquired 06/13/94- 10/23/95; cost $32,569) (Telecommunications)........... 36,068 270 Royal PTT Nederland N.V. - Class B (Telecommunications). 9,809 ----------- 80,964 ----------- NEW ZEALAND - 1.07% 1,300 Telecom Corp. of New Zealand Ltd.-ADR (Telephone)....... 90,187 ----------- NORWAY - 0.46% 1,200 Nera AS-ADR(a) (Telecommunications)..................... 39,000 ----------- PERU - 0.61% 24,000 CPT Telefonica Del Peru - Class B (Telephone)........... 51,406 ----------- PORTUGAL - 0.38% 1,700 Portugal Telecom S.A.-ADR(a) (Telecommunications)....... 32,300 ----------- SPAIN - 2.06% 2,175 Amper S.A. (Electrical Equipment)(a).................... 25,730 600 Empresa Nacional de Electricidad S.A. (Electric Services).............................................. 34,350 700 Empresa Nacional de Electricidad S.A.-ADR (Electric Services).............................................. 15,925 250 Gas Natural SDG-E S.A. (Natural Gas Pipeline)........... 38,953 3,600 Iberdrola S.A. ......................................... 32,943 600 Telefonica de Espana, S.A. (Telecommunications)......... 25,125 ----------- 173,026 ----------- SWEDEN - 1.34% 28 Telefonaktiebolaget L.M. Ericsson (Telecommunications).. 548 5,720 Telefonaktiebolaget L.M. Ericsson-ADR (Telecommunications)................................... 111,540 ----------- 112,088 ----------- UNITED KINGDOM - 4.68% 5,700 British Gas PLC (National Gas Pipeline)................. 22,486 300 British Sky Broadcasting Group PLC-ADR (Advertising/Broadcasting)............................. 11,287 1,400 London Electricity PLC (Electric Services).............. 12,469 2,350 Midlands Electricity PLC (Electric Services)............ 27,739 5,969 National Grid Group PLC (Electric Services)............. 18,496 5,950 National Power PLC (Electric Services).................. 41,536 900 National Power PLC-ADR (Electric Services).............. 8,325 4,725 North West Water PLC(a) (Water Supply).................. 45,203
FS-28 AIM V.I. GLOBAL UTILITIES FUND MARKET SHARES VALUE ------ ------ UNITED KINGDOM--(CONTINUED) 1,200 NYNEX CableComms Group(a) (Telecommunications)........ $ 20,850 2,850 PowerGen PLC (Electric Services)...................... 23,569 1,100 PowerGen PLC-ADR (Electric Services).................. 14,437 2,950 Scottish Power PLC (Electric Services)................ 16,951 1,150 Seeboard PLC (Electric Services)...................... 9,394 1,550 South Wales Electricity PLC (Electric Services)....... 22,459 1,200 Southern Electric PLC (Electric Services)............. 16,847 700 Vodafone Group PLC-ADR (Telecommunications)........... 24,675 1,750 Wessex Water PLC (Water Supply)....................... 9,485 2,100 Wessex Water PLC - Preference Shares (Water Supply)... 1,663 1,200 Yorkshire Electricity PLC (Electric Services)......... 12,449 3,500 Yorkshire Water PLC (Water Supply).................... 32,178 ----------- 392,498 ----------- Total Foreign Stocks & Other Equity Interests....... 1,401,054 ----------- PRINCIPAL AMOUNT --------- DOMESTIC CONVERTIBLE BONDS - 2.37% COMPUTER SOFTWARE/SERVICES - 0.17% $14,000 Network Equipment Technologies, Conv. Sub. Deb., 7.25%, 05/15/14...................................... 14,338 ----------- ELECTRIC SERVICES - 0.30% 25,000 California Energy Co., Inc., Conv. Sub. Deb., 5.00%, 07/31/00(b) (Acquired 04/26/95; cost $22,745).................... 25,195 ----------- ELECTRONIC COMPONENTS/MISCELLANEOUS - 0.42% 30,000 Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02(b) (Acquired 06/16/95-12/13/95; cost $31,700)........... 34,950 ----------- SEMICONDUCTORS - 0.70% 25,000 Analog Devices, Conv. Sub. Notes, 3.50%, 12/01/00..... 26,625 35,000 Xilinx Inc., Conv. Sub. Notes, 5.25%, 11/01/02(b) (Acquired 11/07/95; cost $35,000).................... 31,850 ----------- 58,475 ----------- TELECOMMUNICATIONS - 0.78% 80,000 United States Cellular Corp., Conv. Liquid Yield Option Notes, 6.00%, 06/15/15(c)..................... 28,500 35,000 World Communications, Conv. Sub. Notes, 5.00%, 08/15/03............................................. 37,275 ----------- 65,775 ----------- Total Domestic Convertible Bonds.................... 198,733 ----------- DOMESTIC NON-CONVERTIBLE BONDS - 5.52% ADVERTISING/BROADCASTING - 0.96% 75,000 Time Warner Inc., Notes, 8.18%, 08/15/07.............. 80,559 ----------- ELECTRIC SERVICES - 0.93% 75,000 Arizona Public Service, Deb., 8.00%, 12/30/15......... 77,780 ----------- FINANCE (CONSUMER CREDIT) - 1.03% 75,000 General Motors Acceptance Corp., Putable Step Up Notes, 9.00%, 10/15/02............................... 86,739 ----------- NATURAL GAS PIPELINE - 0.59% 45,000 Panhandle Eastern Pipeline, Deb., 7.875%, 08/15/04.... 49,631 -----------
FS-29 AIM V.I. GLOBAL UTILITIES FUND PRINCIPAL MARKET AMOUNT VALUE --------- ------ TELECOMMUNICATIONS - 2.01% $150,000 A T & T Corp., Sr. Notes, 7.75%, 03/01/07............ $ 168,579 ----------- Total Domestic Non-Convertible Bonds............... 463,288 ----------- FOREIGN NON-CONVERTIBLE BONDS - 2.08% CANADA - 1.47% CAD 50,000 Bell Canada, Deb. (Telecommunications), 8.80%, 08/17/05............................................ 39,660 CAD 50,000 Bell Canada, Deb. (Telecommunications), 10.875%, 10/11/04............................................ 43,755 CAD 50,000 IPL Energy, Deb. (Oil & Gas-Services), 9.67%, 02/23/00............................................ 40,049 ----------- 123,464 ----------- MEXICO - 0.61% 50,000 United Mexican States, Deb. (Foreign Government Securities), 11.1875%, 07/21/97(b) (Acquired 07/12/95; cost $50,000)............................. 51,219 ----------- Total Foreign Non-Convertible Bonds................ 174,683 ----------- U.S. TREASURY SECURITIES - 10.15% U.S. TREASURY BONDS - 1.89% 130,000 7.625%, 02/15/25..................................... 158,899 ----------- U.S. TREASURY NOTES - 8.26% 650,000 6.50%, 08/15/05...................................... 693,214 ----------- Total U.S. Treasury Securities..................... 852,113 ----------- REPURCHASE AGREEMENT - 7.47%(d) 627,267 Daiwa Securities America Inc., 5.92%, 01/02/96(e).... 627,267 ----------- TOTAL INVESTMENTS - 98.99%........................... 8,309,070 OTHER ASSETS LESS LIABILITIES - 1.01%................ 84,897 ----------- NET ASSETS - 100.00%................................. $ 8,393,967 =========== 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 December 31, 1995 was $214,369, which represented 2.55% of net assets. (c) Zero coupon bond. The interest rate shown represents the rate of the original issue discount. (d) Collateral on repurchase agreement, 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 percent of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds managed by the investment advisor. (e) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. Abbreviations: ADR - American Depositary Receipt CAD - Canadian dollars Conv. - Convertible Deb. - Debentures Sr. - Senior Sub. - Subordinated TOPRS - Trust Originated Preferred Securities See Notes to Financial Statements.
FS-30 AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GLOBAL ASSETS: UTILITIES FUND STATEMENT OF Investments, at value (cost $7,345,626)............................ $ 8,309,070 ASSETS AND Foreign currencies, at value (cost $20,237)........................ 20,328 LIABILITIES Receivables for: December 31, 1995 Capital stock sold............................................... 31,966 Investments sold................................................. 650 Dividends and interest........................................... 61,034 Reimbursement from advisor....................................... 5,000 Investment for deferred compensation plan.......................... 5,158 Other assets....................................................... 23 ----------- Total assets................................................... 8,433,229 ----------- LIABILITIES: Payables for: Investments purchased............................................ 21,873 Deferred compensation plan....................................... 5,158 Accrued directors' fees............................................ 1,551 Accrued administrative services fees............................... 3,496 Accrued operating expenses......................................... 7,184 ----------- Total liabilities.............................................. 39,262 ----------- Net assets applicable to shares outstanding........................ $ 8,393,967 =========== Capital shares, $.001 par value per share: Authorized....................................................... 250,000,000 =========== Outstanding...................................................... 721,345 =========== Net asset value, offering and redemption price per share........... $11.64 ====== See Notes to Financial Statements.
FS-31 AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GLOBAL INVESTMENT INCOME: UTILITIES FUND STATEMENT OF Dividends (net of $3,639 foreign withholding tax)............... $ 170,888 OPERATIONS Interest........................................................ 80,845 For the eleven months ---------- ended December 31, 1995 Total investment income....................................... 251,733 ---------- EXPENSES: Advisory fees................................................... 32,703 Custodian fees.................................................. 21,094 Administrative services fees.................................... 33,582 Directors' fees and expenses.................................... 5,083 Professional fees............................................... 22,514 Other........................................................... 2,315 ---------- Total expenses................................................. 117,291 Less expenses assumed by advisor................................ (46,503) ---------- Net expenses................................................... 70,788 ---------- Net investment income............................................. 180,945 ---------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investment securities........................................... 82,163 Foreign currency transactions................................... (2,067) ---------- 80,096 ---------- Unrealized appreciation of: Investment securities........................................... 928,908 Foreign currencies.............................................. 475 ---------- 929,383 ---------- Net gain on investment securities and foreign currencies.......... 1,009,479 ---------- Net increase in net assets resulting from operations.............. $1,190,424 ========== AIM V.I. GLOBAL 1995 1995 UTILITIES FUND ------------ ----------- STATEMENT OF CHANGES OPERATIONS: IN NET ASSETS For the eleven months ended Net investment income.............................. $ 180,945 $ 62,600 December 31, 1995 and the Net realized gain (loss) from investment securities period May 2, 1994 and foreign currency transactions................. 80,096 (63,919) (date operations commenced) Net unrealized appreciation of investment through January 31, 1995 securities and foreign currencies................. 929,383 33,906 ---------- ----------- Net increase in net assets resulting from operations....................................... 1,190,424 32,587 Net increase from capital stock transactions....... 4,441,375 2,981,631 Distributions to shareholders from net investment income............................................ (186,096) (56,551) Distributions from net realized capital gains...... (9,403) -- ---------- ----------- Net increase in net assets........................ 5,436,300 2,957,667 NET ASSETS: Beginning of period................................ 2,957,667 -- ---------- ----------- End of period...................................... $8,393,967 $ 2,957,667 ========== =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)......... $7,423,006 $ 2,981,631 Undistributed net investment income................ (769) 6,049 Undistributed net realized gain (loss) from investment securities and foreign currency transactions...................................... 8,441 (63,919) Unrealized appreciation of investment securities and foreign currencies............................ 963,289 33,906 ---------- ----------- $8,393,967 $ 2,957,667 ========== =========== See Notes to Financial Statements.
FS-32 AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GLOBAL NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES UTILITIES FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation NOTES TO organized on January 22, 1993, and is registered under the Investment Company FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management STATEMENTS investment company consisting of nine portfolios. Matters affecting each December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year was changed from January 31 to December 31. 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. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. 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. A. Security Valuations - Equity securities, including warrants, that are listed on a national securities exchange or part of the NASDAQ National Market System are valued at the last reported sales price or if there has been no sale that day, at the mean between the closing bid and asked prices on that day. 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. Non-convertible debt securities are valued on the basis of valuations furnished by a pricing service, which determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. 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. Exchange listed convertible debt securities are valued at the mean between the closing bid and asked prices obtained from a broker-dealer. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost which approximates market value. Short-term securities that mature in more than 60 days are valued at current market quotations. 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 authority of, the Board of Directors. 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, 1995, undistributed net realized gain (loss) was increased and undistributed net investment income reduced by $1,667 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 reclassification 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. 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.
FS-33 AIM V.I. GLOBAL UTILITIES FUND E. Forward Currency Contracts - A forward currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a forward contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a currency contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock-in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. 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. This agreement requires AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. During the eleven months ended December 31, 1995, AIM waived advisory fees of $32,703 and reimbursed expenses of $13,800 with respect to the Fund. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $33,582 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,355 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $6,844,524 and $2,777,535, respectively. The amount of unrealized appreciation of investment securities, on a tax basis, as of December 31, 1995 is as follows:
Aggregate unrealized appreciation of investment securities.......... $1,001,165 Aggregate unrealized (depreciation) of investment securities........ (40,407) ---------- Net unrealized appreciation of investment securities................ $ 960,758 ========== Cost of investments for tax purposes is $7,348,312.
FS-34 AIM V.I. GLOBAL UTILITIES FUND NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 -------------------- ------------------- Shares Amount Shares Amount -------- ---------- ------- ---------- Sold................................ 535,828 $5,682,400 303,347 $2,952,131 Issued as reinvestment of distributions...................... 17,742 195,499 5,893 56,551 Reacquired.......................... (134,462) (1,436,524) (4,003) (27,051) -------- ---------- ------- ---------- 419,108 $4,441,375 305,237 $2,981,631 ======== ========== ======= ==========
NOTE 6 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during the eleven months ended July 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995.
December 31, January 31, 1995 1995 ------------ ----------- Net asset value, beginning of period............ $9.69 $10.00 ------ ------ Income from investment operations: Net investment income......................... 0.29 0.27 Net gains (losses) on securities (both realized and unrealized)..................... 1.98 (0.33) ------ ------ Total from investment operations............. 2.27 (0.06) ------ ------ Less distributions: Dividends from net investment income.......... (0.31) (0.25) Distributions from capital gain............... (0.01) -- ------ ------ Total distributions........................... (0.32) (0.25) ------ ------ Net asset value, end of period.................. $11.64 $ 9.69 ====== ====== Total return(a)................................. 23.73% (0.56)% ====== ====== Ratios/supplemental data: Net assets, end of period (000s omitted)........ $8,394 $2,958 ====== ====== Ratio of expenses to average net assets......... 1.47%(b) 1.31%(c)(d) ====== ====== Ratio of net investment income to average net assets......................................... 3.76%(b) 4.39%(c)(d) ====== ====== Portfolio turnover rate......................... 58% 69% ====== ====== ------------ (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $5,261,394. Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees and expense reimbursements are 2.44% and 2.79%, respectively. (c) Annualized. (d) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees and expense reimbursements are 2.80% and 2.90%, respectively.
FS-35 AIM V.I. GLOBAL UTILITIES FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Government Securities Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 January 26, 1996
FS-36 AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GOVERNMENT PRINCIPAL MARKET SECURITIES FUND AMOUNT VALUE SCHEDULE OF --------- ------ INVESTMENTS U.S. GOVERNMENT AGENCIES - 72.04% December 31, 1995 FEDERAL FARM CREDIT BANK - 1.03% $ 200,000 Medium term notes 5.96%, 07/14/03....................................... $ 201,970 ----------- FEDERAL HOME LOAN BANK - 7.58% Debentures 150,000 8.375%, 10/25/99...................................... 164,798 500,000 7.31%, 07/06/01....................................... 538,025 285,000 7.78%, 10/19/01....................................... 315,307 400,000 8.17%, 12/16/04....................................... 463,744 ----------- 1,481,874 ----------- FEDERAL HOME LOAN MORTGAGE CORPORATION - 22.88% Debentures 150,000 6.13%, 08/19/99....................................... 153,264 500,000 7.90%, 09/19/01....................................... 553,680 300,000 6.185%, 11/26/03...................................... 296,649 500,000 8.00%, 01/26/05....................................... 574,260 500,000 8.115%, 01/31/05...................................... 578,230 Pass through certificates 1,021,304 6.00%, 11/01/08 to 08/01/10........................... 1,011,397 559,598 6.50%, 12/01/08 to 07/01/23........................... 557,290 405,179 10.50%, 08/01/19...................................... 443,412 291,121 8.50%, 08/01/24....................................... 303,946 ----------- 4,472,128 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 26.49% Debentures 400,000 7.55%, 04/22/02....................................... 438,232 500,000 8.50%, 02/01/05....................................... 547,420 Medium term notes 400,000 7.68%, 12/01/97....................................... 416,480 500,000 5.42%, 06/02/99....................................... 497,640 300,000 7.375%, 03/28/05...................................... 331,758 Pass through certificates 580,790 7.50%, 11/01/09 to 06/01/25........................... 596,569 672,426 6.50%, 10/01/10 to 06/01/23........................... 673,716 677,662 8.25%, 04/01/22....................................... 704,653 448,199 8.50%, 09/01/24....................................... 467,799 498,729 7.00%, 09/01/25....................................... 503,082 ----------- 5,177,349 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.62% Pass through certificates 111,258 9.50%, 08/15/03 to 09/15/16........................... 119,421 277,816 9.00%, 09/15/08 to 10/15/16........................... 297,346 52,159 11.00%, 10/15/15...................................... 58,564 87,599 10.50%, 09/15/17 to 11/15/19.......................... 97,233 530,467 6.50%, 12/15/23....................................... 526,647 ----------- 1,099,211 ----------- PRIVATE EXPORT FUNDING COMPANY - 1.66% 300,000 Debentures 7.30%, 01/31/02....................................... 323,766 ----------- STUDENT LOAN MARKETING ASSOCIATION - 4.12% Debentures 500,000 5.65%, 02/22/99....................................... 499,215 150,000 5.55%, 12/15/99....................................... 150,329 150,000 6.50%, 08/01/02....................................... 156,290 ----------- 805,834 ----------- TENNESSEE VALLEY AUTHORITY - 2.66% 500,000 Debentures 6.375%, 06/15/05...................................... 518,985 ----------- Total U.S. Government Agencies..................... 14,081,117 -----------
FS-37 AIM V.I. GOVERNMENT SECURITIES FUND PRINCIPAL MARKET AMOUNT VALUE --------- ------ U.S. TREASURY SECURITIES - 20.54% U.S. TREASURY NOTES & BONDS - 20.23% $ 300,000 6.875%, 08/31/99..................................... $ 315,327 1,750,000 6.25%, 05/31/00 to 08/15/23.......................... 1,809,497 500,000 7.50%, 02/15/05...................................... 567,435 1,100,000 7.25%, 05/15/16 to 08/15/22.......................... 1,261,852 ----------- 3,954,111 ----------- U.S. TREASURY STRIPS - 0.31% 250,000 6.80%(a), 11/15/18................................... 60,250 ----------- Total U.S. Treasury Securities.................... 4,014,361 ----------- REPURCHASE AGREEMENT - 6.30%(b) 1,231,821 Daiwa Securities America, Inc., 5.92%, 01/02/96(c).... 1,231,821 ----------- TOTAL INVESTMENTS - 98.88%............................ 19,327,299 OTHER ASSETS LESS LIABILITIES - 1.12%................. 218,092 ----------- NET ASSETS - 100.00%.................................. $19,545,391 =========== NOTES TO SCHEDULE OF INVESTMENTS: (a) U.S. Treasury STRIPS are traded on a discount basis. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds managed by the investment advisor. (c) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. See Notes to Financial Statements.
FS-38 AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GOVERNMENT ASSETS: SECURITIES FUND STATEMENT OF Investments, at market value (cost $18,692,275).................... $19,327,299 ASSETS AND Interest receivable................................................ 235,597 LIABILITIES Investment for deferred compensation plan.......................... 7,626 December 31, 1995 Organizational costs, net.......................................... 6,773 Other assets....................................................... 9,465 ----------- Total assets................................................... 19,586,760 ----------- LIABILITIES: Payable for capital stock purchased................................ 8,670 Payable for deferred compensation.................................. 7,626 Accrued advisory fees.............................................. 8,040 Accrued directors' fees............................................ 1,398 Accrued administrative service fees................................ 1,831 Accrued operating expenses......................................... 13,804 ----------- Total liabilities.............................................. 41,369 ----------- Net assets applicable to shares outstanding........................ $19,545,391 =========== Capital shares, $.001 par value per share: Authorized....................................................... 250,000,000 =========== Outstanding...................................................... 1,921,357 =========== Net asset value, offering and redemption price per share........... $10.17 ===========
See Notes to Financial Statements. FS-39 AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GOVERNMENT INVESTMENT INCOME: SECURITIES FUND STATEMENT OF Interest.......................................................... $ 990,824 OPERATIONS ---------- For the eleven months EXPENSES: ended December 31, 1995 Advisory fees..................................................... 71,080 Custodian fees.................................................... 13,735 Administrative service fees....................................... 30,769 Directors' fees and expenses...................................... 5,567 Professional fees................................................. 27,942 Organizational costs.............................................. 2,541 Other............................................................. 17,950 ---------- Total expenses.................................................. 169,584 ---------- Net investment income............................................... 821,240 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Net realized gain (loss) on sales of investment securities.......... (148,986) Unrealized appreciation of investment securities.................... 1,343,577 ---------- Net gain on investment securities................................... 1,194,591 ---------- Net increase in net assets resulting from operations................ $2,015,831 ========== AIM V.I. GOVERNMENT December 31, January 31, SECURITIES FUND 1995 1995 STATEMENT ------------ ----------- OF CHANGES OPERATIONS: IN NET ASSETS For the eleven months Net investment income.............................. $ 821,240 $ 675,548 ended December 31, 1995 Net realized gain (loss) on sales of investment and the year ended securities........................................ (148,986) (282,363) January 31, 1995 Net unrealized appreciation (depreciation) of investment securities............................. 1,343,577 (760,122) ----------- ----------- Net increase (decrease) in net assets resulting from operations................................. 2,015,831 (366,937) Net equalization credits............................. 199,339 46,268 Net increase from capital stock transactions......... 5,295,385 3,196,439 Distributions to shareholders from net investment income.............................................. (852,380) (631,778) ----------- ----------- Net increase in net assets....................... 6,658,175 2,243,992 NET ASSETS: Beginning of period................................ 12,887,216 10,643,224 ----------- ----------- End of period...................................... $19,545,391 $12,887,216 =========== =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)......... $18,951,306 $13,655,921 Undistributed net investment income................ 409,777 241,578 Undistributed net realized gain (loss) on sales of investment securities............................. (450,716) (301,730) Unrealized appreciation (depreciation) of investment securities............................. 635,024 (708,553) ----------- ----------- $19,545,391 $12,887,216 =========== ===========
See Notes to Financial Statements. FS-40 AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GOVERNMENT NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES SECURITIES FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation NOTES TO organized on January 22, 1993, and is registered under the Investment Company FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management STATEMENTS investment company consisting of nine portfolios. Matters affecting each December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year end was changed from January 31 to December 31. Information presented in these financial statements pertains only to the AIM V.I. Government Securities Fund (the "Fund"). The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the U.S. Government. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. A. Security Valuations - Debt obligations that are issued or guaranteed by the U.S. Government, its agencies, authorities, and instrumentalities are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate, maturity and seasoning differential. Securities for which market prices are not provided by the pricing service are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations are either not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. B. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Distributions to shareholders are recorded on the ex-dividend date. Realized gains or losses from securities transactions are recorded on the identified cost basis. 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 $399,008, which expires, if not previously utilized, through the year 2003. D. Equalization - The Fund follows the accounting practice known as equalization by which a portion of the proceeds from sales and the costs of repurchases of Fund shares, equivalent on a per share basis to the amount of undistributed net investment income, is credited or charged to undistributed net income when the transaction is recorded so that undistributed net investment income per share is unaffected by sales or redemptions of Fund shares. E. Organizational Costs - Organizational costs for the Fund of $14,461 are being amortized over five years. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% of the first $250 million of the Fund's average daily net assets, plus 0.45% of the Fund's average daily net assets in excess of $250 million. This agreement requires AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $30,769 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.
FS-41 AIM V.I. GOVERNMENT SECURITIES FUND During the eleven months ended December 31, 1995, the Fund incurred legal fees of $1,602 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $10,613,846 and $5,500,354, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of December 31, 1995 is as follows:
Aggregate unrealized appreciation of investment securities............ $675,091 Aggregate unrealized (depreciation) of investment securities.......... (40,067) -------- Net unrealized appreciation of investment securities.................. $635,024 ======== Investments have the same cost for tax and financial statement purposes. NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 -------------------- --------------------- Shares Amount Shares Amount -------- ---------- -------- ----------- Sold.............................. 693,583 $6,660,171 500,188 $ 4,784,080 Issued as reinvestment of distributions.................... 85,675 852,380 66,676 631,778 Reacquired........................ (229,935) (2,217,166) (234,604) (2,219,419) -------- ---------- -------- ----------- 549,323 $5,295,385 332,260 $ 3,196,439 ======== ========== ======== ===========
NOTE 6 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
January 31, December 31, ------------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period..... $ 9.39 $ 10.24 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income.................. 0.54 0.53 0.38 Net gains (losses) on securities (both realized and unrealized).............. 0.74 (0.88) 0.10 ------- ------- ------- Total from investment operations.. 1.28 (0.35) 0.48 ------- ------- ------- Less distributions: Dividends from net investment income... (0.50) (0.50) (0.24) ------- ------- ------- Total distributions............... (0.50) (0.50) (0.24) ------- ------- ------- Net asset value, end of period........... $ 10.17 $ 9.39 $ 10.24 ======= ======= ======= Total return(a).......................... 13.84% (3.42)% 4.78% ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted). $19,545 $12,887 $10,643 ======= ======= ======= Ratio of expenses to average net assets.. 1.19%(b) 0.95%(c) 1.00%(c) ======= ======= ======= Ratio of net investment income to average net assets.............................. 5.78%(b) 5.51%(d) 4.74%(d) ======= ======= ======= Portfolio turnover rate.................. 41% 29% 0% ======= ======= ======= ------ (a) Total returns for periods less than one year are not annualized. (b) Ratios are annualized and are based on average net assets of $15,535,425. (c) Ratios of expenses to average net assets prior to waiver of advisory fees and/or expense reimbursements are 1.10% and 1.80% (annualized) for January, 1995 and 1994, respectively. (d) Ratios of net investment income to average net assets prior to waiver of advisory fees and/or expense reimbursements are 5.35% and 3.94% (annualized) for January, 1995 and 1994, respectively.
FS-42 AIM V.I. GOVERNMENT SECURITIES FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 amount and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian and brokers. Where brokers did not reply to our confirmation requests, we carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Growth Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, the year ended January 31, 1995 and the period May 5, 1993 through January 31, 1994, in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 26, 1996
FS-43 AIM V.I. GROWTH FUND AIM V.I. GROWTH MARKET FUND SHARES VALUE SCHEDULE OF ------ ------ INVESTMENTS December 31, 1995 COMMON STOCKS - 80.43% AEROSPACE/DEFENSE - 1.06% 6,000 Boeing Co. .............................................. $ 470,258 2,200 Raytheon Co. ............................................ 103,950 5,000 Rockwell International Co. .............................. 264,375 2,600 United Technologies Corp. ............................... 246,675 ----------- 1,085,258 ----------- APPLIANCES - 0.75% 20,000 Newell Co. .............................................. 517,500 5,000 Premark International Inc. .............................. 253,125 ----------- 770,625 ----------- AUTOMOBILE/TRUCK PARTS & TIRES - 0.51% 14,400 Echlin Inc. ............................................. 525,600 ----------- AUTOMOBILE (MANUFACTURERS) - 0.24% 4,500 Chrysler Corp. .......................................... 249,187 ----------- BANKING - 0.83% 6,500 Corestates Financial Corp. .............................. 246,187 7,000 Norwest Bank Corp. ...................................... 231,000 14,200 Southern National Corp. ................................. 372,750 ----------- 849,937 ----------- BANKING (MONEY CENTER) - 0.66% 4,000 BankAmerica Corp. ....................................... 259,000 6,900 Chase Manhattan Corp. ................................... 418,312 ----------- 677,312 ----------- BEVERAGES (ALCOHOLIC) - 1.06% 97,800 Bass PLC-ADR............................................. 1,091,307 ----------- BEVERAGES - 0.71% 13,000 PepsiCo Inc. ............................................ 726,375 ----------- BIOTECHNOLOGY - 0.06% 1,400 Guidant Corp. ........................................... 59,150 ----------- BUSINESS SERVICES - 1.22% 10,800 Equifax Inc. ............................................ 230,850 5,500 Healthcare COMPARE Corp.(a).............................. 239,250 11,000 Olsten Corp. (The)....................................... 434,500 11,500 Servicemaster L.P. ...................................... 347,875 ----------- 1,252,475 ----------- CHEMICALS (SPECIALTY) - 0.97% 13,000 Cabot Corp. ............................................. 700,375 5,000 W.R. Grace & Co. ........................................ 295,625 ----------- 996,000 ----------- COMPUTER MINI/PCS - 3.23% 20,000 COMPAQ Computer Corp.(a)................................. 960,000 26,600 Dell Computer Corp.(a)................................... 921,025 9,000 Digital Equipment Corp.(a)............................... 577,125 6,500 Hewlett-Packard Co. ..................................... 544,375 6,800 Sun Microsystems, Inc.(a)................................ 310,250 ----------- 3,312,775 -----------
FS-44 AIM V.I. GROWTH FUND MARKET SHARES VALUE ------ ------ COMPUTER NETWORKING - 3.77% 21,000 Bay Network, Inc.(a)..................................... $ 863,625 3,750 Cabletron Systems, Inc.(a)............................... 303,750 14,000 Cisco Systems, Inc.(a)................................... 1,044,750 23,700 ECI Telecommunications Limited Designs................... 540,656 9,700 Madge Networks N.V.(a)................................... 434,075 14,600 3Com Corp.(a)............................................ 680,725 ----------- 3,867,581 ----------- COMPUTER PERIPHERALS - 1.58% 9,500 Adaptec, Inc.(a)......................................... 389,500 15,000 EMC Corp.(a)............................................. 230,625 16,500 Seagate Technology Inc.(a)............................... 783,750 2,500 U.S. Robotics Corp.(a)................................... 219,375 ----------- 1,623,250 ----------- COMPUTER SOFTWARE & SERVICES - 4.44% 5,300 Adobe Systems, Inc. ..................................... 328,600 12,700 BMC Software, Inc.(a).................................... 542,925 15,000 Cadence Design Systems, Inc.(a).......................... 630,000 17,600 Computer Associates International, Inc. ................. 1,001,000 11,000 FTP Software, Inc.(a).................................... 319,000 10,000 Mentor Graphics Corp.(a)................................. 182,500 5,500 Microsoft Corp.(a)....................................... 482,625 11,900 SoftKey International Inc.(a)............................ 275,188 4,500 Sterling Software, Inc.(a)............................... 280,687 21,000 Symantec Corp.(a)........................................ 488,250 600 Synopsys, Inc.(a)........................................ 22,800 ----------- 4,553,575 ----------- CONGLOMERATES - 1.57% 10,000 Dial Corp. (The)......................................... 296,250 13,000 Loews Corp. ............................................. 1,018,875 8,200 Tyco International Ltd. ................................. 292,125 ----------- 1,607,250 ----------- CONTAINERS - 0.55% 10,300 Ball Corp. .............................................. 283,250 6,000 First Brands Corp. ...................................... 285,750 ----------- 569,000 ----------- COSMETICS & TOILETRIES - 0.45% 3,800 Alberto-Culver Co. - Class A............................. 115,900 2,000 Gillette Co. (The)....................................... 104,250 3,000 Procter & Gamble Co. .................................... 249,000 ----------- 469,150 ----------- ELECTRONIC COMPONENTS - 2.19% 13,000 Amphenol Corp.(a)........................................ 315,250 9,800 Anixter International Inc.(a)............................ 182,525 900 AVX Corp. ............................................... 23,850 10,000 Elsag Bailey Process Automation N.V.(a).................. 268,750 9,200 Tektronix, Inc. ......................................... 451,950 40,000 Teradyne, Inc.(a)........................................ 1,000,000 ----------- 2,242,325 -----------
FS-45 AIM V.I. GROWTH FUND MARKET SHARES VALUE ------ ------ ELECTRONIC/PC DISTRIBUTORS - 1.52% 17,000 Arrow Electronics, Inc.(a)............................... $ 733,125 18,500 Avnet, Inc. ............................................. 827,875 ----------- 1,561,000 ----------- ELECTRONICS/DEFENSE - 0.21% 3,000 Sundstrand Corp. ........................................ 211,125 ----------- FINANCE (ASSET MANAGEMENT) - 1.52% 25,000 Bear Stearns Companies, Inc. (The)....................... 496,875 10,800 Finova Group, Inc. ...................................... 521,100 3,000 Morgan Stanley Group, Inc. .............................. 241,875 15,100 PaineWebber Group, Inc. ................................. 302,000 ----------- 1,561,850 ----------- FINANCE (CONSUMER CREDIT) - 5.07% 28,000 Countrywide Credit Industries, Inc. ..................... 609,000 10,000 Dean Witter Discover & Co. .............................. 470,000 9,000 Federal Home Loan Mortgage Corp. ........................ 751,500 3,000 Federal National Mortgage Association.................... 372,375 9,500 First USA, Inc. ......................................... 421,562 17,000 Green Tree Acceptance, Inc. ............................. 448,375 4,500 Household International, Inc. ........................... 266,063 25,000 MBNA Corp. .............................................. 921,875 12,000 Mercury Finance Co. ..................................... 159,000 4,100 PMI Group, Inc. (The).................................... 185,525 5,900 Student Loan Marketing Association....................... 388,662 8,000 United Companies Financial Corp. ........................ 211,000 ----------- 5,204,937 ----------- FINANCE (SAVINGS & LOAN) - 0.32% 12,100 Greenpoint Financial Corp. .............................. 323,675 ----------- FOOD PROCESSING - 0.59% 4,500 ConAgra, Inc. ........................................... 185,625 11,700 Hudson Foods, Inc. ...................................... 201,825 5,966 Lancaster Colony Corp. .................................. 222,233 ----------- 609,683 ----------- FUNERAL SERVICES - 0.61% 14,200 Service Corp. International.............................. 624,800 ----------- HOTELS/MOTELS - 0.92% 4,600 Hospitality Franchise Systems, Inc.(a)................... 376,050 20,900 La Quinta Inns, Inc. .................................... 572,137 ----------- 948,187 ----------- INSURANCE (LIFE & HEALTH) - 0.67% 2,200 Conseco, Inc. ........................................... 137,775 10,000 First Colony Corp. ...................................... 253,750 5,500 Lincoln National Corp. .................................. 295,625 ----------- 687,150 -----------
FS-46 AIM V.I. GROWTH FUND MARKET SHARES VALUE ------ ------ INSURANCE (MULTI-LINE PROPERTY) - 1.50% 13,000 Ace, Ltd. ............................................... $ 516,750 4,500 CIGNA Corp. ............................................. 464,625 1,100 General Re Corp. ........................................ 170,500 4,500 Mid Ocean Ltd. .......................................... 167,062 9,400 Prudential Reinsurance Holdings, Inc. ................... 219,725 ----------- 1,538,662 ----------- LEISURE & RECREATION - 1.39% 24,000 Brunswick Corp. ......................................... 576,000 19,000 Carnival Cruise Lines, Inc. - Class A.................... 463,125 4,500 Coleman Company, Inc. (The)(a)........................... 158,063 7,400 Mattel, Inc. ............................................ 227,550 ----------- 1,424,738 ----------- MACHINERY (HEAVY) - 0.27% 8,000 Deere & Co. ............................................. 282,000 ----------- MACHINERY (MISCELLANEOUS) - 1.45% 30,000 American Standard Companies(a)........................... 840,000 12,400 Thermo Electron Corp.(a)................................. 644,800 ----------- 1,484,800 ----------- MEDICAL (DRUGS) - 8.96% 35,000 Abbott Laboratories...................................... 1,461,251 7,500 American Home Products Corp. ............................ 727,500 10,000 AmeriSource Health Corp.(a).............................. 330,000 9,000 Cardinal Health, Inc. ................................... 492,750 1,200 Ciba-Geigy AG-ADR........................................ 1,055,916 5,000 Johnson & Johnson........................................ 428,125 8,100 Merck & Co., Inc. ....................................... 532,575 12,800 Mylan Laboratories, Inc. ................................ 300,800 6,800 Pfizer Inc. ............................................. 428,400 26,000 Pharmacia & Upjohn, Inc. ................................ 1,007,500 1,600 Roussel Uclaf-ADR........................................ 271,186 24,700 Schering-Plough Corp. ................................... 1,352,325 12,000 Teva Pharmaceutical Industries Ltd.-ADR.................. 556,500 5,000 Watson Pharmaceuticals, Inc.(a).......................... 245,000 ----------- 9,189,828 ----------- MEDICAL (INSTRUMENTS/PRODUCTS) - 2.27% 11,000 Baxter International Inc. ............................... 460,625 3,600 Becton, Dickinson & Co. ................................. 270,000 11,000 Biomet, Inc.(a).......................................... 196,625 5,400 Boston Scientific Corp.(a)............................... 264,600 8,400 Heart Technology, Inc.(a)................................ 276,150 4,000 Medtronic, Inc. ......................................... 223,500 13,000 St. Jude Medical, Inc.(a)................................ 559,000 1,500 Stryker Corp. ........................................... 78,750 ----------- 2,329,250 -----------
FS-47 AIM V.I. GROWTH FUND MARKET SHARES VALUE ------ ------ MEDICAL (PATIENT SERVICES) - 3.33% 12,000 Foundation Health Corp.(a)............................... $ 516,000 8,850 Health Management Associates, Inc.(a).................... 231,206 17,400 Healthsource, Inc.(a).................................... 626,400 38,300 Healthsouth Corp.(a)..................................... 1,115,487 3,400 Lincare Holdings, Inc.(a)................................ 85,000 15,000 Sybron International Corp.(a)............................ 356,250 14,900 Vencor, Inc.(a).......................................... 484,250 ----------- 3,414,593 ----------- OFFICE AUTOMATION - 0.57% 2,800 Danka Business Systems PLC-ADR........................... 103,600 3,500 Xerox Corp. ............................................. 479,500 ----------- 583,100 ----------- OFFICE PRODUCTS - 0.51% 5,000 Avery Dennison Corp. .................................... 250,625 7,000 Reynolds & Reynolds Co. - Class A........................ 272,125 ----------- 522,750 ----------- OIL & GAS SERVICES - 0.44% 10,100 Sonat Offshore Drilling Inc. ............................ 451,975 ----------- OIL EQUIPMENT & SUPPLIES - 0.30% 6,000 Halliburton Co. ......................................... 303,750 ----------- RESTAURANTS -- 0.64% 12,000 Applebee's International, Inc. .......................... 273,000 8,000 Outback Steakhouse, Inc.(a).............................. 287,000 4,700 Wendy's International, Inc. ............................. 99,875 ----------- 659,875 ----------- RETAIL (FOOD & DRUGS) - 1.53% 13,700 Hannaford Bros. Co. ..................................... 337,362 12,300 Kroger Co.(a)............................................ 461,250 14,900 Safeway Inc.(a).......................................... 767,350 ----------- 1,565,962 ----------- RETAIL (STORES) - 3.81% 9,600 AutoZone, Inc. (a)....................................... 277,200 9,000 Circuit City Stores, Inc. ............................... 248,625 19,000 Consolidated Stores Corp.(a)............................. 413,250 3,000 Fila Holding S.p.A. ..................................... 136,500 6,000 Gap, Inc. (The).......................................... 252,000 30,000 Intimate Brands, Inc. ................................... 450,000 16,000 Office Depot, Inc.(a).................................... 316,000 30,000 Price/Costco, Inc.(a).................................... 457,500 6,500 Sears Roebuck & Co. ..................................... 253,500 5,850 Staples, Inc.(a)......................................... 142,593 4,700 Tandy Corp. ............................................. 195,050 11,900 Viking Office Products Inc.(a)........................... 553,350 11,600 Waban Inc.(a)............................................ 217,500 ----------- 3,913,068 ----------- SCIENTIFIC INSTRUMENTS - 0.79% 17,000 Varian Associates, Inc. ................................. 811,750 -----------
FS-48 AIM V.I. GROWTH FUND MARKET SHARES VALUE ------ ------ SEMICONDUCTORS - 8.24% 7,500 Altera Corp.(a)......................................... $ 373,125 18,800 Analog Devices, Inc.(a)................................. 665,050 25,000 Applied Materials, Inc.(a).............................. 984,375 30,000 Atmel Corp.(a).......................................... 671,250 19,900 Cypress Semiconductor Corp.(a).......................... 253,725 7,100 Integrated Device Technology, Inc.(a)................... 91,413 7,300 Intel Corp. ............................................ 414,275 18,000 KLA Instruments Corp.(a)................................ 469,125 25,000 LAM Research Corp.(a)................................... 1,143,750 12,000 Linear Technology Corp. ................................ 471,000 6,600 LSI Logic Corp.(a)...................................... 216,150 4,800 Novellus Systems, Inc.(a)............................... 259,200 15,500 SGS Thompson Microelectronics N.V.-New York Shares- ADR(a)................................................. 623,875 10,500 Solectron Corp.(a)...................................... 463,312 7,000 Texas Instruments Inc. ................................. 362,250 26,470 Vishay Intertechnology, Inc.(a)......................... 833,805 9,000 VLSI Technology, Inc.(a)................................ 163,125 ----------- 8,458,805 ----------- SHOES & RELATED APPAREL - 0.68% 10,000 Nike, Inc. - Class B.................................... 696,250 ----------- TELECOMMUNICATIONS - 4.34% 15,000 A T & T Corp............................................ 971,250 9,000 Glenayre Technologies, Inc.(a).......................... 560,250 13,900 Northern Telcom LTD..................................... 597,700 12,500 Sprint Corp............................................. 498,437 7,000 Telecomunicacoes Brasileiras S.A. - Telebras-ADR........ 331,625 52,000 Telefonaktiebolaget L.M. Ericsson-ADR................... 1,014,000 13,000 Tellabs, Inc.(a)........................................ 481,000 ----------- 4,454,262 ----------- TOBACCO - 1.90% 21,500 Philip Morris Companies, Inc. .......................... 1,945,750 ----------- TRANSPORTATION (MISCELLANEOUS) - 0.23% 8,000 Stolt-Nielsen S.A....................................... 231,000 ----------- Total Common Stocks................................... 82,522,707 ----------- CONVERTIBLE CORPORATE BONDS - 0.60% COMPUTER NETWORKING - 0.19% 125,000 3Com Corp., Sub. Notes, 10.25%, 11/01/01................ 200,625 ----------- OFFICE AUTOMATION - 0.41% 300,000 Danka Business Systems PLC-ADR, 6.75%, 04/01/02......... 419,250 ----------- Total Convertible Corporate Bonds .................... 619,875 ----------- CONVERTIBLE PREFERRED STOCK - 0.17% FINANCE (CONSUMER CREDIT) - 0.17% 2,600 SunAmerica Inc. - Series E, $3.10 Conv. Pfd............. 170,300 -----------
FS-49 AIM V.I. GROWTH FUND PRINCIPAL AMOUNT MARKET VALUE --------- ------------ U.S. TREASURY SECURITIES - 16.50% U.S. Treasury Bills - 16.01%(b) $ 3,000,000(c) 5.27%, 03/28/96.................................. $ 2,966,377 6,000,000(c) 5.38%, 04/04/96.................................. 5,925,630 710,000(c) 5.32%, 04/11/96.................................. 700,641 7,000,000 5.22%, 06/27/96.................................. 6,833,615 ------------ 16,426,263 ------------ U.S. Treasury Notes - 0.49% 500,000 4.625%, 02/29/96................................. 499,760 ------------ Total U.S. Treasury Securities................... 16,926,023 ------------ REPURCHASE AGREEMENT - 2.19%(d) Daiwa Securities America, Inc. 2,245,485 5.92%, 01/02/96(e)............................... 2,245,485 ------------ TOTAL INVESTMENTS - 99.89%....................... 102,484,390 OTHER ASSETS LESS LIABILITIES - 0.11%............ 115,722 ------------ NET ASSETS -- 100.00%............................ $102,600,112 ============ NOTES TO SCHEDULE OF INVESTMENTS: (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 futures contracts. See Note 6. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreements. The collateral is marked to market daily to ensure its market value as being 102 percent of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds managed by the investment advisor. (e) Joint repurchase agreement entered into on 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. INVESTMENT ABBREVIATIONS: ADR-American Depositary Receipts Conv.-Convertible Pfd.-Preferred Sub.-Subordinated See Notes to Financial Statements.
FS-50 AIM V.I. GROWTH FUND AIM V.I. GROWTH ASSETS: FUND STATEMENT OF Investments, at market value (cost $92,358,116)................... $102,484,390 ASSETS AND Foreign currencies, at market value (cost $641,265)............... 648,559 LIABILITIES Receivables for: December 31, 1995 Capital stock sold.............................................. 88,795 Investments sold................................................ 683,945 Dividends and interest.......................................... 137,105 Variation margin................................................ 19,250 Organizational costs, net......................................... 6,749 Investment for deferred compensation plan......................... 7,898 Other assets...................................................... 525 ------------ Total assets.................................................. 104,077,216 ------------ LIABILITIES: Payables for: Investments purchased........................................... 1,387,014 Deferred compensation plan...................................... 7,898 Accrued advisory fees............................................. 55,433 Accrued directors' fees........................................... 1,660 Accrued administrative services fees.............................. 2,845 Accrued operating expenses........................................ 22,254 ------------ Total liabilities............................................. 1,477,104 ------------ Net assets applicable to shares outstanding....................... $102,600,112 ============ Capital shares, $.001 par value per share: Authorized...................................................... 250,000,000 ============ Outstanding..................................................... 7,107,114 ============ Net asset value, offering and redemption price per share.......... $14.44 ====== See Notes to Financial Statements.
FS-51 AIM V.I. GROWTH FUND AIM V.I. GROWTH INVESTMENT INCOME: FUND STATEMENT OF Dividends...................................................... $ 564,913 OPERATIONS Interest....................................................... 635,065 For the eleven months ended ----------- December 31, 1995 Total investment income....................................... 1,199,978 ----------- EXPENSES: Advisory fees.................................................. 434,620 Custodian fees................................................. 49,398 Professional fees.............................................. 33,773 Administrative services fees................................... 32,425 Directors' fees and expenses................................... 5,595 Organizational costs........................................... 2,651 Other.......................................................... 4,081 ----------- Total expenses................................................ 562,543 ----------- Net investment income............................................ 637,435 ----------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS: Net realized gain (loss) from: Investment securities.......................................... 7,894,383 Foreign currency transactions.................................. 3,644 Futures contracts.............................................. 1,622,546 Options contracts.............................................. (9,468) ----------- 9,511,105 ----------- Unrealized appreciation (depreciation) of: Investment securities.......................................... 8,377,556 Foreign currencies............................................. 4,245 Futures contracts.............................................. (18,501) Options contracts.............................................. (5,395) ----------- 8,357,905 ----------- Net gain on investment securities, foreign currencies, futures and options contracts........................................... 17,869,010 ----------- Net increase in net assets resulting from operations............. $18,506,445 ===========
DECEMBER 31, JANUARY 31, 1995 1995 AIM V.I. GROWTH ------------ ----------- FUND STATEMENT OPERATIONS: OF CHANGES IN NET ASSETS Net investment income............................. $ 637,435 $ 251,660 For the eleven months ended Net realized gain (loss) from investment December 31, 1995 and for the securities, foreign currency transactions, year ended January 31, 1995 futures and options contracts.................... 9,511,105 (1,983,553) Net unrealized appreciation (depreciation) of investment securities, futures and options contracts........................................ 8,357,905 (134,010) ------------ ----------- Net increase (decrease) in net assets resulting from operations................................. 18,506,445 (1,865,903) Net increase from capital stock transactions...... 38,645,259 22,469,536 Distributions to shareholders from net investment income........................................... (48,608) (221,516) ------------ ----------- Net increase in net assets....................... 57,103,096 20,382,117 NET ASSETS: Beginning of period............................... 45,497,016 25,114,899 ------------ ----------- End of period..................................... $102,600,112 $45,497,016 ============ =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)........ $ 84,619,787 $45,974,528 Undistributed net investment income............... 628,628 39,801 Undistributed net realized gain (loss) from investment securities, foreign currency transactions, futures and options contracts ..... 7,067,210 (2,443,895) Unrealized appreciation of investment securities, futures and options contracts.................... 10,284,487 1,926,582 ------------ ----------- $102,600,112 $45,497,016 ============ =========== See Notes to Financial Statements.
FS-52 AIM V.I. GROWTH FUND AIM V.I. GROWTH NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation NOTES TO organized on January 22, 1993, and is registered under the Investment Company FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management STATEMENTS investment company consisting of nine portfolios. Matters affecting each December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year end was changed from January 31 to December 31. 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. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. 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. A. Security Valuations - Equity securities, including warrants, that are listed on a national securities exchange or part of the NASDAQ National Market System are valued at the last reported sales price or, in the case of over- the-counter securities or if there has been no sale that day, at the mean between the closing bid and asked prices on that day. Securities traded in the over-the-counter market, except (i) securities for which representative exchange prices are available, and (ii) 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. If no mean is available, as is the case in some foreign market, the closing bid will be used absent a last sales price. Exchange listed convertible debt is valued at the mean between the closing bid and asked prices obtained from a broker- dealer. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost which approximates market value. Short-term securities that mature in more than 60 days are valued at current market quotations. 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. 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, 1995, undistributed net investment income was increased and undistributed net realized gains reduced by $3,644 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 reclassification 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. Organizational Costs - Organizational costs of $14,461 are being amortized over five years. E. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities 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,
FS-53 AIM V.I. GROWTH FUND NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. F. Covered Call Options - The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the last sale price, or in the absence of a sale, 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 5% of the net assets of the Fund. 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. H. Foreign Currency Contracts - A forward currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a forward contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a forward 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. 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. This agreement requires AIM to reduce its fee or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $32,425 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.
FS-54 AIM V.I. GROWTH FUND Certain officers and directors of the Company are officers of AIM and AIM Distributors. During the eleven months ended December 31, 1995, the Fund incurred legal fees of $2,229 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $108,571,363 and $77,394,812, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1995 is as follows:
Aggregate unrealized appreciation of investment securities......... $12,238,608 Aggregate unrealized (depreciation) of investment securities....... (2,339,385) ----------- Net unrealized appreciation of investment securities............... $ 9,899,223 ===========
Cost of investments for tax purposes is $92,585,167. NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 ---------------------- ---------------------- Shares Amount Shares Amount --------- ----------- --------- ----------- Sold........................... 3,110,541 $41,750,413 2,275,155 $24,585,827 Issued as reinvestment of distributions................. 3,426 48,608 21,037 221,516 Reacquired..................... (255,480) (3,153,762) (215,349) (2,337,807) --------- ----------- --------- ----------- 2,858,487 $38,645,259 2,080,843 $22,469,536 ========= =========== ========= ===========
NOTE 6 - OPEN FUTURES CONTRACTS On December 31, 1995, $612,000 principal amount of U.S. Treasury Bills were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts at December 31, 1995 were as follows:
Unrealized Contract No. of Contracts/Month/Commitment Appreciation -------- --------------------------------- ------------ S&P 500 index.................... 55 contracts/March 96/Buy $153,968
NOTE 7 - OPEN COVERED CALL OPTIONS CONTRACTS WRITTEN Transactions in call options written during the eleven months ended December 31, 1995 are summarized as follows:
Options Contracts ------------------------- Number of Premiums Contracts Received ---------- ------------ Beginning of period......................................... 66 $ 9,120 Written..................................................... 45 8,866 Exercised................................................... (33) (5,079) Expired..................................................... (33) (4,041) Closed...................................................... (45) (8,866) --- ------- End of period............................................... 0 $ 0 === =======
FS-55 AIM V.I. GROWTH FUND NOTE 8 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
January 31, December 31, ----------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period...... $ 10.71 $ 11.59 $ 10.00 -------- ------- ------- Income from investment operations: Net investment income................... 0.09 0.06 0.02 Net gains (losses) on securities (both realized and unrealized)............... 3.65 (0.88) 1.59 -------- ------- ------- Total from investment operations....... 3.74 (0.82) 1.61 -------- ------- ------- Less distributions: Dividends from net investment income.... (0.01) (0.06) (0.02) -------- ------- ------- Net asset value, end of period............ $ 14.44 $ 10.71 $ 11.59 ======== ======= ======= Total return.............................. 34.89%(a) (7.11)% 16.07%(a) ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted).. $102,600 $45,497 $25,115 ======== ======= ======= Ratio of expenses to average net assets... 0.84%(b) 0.95% 0.85%(c) ======== ======= ======= Ratio of net investment income to average net assets............................... 0.95%(b) 0.71% 0.51%(c) ======== ======= ======= Portfolio turnover rate................... 125% 179% 99% ======== ======= ======= ------ (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $73,070,671. (c) Ratios are annualized and based on average net assets of $9,997,693. Annualized ratios of expenses and net investment income (loss) to average net assets prior to waiver of advisory fees are 1.50% and (0.14)%, respectively.
FS-56 AIM V.I. GROWTH FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended and the statement of changes in net assets and financial highlights for the eleven month period then ended 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, 1995, by correspondence with the custodian and brokers. Where brokers did not reply to our confirmation requests, we carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Growth and Income Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended and the changes in its net assets and the financial highlights for the eleven month period then ended and the period May 2, 1994 through January 31, 1995, in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ------------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 26, 1996
FS-57 AIM V.I. GROWTH AND INCOME FUND AIM V.I. GROWTH AND MARKET INCOME FUND SHARES VALUE SCHEDULE OF ------ ------ INVESTMENTS December 31, 1995 COMMON STOCKS - 72.42% ADVERTISING/BROADCASTING - 0.50% 5,000 CKS Group, Inc.(a)....................................... $ 195,000 ----------- AEROSPACE/DEFENSE - 1.43% 2,000 Boeing Co. (The)......................................... 156,750 3,000 Rockwell International Corp. ............................ 158,625 2,500 United Technologies Corp. ............................... 237,187 ----------- 552,562 ----------- AUTOMOBILE (MANUFACTURERS) - 0.69% 3,000 Chrysler Corp. .......................................... 166,125 3,400 Ford Motor Co. .......................................... 98,600 ----------- 264,725 ----------- BANKING - 1.09% 4,000 Bank of Boston Corp. .................................... 185,000 3,000 Fleet Financial Group, Inc. ............................. 122,250 3,400 Norwest Bank Corp. ...................................... 112,200 ----------- 419,450 ----------- BANKING (MONEY CENTER) - 2.18% 3,000 BankAmerica Corp. ....................................... 194,250 3,000 Chemical Banking Corp. .................................. 176,250 7,000 Citicorp................................................. 470,750 ----------- 841,250 ----------- BEVERAGES - 0.87% 6,000 PepsiCo Inc. ............................................ 335,250 ----------- BUILDING MATERIALS - 0.74% 2,800 Black & Decker Corp. (The)............................... 98,700 6,000 Masco Corp. ............................................. 188,250 ----------- 286,950 ----------- BUSINESS SERVICES - 0.92% 3,000 Diebold, Inc. ........................................... 166,125 8,800 Equifax, Inc. ........................................... 188,100 ----------- 354,225 ----------- CHEMICALS (SPECIALTY) - 0.53% 5,000 IMC Global, Inc. ........................................ 204,375 ----------- COMPUTER MAINFRAMES - 0.47% 2,000 International Business Machines Corp. ................... 183,500 ----------- COMPUTER MINI/PCS - 2.60% 5,500 COMPAQ Computer Corp.(a)................................. 264,000 5,000 Dell Computer Corp.(a)................................... 173,125 4,600 Hewlett-Packard Co. ..................................... 385,250 4,000 Sun Microsystems, Inc.(a)................................ 182,500 ----------- 1,004,875 ----------- COMPUTER NETWORKING - 2.32% 2,400 Cabletron Systems, Inc.(a)............................... 194,400 4,000 Cisco Systems, Inc.(a)................................... 298,500 8,000 ECI Telecommunications Ltd. ............................. 182,500 4,000 Harris Corp. ............................................ 218,500 ----------- 893,900 -----------
FS-58 AIM V.I. GROWTH AND INCOME FUND MARKET SHARES VALUE ------ ------ COMPUTER PERIPHERALS - 1.24% 2,000 Adaptec, Inc.(a)......................................... $ 82,000 5,000 Oracle Systems Corp.(a).................................. 211,875 2,000 Seagate Technology Inc.(a)............................... 95,000 1,000 U.S. Robotics Corp.(a)................................... 87,750 ----------- 476,625 ----------- COMPUTER SOFTWARE/SERVICES - 2.52% 2,500 BMC Software, Inc.(a).................................... 106,875 6,900 Computer Associates International, Inc. ................. 392,437 2,000 Microsoft Corp.(a)....................................... 175,500 3,600 Shared Medical Systems Corp. ............................ 195,750 4,400 SoftKey International, Inc.(a)........................... 101,750 ----------- 972,312 ----------- CONGLOMERATES - 1.10% 2,500 Allied-Signal Inc. ...................................... 118,750 3,500 Corning, Inc. ........................................... 112,000 6,500 Dial Corp. .............................................. 192,562 ----------- 423,312 ----------- COSMETICS & TOILETRIES - 2.45% 3,400 Colgate-Palmolive Co. ................................... 238,850 3,000 Procter & Gamble Co. .................................... 249,000 3,500 Tambrands Inc. .......................................... 167,125 3,000 Warner-Lambert Co. ...................................... 291,375 ----------- 946,350 ----------- ELECTRIC POWER - 2.59% 3,000 Baltimore Gas & Electric Co. ............................ 85,500 2,500 Carolina Power & Light Co. .............................. 86,250 2,000 Duke Power Co. .......................................... 94,750 2,200 FPL Group, Inc. ......................................... 102,025 3,500 General Public Utilities Corp. .......................... 119,000 4,000 Houston Industries, Inc. ................................ 97,000 2,000 Northern States Power Co. ............................... 98,250 4,000 NYNEX Corp. ............................................. 216,000 4,000 Southern Co. ............................................ 98,500 ----------- 997,275 ----------- ELECTRONIC COMPONENTS/MISCELLANEOUS - 2.30% 3,000 AMP Inc. ................................................ 115,125 5,000 General Electric Co. .................................... 360,000 2,000 Honeywell, Inc. ......................................... 97,250 4,000 Parker-Hannifin Corp. ................................... 137,000 1,600 Tektronix, Inc. ......................................... 78,600 4,000 Teradyne, Inc.(a)........................................ 100,000 ----------- 887,975 ----------- ELECTRONIC/DEFENSE - 0.79% 2,600 Loral Corp. ............................................. 91,975 3,000 Sundstrand Corp. ........................................ 211,125 ----------- 303,100 ----------- ELECTRONIC/PC DISTRIBUTORS - 1.19% 3,000 Arrow Electronics, Inc.(a)............................... 129,375 5,000 Avnet, Inc. ............................................. 223,750 3,000 Wyle Electronics......................................... 105,375 ----------- 458,500 -----------
FS-59 AIM V.I. GROWTH AND INCOME FUND MARKET SHARES VALUE ------ ------ FINANCE (ASSET MANAGEMENT) - 0.95% 4,000 Merrill Lynch & Co., Inc. ............................... $ 204,000 2,000 Morgan Stanley Group, Inc. .............................. 161,250 ----------- 365,250 ----------- FINANCE (CONSUMER CREDIT) - 4.21% 3,500 American Express Co. .................................... 144,812 8,000 Countrywide Credit Industries, Inc. ..................... 174,000 2,200 Federal Home Loan Mortgage Corp. ........................ 183,700 2,000 Federal National Mortgage Association.................... 248,250 2,400 Firstar Corp. ........................................... 95,100 5,000 Green Tree Financial Corp. .............................. 131,875 5,000 Household International, Inc. ........................... 295,625 4,500 MBNA Corp. .............................................. 165,938 14,000 Mercury Finance Co. ..................................... 185,500 ----------- 1,624,800 ----------- FOOD PROCESSING - 0.74% 3,500 Nabisco Holdings Corp. .................................. 114,187 5,000 Quaker Oats Co. ......................................... 172,500 ----------- 286,687 ----------- INSURANCE (MULTI-LINE PROPERTY) - 3.04% 6,000 Aetna Life & Casualty Co. ............................... 415,500 5,000 Allstate Financial Corp. ................................ 205,625 3,500 CIGNA Corp. ............................................. 361,375 3,000 Travelers Group, Inc. ................................... 188,625 ----------- 1,171,125 ----------- LEISURE & RECREATION - 0.28% 4,500 Carnival Cruise Lines, Inc. - Class A.................... 109,687 ----------- MACHINERY (HEAVY) - 0.24% 2,000 Case Corp. .............................................. 91,500 ----------- MEDICAL (DRUGS) - 7.53% 3,000 American Home Products Corp. ............................ 291,000 3,500 Glaxo Wellcome PLC-ADR................................... 98,875 4,000 Johnson & Johnson........................................ 342,500 4,000 Lilly (Eli) & Co. ....................................... 225,000 3,500 Merck & Co., Inc. ....................................... 230,125 4,000 Pfizer Inc. ............................................. 252,000 10,000 Pharmacia & Upjohn, Inc. ................................ 387,500 4,500 Rhone-Poulenc Rorer, Inc. ............................... 239,625 6,000 Schering-Plough Corp. ................................... 328,500 5,000 SmithKline Beecham PLC-ADR............................... 277,500 5,000 Teva Pharmaceuticals Industries Ltd.-ADR................. 231,875 ----------- 2,904,500 ----------- MEDICAL (INSTRUMENTS/PRODUCTS) - 1.53% 9,000 Baxter International Inc. ............................... 376,875 5,000 St. Jude Medical Inc.(a)................................. 215,000 ----------- 591,875 ----------- MEDICAL (PATIENT SERVICES) - 1.48% 2,500 Horizon Healthcare Corp.(a).............................. 63,125 6,000 Integrated Health Services, Inc.(a)...................... 150,000 3,500 U.S. Healthcare Corp. ................................... 162,750 3,000 United Healthcare Corp. ................................. 196,500 ----------- 572,375 ----------- NATURAL GAS PIPELINE - 0.57% 5,000 Williams Companies, Inc. ................................ 219,375 -----------
FS-60 AIM V.I. GROWTH AND INCOME FUND MARKET SHARES VALUE ------ ------ OFFICE AUTOMATION - 1.42% 4,000 Xerox Corp. ............................................ $ 548,000 ----------- OFFICE PRODUCTS - 0.47% 4,000 Alco Standard Corp. .................................... 182,500 ----------- OIL & GAS SERVICES - 0.77% 1,500 Mapco, Inc. ............................................ 81,938 10,000 Occidental Petroleum Corp. ............................. 213,750 ----------- 295,688 ----------- PAPER & FOREST PRODUCTS - 0.77% 5,000 Albany International Corp. - Class A.................... 90,625 2,500 Kimberly-Clark Corp. ................................... 206,876 ----------- 297,501 ----------- REAL ESTATE INVESTMENT TRUSTS - 1.59% 6,000 Felcor Suite Hotels, Inc. .............................. 166,500 5,000 National Health Investors, Inc. ........................ 165,625 6,000 Patriot American Hospitality, Inc.(a)................... 154,500 5,000 Spieker Properties, Inc. ............................... 125,625 ----------- 612,250 ----------- RESTAURANTS - 0.22% 4,000 Wendy's International, Inc. ............................ 85,000 ----------- RETAIL (FOOD & DRUGS) - 0.43% 3,200 Safeway Inc.(a)......................................... 164,800 ----------- RETAIL (STORES) - 1.88% 4,000 Dayton-Hudson Corp. .................................... 300,000 14,000 Intimate Brands, Inc.(a)................................ 210,000 5,500 Sears, Roebuck & Co. ................................... 214,500 ----------- 724,500 ----------- SCIENTIFIC INSTRUMENTS - 0.56% 4,500 Varian Associates, Inc. ................................ 214,875 ----------- SEMICONDUCTORS - 3.95% 6,500 Applied Materials, Inc.(a).............................. 255,938 3,500 Intel Corp. ............................................ 198,626 4,000 Motorola Inc. .......................................... 228,000 4,000 SGS Thomson Microelectronics N.V.-New York Shares- ADR(a)................................................. 161,000 11,000 Texas Instruments, Inc. ................................ 569,250 3,500 Vishay Intertechnology, Inc.(a)......................... 110,250 ----------- 1,523,064 ----------- SHOES & RELATED APPAREL - 0.36% 2,000 NIKE, Inc. - Class B.................................... 139,250 ----------- TELECOMMUNICATIONS - 3.79% 8,000 A T & T Corp. .......................................... 518,000 4,000 Andrew Corp.(a)......................................... 153,000 18,000 Telefonaktiebolaget L.M. Ericsson-ADR................... 351,000 4,000 Tellabs, Inc.(a)........................................ 148,000 5,200 Westell Technologies, Inc.(a)........................... 130,650 4,600 Vodafone Group PLC-ADR.................................. 162,150 ----------- 1,462,800 -----------
FS-61 AIM V.I. GROWTH AND INCOME FUND MARKET SHARES VALUE ------ ------ TELEPHONE - 3.38% 2,800 Ameritech Corp. ...................................... $ 165,200 5,700 BellSouth Corp. ...................................... 247,950 7,000 Cincinnati Bell, Inc. ................................ 243,250 7,000 GTE Corp. ............................................ 308,000 4,000 SBC Communications, Inc. ............................. 230,000 3,000 U S West Communications Group......................... 107,250 ----------- 1,301,650 ----------- TEXTILES - 0.22% 3,000 Liz Claiborne, Inc. .................................. 83,250 ----------- TOBACCO - 3.52% 15,000 Philip Morris Companies Inc. ......................... 1,357,500 ----------- Total Common Stocks................................. 27,931,313 ----------- PRINCIPAL AMOUNT --------- CONVERTIBLE CORPORATE BONDS - 13.70% AUTOMOBILE/TRUCKS PARTS & TIRES - 0.37% $200,000 Exide Corp., Sr. Sub. Notes, 2.90%, 12/15/05(b)(c) (Acquired 12/11/95; cost $144,658)................... 144,000 ----------- BUSINESS SERVICES - 0.60% 100,000 Career Horizons Inc., Conv. Bonds, 7.00%, 11/01/02(b) (Acquired 11/27/95; cost $104,000)................... 112,000 100,000 Olsten Corp., Conv. Sub. Deb., 4.875%, 05/15/03....... 118,970 ----------- 230,970 ----------- COMPUTER SOFTWARE/SERVICES - 1.83% 200,000 Automatic Data Processing, Conv. Liquid Yield Option Notes, 5.25%, 02/20/12(c)............................ 95,500 200,000 Network Equipment Technology, Conv. Deb., 7.25%, 05/15/14............................................. 204,840 325,000 Silicon Graphics Inc., Conv. Sub. Deb., 4.15%, 11/02/13(b)(c) (Acquired 10/23/95 - 11/30/95; cost $191,282)....................................... 167,336 100,000 SoftKey International, Inc., Sr. Conv. Notes, 5.50%, 11/01/00(b)(c) (Acquired 12/11/95; cost $82,500)........................................ 75,500 75,000 Sterling Software Inc., Conv. Sub. Deb., 5.75%, 02/01/03............................................. 162,558 ----------- 705,734 ----------- COMPUTER NETWORKING - 1.19% 200,000 Bay Networks, Inc., Conv. Sub. Deb., 5.25%, 05/15/03(b) (Acquired 10/23/95 - 11/14/95; cost $226,750)....................................... 217,000 150,000 3Com Corp., Conv. Sub. Notes, 10.25%, 11/01/01(b) (Acquired 11/14/95; cost $243,938)................... 240,750 ----------- 457,750 ----------- COMPUTER PERIPHERALS - 0.39% 150,000 EMC Corp., Conv. Sub. Notes, 4.25%, 01/01/01.......... 151,500 ----------- ELECTRONIC COMPONENTS/MISCELLANEOUS - 1.19% 350,000 ADT Operations Inc., Conv. Sub. Liquid Yield Option Notes,6.50%, 07/06/10(c)............................. 166,687 150,000 Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02(b) (Acquired 11/21/95; cost $178,260)................... 174,750 100,000 Checkpoint Systems, Inc., Conv. Sub. Deb., 5.25%, 11/01/05(b) (Acquired 10/27/95; cost $100,750)....... 117,000 ----------- 458,437 ----------- FINANCE (ASSET MANAGEMENT) - 0.42% 100,000 First Financial Management, Conv. Deb., 5.00%, 12/15/99............................................. 162,000 -----------
FS-62 AIM V.I. GROWTH AND INCOME FUND PRINCIPAL MARKET AMOUNT VALUE --------- ------ MACHINERY (MISCELLANEOUS) - 1.17% $300,000 Thermo Electron Corp., Conv. Deb., 4.25%, 01/01/03(b) (Acquired 11/28/95 - 11/29/95; cost $304,875)....... $ 328,500 50,000 Thermo Electron Corp., Conv. Deb., 4.625%, 08/01/97(b) (Acquired 10/23/95; cost $102,500)...... 120,895 ----------- 449,395 ----------- MEDICAL (DRUGS) - 0.36% 125,000 ICN Pharmaceuticals, Inc., Conv. Sub. Notes, 8.50%, 11/15/99............................................ 139,688 ----------- MEDICAL (PATIENT SERVICES) - 1.33% 100,000 Healthsouth Rehabilitation Corp., Conv. Sub. Deb., 5.00%, 04/01/01..................................... 161,630 200,000 Multicare Co., Conv. Sub. Deb., 7.00%, 03/15/03(b) (Acquired 11/30/95; cost $207,000).................. 220,360 125,000 Prime Hospitality Corp., Conv. Sub. Notes, 7.00%, 04/15/02............................................ 130,625 ----------- 512,615 ----------- OFFICE AUTOMATION - 0.72% 200,000 Danka Business Systems, Conv. Sub. Deb., 6.75%, 04/01/02............................................ 279,500 ----------- PUBLISHING - 0.36% 300,000 News America Holdings Inc., Conv. Liquid Yield Option Notes, 5.50%, 03/11/13(c)........................... 138,751 ----------- RETAIL (STORES) - 0.84% 150,000 Federated Department Stores, Conv. Notes, 5.00%, 10/01/03............................................ 150,750 300,000 Office Depot Inc., Conv. Liquid Yield Option Notes, 4.00%, 11/01/08(c).................................. 172,500 ----------- 323,250 ----------- SEMICONDUCTORS - 1.67% 100,000 LAM Research Corp., Conv. Sub. Deb., 6.00%, 05/01/03. 185,500 100,000 LSI Logic Corp., Conv. Sub. Notes, 5.50%, 03/15/01(b) (Acquired 11/15/95 - 12/04/95; cost $375,691)....... 275,500 200,000 Solectron Corp., Conv. Liquid Yield Option Notes, 7.00%, 05/05/12(c).................................. 185,000 ----------- 646,000 ----------- TELECOMMUNICATIONS - 0.85% 200,000 General Instrument Corp., Jr. Conv. Sub. Notes, 5.00%, 06/15/00..................................... 219,500 100,000 World Communications Corp., Conv. Sub. Notes, 5.00%, 08/15/03............................................ 106,500 ----------- 326,000 ----------- TRANSPORTATION/MISCELLANEOUS - 0.41% 150,000 Telxon Corp., Conv. Deb., 5.75%, 01/01/03(b) (Acquired 12/07/95; cost $150,000).................. 159,000 ----------- Total Convertible Corporate Bonds.................. 5,284,590 ----------- SHARES ------ CONVERTIBLE PREFERRED STOCKS - 5.88% AUTOMOBILE (MANUFACTURERS) - 0.42% 2,200 General Motors Corp. - Class C, $3.25 Dep. Conv. Pfd. ............................................... 161,150 ----------- CONGLOMERATES - 0.39% 3,000 Corning Delaware LP, $3.00 Conv. MIPS................ 151,125 ----------- ELECTRONIC COMPONENTS/MISCELLANEOUS - 0.52% 4,000 Elsag Bailey Process Automation N.V.-ADR - $2.75 Conv. TOPRS(b) (Acquired 12/14/95 - 12/15/95, cost $200,050)...................................... 200,500 ----------- FINANCE (ASSET MANAGEMENT) - 0.39% 3,000 United Companies Finance LP - $2.97 Conv. Pfd. PRIDES.............................................. 151,500 ----------- FINANCE (CONSUMER CREDIT) - 0.79% 1,500 Penncorp Financial Group - $3.375 Conv. Pfd. ........ 107,062 3,000 SunAmerica Inc. - Series E, $3.10 Dep. Conv. Pfd. ... 196,500 ----------- 303,562 -----------
FS-63 AIM V.I. GROWTH AND INCOME FUND MARKET SHARES VALUE ------ ------ FUNERAL SERVICES - 0.69% 3,600 SCI Financial LLC - Series A, $3.125 Conv. Pfd. ..... $ 266,400 ----------- INSURANCE (MULTI-LINE PROPERTY) - 0.21% 2,000 Allstate Inc. - $2.30 Conv. Pfd. .................... 82,000 ----------- LEISURE & RECREATION - 0.21% 6,000 Bally Entertainment Corp. - $0.89 Conv. Pfd. PRIDES.. 81,750 ----------- MEDICAL (PATIENT SERVICES) - 0.28% 4,000 FHP International Corp. - Series A, $1.25 Conv. Pfd. ............................................... 106,500 ----------- OIL & GAS SERVICES - 0.50% 8,000 Enron Corp. - $1.359 Conv. Pfd. ACES................. 192,000 ----------- PUBLISHING - 0.28% 3,500 Time Warner Financing - $1.24 Conv. Pfd. PERCS....... 109,375 ----------- TELECOMMUNICATIONS - 0.50% 1,800 LCI International, Inc. - $1.25 Exch. Conv. Pfd. .... 96,300 2,000 MFS Communications - $2.68 Conv. Pfd. DECS........... 97,375 ----------- 193,675 ----------- TRANSPORTATION/MISCELLANEOUS - 0.70% 5,000 Continental Air Finance Trust - $4.25 Conv. Pfd. TOPRS(b) (Acquired 11/21/95 - 11/22/95; cost $250,150)..................................... 268,125 ----------- Total Convertible Preferred Stocks................. 2,267,662 ----------- PRINCIPAL AMOUNT --------- U.S. TREASURY SECURITIES - 1.30% U.S. TREASURY BILLS - 1.30%(d) $ 500,000 5.365%, 01/11/96..................................... 499,765 ----------- REPURCHASE AGREEMENT - 7.17%(e) 2,765,865 Daiwa Securities America, Inc.(f) 5.92%, 01/02/96..................................... 2,765,865 ----------- TOTAL INVESTMENTS - 100.47%.......................... 38,749,195 LIABILITIES LESS OTHER ASSETS - (0.47)%.............. (181,983) ----------- NET ASSETS - 100.00%................................. $38,567,212 =========== 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 December 31, 1995 was $2,821,216, which represented 7.32% of the net assets. (c) Zero coupon bond. The interest rate shown represents the rate of the original issue discount. (d) 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. (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 percent of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds managed by the investment advisor. (f) Joint repurchase agreement entered into on 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. Abbreviations: ACES - Automatic Common Exchangeable Securities MIPS - Monthly Income Preferred Securities ADR - American Depositary Receipt Pfd. - Preferred Conv. - Convertible PERCS - Preferred Equity Redemptive Cumulative Stock Deb. - Debentures PRIDES - Preferred Redeemable Increased Dividend Equity Securities DECS - Dividend Enhanced Convertible Stock Sr. - Senior Dep. - Depositary Sub. - Subordinated Exch. - Exchangeable TOPRS - Trust Originated Preferred Securities Jr. - Junior See Notes to Financial Statements.
FS-64 AIM V.I. GROWTH AND INCOME FUND AIM V.I. GROWTH AND ASSETS: INCOME FUND STATEMENT OF Investments, at market value (cost $36,207,923).................... $38,749,195 ASSETS AND Receivables for: LIABILITIES Investments sold................................................. 18,750 December 31, 1995 Capital stock sold............................................... 126,847 Dividends and interest........................................... 115,256 Investment for deferred compensation plan.......................... 5,206 Other assets....................................................... 46 ----------- Total assets................................................... 39,015,300 ----------- LIABILITIES: Payables for: Investments purchased............................................ 376,637 Deferred compensation plan....................................... 5,206 Accrued advisory fees.............................................. 46,017 Accrued administrative services fees............................... 2,762 Accrued directors' fees............................................ 1,569 Accrued operating expenses......................................... 15,897 ----------- Total liabilities.............................................. 448,088 ----------- Net assets applicable to shares outstanding........................ $38,567,212 =========== Capital shares, $.001 par value per share: Authorized....................................................... 250,000,000 =========== Outstanding...................................................... 3,041,229 =========== Net asset value, offering and redemption price per share........... $12.68 ====== See Notes to Financial Statements.
FS-65 AIM V.I. GROWTH AND INCOME FUND AIM V.I. GROWTH AND INVESTMENT INCOME: INCOME FUND STATEMENT OF Dividends (net of $1,304 foreign withholding tax)............... $ 327,833 OPERATIONS Interest........................................................ 145,216 For the eleven months ended ---------- December 31, 1995 Total investment income........................................ 473,049 ---------- EXPENSES: Advisory fees................................................... 113,819 Custodian fees.................................................. 29,189 Administrative services fees.................................... 31,484 Directors' fees and expenses.................................... 5,245 Professional fees............................................... 21,265 Other........................................................... 3,478 ---------- Total expenses................................................. 204,480 Less expenses assumed by advisor................................ (67,802) ---------- Net expenses................................................... 136,678 ---------- Net investment income............................................. 336,371 ---------- REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain from: Investment securities........................................... 1,365,916 Futures contracts............................................... 75,848 ---------- 1,441,764 ---------- Unrealized appreciation of: Investment securities........................................... 2,467,076 ---------- Net gain on investment securities and futures contracts........... 3,908,840 ---------- Net increase in net assets resulting from operations.............. $4,245,211 ========== AIM V.I. GROWTH AND DECEMBER 31, JANUARY 31, INCOME FUND 1995 1995 STATEMENT OF CHANGES ------------ ----------- IN NET ASSETS OPERATIONS: For the eleven months ended December 31, 1995 Net investment income............................... $ 336,371 $ 62,491 and the period May 2, 1994 Net realized gain (loss) from investment securities (date operations commenced) and futures contracts.............................. 1,441,764 (106,189) through January 31, 1995 Net unrealized appreciation of investment securities and futures contracts.............................. 2,467,076 74,196 ----------- ---------- Net increase in net assets resulting from operations........................................ 4,245,211 30,498 Net increase from capital stock transactions........ 28,382,638 7,412,315 Distributions to shareholders from net investment income............................................. (325,888) (62,491) Distributions in excess of net investment income.... -- (176) Distributions from capital gains.................... (1,114,895) -- ----------- ---------- Net increase in net assets......................... 31,187,066 7,380,146 NET ASSETS: Beginning of period................................. 7,380,146 -- ----------- ---------- End of period....................................... $38,567,212 $7,380,146 =========== ========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in).......... $35,794,953 $7,412,315 Undistributed net investment income................. 10,307 (176) Undistributed net realized gain (loss) from investment securities and futures contracts ....... 220,680 (106,189) Unrealized appreciation of investment securities and futures contracts.................................. 2,541,272 74,196 ----------- ---------- $38,567,212 $7,380,146 =========== ========== See Notes to Financial Statements.
FS-66 AIM V.I. GROWTH AND INCOME FUND AIM V.I. GROWTH AND NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES INCOME FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation NOTES TO organized on January 22, 1993, and is registered under the Investment Company FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management STATEMENTS investment company consisting of nine portfolios. Matters affecting each December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year was changed from January 31 to December 31. 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. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. 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. A. Security Valuations - Equity securities, including warrants, that are listed on a national securities exchange or part of the NASDAQ National Market System are valued at the last reported sales price or if there has been no sale that day, at the mean between the closing bid and asked prices on that day. Securities traded in the over-the-counter market, except (i) securities for which representative exchange prices are available, and (ii) 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. Exchange listed convertible bonds are valued at the mean between the closing bid and asked prices obtained from a broker- dealer. Debt obligations that are issued or guaranteed by the U.S. Treasury 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. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost which approximates market value. Short-term securities that mature in more than 60 days are valued at current market quotations. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by, or under the authority 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. 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.
FS-67 AIM V.I. GROWTH AND INCOME FUND 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. This agreement requires AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. During the eleven months ended December 31, 1995, AIM waived advisory fees of $67,802 with respect to the Fund. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $31,484 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,379 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $50,963,527 and $26,065,671, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1995 is as follows:
Aggregate unrealized appreciation of investment securities.......... $3,260,575 Aggregate unrealized (depreciation) of investment securities........ (886,285) ---------- Net unrealized appreciation of investment securities................ $2,374,290 ========== Cost of investments for tax purposes is $36,374,905.
NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 ---------------------- ------------------- Shares Amount Shares Amount --------- ----------- ------- ---------- Sold.............................. 2,208,514 $27,189,904 777,143 $7,797,618 Issued as reinvestment of distributions.................... 115,538 1,440,783 6,308 62,667 Reacquired........................ (22,290) (248,049) (43,984) (447,970) --------- ----------- ------- ---------- 2,301,762 $28,382,638 739,467 $7,412,315 ========= =========== ======= ==========
FS-68 AIM V.I. GROWTH AND INCOME FUND NOTE 6 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during the eleven months ended December 31, 1995 and the period May 2, 1994 (date operations commenced) through January 31, 1995.
December 31, January 31, 1995 1995 ------------ ----------- Net asset value, beginning of period............ $ 9.98 $10.00 ------- ------ Income from investment operations: Net investment income......................... 0.14 0.11 Net gains (losses) on securities (both realized and unrealized)..................... 3.11 (0.02) ------- ------ Total from investment operations............. 3.25 0.09 ------- ------ Less distributions: Dividends from net investment income.......... (0.14) (0.11) Distributions from capital gains.............. (0.41) -- ------- ------ Total distributions.......................... (0.55) (0.11) ------- ------ Net asset value, end of period.................. $ 12.68 $ 9.98 ======= ====== Total return(a)................................. 32.65% 0.90% ======= ====== Ratios/supplemental data: Net assets, end of period (000s omitted)........ $38,567 $7,380 ======= ====== Ratio of expenses to average net assets......... 0.78%(b) 1.07%(c)(d) ======= ====== Ratio of net investment income to average net assets......................................... 1.92%(b) 1.95%(c)(d) ======= ====== Portfolio turnover rate......................... 145% 96% ======= ======
- ------ (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $19,135,889. Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.17% and 1.53%, respectively. (c) Annualized. (d) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.72% and 1.30%, respectively. FS-69 AIM V.I. GROWTH AND INCOME FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 amount and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, 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. International Equity Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, the year ended January 31, 1995 and the period May 5, 1993 through January 31, 1994, in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ----------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 26, 1996 FS-70 AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. INTERNATIONAL MARKET EQUITY FUND SCHEDULE SHARES VALUE OF INVESTMENTS --------- ----------- December 31, 1995 FOREIGN STOCKS & OTHER EQUITY INTERESTS - 89.34% ARGENTINA - 0.33% 13,200 Buenos Aires Embotellado S.A. - Class B - ADR(a) (Beverages - Soft Drinks)............................. $ 272,250 ----------- AUSTRALIA - 5.06% 127,792 Australia & New Zealand Banking Group Ltd. (Banking).. 599,352 41,831 Broken Hill Proprietary Co. Ltd. (Conglomerates)...... 590,745 52,700 National Australia Bank Ltd. (Banking)................ 473,964 30,700 News Corp. Ltd. (The) - ADR (Publishing).............. 590,975 129,177 QBE Insurance Group Ltd. (Insurance - Broker)......... 597,205 278,300 QNI Ltd. (Metals - Miscellaneous)..................... 587,462 112,600 Western Mining Corp. Holding Ltd. (Metals - Miscellaneous)....................................... 723,104 ----------- 4,162,807 ----------- AUSTRIA - 1.16% 4,700 Oesterreichische Elektrizitaetswirtschafts AG (Verbundgesellschaft) - Class A (Electric Services).. 282,601 6,100 OMV AG (Oil & Gas - Exploration & Production)......... 529,592 700 Wienerberger Baustoffindustrie AG (Building Materials)............................................ 138,910 ----------- 951,103 ----------- BRAZIL - 0.81% 14,000 Telecomunicacoes Brasileiras S/A - Telebras ADR (Telecommunications).................................. 663,250 ----------- CANADA - 2.33% 54,600 Bombardier, Inc. - Class B (Transportation - Miscellaneous)....................................... 719,736 26,600 Imasco, Ltd. (Tobacco)................................ 516,222 9,700 Newbridge Networks Corp. (Computer Networking)........ 401,338 6,500 Northern Telecom Ltd. (Telecommunications)............ 279,500 ----------- 1,916,796 ----------- CHILE - 0.66% 6,600 Compania de Telefonos de Chile S.A. - ADR (Telecommunications).................................. 546,975 ----------- DENMARK - 1.33% 7,800 Danisco A/S (Food Processing)......................... 376,480 1,900 Danske Traelastkompagni (Building Materials).......... 128,320 4,300 Novo Nordisk A/S - Class B (Medical - Drugs).......... 588,563 ----------- 1,093,363 ----------- FRANCE - 7.55% 2,400 Accor S.A. (Hotels/Motels)............................ 310,720 1,000 Carrefour Supermarche (Retail - Stores)............... 606,698 2,150 Castorama Dubois (Retail - Stores).................... 352,115 2,000 Christian Dior S.A. (Consumer Non-Durables)........... 215,644 6,300 Compagnie Francaise de Petroleum Total S.A. - Class B (Oil & Gas - Exploration & Production)............... 425,189 3,050 Docks de France, S.A. (Retail - Food & Drug).......... 463,385 2,275 Essilor International - Compagnie Generale d'Optique (Medical Instruments/Products)....................... 434,838 1,900 LVMH Moet Hennessy Louis Vuitton (Beverages - Alcoholic)........................................... 395,753 3,560 Pinault - Printemps, S.A. (Retail - Food & Drug)...... 710,255 2,050 Promodes S.A. (Retail - Food & Drug).................. 481,835 1,000 Rexel S.A. (Transportation - Miscellaneous)........... 168,879 3,390 Roussel - Uclaf (Medical - Drugs)..................... 574,577 8,100 SGS - Thomson Microelectronics N.V.(a) (Electronic Components/Miscellaneous)............................. 326,025 1,721 Sidel S.A. (Machinery - Miscellaneous)................ 536,296 700 Sodexho S.A. (Business Services)...................... 205,840 ----------- 6,208,049 -----------
FS-71 AIM V.I. INTERNATIONAL EQUITY FUND
MARKET SHARES VALUE --------- ----------- GERMANY - 3.12% 8,000 Adidas A.G.(a) (Shoes & Related Apparel).............. $ 423,283 650 Altana A.G. (Medical - Drugs)......................... 378,355 880 Gehe A.G. (Medical - Drugs)........................... 447,821 1,180 Mannesmann A.G. (Machinery - Miscellaneous)........... 375,675 370 Siemens A.G. (Electric Services)...................... 202,475 17,500 Veba A.G. (Electric Services)......................... 742,941 ----------- 2,570,550 ----------- HONG KONG - 5.37% 90,000 Cheung Kong Holdings Ltd. (Real Estate)............... 548,205 653,368 First Pacific Co. (Conglomerates)..................... 726,670 54,000 Hang Seng Bank Ltd. (Banking)......................... 483,610 40,000 HSBC Holdings PLC (Banking)........................... 605,237 134,000 Hutchison Whampoa Ltd. (Conglomerates)................ 816,217 128,400 New World Infrastructure(a) (Conglomerates)........... 245,757 750,000 Shanghai Petrochemical Co., Ltd. (Chemicals).......... 215,810 66,600 Sun Hung Kai Properties Ltd. (Real Estate)............ 544,773 125,000 Vatronix International (Electronic Components/Miscellaneous)............................. 231,975 ----------- 4,418,254 ----------- INDIA - 0.12% 7,000 Reliance Industries Ltd.(a) (Conglomerates)........... 98,000 ----------- INDONESIA - 2.76% 259,000 PT Astra International (Automobile/Trucks Parts & Tires)................................................ 538,050 165,000 PT Bank International Indonesia (Banking)............. 546,632 21,500 PT Gudang Garam (Tobacco)............................. 224,732 92,500 PT Hanjaya Mandala Sampoerna (Tobacco)................ 962,825 ----------- 2,272,239 ----------- IRELAND - 0.47% 8,000 Elan Corp. PLC - ADR(a) (Medical - Drugs)............. 389,000 ----------- ISRAEL - 0.43% 7,600 Teva Pharmaceutical Industries Ltd. - ADR (Medical - Drugs)............................................... 352,450 ----------- ITALY - 2.00% 525,000 Olivetti Group(a) (Computer Software/Services)........ 424,462 503,800 Telecom Italia Mobile S.p.A.(a) (Telecommunications).. 885,070 216,800 Telecom Italia S.p.A. (Telecommunications)............ 336,232 ----------- 1,645,764 ----------- JAPAN - 17.84% 10,000 Advantest Corp. (Electronic Components/Miscellaneous). 513,318 14,000 Alpine Electronics (Electronic Components/Miscellaneous)............................. 235,932 26,000 Bridgestone Corp. (Automobile/Trucks Parts & Tires)... 412,978 35,000 Canon, Inc. (Office Products)......................... 633,899 38 DDI Corp. (Telecommunications)........................ 294,430 9,900 Fanuc Ltd. (Machine Tools)............................ 428,600 46,000 Fujitsu Ltd. (Computer Mainframes).................... 512,348 63,000 Hitachi Ltd. (Electronic Components/Miscellaneous).... 634,576 17,000 Honda Motor Co. (Automobile Manufacturers)............ 350,702 20,000 Hoya Corp (Medical Instruments/Products).............. 687,652 37,000 Kajima Corp. (Engineering & Construction)............. 365,520 22,000 Koa Corp. (Electronic Components/Miscellaneous)....... 366,490 8,000 Kyocera Corp. (Electronic Components/Miscellaneous)... 594,285 16,000 Mitsumi Electric Co. Ltd. (Electronic Components/Miscellaneous)............................. 385,860
FS-72 AIM V.I. INTERNATIONAL EQUITY FUND
MARKET SHARES VALUE --------- ----------- JAPAN - (CONTINUED) 51,000 NEC Corp. (Semiconductors)............................ $ 622,372 2,200 Nemic-Lambda K.K. (Electronic Components/Miscellaneous)............................. 102,277 4,000 Nichiei Co., Ltd. (Business Services)................. 298,305 47,000 Nikon Corp. (Conglomerates)........................... 637,290 1,770 Nippon Television Network (Advertising/Broadcasting).. 473,142 22 NTT Data Communications Systems Co. (Computer Software/Services).................................... 739,370 27,000 Omron Corp. (Electronic Components/Miscellaneous)..... 622,373 5,000 Plenus Co., Ltd. (Restaurants)........................ 242,130 62,000 Ricoh Co., Ltd. (Office Products)..................... 678,548 12,000 Rohm Co., Ltd. (Electronic Components/Miscellaneous).. 677,580 8,200 SMC (Machinery - Miscellaneous)....................... 593,260 5,800 Sony Corp. (Electronic Components/Miscellaneous)...... 347,720 18,000 Tokyo Electron Ltd. (Electronic Components/Miscellaneous)............................. 697,337 91,000 Toshiba Corp. (Electronic Components/Miscellaneous)... 713,017 45,000 Yamaha Corp. (Leisure & Recreation)................... 810,654 ----------- 14,671,965 ----------- MALAYSIA - 2.23% 135,000 Bandar Raya Developments Berhad (Real Estate)......... 192,425 43,000 Edaran Otomobil Nasional Berhad (Retail - Stores)..... 323,384 70,000 Malayan Banking Berhad (Banking)...................... 589,833 114,000 United Engineers (Building Materials)................. 727,172 ----------- 1,832,814 ----------- MEXICO - 0.81% 44,000 Kimberly-Clark de Mexico S.A. (Retail - Stores)....... 663,850 ----------- NETHERLANDS - 5.78% 58,000 Elsevier N.V. (Publishing)............................ 773,478 4,187 Heineken N.V. (Beverages - Alcoholic)................. 742,843 19,000 Koninklijke Ahold N.V. (Retail - Food & Drug)......... 775,535 6,300 Oce-Van Der Grinten N.V. (Office Automation).......... 383,175 2,850 Royal Dutch Petroleum Co. (Oil & Gas - Services)...... 398,186 12,800 Vendex International N.V. (Retail - Stores)........... 380,482 4,950 Ver Ned Uitgevuer Bezit N.V. (Publishing)............. 679,556 6,590 Wolters Kluwer N.V. (Publishing)...................... 623,395 ----------- 4,756,650 ----------- NEW ZEALAND - 0.65% 128,400 Telecom Corp. of New Zealand Ltd. (Telecommunications).................................. 538,918 ----------- NORWAY - 0.95% 8,400 Norsk Hydro A.S. (Chemicals).......................... 352,758 77,000 UNI Storebrand A.S.(a) (Insurance - Life & Health).... 425,475 ----------- 778,233 ----------- PHILIPPINES - 1.65% 582,000 C&P Homes, Inc.(a) (Homebuilding)..................... 427,125 3,568,000 Metro Pacific Corp. (Conglomerates)................... 659,733 14,090 Metropolitan Banks & Trust Co. (Banking).............. 273,957 ----------- 1,360,815 ----------- PORTUGAL - 0.43% 18,600 Portugal Telecom S.A.(a) (Telecommunications)......... 349,817 -----------
FS-73 AIM V.I. INTERNATIONAL EQUITY FUND
MARKET SHARES VALUE --------- ----------- SINGAPORE - 2.33% 54,000 Cerebos Pacific Ltd. (Food/Processing)................ $ 374,125 117,000 City Developments Ltd. (Real Estate).................. 851,962 60,000 Overseas Union Bank Ltd. (Banking).................... 413,573 28,400 United OverSeas Bank Ltd. (Banking)................... 273,058 ----------- 1,912,718 ----------- SPAIN - 3.15% 6,500 Corporacion Mapfre Compania Internacional de Reaseguros S.A. (Insurance - Broker)................. 363,850 10,100 Empresa Nacional de Electricidad, S.A. (Telephone).... 572,028 4,750 Gas Natural SDG - E.S.A. (Natural Gas Pipeline)....... 740,108 12,000 Repsol S.A. (Oil & Gas - Services).................... 393,240 13,700 Tabacalera S.A. (Tobacco)............................. 519,538 ----------- 2,588,764 ----------- SWEDEN - 2.82% 19,770 Astra AB (Medical - Drugs)............................ 783,094 6,000 Autoliv AB (Automobile/Trucks Parts & Tires).......... 350,618 9,300 Securitas AB - (Security & Safety Services)........... 441,210 15,700 Skandia Forsakrings AB (Insurance - Multi-Line Property)............................................. 424,439 16,280 Telefonaktiebolaget L.M. Ericsson - ADR (Telecommunications).................................. 317,460 ----------- 2,316,821 ----------- SWITZERLAND - 3.23% 1,400 ADIA SA (Business Services)........................... 228,175 580 BBC Brown Boveri Ltd. (Engineering & Construction).... 673,775 590 Ciba-Geigy Ltd. (Chemicals)........................... 519,159 100 Roche Holdings A.G. (Medical - Drugs)................. 791,070 490 Sandoz A.G. (Chemicals)............................... 448,582 ----------- 2,660,761 ----------- THAILAND - 2.32% 24,000 Advanced Information Service PLC (Telecommunications). 424,930 55,100 Bank of Ayudhya PLC (Banking)......................... 308,420 152,130 Krung Thai Bank PLC (Banking)......................... 622,048 15,300 Thai Farmers Bank (Banking)........................... 154,275 31,100 United Communication Industry (Telecommunications).... 397,547 ----------- 1,907,220 ----------- UNITED KINGDOM - 11.65% 68,000 Argos PLC (Retail - Stores)........................... 628,887 51,500 Bank of Ireland (Banking)............................. 375,912 37,000 Bass PLC (Beverages - Alcoholic)...................... 412,867 43,000 B.A.T. Industries PLC (Tobacco)....................... 378,980 31,350 BOC Group PLC (Chemicals)............................. 438,677 56,900 British Petroleum PLC (Oil & Gas - Exploration & Production)........................................... 475,860 367,200 Burton Group PLC (Retail - Stores).................... 767,020 53,000 Compass Group PLC (Food/Processing)................... 402,500 76,000 Cookson Group PLC (Conglomerates)..................... 361,175 73,000 Dixons Group PLC (Retail - Stores).................... 506,205 33,750 Farnell Electronics PLC (Electronic Components/Miscellaneous)............................. 376,602 30,500 GKN PLC (Automobile/Trucks Parts & Tires)............. 368,993 35,400 Granada Group PLC (Leisure & Recreation).............. 354,605 147,000 Medeva PLC (Medical - Drugs).......................... 616,400 29,900 Provident Financial PLC (Finance - Consumer Credit)... 380,076
FS-74 AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. INTERNATIONAL MARKET EQUITY FUND SCHEDULE SHARES VALUE OF INVESTMENTS --------- ----------- December 31, 1995 UNITED KINGDOM - (CONTINUED) 65,500 Rentokil Group PLC (Business Services)................ $ 340,774 63,100 Standard Chartered PLC (Banking)...................... 537,021 72,000 Storehouse PLC (Retail - Stores)...................... 373,474 31,300 Thorn EMI PLC (Leisure & Recreation).................. 737,171 86,000 Vickers PLC (Automobile Manufacturers)................ 339,245 160,000 WPP Group (Advertising/Broadcasting).................. 412,486 ----------- 9,584,930 ----------- Total Foreign Stocks & Other Equity Interests......... 73,485,126 -----------
PRINCIPAL AMOUNT --------- CONVERTIBLE BONDS - 0.69% $ 490,000 MBL International Finance Bermuda, Convertible Bonds, 3.00%, 11/30/02....................................... 568,400 ----------- REPURCHASE AGREEMENT - 4.79%(b) 3,938,535 Daiwa Securities America Inc., 5.92%, 01/02/96(c)..... 3,938,535 ----------- TOTAL INVESTMENTS - 94.82%............................ 77,992,061 OTHER ASSETS LESS LIABILITIES - 5.18%................. 4,264,794 ----------- NET ASSETS - 100.00%.................................. $82,256,855 ===========
(a)Non-income producing security. (b) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102 percent of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds managed by the investment advisor. (c) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. See Notes to Financial Statements. FS-75 AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. INTERNATIONAL ASSETS: EQUITY FUND STATEMENT OF Investments, at market value (cost $66,760,505).................... $77,992,061 ASSETS AND Foreign currencies, at market value (cost $3,994,342).............. 3,986,961 LIABILITIES Receivables for: December 31, 1995 Capital stock sold............................................... 136,070 Investments sold................................................. 1,452,460 Dividends and interest........................................... 116,534 Organizational costs, net.......................................... 6,748 Investment for deferred compensation plan.......................... 7,899 Other assets....................................................... 151 ----------- Total assets................................................... 83,698,884 ----------- LIABILITIES: Payables for: Investments purchased............................................ 1,280,092 Deferred compensation plan....................................... 7,899 Accrued advisory fees.............................................. 50,594 Accrued directors' fees............................................ 1,542 Accrued custodian fees............................................. 87,187 Accrued administrative services fees............................... 4,356 Accrued operating expenses......................................... 10,359 ----------- Total liabilities.............................................. 1,442,029 ----------- Net assets applicable to shares outstanding........................ $82,256,855 =========== Capital shares, $.001 par value per share: Authorized....................................................... 250,000,000 =========== Outstanding...................................................... 6,020,540 =========== Net asset value, offering and redemption price per share........... $13.66 ====== See Notes to Financial Statements.
FS-76 AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. INVESTMENT INCOME: INTERNATIONAL EQUITY FUND Dividends (net of $142,149 foreign withholding tax)............ $ 972,190 STATEMENT OF Interest....................................................... 184,428 OPERATIONS ----------- For the eleven months ended Total investment income...................................... 1,156,618 December 31, 1995 ----------- EXPENSES: Advisory fees.................................................. 457,559 Custodian fees................................................. 156,614 Administrative services fees................................... 21,068 Professional fees.............................................. 42,011 Directors' fees and expenses................................... 5,469 Organizational costs........................................... 2,651 Other.......................................................... 13,722 ----------- Total expenses............................................... 699,094 ----------- Net investment income.............................................. 457,524 ----------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investment securities............................................ (2,985) Foreign currency transactions.................................... (104,674) ----------- (107,659) ----------- Unrealized appreciation of: Investment securities............................................ 13,447,127 Foreign currencies............................................... 7,177 ----------- 13,454,304 ----------- Net gain on investment securities and foreign currencies........... 13,346,645 ----------- Net increase in net assets resulting from operations............... $13,804,169 ===========
DECEMBER 31, JANUARY 31, 1995 1995 ------------ ----------- AIM V.I. OPERATIONS: INTERNATIONAL EQUITY FUND Net investment income.............................. $ 457,524 $ 256,749 STATEMENT OF Net realized gain (loss) on sales of investment OPERATIONS securities and foreign currency transactions...... (107,659) (983,419) For the eleven months ended Net unrealized appreciation (depreciation) of December 31, 1995 and the investment securities and foreign currencies...... 13,454,304 (4,821,033) year ended January 31, 1995 ----------- ----------- Net increase (decrease) in net assets resulting from operations.................................. 13,804,169 (5,547,703) Net increase from capital stock transactions....... 13,556,877 37,165,081 Distributions to shareholders from net investment income............................................ (123,270) (131,518) ----------- ----------- Net increase in net assets........................ 27,237,776 31,485,860 NET ASSETS: Beginning of period................................ 55,019,079 23,533,219 ----------- ----------- End of period...................................... $82,256,855 $55,019,079 =========== =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)......... $71,752,671 $58,203,064 Undistributed net investment income................ 374,899 127,710 Undistributed net realized gain (loss) from investment securities and foreign currency transactions...................................... (1,106,243) (1,092,919) Unrealized appreciation (depreciation) of investment securities and foreign currencies...... 11,235,528 (2,218,776) ----------- ----------- $82,256,855 $55,019,079 =========== ===========
See Notes to Financial Statements. FS-77 AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES INTERNATIONAL AIM Variable Insurance Funds, Inc. (the "Company"), is a EQUITY FUND Maryland corporation organized on January 22, 1993, and NOTES TO is registered under the Investment Company Act of 1940 FINANCIAL (the "1940 Act"), as amended, as an open-end, series, STATEMENTS management investment company consisting of nine December 31, 1995 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. Effective December 31, 1995, the Company's fiscal year was changed from January 31 to December 31. 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. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. 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. A. Security Valuations - A security listed or traded on an exchange is valued at the last sales price on the exchange on which the securities are traded or, lacking any sales, at the mean between the closing bid and asked prices on the day of valuation. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales prices. Securities traded in the over-the-counter market are valued at the mean between the closing bid and asked prices on valuation date. 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. Investments with maturities of 60 days or less are valued on the basis of 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. C. Foreign Currency Contracts - A forward currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a forward contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a forward contract for the amount of a purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. D. Securities Transactions, Investment Income and Distributions - Securities transactions are accounted for on a trade date basis. Realized gains or losses are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on an accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On December 31, 1995, undistributed net realized gain (loss) was increased by $94,335, undistributed net investment income reduced by $87,065 and paid-in capital reduced by $7,270 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 reclassification discussed above. E. Federal Income Taxes - The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. Organizational Costs - Organizational costs of $14,461 are being amortized over five years.
FS-78 AIM V.I. INTERNATIONAL EQUITY FUND 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. This agreement requires AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $21,068 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,241 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the eleven months ended December 31, 1995 was $54,598,136 and $40,670,084, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of December 31, 1995 is as follows: Aggregate unrealized appreciation of investment securities.................. $11,965,023 Aggregate unrealized (depreciation) of investment securities.................. (734,166) ----------- Net unrealized appreciation of investment securities..................... $11,230,857 ===========
Cost of investments for tax purposes is $66,761,204. NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 ---------------------- ----------------------- Shares Amount Shares Amount --------- ----------- --------- ------------ Sold.......................... 1,612,585 $20,607,902 3,273,461 $ 39,114,516 Issued as reinvestment of distributions................ 9,199 123,270 11,496 131,518 Reacquired.................... (591,239) (7,174,295) (179,533) (2,080,953) --------- ----------- --------- ------------ 1,030,545 $13,556,877 3,105,424 $ 37,165,081 ========= =========== ========= ============
FS-79 AIM V.I. INTERNATIONAL EQUITY FUND NOTE 6 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
January 31, December 31, ------------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period. $ 11.03 $ 12.49 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income.............. 0.07 0.06 -- Net gains (losses) on securities (both realized and unrealized).... 2.58 (1.49) 2.49 ------- ------- ------- Total from investment operations.. 2.65 (1.43) 2.49 ------- ------- ------- Less distributions: Dividends from net investment income............................ (0.02) (0.03) -- ------- ------- ------- Net asset value, end of period....... $ 13.66 $ 11.03 $ 12.49 ======= ======= ======= Total return......................... 24.04%(a) (11.48)% 24.90%(a) ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)............................ $82,257 $55,019 $23,533 ======= ======= ======= Ratio of expenses to average net assets.............................. 1.15%(b) 1.27%(c) 1.98%(d)(e) ======= ======= ======= Ratio of net investment income to average net assets.................. 0.75%(b) 0.60%(c) (0.15)%(d)(e) ======= ======= ======= Portfolio turnover rate.............. 67% 64% 26% ======= ======= =======
------ (a) Total return is not annualized. (b) Ratios are annualized and based on average net assets of $66,670,268. (c) Ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.28% and 0.59%, respectively. (d) Annualized. (e) Annualized ratios of expenses and net investment income (loss) to average net assets prior to waiver of advisory fees are 3.06% and (1.23)%, respectively. FS-80 AIM V.I. INTERNATIONAL EQUITY FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 amount and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, 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, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, the year ended January 31, 1995 and the period May 5, 1993 through January 31, 1994, in conformity with generally accepted accounting principles. /s/ TAIT, WELLER & BAKER ----------------------------- TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 26, 1996
FS-81 AIM V.I. MONEY MARKET FUND
AIM V.I. MONEY PRINCIPAL MARKET FUND AMOUNT VALUE SHCEDULE OF ---------- ----------- INVESTMENTS COMMERCIAL PAPER - 52.93%(a) December 31, 1995 ASSET-BACKED SECURITIES - 18.20% $3,000,000 Asset Securitization Cooperative Corp., 5.65%, 02/08/96.......................................... $ 2,982,108 3,000,000 Delaware Funding Corp., 5.71%, 02/07/96........... 2,982,394 3,000,000 Eiger Capital Corp., 5.83%, 01/30/96.............. 2,985,911 3,000,000 Preferred Receivables Funding Corp., 5.65%, 02/26/96.......................................... 2,973,633 ----------- 11,924,046 ----------- BROKER/DEALER - 4.57% 3,000,000 Goldman Sachs Group (The), L.P., 6.05%, 01/11/96.. 2,994,958 ----------- COMPUTERS & OFFICE EQUIPMENT - 3.71% 2,500,000 Xerox Credit Corp., 5.25%, 07/18/96............... 2,427,448 ----------- FINANCE (BUSINESS CREDIT) - 3.79% 2,500,000 General Electric Capital Corp., 5.53%, 02/12/96... 2,483,871 ----------- FINANCE (MISCELLANEOUS) - 10.62% 3,000,000 Associates Corp. of North America, 5.59%, 03/18/96.......................................... 2,964,131 2,000,000 Cargill Financial Services Corp., 5.47%, 01/08/96. 1,997,873 2,000,000 Transamerica Finance Corp., 5.52%, 01/31/96....... 1,990,801 ----------- 6,952,805 ----------- INSURANCE - 1.50% 1,000,000 Marsh & McLennan Companies, Inc., 5.62%, 04/25/96. 982,047 ----------- OIL & GAS (INTEGRATED) - 4.52% 3,000,000 ARCO Coal Australia Inc., 5.60%, 03/18/96......... 2,964,067 ----------- POLLUTION CONTROL - 1.49% 1,000,000 WMX Technologies Inc., 5.51%, 06/11/96............ 975,205 ----------- TELEPHONE - 4.53% 3,000,000 AT&T Corp., 5.60%, 03/12/96....................... 2,966,867 ----------- Total Commercial Paper.......................... 34,671,314 ----------- U.S. GOVERNMENT AGENCY SECURITIES - 3.81% FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.05% 2,000,000 5.26%, 06/02/99(b)................................ 2,000,000 ----------- STUDENT LOAN MARKETING ASSOCIATION - 0.76% 500,000 5.24%, 08/20/98(b)................................ 499,907 ----------- Total U.S. Government Agency Securities......... 2,499,907 ----------- U.S. TREASURY BILLS - 2.98%(c) 2,000,000 5.04%, 06/27/96................................... 1,950,160 ----------- MASTER NOTE AGREEMENT - 3.82% 2,500,000 Citicorp Securities, Inc., 6.25%, 03/11/96(d)..... 2,500,000 ----------- Total Investments, excluding Repurchase Agreements...................................... 41,621,381 ----------- REPURCHASE AGREEMENTS - 35.90%(e) 8,519,331 Daiwa Securities America Inc., 5.92%, 01/02/96(f). 8,519,331 15,000,000 Goldman, Sachs & Co., 5.92%, 01/02/96(g).......... 15,000,000 ----------- Total Repurchase Agreements..................... 23,519,331 ----------- TOTAL INVESTMENTS - 99.44%........................ 65,140,712(h) OTHER ASSETS LESS LIABILITIES - 0.56%............. 365,042 ----------- NET ASSETS - 100.00%.............................. $65,505,754 ===========
FS-82 AIM V.I. MONEY MARKET FUND 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) Interest rates are redetermined weekly. Rates shown are the rates in effect on December 31, 1995. (c) U.S. Treasury Bills are traded on a discount basis. In such cases, the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (d) The Fund may demand prepayment of notes purchased under the Master Note Purchase Agreement upon notice to the issuer. Interest rates are redetermined periodically. Rate shown is the rate in effect on December 31, 1995. (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 percent of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds managed by the investment advisor. (f) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. (g) Joint repurchase agreement entered into 12/29/95 with a maturing value of $1,195,786,044. Collateralized by $1,106,121,000 U.S. Treasury obligations, 5.50% to 11.25% due 01/31/98 to 02/15/23. (h) Also represents cost for federal income tax purposes. See Notes to Financial Statements.
FS-83 AIM V.I. MONEY MARKET FUND AIM V.I. MONEY ASSETS: MARKET FUND STATEMENT OF Investments, excluding repurchase agreements, at value (amortized ASSETS AMD cost)............................................................. $41,621,381 LIABILITIES Repurchase agreements.............................................. 23,519,331 December 31, 1995 Receivables for: Capital stock sold............................................... 347,290 Interest receivable.............................................. 36,602 Organizational costs, net.......................................... 6,748 Investment for deferred compensation plan.......................... 7,775 Other assets....................................................... 393 ----------- Total assets................................................... 65,539,520 ----------- LIABILITIES: Payable for deferred compensation plan............................. 7,775 Accrued advisory fees.............................................. 21,647 Accrued administrative service fees................................ 2,222 Accrued directors' fees............................................ 296 Accrued operating expenses......................................... 1,826 ----------- Total liabilities.............................................. 33,766 ----------- Net assets applicable to shares outstanding........................ $65,505,754 =========== Capital shares, $.001 par value per share: Authorized....................................................... 250,000,000 =========== Outstanding...................................................... 65,521,991 =========== Net asset value, offering and redemption price per share........... $1.00 =====
AIM V.I. MONEY INVESTMENT INCOME: MARKET FUND STATEMENT OF Interest.......................................................... $2,503,796 OPERATIONS ---------- For the eleven EXPENSES: months ended December 31, 1995 Advisory fees..................................................... 168,901 Custodian fees.................................................... 10,196 Administrative services fees...................................... 22,997 Directors' fees and expenses...................................... 4,709 Organizational costs.............................................. 2,651 Other............................................................. 16,100 ---------- Total expenses................................................... 225,554 ---------- Net investment income............................................... 2,278,242 ---------- Net realized gain (loss) on sales of investment securities.......... (17,141) ---------- Net increase in net assets resulting from operations................ $2,261,101 ==========
DECEMBER 31, JANUARY 31, 1995 1995 ------------ ----------- AIM V.I. MONEY OPERATIONS: MARKET FUND STATEMENT Net investment income.............................. $ 2,278,242 $ 1,082,131 OF CHANGES Net realized gain (loss) on sales of investment IN NET ASSETS securities........................................ (17,141) 904 For the eleven ----------- ----------- months ended Net increase in net assets resulting from December 31, 1995 operations....................................... 2,261,101 1,083,035 and the year ended Net increase from capital stock transactions....... 34,506,043 17,124,934 January 31, 1995 Distributions to shareholders from net investment income............................................ (2,278,242) (1,082,131) ----------- ----------- Net increase in net assets........................ 34,488,902 17,125,838 NET ASSETS: Beginning of period................................ 31,016,852 13,891,014 ----------- ----------- End of period...................................... $65,505,754 $31,016,852 =========== =========== NET ASSETS CONSIST OF: Capital (par value and additional paid-in)......... $65,521,991 $31,015,948 Undistributed net realized gain (loss) on sales of investment securities............................. (16,237) 904 ----------- ----------- $65,505,754 $31,016,852 =========== ===========
See Notes to Financial Statements. FS-84 AIM V.I. MONEY MARKET FUND AIM V.I. MONEY NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES MARKET FUND FINANCIAL AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation STATEMENTS organized on January 22, 1993, and is registered under the Investment Company December 31, 1995 Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management investment company consisting of nine portfolios. Matters affecting each portfolio are voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Effective December 31, 1995, the Company's fiscal year was changed from January 31 to December 31. 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. The following is a summary of the significant accounting policies followed by the Fund in the presentation of its financial statements. 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. A. Security Valuations - The Fund invests only in securities which have maturities of 397 days or less from the date of purchase. The 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. 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. Realized gains or losses from securities transactions are recorded on the identified cost basis. C. Federal Income Taxes - It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund has a capital loss carryforward (which may be carried forward to offset future taxable gains, if any) of $17,143 which expires, if not previously utilized, in the year 2003. D. Organizational Costs - Organizational costs of $14,461 are being amortized over five years. NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.40% of the first $250 million of the Fund's average daily net assets, plus 0.35% of the Fund's average daily net assets in excess of $250 million. This agreement requires AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $22,997 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,457 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & 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.
FS-85 AIM V.I. MONEY MARKET FUND NOTE 4 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995 were as follows:
December 31, 1995 January 31, 1995 ------------------------- ------------------------- Shares Amount Shares Amount ----------- ------------ ----------- ------------ Sold..................... 80,119,672 $ 80,119,672 53,878,101 $ 53,878,101 Issued as reinvestment of distributions........... 2,278,242 2,278,242 1,082,131 1,082,131 Reacquired............... (47,891,871) (47,891,871) (37,835,298) (37,835,298) ----------- ------------ ----------- ------------ 34,506,043 $ 34,506,043 17,124,934 $ 17,124,934 =========== ============ =========== ============
NOTE 5 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
JANUARY 31, DECEMBER 31, ------------------- 1995 1995 1994 ------------ ------- ------- Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- Income from investment operations: Net investment income............... 0.05 0.04 0.02 ------- ------- ------- Less distributions: Dividends from net investment income............................. (0.05) (0.04) (0.02) ------- ------- ------- Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= Total return.......................... 5.69%(a) 3.98% 2.27%(a) ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)............................. $65,506 $31,017 $13,891 ======= ======= ======= Ratio of expenses to average net assets............................... 0.53%(b) 0.63%(c) 0.95%(a)(d) ======= ======= ======= Ratio of net investment income to average net assets................... 5.40%(b) 4.14%(c) 2.29%(a)(d) ======= ======= ======= ------ (a) Annualized. (b) Ratios are annualized and based on average net assets of $46,144,418. (c) Ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 0.70% and 4.07%, respectively. (d) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees are 1.53% and 1.70%, respectively.
FS-86 AIM V.I. MONEY MARKET FUND REPORT OF To the Shareholders and Board of Directors INDEPENDENT AIM Variable Insurance Funds, Inc. CERTIFIED PUBLIC ACCOUNTANTS 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, 1995, the related statement of operations for the eleven month period then ended, the statement of changes in net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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, 1995, by correspondence with the custodian and brokers. Where brokers did not reply to our confirmation requests, we carried out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Value Fund, as of December 31, 1995, the results of its operations for the eleven month period then ended, the changes in its net assets for the eleven month period then ended and the year ended January 31, 1995 and the financial highlights for the eleven month period then ended, 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 January 26, 1996
FS-87 AIM V.I. VALUE FUND AIM V.I. VALUE MARKET FUND SHARES VALUE SCHEDULE OF ------ ------------ INVESTMENTS DOMESTIC COMMON STOCKS - 64.88% December 31, 1995 ADVERTISING/BROADCASTING - 0.10% 10,000 Heritage Media Corp.(a)............................. $ 256,250 ------------ AEROSPACE/DEFENSE - 1.70% 33,600 Boeing Co........................................... 2,633,400 12,000 General Dynamics Corp............................... 709,500 11,000 United Technologies Corp............................ 1,043,625 ------------ 4,386,525 ------------ APPLIANCES - 0.13% 6,600 Premark International Inc........................... 334,125 ------------ AUTOMOBILE/TRUCK PARTS & TIRES - 0.50% 40,000 Borg-Warner Automotive.............................. 1,280,000 ------------ BANKING - 2.39% 17,000 BankAmerica Corp.................................... 1,100,750 75,000 Citicorp............................................ 5,043,750 ------------ 6,144,500 ------------ BIOTECHNOLOGY - 0.34% 21,000 Guidant Corp........................................ 887,250 ------------ BUILDING MATERIALS - 0.27% 15,200 Snap-On, Inc........................................ 687,800 ------------ CHEMICALS - 0.22% 40,000 Terra Industries, Inc. ............................. 565,000 ------------ CHEMICALS (SPECIALTY) - 1.54% 18,000 Cabot Corp.......................................... 969,750 33,000 IMC Global, Inc..................................... 1,348,875 16,000 OM Group Inc........................................ 530,000 33,400 Praxair, Inc........................................ 1,123,075 ------------ 3,971,700 ------------ COMPUTER MINI/PCS - 3.50% 82,000 COMPAQ Computer Corp.(a)............................ 3,936,000 38,000 Dell Computer Corp.(a).............................. 1,315,750 20,000 Digital Equipment Corp.(a).......................... 1,282,500 21,000 Hewlett-Packard Co.................................. 1,758,750 42,000 Wang Laboratories, Inc.(a).......................... 698,250 ------------ 8,991,250 ------------ COMPUTER NETWORKING - 2.53% 14,850 Bay Networks, Inc.(a)............................... 610,706 24,000 Belden Inc.......................................... 618,000 57,000 Cheyenne Software, Inc.(a).......................... 1,489,125 25,000 Cisco Systems, Inc.(a).............................. 1,865,625 18,000 Comverse Technology, Inc............................ 360,000 21,000 Network Equipment Technology, Inc.(a)............... 574,875 21,000 3Com Corp.(a)....................................... 979,125 ------------ 6,497,456 ------------ COMPUTER PERIPHERALS - 3.24% 58,000 Adaptec, Inc.(a).................................... 2,378,000 7,800 Alliance Semiconductor Corp.(a)..................... 90,675 57,000 EMC Corp.(a)........................................ 876,375 12,000 Lexmark International Group, Inc.(a)................ 219,000 17,000 Read-Rite Corp. - Class A(a)........................ 395,250
FS-88 AIM V.I. VALUE FUND
MARKET SHARES VALUE ------ ------------ COMPUTER PERIPHERALS - (CONTINUED) 67,000 Seagate Technology(a)............................... $ 3,182,500 8,000 U.S. Robotics, Inc.(a).............................. 702,000 28,000 Western Digital Corp.(a)............................ 500,500 ------------ 8,344,300 ------------ COMPUTER SOFTWARE & SERVICES - 4.89% 9,000 Adobe Systems, Inc.................................. 558,000 17,000 BMC Software, Inc.(a)............................... 726,750 103,000 Computer Associates International, Inc.............. 5,858,125 21,000 Computervision Corp.(a)............................. 322,875 4,000 Electronics for Imaging, Inc.(a).................... 175,000 15,000 First Data Corp..................................... 1,003,125 15,500 FTP Software, Inc.(a)............................... 449,500 21,000 National Data Corp.................................. 519,750 21,000 NetManage, Inc.(a).................................. 488,250 17,000 Network General Corp.(a)............................ 567,375 28,000 SoftKey International, Inc.(a)...................... 647,500 6,000 Sterling Software, Inc.(a).......................... 374,250 50,000 S3, Inc.(a)......................................... 881,250 ------------ 12,571,750 ------------ CONGLOMERATES - 0.58% 10,000 Allied Products Corp................................ 240,000 16,000 Loews Corp.......................................... 1,254,000 ------------ 1,494,000 ------------ COSMETICS & TOILETRIES - 0.50% 12,200 McKesson Corp....................................... 617,625 8,000 Procter & Gamble Co................................. 664,000 ------------ 1,281,625 ------------ ELECTRIC SERVICES - 1.43% 8,900 Allegheny Power System, Inc......................... 254,762 7,000 American Electric Power Co.......................... 283,500 8,900 Consolidated Edison Co. of New York, Inc............ 284,800 15,000 Dominion Resources, Inc............................. 618,750 11,300 DQE, Inc............................................ 347,475 20,000 Entergy Corp........................................ 585,000 6,800 FPL Group, Inc...................................... 315,350 19,100 Houston Industries, Inc............................. 463,175 17,500 Illinova Corp....................................... 525,000 ------------ 3,677,812 ------------ ELECTRONIC COMPONENTS - 2.40% 17,000 Amphenol Corp.(a)................................... 412,250 102,000 Anixter International, Inc.(a)...................... 1,899,750 4,300 AVX Corp............................................ 113,950 27,300 Harman International Industries, Inc................ 1,095,413 21,000 Parker-Hannifin Corp................................ 719,250 2,700 Raychem Corp........................................ 153,562 13,000 Tektronix, Inc...................................... 638,625 46,000 Teradyne Inc.(a).................................... 1,150,000 ------------ 6,182,800 ------------ ELECTRONIC/PC DISTRIBUTORS - 0.97% 30,000 Arrow Electronics, Inc.(a).......................... 1,293,750 11,000 Avnet, Inc.......................................... 492,250 20,000 Wyle Electronics.................................... 702,500 ------------ 2,488,500 ------------
FS-89 AIM V.I. VALUE FUND
MARKET SHARES VALUE ------ ------------ FINANCE (ASSET MANAGEMENT) - 0.23% 12,000 Finova Group, Inc................................... $ 579,000 ------------ FINANCE (CONSUMER CREDIT) - 3.35% 8,000 ADVANTA Corp. - Class A............................. 306,000 9,000 ADVANTA Corp. - Class B............................. 327,375 10,000 A T & T Capital Corp................................ 382,500 12,000 CMAC Investment Corp................................ 528,000 12,000 Countrywide Credit Industries, Inc.................. 261,000 20,000 Federal Home Loan Mortgage Corp. ................... 1,670,000 12,500 Federal National Mortgage Association............... 1,551,563 17,000 Green Tree Financial Corp........................... 448,375 50,000 MBNA Corp........................................... 1,843,750 17,000 PMI Group Inc. (The)................................ 769,250 5,900 Student Loan Marketing Association.................. 388,662 3,150 SunAmerica, Inc..................................... 149,625 ------------ 8,626,100 ------------ FINANCE (SAVINGS & LOAN) - 0.21% 20,000 Ahmanson (H.F.) & Co................................ 530,000 ------------ FOOD PROCESSING - 1.26% 21,000 ConAgra, Inc........................................ 866,250 36,000 Hudson Foods, Inc. - Class A........................ 621,000 27,000 IBP, Inc............................................ 1,363,500 17,700 Interstate Bakeries Corp............................ 396,037 ------------ 3,246,787 ------------ FUNERAL SERVICES - 0.96% 46,300 Service Corp. International......................... 2,037,200 12,000 Stewart Enterprises, Inc............................ 444,000 ------------ 2,481,200 ------------ GAMING - 0.34% 25,000 Mirage Resorts, Inc.(a)............................. 862,500 ------------ HOMEBUILDING - 0.18% 21,500 Clayton Homes, Inc.................................. 459,562 ------------ INSURANCE (LIFE & HEALTH) - 0.10% 4,000 Conseco Inc......................................... 250,500 ------------ INSURANCE (MULTI-LINE PROPERTY) - 1.79% 37,000 Allstate Corp....................................... 1,521,625 12,200 CIGNA Corp.......................................... 1,259,650 16,000 ITT Hartford Group, Inc.(a)......................... 774,000 37,000 TIG Holdings, Inc................................... 1,054,500 ------------ 4,609,775 ------------ MACHINE TOOLS - 0.05% 4,000 Applied Power Inc. - Class A........................ 120,000 ------------ MACHINERY (HEAVY) - 0.36% 20,000 Case Corp........................................... 915,000 ------------ MEDICAL (DRUGS) - 4.31% 12,000 American Home Products Corp. ....................... 1,164,000 33,000 Bergen Brunswig Corp................................ 820,875 51,861 ICN Pharmaceuticals, Inc............................ 998,330 6,000 Johnson & Johnson................................... 513,750 29,000 Mylan Laboratories.................................. 681,500 21,000 Pfizer Inc.......................................... 1,323,000 21,000 R. P. Scherer Corp.(a).............................. 1,031,625 83,000 Schering-Plough Corp................................ 4,544,250 ------------ 11,077,330 ------------
FS-90 AIM V.I. VALUE FUND
MARKET SHARES VALUE ------ ------------ MEDICAL INSTRUMENTS/PRODUCTS - 1.54% 6,500 Bausch & Lomb, Inc.................................. $ 257,563 63,000 Baxter International, Inc........................... 2,638,125 10,600 Cordis Corp.(a)..................................... 1,065,300 ------------ 3,960,988 ------------ MEDICAL (PATIENT SERVICES) - 2.47% 12,000 Genesis Health Ventures, Inc.(a).................... 438,000 25,000 Health Care and Retirement Corp.(a)................. 875,000 25,000 Integrated Health Services, Inc..................... 625,000 12,000 Living Centers of America, Inc.(a).................. 420,000 28,000 Manor Care, Inc..................................... 980,000 34,000 OrNda Healthcorp(a)................................. 790,500 24,000 Quorum Health Group, Inc.(a)........................ 528,000 30,000 Sybron International Corp.(a)....................... 712,500 21,000 U.S. Healthcare, Inc................................ 976,500 ------------ 6,345,500 ------------ METALS - 0.09% 4,000 Harsco Corp......................................... 232,500 ------------ OFFICE AUTOMATION - 2.24% 19,300 In Focus Systems, Inc.(a)........................... 697,213 37,000 Xerox Corp.......................................... 5,069,000 ------------ 5,766,213 ------------ OFFICE PRODUCTS - 0.15% 10,000 Reynolds & Reynolds Co. - Class A................... 388,750 ------------ OIL & GAS - 0.50% 60,000 Occidental Petroleum Corp........................... 1,282,500 ------------ OIL EQUIPMENT & SUPPLIES - 0.99% 20,000 BJ Services Co.(a).................................. 580,000 12,000 Diamond Offshore Drilling, Inc.(a).................. 405,000 16,000 Halliburton Co...................................... 810,000 24,000 Tidewater, Inc...................................... 756,000 ------------ 2,551,000 ------------ PAPER & FOREST PRODUCTS - 0.55% 4,000 Bowater, Inc........................................ 142,000 18,200 James River Corp. of Virginia....................... 439,075 16,000 Mead Corp........................................... 836,000 ------------ 1,417,075 ------------ POLLUTION CONTROL - 0.37% 32,000 WMX Technologies, Inc............................... 956,000 ------------ PUBLISHING - 0.28% 18,000 Scripps (E.W.) Co................................... 708,750 ------------ RETAIL (FOOD & DRUG) - 0.28% 27,900 Circle K Corp.(a)................................... 707,963 ------------ RETAIL (STORES) - 0.06% 11,000 Intimate Brands, Inc................................ 165,000 ------------ SCIENTIFIC INSTRUMENTS - 0.91% 42,000 Millipore Corp...................................... 1,727,250 13,000 Varian Associates, Inc.............................. 620,750 ------------ 2,348,000 ------------ SEMICONDUCTORS - 5.33% 29,000 Analog Devices, Inc.(a)............................. 1,025,875 74,000 Applied Materials, Inc.(a).......................... 2,913,750 57,000 Cypress Semiconductor Corp.(a)...................... 726,750
FS-91 AIM V.I. VALUE FUND
MARKET SHARES VALUE ------ ------------ SEMICONDUCTORS - (CONTINUED) 19,400 Electroglas, Inc.(a)................................ $ 475,300 14,000 Kemet Corp.(a)...................................... 334,250 10,000 LAM Research Corp.(a)............................... 457,500 25,000 LSI Logic Corp.(a).................................. 818,750 15,000 Novellus Systems, Inc.(a)........................... 810,000 14,000 Sierra Semiconductor Corp.(a)....................... 194,250 115,000 Texas Instruments, Inc.............................. 5,951,250 ------------ 13,707,675 ------------ SHOES & RELATED APPAREL - 0.05% 2,000 Nike, Inc. - Class B................................ 139,250 ------------ STEEL - 0.09% 5,300 J&L Specialty Steel, Inc............................ 99,375 16,300 UNR Industries, Inc................................. 140,588 ------------ 239,963 ------------ TELECOMMUNICATIONS - 2.89% 50,000 A T & T Corp........................................ 3,237,500 64,100 MFS Communications Co., Inc.(a)..................... 3,413,325 21,000 Tellabs, Inc.(a).................................... 777,000 ------------ 7,427,825 ------------ TELEPHONE - 1.31% 42,000 Ameritech Corp. .................................... 2,478,000 20,900 BellSouth Corp. .................................... 909,150 ------------ 3,387,150 ------------ TOBACCO - 3.94% 10,500 Dimon, Inc.......................................... 185,063 110,000 Philip Morris Companies, Inc........................ 9,955,000 ------------ 10,140,063 ------------ TRANSPORTATION - 0.47% 26,400 CSX Corp............................................ 1,204,500 ------------ Total Common Stocks............................. 166,877,062 ------------ FOREIGN STOCKS & OTHER EQUITY INTERESTS - 5.09% AUSTRALIA - 0.31% 42,000 News Corp. Ltd. - Preference Shares-ADR (Publishing)........................................ 808,500 ------------ CANADA - 0.38% 20,000 Corel Corp. (Computer Software & Services)(a)....... 260,000 16,900 Northern Telecom Ltd. (Telecommunications).......... 726,700 ------------ 986,700 ------------ FINLAND - 0.06% 4,100 Nokia Corp. - Class A-ADR (Telecommunications)(a)... 159,389 ------------ FRANCE - 0.78% 50,000 SGS - Thomson Microelectronics N.V. (Semiconductors)(a)................................. 2,012,500 ------------ ITALY - 0.12% 6,500 Fila Holding S.p.A.-ADR (Retail Stores)............. 295,750 ------------ NETHERLANDS - 0.36% 20,400 Madge Networks N.V. (Computer Networking)(a)........ 912,900 ------------ NEW ZEALAND - 0.43% 244,700 Telecom Corp. of New Zealand Ltd. (Telecommunications)................................ 1,027,048 1,200 Telecom Corp. of New Zealand Ltd.-ADR (Telecommunications)................................ 83,250 ------------ 1,110,298 ------------ NORWAY - 0.34% 158,000 UNI Storebrand A/S - Class A (Insurance - Multi-Line Property)(a)........................................ 873,052 ------------
FS-92 AIM V.I. VALUE FUND
MARKET SHARES VALUE ------ ------------ SWEDEN - 1.25% 27,500 Astra AB "A" (Medical - Drugs).................. $ 1,097,564 30,000 Skandia Forsakring AB (Insurance - Multi-Line Property)....................................... 811,030 66,000 Telefonaktiebolaget L.M. Ericsson-ADR (Telecommunications)............................ 1,287,000 ------------ 3,195,594 ------------ UNITED KINGDOM - 1.06% 28,800 Invesco PLC (Finance - Asset Management)........ 113,384 2,200 Invesco PLC-ADR (Finance - Asset Management).... 85,250 6,600 Orthofix International N.V. (Medical Services)(a).................................... 48,675 14,500 Smithkline Beecham-ADR (Medical - Drugs)........ 804,750 160,000 Standard Chartered PLC (Leisure & Recreation)... 1,361,703 29,900 Waste Management International PLC-ADR (Pollution Control)(a).......................... 321,425 ------------ 2,735,187 ------------ Total Foreign Stocks & Other Equity Interests.................................. 13,089,870 ------------ PREFERRED STOCK - 0.05% PUBLISHING - 0.05% 4,500 Time Warner Financing - $1.24 Convertible Pfd... 140,625 ------------ PRINCIPAL AMOUNT ----------- U.S. TREASURY SECURITIES - 13.06% U.S. TREASURY BILLS - 10.22%(B) $13,100,000(c) 5.41%, 01/11/96................................. 13,093,843 13,345,000(c) 5.38%, 04/04/96................................. 13,175,918 ------------ Total U.S. Treasury Bills................... 26,269,761 ------------ U.S. TREASURY NOTES - 2.84% 7,000,000 6.75%, 05/31/99................................. 7,311,718 ------------ Total U.S. Treasury Securities.............. 33,581,479 ------------ REPURCHASE AGREEMENT(d) - 16.76% 43,102,545 Daiwa Securities America Inc., 5.92%, 01/02/96(e).................................... 43,102,545 ------------ TOTAL INVESTMENTS - 99.84%...................... 256,791,581 OTHER ASSETS LESS LIABILITIES - 0.16%........... 420,206 ------------ NET ASSETS - 100.00%............................ $257,211,787 ============ NOTES TO SCHEDULE OF INVESTMENTS: (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 futures contracts. See Note 6. (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 managed by the investment advisor. (e) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15. Abbreviations: ADR - American Depositary Receipt Pfd. - Preferred See Notes to Financial Statements.
FS-93 AIM V.I. VALUE FUND AIM V.I. VALUE ASSETS: FUND STATEMENT OF Investments, at market value (cost $227,669,641).................. $256,791,581 ASSETS AND Receivables for: LIABILITIES Investments sold................................................ 750,836 December 31, 1995 Capital stock sold.............................................. 160,371 Dividends and interest.......................................... 383,343 Variation margin................................................ 30,100 Investment for deferred compensation plan......................... 8,365 Organizational costs, net......................................... 6,728 Other assets...................................................... 61,297 ------------ Total assets.................................................. 258,192,621 ------------ LIABILITIES: Payables for: Investments purchased........................................... 795,777 Deferred compensation........................................... 8,365 Accrued advisory fees............................................. 139,022 Accrued directors' fees........................................... 1,646 Accrued administrative services fees.............................. 2,593 Accrued operating expenses........................................ 33,431 ------------ Total liabilities............................................. 980,834 ------------ Net assets applicable to shares outstanding....................... $257,211,787 ============ Capital shares, $.001 par value per share: Authorized...................................................... 250,000,000 ============ Outstanding..................................................... 15,969,839 ============ Net asset value, offering and redemption price per share.......... $ 16.11 ============ See Notes to Financial Statements.
FS-94 AIM V.I. VALUE FUND AIM V.I. VALUE INVESTMENT INCOME: FUND STATEMENT OF Interest....................................................... $ 1,353,855 OPERATIONS Dividends...................................................... 1,723,041 For the eleven ----------- months ended Total investment income...................................... 3,076,896 December 31, 1995 ----------- EXPENSES: Advisory fees.................................................. 1,078,007 Custodian fees................................................. 68,394 Administrative service fees.................................... 35,540 Directors' fees and expenses................................... 6,369 Organizational costs........................................... 2,627 Other.......................................................... 49,714 ----------- Total expenses............................................... 1,240,651 ----------- Net investment income............................................ 1,836,245 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities.......................................... 17,183,742 Foreign currencies............................................. (10,005) Futures contracts.............................................. 2,138,567 ----------- 19,312,304 ----------- Unrealized appreciation (depreciation) of: Investment securities.......................................... 25,412,699 Foreign currencies............................................. (361) Futures contracts.............................................. 131,340 ----------- 25,543,678 ----------- Net gain on investment securities, foreign currencies and futures contracts....................................................... 44,855,982 ----------- Net increase in net assets resulting from operations............. $46,692,227 =========== AIM V.I. VALUE DECEMBER 31, JANUARY 31, FUND 1995 1995 STATEMENT OF ------------ ------------ CHANGES IN NET ASSETS OPERATIONS: For the eleven months ended Net investment income............................ $ 1,836,245 $ 882,404 December 31, 1995 Net realized gain (loss) on sales of investment and the year ended securities, foreign currencies and futures January 31, 1995 contracts ...................................... 19,312,304 (2,153,433) Net unrealized appreciation of investment securities, foreign currencies and futures contracts....................................... 25,543,678 895,492 ------------ ------------ Net increase (decrease) in net assets resulting from operations................................ 46,692,227 (375,537) Net increase from capital stock transactions....... 101,386,580 72,151,126 Distributions to shareholders from net investment income............................................ (124,487) (772,749) ------------ ------------ Net increase in net assets...................... 147,954,320 71,002,840 NET ASSETS: Beginning of period.............................. 109,257,467 38,254,627 ------------ ------------ End of period.................................... $257,211,787 $109,257,467 ============ ============ NET ASSETS CONSIST OF: Capital (par value and additional paid-in)....... $208,555,673 $107,169,093 Undistributed net investment income.............. 1,819,581 107,823 Undistributed net realized gain (loss) from investment securities, foreign currencies and futures contracts .............................. 16,941,375 (2,370,929) Unrealized appreciation of investment securities, foreign currencies and futures contracts........ 29,895,158 4,351,480 ------------ ------------ $257,211,787 $109,257,467 ============ ============ See Notes to Financial Statements.
FS-95 AIM V.I. VALUE FUND AIM V.I. VALUE NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation NOTES TO organized on January 22, 1993, and is registered under the Investment Company FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management STATEMENTS investment company consisting of nine portfolios. Matters affecting each December 31, 1995 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. Effective December 31, 1995, the Company's fiscal year end was changed from January 31 to December 31. Currently, shares of the Fund are sold only to insurance company separate accounts to fund the benefits of variable annuity contracts. 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 is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or absent a last sales price, at the mean 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 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. 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. 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. D. Organizational Costs - Organizational costs for the Fund of $14,461 are being amortized over five years. E. Stock Index Futures Contracts - The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash, and/or by securing a standby letter of credit from a major commercial bank, as collateral, for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contract may not correlate with changes in the securities being hedged. F. Foreign Currency Translations - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions.
FS-96 AIM V.I. VALUE FUND 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. These agreements require AIM to reduce its fees or, if necessary, make payments to the Fund to the extent required to satisfy any expense limitations imposed by the securities laws or regulations thereunder of any state in which the Fund's shares are qualified for sale. Pursuant to a master administrative services agreement between the Company and AIM, with respect to the Fund, the Company has agreed to reimburse certain administrative costs incurred in providing accounting services to the Fund. During the eleven months ended December 31, 1995, AIM was reimbursed $35,540 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 eleven months ended December 31, 1995, the Fund incurred legal fees of $2,788 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as counsel to the Board of Directors. A member of that firm is a director of the Company. NOTE 3 - DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest a director's fees, if so elected by such director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4 - INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the eleven months ended December 31, 1995 was $287,069,501 and $226,176,603, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of December 31, 1995 is as follows:
Aggregate unrealized appreciation of investment securities......... $32,775,879 Aggregate unrealized (depreciation) of investment securities....... (3,911,608) ----------- Net unrealized appreciation of investment securities............... $28,864,271 ===========
Cost of investments for tax purposes is $227,927,310. NOTE 5 - CAPITAL STOCK Changes in capital stock outstanding during the eleven months ended December 31, 1995 and the year ended January 31, 1995:
December 31, 1995 January 31, 1995 ----------------------- ---------------------- Shares Amount Shares Amount --------- ------------ --------- ----------- Sold.......................... 6,903,801 $103,653,052 6,208,374 $73,589,964 Issued as reinvestment of distributions................ 7,829 124,487 67,137 772,749 Reacquired.................... (176,240) (2,390,959) (183,633) (2,211,587) --------- ------------ --------- ----------- 6,735,390 $101,386,580 6,091,878 $72,151,126 ========= ============ ========= ===========
NOTE 6 - OPEN FUTURES CONTRACTS On December 31, 1995, $957,000 principal amount of U. S. Treasury Bills were pledged as collateral to cover margin requirements for open futures contracts: Open futures contracts at December 31, 1995 were as follows:
UNREALIZED CONTRACT NO. OF CONTRACTS/MONTH/COMMITMENT APPRECIATION S&P 500 Index.................... 86 Contracts/March 96/Buy $773,579
FS-97 AIM V.I. VALUE FUND NOTE 7 - FINANCIAL HIGHLIGHTS Shown below are the condensed financial highlights for a share outstanding of the Fund during 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.
January 31, December ------------------ 31, 1995 1995 1994 -------- -------- ------- Net asset value, beginning of period....... $ 11.83 $ 12.17 $ 10.00 -------- -------- ------- Income from investment operations: Net investment income.................... 0.11 0.10 0.02 Net gains (losses) on securities (both realized and unrealized)................ 4.18 (0.35) 2.17 -------- -------- ------- Total from investment operations....... 4.29 (0.25) 2.19 -------- -------- ------- Less distributions: Dividends from net investment income..... (0.01) (0.09) (0.02) -------- -------- ------- Net asset value, end of period............. $ 16.11 $ 11.83 $ 12.17 ======== ======== ======= Total return(a)............................ 36.25% (2.03)% 21.94% ======== ======== ======= Ratios/supplemental data: Net assets, end of period (000s omitted)... $257,212 $109,257 $38,255 ======== ======== ======= Ratio of expenses to average net assets.... 0.75%(b) 0.82% 1.00%(c) ======== ======== ======= Ratio of net investment income to average net assets................................ 1.11%(b) 1.17% 0.51%(c) ======== ======== ======= Portfolio turnover rate.................... 145% 143% 87% ======== ======== ======= ------ (a) Total returns for periods less than one year are not annualized. (b) Ratios are annualized and based on average net assets of $181,240,121. (c) Annualized ratios of expenses and net investment income to average net assets prior to waiver of advisory fees and/or expense reimbursements were 1.35% and 0.16%, respectively, for 1994.
FS-98 AIM V.I. VALUE FUND PART C OTHER INFORMATION Item 24. (a) Financial Statements: In Part A: Financial Highlights for the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995, and for the period May 5, 1993 (date operations commenced) through January 31, 1994, for each of the Funds (except the AIM V.I. Growth and Income Fund and the AIM V.I. Global Utilities Fund), and for the eleven months ended December 31, 1995 and for the period May 2, 1994 (date operations commenced) through January 31, 1995, for the AIM V.I. Growth and Income Fund and the AIM V.I. Global Utilities Fund. In Part B: Report of Independent Auditors, Schedule of Investments, Statement of Assets and Liabilities, Statement of Operations, Statement of Changes in Net Assets, and Notes to Financial Statements for the eleven months ended December 31, 1995, the fiscal year ended January 31, 1995, and for the period May 5, 1993 (date operations commenced) through January 31, 1994, for each of the Funds (except the AIM V.I. Growth and Income Fund and the AIM V.I. Global Utilities Fund), and for the eleven months ended December 31, 1995 and for the period May 2, 1994 (date operations commenced) through January 31, 1995, for the AIM V.I. Growth and Income Fund and the AIM V.I. Global Utilities Fund. (b) Exhibits: Exhibit Number Description - ------ ----------- (1) - (a) 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 is hereby filed electronically. - (b) 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 are hereby filed electronically. - (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 is hereby filed electronically. C-1 - (d) 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 is hereby filed electronically. - (e) 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 are hereby filed electronically. (2) - (a) First Amendment, dated March 14, 1995, to By-Laws of Registrant is hereby filed electronically. - (b) By-Laws of Registrant were filed as an Exhibit to Registrant's Initial Registration Statement on January 25, 1993 and are hereby filed electronically. (3) - Voting Trust Agreements - None. (4) - (a) Form of Specimen Certificate for the AIM V.I. Global Utilities Fund was filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 on April 26, 1995. - (b) Form of Specimen Certificates for the AIM V.I. Growth and Income Fund and the AIM V.I. Utilities Fund (presently the AIM V.I. Global Utilities Fund) were filed as an Exhibit to Registrant's Post-Effective Amendment No. 2 on March 2, 1994. - (c) Form of Specimen Certificates were filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. (5) - (a) Copy of Amendment, dated April 28, 1994, to Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and is hereby filed electronically. - (b) Copy of Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and is hereby filed electronically. - (c) Copy of Investment Advisory Agreement, dated March 31, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. (6) - (a) Copy of Amendment, dated April 28, 1994, to Master Distribution Agreement, dated October 18, 1993, between Registrant and AIM Distributors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and is hereby filed electronically. C-2 - (b) Copy of Master Distribution Agreement, dated October 18, 1993, between Registrant and A I M Distributors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and is hereby filed electronically. - (c) Copy of Distribution Agreement, dated March 31, 1993, between Registrant and A I M Distributors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. (7) - (a) Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, as restated September 18, 1995, is hereby filed electronically. - (b) Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994. - (c) Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors, as approved on December 5, 1995, is hereby filed electronically. - (d) Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994. (8) - (a) Copy of Amendment No. 2, dated September 19, 1995, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company is hereby filed electronically. - (b) Copy of Amendment No.1, dated April 25, 1994, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and is hereby filed electronically. - (c) Copy of Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and is hereby filed electronically. (9) - (a) Copy of Amendment No.1, dated April 25, 1994, to Transfer Agency Agreement, dated March 19, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and is hereby filed electronically. - (b) Copy of Transfer Agency Agreement, dated March 19, 1993, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and is hereby filed electronically. C-3 - (c) Copy of Amendment No.1, dated April 28, 1994, to Master Administrative Services Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994, and is hereby filed electronically. - (d) Copy of Master Administrative Services Agreement, dated October 18, 1993, between the Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on November 5, 1993, and is hereby filed electronically. - (e) Copy of Administrative Services Agreement, dated March 31, 1993, between the Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. - (f) Copy of Participation Agreement, dated April 8, 1996, between Registrant and Connecticut General Life Insurance Company is hereby filed electronically. - (g) Copy of Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company is hereby filed electronically. - (h) Copy of Participation Agreement, dated March 4, 1996, between Registrant and IDS Life Insurance Company is hereby filed electronically. - (i) Copy of Participation Agreement, dated February 10, 1995, between Registrant and Citicorp Life Insurance Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on February 28, 1995, and is hereby filed electronically. - (j) Copy of Participation Agreement, dated February 10, 1995, between Registrant and First Citicorp Life Insurance Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on February 28, 1995, and is hereby filed electronically. - (k) Copy of Participation Agreement, dated February 25, 1993, between Registrant, Connecticut General Life Insurance Company and A I M Distributors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and is hereby filed electronically. - (l) Copy of Accounting Services Agreement, dated March 31, 1993, between the Registrant and State Street Bank and Trust Company was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993, and is hereby filed electronically. (10) - (a) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I. Capital Appreciation Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Government Securities Fund, the AIM V.I. Growth Fund, the AIM V.I. International Equity Fund, the AIM V.I. Money C-4 Market Fund and the AIM V.I. Value Fund was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on April 19, 1993. - (b) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I. Growth and Income Fund and the AIM V.I. Utilities Fund (presently the AIM V.I. Global Utilities Fund) was filed as an Exhibit to Registrant's Post- Effective Amendment No. 4 on November 3, 1994. - (c) Opinion and Consent of Messrs. Freedman, Levy, Kroll & Simonds regarding the AIM V.I. Global Utilities Fund name change was filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 on April 26, 1995. - (d) Consent of Messrs. Freedman, Levy, Kroll & Simonds is hereby filed electronically. - (e) Consent of Messrs. Tait, Weller & Baker is hereby filed electronically. (11) - Other Opinions, Appraisals or Rulings and Consents - None. (12) - Financial Statements omitted from Item 23 - None. (13) - (a) Copies of Agreements Concerning Initial Capitalization of the AIM V.I. Growth and Income Fund and the AIM V.I. Utilities Fund were filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on November 3, 1994, and are hereby filed electronically. - (b) Copies of Agreements Concerning Initial Capitalization of the AIM V.I. Capital Appreciation Fund, the AIM V.I. Diversified Income Fund, the AIM V.I. Government Securities Fund, the AIM V.I. Growth Fund, the AIM V.I. International Equity Fund, the AIM V.I. Money Market Fund, and the AIM V.I. Value Fund were filed as an Exhibit to Registrant's Post- Effective Amendment No. 1 on November 5, 1993, and are hereby filed electronically. (14) - Registrant's Retirement Plan Documents - None. (15) - Registrant's Plan pursuant to Rule 12b-1 under the 1940 Act - None. (16) - Schedule of Performance Quotations were filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 on May 2, 1994. (27) - Financial Data Schedules are hereby filed electronically. Item 25. Persons Controlled by or under Common Control With Registrant Furnish a list or diagram of all persons directly or indirectly controlled by or under common control with the Registrant and as to each such person indicate (1) if a company, the state or other sovereign power under the laws of which it is organized, and (2) the percentage of voting securities owned or other basis of control by the person, if any, immediately controlling it. C-5 None. Item 26. Number of Holders of Securities State in substantially the tabular form indicated, as of a specified date within 90 days prior to the date of filing, the number of record holders of each class of securities of the Registrant.
Number of Record Holders Title of Class as of April 1, 1996 - -------------- ------------------------ AIM V.I. Capital Appreciation Fund 3 AIM V.I. Diversified Income Fund 3 AIM V.I. Global Utilities Fund 5 AIM V.I. Government Securities Fund 2 AIM V.I. Growth Fund 2 AIM V.I. Growth and Income Fund 6 AIM V.I. International Equity Fund 2 AIM V.I. Money Market Fund 3 AIM V.I. Value Fund 2
Item 27. Indemnification State the general effect of any contract, arrangements or statute under which any director, officer, underwriter or affiliated person of the Registrant is insured or indemnified in any manner against any liability which may be incurred in such capacity, other than insurance provided by any director, officer, affiliated person or underwriter for their own protection. Under the terms of the Maryland General Corporation Law and the Registrant's Charter and By-Laws, the Registrant may indemnify any person who was or is a director, officer, employee or agent of the Registrant to the maximum extent permitted by the Maryland General Corporation Law. The specific terms of such indemnification are reflected in the Registrant's Charter and By-Laws, which are incorporated herein as part of this Registration Statement. No indemnification will be provided by the Registrant to any director or officer of the Registrant for any liability to the Registrant or shareholders to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty. 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 C-6 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 $15,000,000 limit of liability. Item 28. Business and Other Connections of Investment Adviser Describe any other business, profession, vocation or employment of a substantial nature in which each investment adviser of the Registrant, and each director, officer or partner of any such investment adviser, is or has been, at any time during the past two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner, or trustee. The only employment of a substantial nature of the Adviser's directors and officers is with the Adviser and its affiliated companies. Reference is also made to the captions "Management--Investment Adviser" of the Prospectus which comprises Part A of this Registration Statement, and to the discussion under the caption "Management" of the Statement of Additional Information which comprises Part B of this Registration Statement, and to Item 29(b) of this Part C of the Registration Statement. Item 29. Principal Underwriters (a) A I M Distributors, Inc., the Registrant's principal underwriter, also acts as a principal underwriter to the following investment companies: AIM Equity Funds, Inc. (Retail Classes) AIM Funds Group AIM International Funds, Inc. AIM Investment Securities Funds (AIM Limited Maturity Treasury Shares) AIM Summit Fund, Inc. AIM Tax-Exempt Funds, Inc. (b) The following table sets forth information with respect to each director, officer or partner of A I M Distributors, Inc.:
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
* 11 Greenway Plaza, Suite 1919, Houston, Texas 77046 C-7
Name and Principal Position and Offices Position and Offices Business Address * with Principal Underwriter with Registrant - ------------------- ---------------------------------- ----------------------- James L. Salners Senior Vice President & Director None John Caldwell Senior Vice President None Gordon J. Sprague Senior Vice President None Michael C. Vessels Senior Vice President None Lawrence E. Manierre First Vice President None James E. Stueve First Vice President None John J. Arthur Vice President & Treasurer Senior Vice President & Treasurer Ofelia M. Mayo Vice President, General Counsel Assistant Secretary & Assistant Secretary William H. Kleh Vice President None Carol F. Relihan Vice President Senior Vice President & Secretary Charles R. Dewey Vice President None Sidney M. Dilgren Vice President None Frank V. Serebrin Vice President None B.J. Thompson Vice President None Kathleen J. Pflueger Secretary Assistant Secretary Robert D. Van Sant Vice President None David E. Hessel Assistant Vice President, None Assistant Treasurer & Controller Melville B. Cox Assistant Vice President Vice President Mary E. Gentempo Assistant Vice President None
* 11 Greenway Plaza, Suite 1919, Houston, Texas 77046 C-8
Name and Principal Position and Offices Position and Offices Business Address * with Principal Underwriter with Registrant - ------------------- ---------------------------------- ----------------------- Jeffrey L. Horne Assistant Vice President None Kim T. Lankford Assistant Vice President None David L. Kite Assistant General Counsel & Assistant Secretary Assistant Secretary Nancy L. Martin Assistant General Counsel & Assistant Secretary Assistant Secretary Samuel D. Sirko Assistant General Counsel & Assistant Secretary Assistant Secretary Stephen I. Winer Assistant Secretary Assistant Secretary
(c) Not Applicable Item 30. Location of Accounts and Records With respect to each account, book or other document required to be maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to 31a-3) promulgated thereunder, furnish the name and address of each person maintaining physical possession of each such account, book or other document. A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, 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 31. Management Services Furnish a summary of the substantive provisions of any management- related service contract not discussed in Part A or Part B of this Form (because the contract was not believed to be of interest to a purchaser of securities of the Registrant) under which services are provided to the Registrant, indicating the parties to the contract, the total dollars paid and by whom, for the last three fiscal years. None. * 11 Greenway Plaza, Suite 1919, Houston, Texas 77046 C-9 Item 32. Undertakings (a) Not Applicable (b) Not Applicable (c) The Registrant undertakes to furnish to each person to whom a prospectus is delivered, a copy of the Registrant's latest annual report to shareholders upon request and without charge. C-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Houston, Texas on the 29th day of April, 1996. REGISTRANT: AIM VARIABLE INSURANCE FUNDS, INC. /s/ ROBERT H. GRAHAM By: ____________________________________ 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 April 29, 1996 _______________________________ & Director (Charles T. Bauer) /s/ ROBERT H. GRAHAM Director & President April 29, 1996 _______________________________ (Principal Executive (Robert H. Graham) Officer) /s/ BRUCE L. CROCKETT Director April 29, 1996 _______________________________ (Bruce L. Crockett) /s/ OWEN DALY II Director April 29, 1996 _______________________________ (Owen Daly II) /s/ CARL FRISCHLING Director April 29, 1996 _______________________________ (Carl Frischling) /s/ JOHN F. KROEGER Director April 29, 1996 _______________________________ (John F. Kroeger) /s/ LEWIS F. PENNOCK Director April 29, 1996 _______________________________ (Lewis F. Pennock) /s/ IAN W. ROBINSON Director April 29, 1996 _______________________________ (Ian W. Robinson) /s/ LOUIS SKLAR Director April 29, 1996 _______________________________ (Louis Sklar) Senor Vice President & Treasurer (Principal /s/ JOHN J. ARTHUR Financial and April 29, 1996 _______________________________ Accounting Officer) (John J. Arthur) INDEX TO EXHIBITS Exhibit No. - ------- 1 (a) Amendment to Articles of Incorporation of Registrant as filed with the State of Maryland on April 12, 1995 (b) Articles Supplementary to Articles of Incorporation of Registrant as filed with the State of Maryland on April 12, 1994 (c) Amendment to Articles of Incorporation of Registrant as filed with the State of Maryland on April 15, 1993 (d) Amendment to Articles of Incorporation of Registrant as filed with the State of Maryland on April 13, 1993 (e) Articles of Incorporation of Registrant as filed with the State of Maryland on January 22, 1993 2 (a) First Amendment, dated March 14, 1995, to By-Laws of Registrant (b) By-Laws of Registrant 5 (a) Amendment, dated April 28, 1994, to Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. (b) Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. 6 (a) Amendment, dated April 28, 1994, to Master Distribution Agreement, dated October 18, 1993, between Registrant and A I M Distributors, Inc. (b) Master Distribution Agreement, dated October 18, 1993, between Registrant and A I M Distributors, Inc. 7 (a) Retirement Plan of Registrant's Non-Affiliated Directors, effective March 8, 1994, as restated September 18, 1995 (c) Form of Deferred Compensation Agreement of Registrant's Non-Affiliated Directors, as approved on December 5, 1995 8 (a) Amendment No. 2, dated September 19, 1995, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company (b) Amendment No. 1, dated April 25, 1994, to Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company (c) Custodian Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company 9 (a) Amendment No. 1, dated April 25, 1994, to Transfer Agency Agreement, dated March 19, 1993, between Registrant and State Street Bank and Trust Company (b) Transfer Agency Agreement, dated March 19, 1993, between Registrant and State Street Bank and Trust Company (c) Amendment No. 1, dated April 28, 1994, to Master Administrative Services Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. (d) Master Administrative Services Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. (f) Participation Agreement, dated April 8, 1996, between Registrant and Connecticut General Life Insurance Company (g) Participation Agreement, dated December 19, 1995, between Registrant and Glenbrook Life and Annuity Company (h) Participation Agreement, dated March 4, 1996, between Registrant and IDS Life Insurance Company (i) Participation Agreement, dated February 10, 1995, between Registrant and Citicorp Life Insurance Company (j) Participation Agreement, dated February 10, 1995, between Registrant and First Citicorp Life Insurance Company (k) Participation Agreement, dated February 25, 1993, between Registrant, Connecticut General Life Insurance Company and A I M Distributors, Inc. (l) Accounting Services Agreement, dated March 31, 1993, between Registrant and State Street Bank and Trust Company 10 (d) Consent of Messrs. Freedman, Levy, Kroll & Simonds (e) Consent of Messrs. Tait, Weller & Baker 13 (a) Agreements Concerning Initial Capitalization of the AIM V.I. Growth and Income Fund and the AIM V.I. Utilities Fund (b) 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 27 Financial Data Schedules EX-1.A 2 AMT TO ARTICLES OF INCORP OF REGISTRANT EXHIBIT 1(a) AIM VARIABLE INSURANCE FUNDS, INC. ARTICLES OF AMENDMENT 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 Assessment and Taxation of Maryland that: FIRST: Article FIFTH (a) of the Articles of Incorporation of the Corporation is hereby amended to read in full as follows: "FIFTH: (a) The total number of shares of stock which the Corporation has authority to issue is 2,500,000,000 shares of the par value of $.001 each and of the aggregate par value of $2,500,000, of which 250,000,000 shares are classified as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares are classified as AIM V.I. Diversified Income Fund shares, 250,000,000 shares are classified as AIM V.I. Global Utilities Fund shares, 250,000,000 shares are classified as AIM V.I. Government Securities Fund shares, 250,000,000 shares are classified as AIM V.I. Growth Fund shares, 250,000,000 shares are classified as AIM V.I. Growth and Income Fund shares, 250,000,000 shares are classified as AIM V.I. International Equity Fund shares, 250,000,000 shares are classified as AIM V.I. Money Market Fund shares, 250,000,000 shares are classified as AIM V.I. Value Fund shares and the balance of which are unclassified. The Board of Directors shall have the authority to classify and reclassify any authorized but unissued shares of capital stock from time to time by setting or changing in one or more respects the preferences, conversions or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms or conditions of redemption of the stock." SECOND: The amendment of the Articles of Incorporation of the Corporation as hereinabove set forth was approved by a majority of the entire Board of Directors of the Corporation to become effective May 1, 1995; and the amendment is limited to a change expressly permitted by Section 2-605 of the Maryland General Corporation Law and the Corporation is registered as an open- end company under the Investment Company Act of 1940. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be signed in its name and on its behalf by its President and witnessed by its Assistant Secretary. The undersigned President of the Corporation acknowledges these Articles of Amendment 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 herein with respect to the authorization and approval hereof are true in all material respects and that this statement is made under penalties of perjury. WITNESS: AIM VARIABLE INSURANCE FUNDS, INC. /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM - --------------------------- --------------------------------- Nancy L. Martin, Assistant Secretary Robert H. Graham, President EX-1.B 3 ARTICLES SUPPLEMENTARY EXHIBIT 1(b) 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 five hundred million (500,000,000) shares, which are classified and allocated as follows: two hundred fifty million (250,000,000) shares to AIM V.I. Growth and Income Fund and two hundred fifty million (250,000,000) shares to AIM V.I. Utilities Fund. The shares of AIM V.I. Growth and Income Fund and AIM V.I. Utilities Fund as so classified by the Board of Directors shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as set forth in ARTICLE FIFTH, paragraph (b) of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally. SECOND: Immediately before the increase in the aggregate number of shares as set forth in Article FIRST hereto, the Corporation was authorized to issue 2,000,000,000 shares of the par value of $.001 each and of the aggregate par value of $2,000,000, of which 250,000,000 shares were initially classified as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares were initially classified as AIM V.I. Diversified Income Fund shares, 250,000,000 were initially classified as AIM V.I. Government Securities Fund shares, 250,000,000 were initially classified as AIM V.I. Growth Fund shares, 250,000,000 were initially classified as AIM V.I. International Equity Fund shares, 250,000,000 were initially classified as AIM V.I. Money Market Fund shares, 250,000,000 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 2,500,000,000 shares of the par value of $.001 each and of the aggregate par value of $2,500,000, of which 250,000,000 shares are classified as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares are classified as AIM V.I. Diversified Income 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 are classified as AIM V.I. International Equity Fund shares, 250,000,000 are classified as AIM V.I. Money Market Fund shares, 250,000,000 are classified 1 as AIM V.I. Utilities Fund shares, 250,000,000 are classified as AIM V.I. Value Fund shares and the balance of which are unclassified. FOURTH: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940, as amended. FIFTH: The Board of Directors of the Corporation increased the total number of shares of Common Stock the Corporation has authority to issue pursuant to Section 2-105(c) of the Maryland General Corporation Law and classified the shares of AIM V.I. Growth and Income Fund and AIM V.I. Utilities 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 April 11, 1994. AIM VARIABLE INSURANCE FUNDS, INC. By: /s/ ROBERT H. GRAHAM ---------------------------------- President Witness: /s/ NANCY L. MARTIN - ------------------------------- Assistant Secretary 2 EX-1.C 4 ARTICLES OF AMENDMENT EXHIBIT 1(c) AIM VARIABLE INSURANCE FUNDS, INC. ARTICLES OF AMENDMENT 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 Assessment and Taxation of Maryland that: FIRST: The first sentence of paragraph (a) of Article FIFTH of the Articles of Incorporation is hereby amended by changing therein the designation "AIM V.I. Constellation Fund" to "AIM V.I. Capital Appreciation Fund" and by changing therein the designation "AIM V.I. Weingarten Fund" to "AIM V.I. Growth Fund." SECOND: The amendment of the Articles of Incorporation of the Corporation as hereinabove set forth was approved by a majority of the entire Board of Directors of the Corporation and no stock entitled to vote on the matter was outstanding or subscribed for at the time of approval. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be signed in its name and on its behalf by its President and witnessed by its Secretary. The undersigned President of the Corporation acknowledges these Articles of Amendment 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 herein with respect to the authorization and approval hereof are true in all material respects and that this statement is made under penalties of perjury. WITNESS: AIM VARIABLE INSURANCE FUNDS, INC. /s/ WILLIAM H. KLEH By: /s/ ROBERT H. GRAHAM - ------------------------------ -------------------------------- William H. Kleh, Secretary Robert H. Graham, President EX-1.D 5 ARTICLES OF AMENDMENT EXHIBIT 1(d) AIM VARIABLE INSURANCE FUNDS, INC. ARTICLES OF AMENDMENT 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 first sentence of paragraph (a) of Article FIFTH of the Articles of Incorporation is hereby amended by changing therein the designation "AIM V.I. Capital Appreciation Fund" to "AIM V.I. Constellation Fund" and by changing therein the designation "AIM V.I. Growth Fund" to "AIM V.I. Weingarten Fund." SECOND: The amendment of the Articles of Incorporation of the Corporation as hereinabove set forth was approved by a majority of the entire Board of Directors of the Corporation and no stock entitled to vote on the matter was outstanding or subscribed for at the time of approval. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be signed in its name and on its behalf by its President and witnessed by its Secretary. The undersigned President of the Corporation acknowledges these Articles of Amendment 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 herein with respect to the authorization and approval hereof are true in all material respects and that this statement is made under penalties of perjury. WITNESS: AIM VARIABLE INSURANCE FUNDS, INC. /s/ WILLIAM H. KLEH By: /s/ CHARLES T. BAUER _____________________________ ______________________________ William H. Kleh, Secretary Charles T. Bauer, President -2- EX-1.E 6 ARTICLES OF INCORPORATION EXHIBIT 1(e) ARTICLES OF INCORPORATION OF AIM VARIABLE INSURANCE FUNDS, INC. FIRST: THE UNDERSIGNED, NANCY L. MARTIN, whose address is Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046, being at least eighteen years of age, does, under and by virtue of the general laws of the State of Maryland authorizing the formation of corporations, act as incorporator with the intention of forming a corporation. SECOND: The name of the corporation is AIM VARIABLE INSURANCE FUNDS, INC. (hereinafter called the "Corporation"). THIRD: The purpose for which the Corporation is formed and the business or objects to be transacted, carried on and promoted by it, is to act as an open-end investment company of the management type registered as such with the Securities and Exchange Commission pursuant to the Investment Company Act of 1940, as amended, (the "1940 Act"), and to exercise and generally to enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the general laws of the State of Maryland now or hereafter in force. FOURTH: The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in Maryland is The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. FIFTH: (a) The total number of shares of common stock which the Corporation shall have authority to issue is 2,000,000,000 shares of the par value of $.001 each, of which 250,000, 000 shares are initially classified as AIM V.I. Capital Appreciation Fund shares, 250,000,000 shares are initially classified as AIM V.I. Diversified Income Fund shares, 250,000,000 are initially classified as AIM V.I. Government Securities Fund shares, 250,000,000 are initially classified as AIM V.I. Growth Fund shares, 250,000,000 are initially classified as AIM V.I. International Equity Fund shares, 250,000,000 are initially classified as AIM V.I. Money Market Fund shares, 250,000,000 are initially classified as AIM V.I. Value Fund shares and the balance of which are unclassified. The aggregate par value of common stock of all classes is $2,000,000. The Board of Directors shall have the authority to classify and reclassify any authorized but unissued shares of capital stock from time to time by setting or changing in one or more respects the preferences, conversions or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms or conditions of redemption of the stock. (b) Subject to the power of the Board of Directors to reclassify unissued shares, the shares of each class or series of stock of the Corporation shall have the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption: (i) The Board of Directors may redesignate a class or series of shares of capital stock whether or not shares of such class or series are issued and outstanding; provided that such redesignation does not affect the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms and conditions of redemption of such shares of stock. (ii) The assets belonging to each class or series of capital stock may be invested together with the assets belonging to any other class or series of capital stock now or hereafter authorized. (iii) All consideration received by the Corporation for the issue or sale of shares of a class or series together with all income, earnings, profits and proceeds thereof, shall irrevocably belong to such class or series for all purposes, subject only to the rights of creditors, and are herein referred to as "assets belonging to" such class. (iv) The assets belonging to such class or series shall be charged with the liabilities of the Corporation in respect of such class or series and with such class' or series' share of the general liabilities of the Corporation, in the latter case in the proportion that the net asset value of such class or series bears to the net asset value of all classes or series. The determination of the Board of Directors shall be conclusive as to the allocation of liabilities, including accrued expenses and reserves, to a class or series. (v) Dividends or distributions on shares of any class or series, whether payable in stock or cash, shall be paid only out of earnings, surplus or other assets belonging to such class or series. (vi) In the event of the liquidation or dissolution of the Corporation, stockholders of each class or series shall be entitled to receive, as a class or series, out of the assets of the Corporation available for distribution to -2- stockholders, the assets belonging to such class or series and the assets so distributable to the stockholders of such class or series shall be distributed among such stockholders in proportion to the number of shares of such class or series held by them. (vii) Each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holder's name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that (x) as to any matter with respect to which a separate vote of any class or series or of any classes or series voting together as a single class is required by the 1940 Act, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series or those classes or series voting together as a single class, as the case may be, shall apply in lieu of a general vote of all classes and series as described above, (y) in the event that the separate vote requirements referred to in(x) above apply with respect to one or more classes or series, voting separately or as a single class, then subject to paragraph (z) below, the shares of all other classes and series not entitled to a vote of a separate class or series or of separate classes or series voting together as a single class as aforesaid shall vote as a single class, and (z) as to any matter which does not affect the interest of a particular class or series, such class or series shall not be entitled to any vote and only the holders of shares of the one or more affected classes or series shall be entitled to vote. Except as provided above, and subject to the authority of the Board of Directors to classify and reclassify unissued shares of capital stock, all provisions of the Articles of Incorporation relating to stock of the Corporation shall apply to shares of and to the holders of shares of all classes or series of stock. (c) To the extent that the Corporation has funds or property legally available therefor, each holder of shares of stock of the Corporation, upon proper written request (including signature guarantees, if required by the Board of Directors ) to the Corporation accompanied, when stock certificates representing such shares are outstanding, by surrender of the appropriate stock certificate or certificates in proper form for transfer, or any such form as the Board of Directors may provide, shall be entitled to require the Corporation to redeem all or any number of the shares outstanding in the name of such holder on the books of the -3- Corporation, at the net asset value of such shares. Notwithstanding the foregoing, the Board of Directors of the Corporation may suspend the right of the holders of the shares of stock of the Corporation to require the Corporation to redeem such shares or to receive payment for redeemed shares when permitted or required to do so by the 1940 Act or any rule or regulation of the Securities and Exchange Commission promulgated thereunder. When the Board of Directors of the Corporation, including a majority of the Directors who are not interested persons as defined in Section 2(a) (19) of the 1940 Act, determines in its sole discretion, that the action is necessary for the business success and general welfare of the Corporation in order to reduce disproportionate and unduly burdensome expenses in the operation of the Corporation's affairs, to achieve efficiencies in the administration of its activities, or to reduce or eliminate excessive expenditures and undue difficulties in servicing, accounting and reporting requirements with respect to the accounts of shareholders, it may by resolution order the redemption of all shares of the stock of the Corporation at the net asset value of such shares computed as hereinafter provided in accounts having a net asset value for a period of three months less than that specified in such resolution (but not exceeding $500 on the date of notice), excepting accounts established within one year and accounts in which a purchase (other than reinvestment of dividends and/or capital gains distributions) has been made within the preceding six calendar months, and further excepting accounts having a net asset value less than that specified in such resolution as a result of a decline in the net asset value per share, following notice to affected holders by mail, postage prepaid, at their addresses contained in the books and records of the Corporation or its transfer agent, and subject to such other reasonable terms and conditions as the Board of Directors may, in its sole discretion, determined to be appropriate and desirable and subject to any requirements of applicable statutes or regulations. (d) All persons who shall acquire stock or securities of the Corporation shall acquire the same subject to the provisions of these Articles of Incorporation. SIXTH: The initial number or directors of the Corporation shall be three and the names of those who will serve as such until the first annual meeting and until their successors are duly chosen and qualified are as follows: Charles T. Bauer Robert H. Graham William H. Kleh -4- The Bylaws of the Corporation may fix the number of directors at a number greater or less than that named in these Articles of Incorporation and may authorize the Board of Directors, by the vote of a majority of the entire Board of Directors, to increase or decrease the number of directors fixed by these Articles of Incorporation or by the Bylaws; provided that in no case shall the number of directors be less than three or the number of stockholders, whichever is less, and to fill the vacancies created by any such increase in the number of directors. Unless otherwise provided by the Bylaws of the Corporation, the directors of the Corporation need not be stockholders therein. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Maryland, the following provisions are hereby adopted for the purpose of defining and regulating the powers of the Corporation and of the directors and stockholders: (a) The Board of Directors of this Corporation is hereby empowered to authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, and securities convertible into shares of its stock of any class or classes, whether now or hereafter authorized, in each case upon such terms and conditions and for such consideration as such Board of Directors shall from time to time determine. (b) No holder of shares of stock of the Corporation shall, as such holder, have any preemptive or other right to purchase or subscribe for any shares of stock of the Corporation, other than such rights, if any, as the Board of Directors of the Corporation, in its discretion, may from time to time determine. (c) The Board of Directors of this Corporation is hereby empowered to authorize the issuance from time to time of fractional shares of stock of this Corporation, whether now or hereafter authorized, and any fractional shares so issued shall entitle the holder thereof to exercise voting rights, receive dividends and participate in the distribution of assets of the Corporation in the event of liquidation or dissolution to the extent of the proportionate interest represented by such fractional shares, except the right to receive a stock certificate evidencing a fractional share. (d) The Corporation reserves the right to make from time to time any amendment of its Charter, now or hereafter authorized by law, including, but without limitation, any amendment which alters the contract rights as expressly set forth in such Charter of any outstanding stock. -5- (e) Except to the extent otherwise prohibited by applicable law, the Corporation may enter into any management or investment advisory contract or underwriting contract or any other type of contract with, and may otherwise engage in any transaction or do business with, any person, firm or corporation or any subsidiary or other affiliate of any such person, firm or corporation and may authorize such person, firm or corporation or such subsidiary or other affiliate to enter into any other contracts or arrangements with any other person, firm or corporation which relate to the Corporation or the conduct of its business, notwithstanding that any directors or officers of the Corporation are or may subsequently become partners, directors, officers, stockholders or employees of such person, firm or corporation or of such subsidiary or other affiliate or may have a material financial interest in any such contract, transaction or business; and except to the extent otherwise provided by applicable law, no such contract or transaction or business shall be invalidated or voidable or in any way affected thereby nor shall any of such directors or officers of the Corporation be liable to the Corporation or to any stockholder or creditor thereof or to any other person for any loss incurred solely because of the entering into and performance of such contract or the engaging in such transaction or business or the existence of such material financial interest therein, provided that such relationship to such person, firm or corporation or said subsidiary or affiliate or such material financial interest was disclosed or otherwise known to the Board of Directors prior to the Corporation's entering into such contract or engaging in such transaction or business and in the case of directors of the Corporation that any requirements of the Maryland General Corporation Law have been satisfied; and provided further that nothing herein shall protect any director or officer of the Corporation from liability to the Corporation or its security holders to which he would be otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. (f) The net asset value of a share of any class or series of stock of the Corporation will be determined by or pursuant to the determination of the Board of Directors, which is authorized to determine the methods to be used to value the assets of a class or series, the amount and allocation of liabilities of the Fund to each class or series and all other matters in connection therewith. (g) Any determination made in good faith by or pursuant to the direction of the Board of Directors as to the amount of the assets, debts, obligations or liabilities of the Corporation, as to the amount of any reserves or charges set up -6- and the propriety thereof, as to the time of or purpose for creating such reserves or charges, as to the use, alteration, cancellation of any reserves or charges (whether or not any debt, obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the value of any security or other asset owned or held by the Corporation, as to the number of shares of the Corporation outstanding, as to the net investment income of the Corporation or as to any other matters relating to the issue, sale, purchase and/or other acquisition or disposition of securities or shares of the Corporation or the amount or payment of dividends shall be final and conclusive, and shall be binding upon the Corporation and all holders of its shares, past, present and future, and shares of the Corporation are issued and sold on the condition and understanding, evidenced by acceptance of certificates for such shares, that any and all determinations shall be binding as aforesaid. (h) The stockholders of the Corporation may remove any director of the Corporation prior to the expiration of his term of office for cause, and not otherwise, by the affirmative vote of a majority of all votes entitled to be cast for the election of directors. (i) Except as otherwise provided by law or in the charter of the Corporation, the presence in person or by proxy of the holders of record of one- third of the shares of capital stock issued and outstanding and entitled to vote thereat shall constitute a quorum for the transaction of any business at all meetings of the stockholders, except with respect to any matter which by law or the charter of the Corporation requires the separate approval of one or more classes or series of the capital stock of the Corporation, in which case the holders of one-third of the shares of stock of each such class or series (or of such classes or series voting together as a single class) entitled to a separate vote on the matter shall constitute a quorum. (j) Notwithstanding any provision of law requiring action to be taken or authorized by the affirmative vote of the holders of a designated proportion greater than a majority of the shares of capital stock (or of any class or series of shares of capital stock) outstanding, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of the total number of shares of capital stock outstanding and entitled to vote thereon. EIGHTH: (a) To the fullest extent that limitations on the liability of directors and officers are permitted by the -7- Maryland General Corporation Law, no director or officer of the Corporation shall have any liability to the Corporation or its stockholders for damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Corporation whether or not such person is a director or officer at the time of any proceeding in which liability is asserted. (b) The Corporation shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Corporation shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may by Bylaw, resolution or agreement make further provisions for indemnification of directors, officers, employees and agents to the fullest extent permitted by the Maryland General Corporation Law. (c) No provision of this Article shall be effective to protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. (d) References to the Maryland General Corporation Law in this Article are to the law as from time to time amended. No further amendment to the Articles of Incorporation shall affect any right of any person under this Article based on any event, omission or proceeding prior to such amendment. IN WITNESS WHEREOF, the undersigned incorporator of AIM VARIABLE INSURANCE FUNDS, INC., who executed the foregoing Articles of Incorporation, hereby acknowledges the same to be her act. Dated the 22nd day of January, 1993. /s/ NANCY L. MARTIN ____________________________ Nancy L. Martin, Incorporator -8- EX-2.A 7 1ST AMT TO BY-LAWS EXHIBIT 2(a) AIM VARIABLE INSURANCE FUNDS, INC. FIRST AMENDMENT, DATED MARCH 14, 1995, TO BY-LAWS Article I, Section 7, paragraph 1, of the By-Laws of AIM Variable Insurance Funds, Inc. is hereby amended to read in full as follows: "At all meetings of the stockholders, every stockholder of record entitled to vote thereat shall be entitled to vote at such meeting either in person or by written proxy signed by the stockholder or by his duly authorized attorney in fact. A stockholder may duly authorize such attorney in fact through written, electronic, telephonic, computerized, facsimile, telecommunication, telex or oral communication or by any other form of communication. Unless a proxy provides otherwise, such proxy is not valid more than eleven months after its date." EX-2.B 8 BY-LAWS EXHIBIT 2(b) AIM VARIABLE INSURANCE FUNDS, INC. MARYLAND BY-LAWS ARTICLE I STOCKHOLDERS Section 1. Time and Place of Meeting. Meetings of the stockholders need not be held except as required under the general laws of the State of Maryland, as the same may be amended from time to time. Such meetings of the stockholders shall be held from time to time at a place designated by the Board of Directors and stated in the notice of the meeting. Section 2. Annual Meetings. If a meeting of the stockholders of the Corporation is required by the Investment Company Act of 1940, as amended, to take action on the election of directors, then there shall be submitted to the stockholders at such meeting the question of the election of directors, and a special meeting called for such purpose shall be deemed the annual meeting of stockholders for that year. In other years in which no such action by stockholders is required, no annual meeting need be held. Section 3. Special or Extraordinary Meetings. Special or extraordinary meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board of Directors, if any, or by the President or by the Board of Directors. In addition, such special or extraordinary meetings shall be called by the Secretary upon receipt of a request in writing signed by stockholders entitled to cast at least 10% of all the votes entitled to be cast at the meeting stating the purpose of the meeting and the matters proposed to be acted on and upon payment by such stockholders of the estimated cost of preparing and mailing a notice of the meeting. Unless requested by stockholders entitled to cast a majority of all of the votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at a special meeting of the stockholders held during the preceding 12 months. Section 4. Notice of Meeting of Stockholders. Not less than ten days' and not more than ninety days' written or printed notice of every meeting of stockholders, stating the time and place thereof (and the purpose of any special or extraordinary meeting), shall be given to each stockholder entitled to vote thereat and each other stockholder entitled to notice, by leaving the same with him or at his residence or usual place of business or by mailing it, postage prepaid, and addressed to him at his address as it appears upon the books of the Corporation. Each person who is entitled to notice of any meeting waives notice if he is present at the meeting, or attends in person or by proxy or either before or after the meeting signs a waiver of notice which is filed with the records of stockholders meetings. 2 Section 5. Closing of Transfer Books, Record Dates. The Board of Directors may direct that the stock transfer books of the Corporation be closed for a stated period not exceeding twenty days for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of and to vote at the meeting, receive a dividend or be allotted other rights. If such books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of providing for the closing of the stock transfer books, the Board of Directors may set a date, not exceeding ninety days and not less than ten days preceding the date of any meeting of stockholders, and not exceeding ninety days preceding any dividend payment date or any date for the allotment of rights, as a record date for the determination of the stockholders entitled to notice of and to vote at such meeting, or entitled to receive such dividends or rights, as the case may be; and only stockholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. Section 6. Quorum, Adjournment of Meeting. The presence in person or by proxy of stockholders entitled to cast one-third of all votes entitled to be cast at the meeting shall constitute a quorum at all meetings of the stockholders, except with respect to any matter which by law or the charter of the 3 Corporation requires the separate approval of one or more classes or series of the capital stock of the Corporation, in which case the holders of one-third of the shares of each such class or series (or of such classes or series voting together as a single class) entitled to vote on the matter shall constitute a quorum; and a majority, or with respect to the election of Directors, a plurality, of all votes cast at a meeting (or cast by the holders of shares of any such classes or series whose separate approval on a matter is required) at which a quorum is present is sufficient to approve any matter which properly comes before the meeting, unless otherwise provided by applicable law, the Articles of Incorporation or the By-Laws of the Corporation. If at any meeting of the stockholders there shall be less than a quorum present, the stockholders present at such meeting may, without further notice, adjourn the same from time to time (but not more than 120 days after the original record date for such meeting) until a quorum shall attend, but no business shall be transacted at any such adjourned meeting except such as might have been lawfully transacted had the meeting not been adjourned. Section 7. Voting and Inspectors. At all meetings of stockholders every stockholder of record entitled to vote thereat shall be entitled to vote at such meeting either in person or by proxy appointed by instrument in writing subscribed by such stockholder or his duly authorized attorney. Unless a proxy provides otherwise, such proxy is not valid more than eleven months after its date. 4 At any election of Directors, the Board of Directors prior thereto may, or, if they have not so acted, the Chairman of the meeting may appoint two inspectors of election who shall first subscribe an oath or affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability, and shall after the election make a certificate of the result of the vote taken. No candidate for the office of Director shall be appointed to act as such Inspector. The Chairman of the meeting may cause a vote by ballot to be taken upon any election or matter. Section 8. Conduct of Stockholders Meetings. The meetings of the stockholders shall be presided over by the Chairman of the Board, or if he shall not be present or if there is no Chairman, by the President, or if he shall not be present, by a Vice-President, or if neither the President nor any Vice- President is present, by a chairman to be elected at the meeting. The Secretary of the Corporation, if present, shall act as Secretary of such meetings, or if he is not present, an Assistant Secretary shall so act, and if neither the Secretary nor an Assistant Secretary is present, then the meeting shall elect a secretary. Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting of the stockholders, all proxies shall be received and taken in charge of and all ballots shall be received and canvassed by the secretary of the meeting, who 5 shall decide all questions touching the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless inspectors of election shall have been appointed as provided in Section 7 hereof, in which event such inspectors of election shall decide all such questions. ARTICLE II BOARD OF DIRECTORS Section 1. Number and Term of Office. The business and property of the Corporation shall be conducted and managed under the direction of a Board of Directors consisting of three Directors, which number may be increased and decreased as provided in Section 2 of this Article. Each Director shall hold office until his successor is duly elected and qualified Directors need not be stockholders. Section 2. Increase or Decrease In Number of Directors. The Board of Directors, by the vote of a majority of the entire Board, may increase the number of Directors to a number not exceeding fifteen, and the Directors then in office may elect Directors to fill the vacancies created by any such increase in the number of Directors until their successors are duly elected and qualify. The Board of Directors, by the vote of a majority of the entire Board, may decrease the number of Directors to a number not less than three or the number of stockholders, whichever is less, but any such decrease shall not affect the term of office of any Director. Vacancies occurring other than by reason of any such increase shall be filled as provided by the Maryland General Corporation Law. 6 Section 3. Place of Meeting. The Directors may hold their meetings, have one or more offices, and keep the books of the Corporation outside the State of Maryland, at any office or offices of the Corporation or at any other place as they may from time to time determine, and in the case of meetings, as they may from time to time determine or as shall be specified in the respective notices of such meetings or waivers of notice thereof. Section 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and on such notice, if any, as the Directors may from time to time determine. Section 5. Special Meetings. Special meetings of the Board of Directors may be held from time to time upon call of the Chairman of the Board of Directors, if any, the President or two or more of the Directors, by oral or telegraphic or written notice duly served on each Director not less than one business day before such meeting or if sent or mailed to each Director not less than three business days before such meeting. Each Director who is entitled to notice waives such notice if he either before or after the meeting signs a waiver of the notice which is filed with the minutes of the meeting or is present at the meeting. Such notice or waiver of notice need not state the purpose or purposes of such meeting. 7 Section 6. Quorum. One third of the Directors then in office (but in no event less than two Directors), shall constitute a quorum for the transaction of business. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. The act of the majority of the Directors present at any meeting at which there is a quorum shall be the act of the Directors, except as may be otherwise specifically provided by applicable law, by the Articles of Incorporation or by these By-Laws. Section 7. Telephonic Meetings, Etc. The members of the Board of Directors or any committee of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in such meeting can hear each other at the same time, and participation in a meeting by these means constitutes presence in person at such meeting. Section 8. Executive Committee. The Board of Directors may elect from the Directors an Executive Committee to consist of such number of Directors (but not less than two) as the Board may from time to time determine. The Board of Directors shall have power at any time to change the members of such Committee and may fill vacancies in the Committee by election from the Directors. When the Board of Directors is not in session, the Executive Committee shall have and may exercise any or all of the powers of the Board of Directors in the 8 management of the business and affairs of the Corporation (including the power to authorize the seal of the Corporation to be affixed to all papers which may require it) except as provided by law and except the power to increase or decrease the size of, or fill vacancies on the Board. The Executive Committee may fix its own rules of procedure, and may meet, when and as provided by such rules or by resolution of the Board of Directors, but in every case the presence of a majority shall be necessary to constitute a quorum. In the absence of any member of the Executive Committee the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of such absent member. Section 9. Other Committees. The Board of Directors may appoint other committees which shall in each case consist of such number of members (not less than two) and shall have and may exercise such powers as the Board may determine in the resolution appointing them. A majority of all members of any such committee may determine its action, and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the members and powers of any such committee, to fill vacancies, and to discharge any such committee. In the absence of any member of such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of such absent member. 9 Section 10. Informal Action by Directors. Except to the extent otherwise specifically provided by applicable law, any action required or permitted to be taken at any meeting of the Board of Directors or any Committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or Committee and is filed with the minutes of proceedings of the Board or Committee. Section 11. Compensation of Directors. Directors shall be entitled to receive such compensation from the Corporation for their services as Directors as may from time to time be voted by the Board of Directors. ARTICLE III OFFICERS Section 1. Executive Officers. The executive officers of the Corporation shall be chosen by the Board of Directors as soon as may be practicable after the incorporation of the Corporation. These may include a Chairman of the Board, and shall include a President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary and a Treasurer. The Chairman of the Board, if any, shall be selected from among the Directors. The Board of Directors may also in its discretion appoint Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and other officers, agents and employees, who shall have such authority and perform such duties as the Board may determine. The Board of Directors may fill any vacancy which may occur in 10 any office. Any two offices, except those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law or by these By-Laws to be executed, acknowledged or verified by two or more officers. Section 2. Term of Office. Unless otherwise specifically determined by the Board of Directors, the officers shall serve at the pleasure of the Board of Directors. If the Board of Directors in its judgment finds that the best interests of the Corporation will be served, the Board of Directors may remove any officer of the Corporation at any time with or without cause. Section 3. President. The President shall be the chief executive officer and head of the Corporation and, subject to the Board of Directors, shall have the general control and management of the business and affairs of the Corporation. If no Chairman of the Board be appointed, or if appointed, said Chairman is absent, the President shall, if present, preside at all meetings of the stockholders and the Board of Directors. Section 4. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors at which he shall be present. Subject to the provisions of Section 2, he shall have such other powers 11 and duties as shall be prescribed by the Board of Directors, and shall undertake such other assignments as may be requested by the President. Section 5. Other Officers. The Chairman or one or more Vice Presidents shall have and exercise such powers and duties of the President in the absence or inability of the President as may be assigned to them, respectively, by resolution of the Board of Directors or, to the extent not so assigned, as the President may assign to them, respectively. In the absence or inability to act of the President, the powers and duties of the President not assigned by the Board of Directors or the President shall devolve upon the Chairman or in his absence the Vice Chairman, if any, or in his absence upon the Senior Vice President. Section 6. Secretary. The Secretary shall have custody of the seal of the Corporation. He shall keep the minutes of the meetings of the stockholders, Board of Directors and any committees thereof, and he shall attend to the giving and serving of all notices of the Corporation. He shall have charge of the stock certificate book and such other books and papers as the Board may direct; and he shall perform such other duties as may be incidental to his office or as may be assigned to him by the Board of Directors. He shall also keep or cause to be kept a stock book, which may be maintained by means of computer systems, containing the names, alphabetically arranged, of all persons who are stockholders of the 12 Corporation showing their places of residence, the number and class or series of any class of shares of stock held by them respectively, and the dates when they respectively became the owners of record thereof, and such book shall be open for inspection as prescribed by the laws of the State of Maryland. Section 7. Treasurer. The Treasurer shall have the care and custody of the funds and securities of the Corporation and shall deposit the same in the name of the Corporation in such bank or banks or other depositories and subject to withdrawal in such manner as these By-laws or the Board of Directors may determine. He shall, if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form as the Board of Directors may require. ARTICLE IV CAPITAL STOCK Section 1. Certificates of Shares. Each stockholder of the Corporation shall be entitled to a certificate or certificates for the full number of shares of each class of stock of the Corporation owned by him in such form as the Board of Directors may from time to time prescribe. Section 2. Transfer of Shares. Shares of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by his duly authorized attorney or legal representative, upon surrender and cancellation of certificates, if any, for the same number of shares, duly endorsed or accompanied by proper instruments of 13 assignment and transfer, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. In the case of shares not represented by certificates, the same or similar requirements may be imposed by the Board of Directors. Section 3. Stock Ledgers. The stock ledgers of the Corporation, containing the names and addresses of the stockholders and the number of shares held by them respectively, shall be kept at the principal offices of the Corporation, or if the Corporation employs a transfer agent, at the offices of the transfer agent of the Corporation. Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors may determine the conditions upon which a new certificate of stock of the Corporation of any class may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in their discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety to the Corporation and the transfer agent, if any, to indemnify it and such transfer agent against any and all loss or claims which may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed. ARTICLE V CORPORATE SEAL The Board of Directors may provide a suitable corporate seal, in such form and bearing such inscriptions as 14 it may determine. In lieu of fixing the Corporation's seal to a document, it is sufficient to meet the requirements of any law, rule or regulation relating to a corporate seal to place the word "(seal)" adjacent to the signature of the person authorized to sign the document on behalf of the Corporation. ARTICLE VI FISCAL YEAR The fiscal year of the Corporation shall be fixed by the Board of Directors. ARTICLE VII INDEMNIFICATION Section 1. Indemnification of Directors and Officers. The Corporation shall indemnify its directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Corporation shall indemnify its officers to the same extent as its directors and to such further extent as is consistent with law. The Corporation shall indemnify its directors and officers who while serving as directors or officers also serve at the request of the Corporation as a director, officer, partner, trustee, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan to the fullest extent consistent with law. The indemnification and other rights provided by this Article shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors 15 and administrators of such a person. This Article shall not protect any such person against any liability to the Corporation or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office ("disabling conduct"). Section 2. Advances. Any current or former director or officer of the Corporation seeking indemnification within the scope of this Article shall be entitled to advances from the Corporation for payment of the reasonable expenses incurred by him in connection with the matter as to which he is seeking indemnification in the manner and to the fullest extent permissible under the Maryland General Corporation Law. The person seeking indemnification shall provide to the Corporation a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) the person seeking indemnification shall provide a security in form and amount acceptable to the Corporation for his undertaking; (b) the Corporation is insured against losses arising by reason of the advance; or (c) a majority of a quorum of directors of the Corporation who are neither "interested persons" as defined in Section 2(a)(19) of the Investment 16 Company Act of 1940, as amended, nor parties to the proceeding ("disinterested non-party directors"), or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Corporation at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification. Section 3. Procedure. At the request of any person claiming indemnification under this Article, the Board of Directors shall determine, or cause to be determined, in a manner consistent with the Maryland General Corporation Law, whether the standards required by this Article have been met. Indemnification shall be made only following: (a) a final decision on the merits by a court or other body before whom the proceeding was brought that the person to be indemnified was not liable by reason of disabling conduct or (b) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the person to be indemnified was not liable by reason of disabling conduct by (i) the vote of a majority of a quorum of disinterested non-party directors or (ii) an independent legal counsel in a written opinion. Section 4. Indemnification of Employees and Agents. Employees and agents who are not officers or directors of the Corporation may be indemnified, and reasonable expenses may be advanced to such employees or agents, as may be provided by action of the Board of Directors or by contract, subject to any limitations imposed by the Investment Company Act of 1940. 17 Section 5. Other Rights. The Board of Directors may make further provision consistent with law for indemnification and advance of expenses to directors, officers, employees and agents by resolution, agreement or otherwise. The indemnification provided by this Article shall not be deemed exclusive of any other right, with respect to indemnification or otherwise, to which those seeking indemnification may be entitled under any insurance or other agreement or resolution of stockholders or disinterested directors or otherwise. Section 6. Amendments. References in this Article are to the Maryland General Corporation Law and to the Investment Company Act of 1940 as from time to time amended. No amendment of these By-laws shall affect any right of any person under this Article based on any event, omission or proceeding prior to the amendment. ARTICLE VIII AMENDMENT OF BY-LAWS The By-Laws of the Corporation may be altered, amended, added to or repealed by the Board of Directors. 18 EX-5.A 9 AMT TO MAST INV ADVISORY AGMT EXHIBIT 5(a) AMENDMENT TO 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. UTILITIES FUND AIM V.I. VALUE FUND ANNUAL NET ASSETS RATE - ---------- ---- First $250 million......................................... .65% Over $250 million.......................................... .60% AIM V.I. DIVERSIFIED INCOME FUND ANNUAL NET ASSETS RATE - ---------- ---- First $250 million......................................... .60% Over $250 million.......................................... .55% AIM V.I. GOVERNMENT SECURITIES FUND ANNUAL NET ASSETS RATE - ---------- ---- First $250 million........................................ .50% Over $250 million......................................... .45% AIM V.I. INTERNATIONAL EQUITY FUND ANNUAL NET ASSETS RATE - ---------- ---- First $250 million........................................ .75% Over $250 million......................................... .70% AIM V.I. MONEY MARKET FUND ANNUAL NET ASSETS RATE - ---------- ---- First $250 million........................................ .40% Over $250 million......................................... .35% Effective Date: 4/28/94 AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ STEPHEN I. WINER By: /s/ ROBERT H. GRAHAM --------------------------- ----------------------------------- Assistant Secretary President A I M ADVISORS, INC. Attest: /s/ STEPHEN I. WINER By: /s/ ROBERT H. GRAHAM --------------------------- -------------------------------- Assistant Secretary President EX-5.B 10 MASTER INVESTMENT ADVISORY AGMT EXHIBIT 5(b) AIM VARIABLE INSURANCE FUNDS, INC. MASTER INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT is made this 18th day of October, 1993, by and between AIM Variable Insurance Funds, Inc., a Maryland Corporation (the "Company") with respect to its series of shares shown on the Appendix attached hereto (the "Funds") and A I M Advisors, Inc. (the "Advisor"). RECITALS WHEREAS, the Company is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end, diversified management investment company, consisting of multiple series of investment portfolios; WHEREAS, the Advisor is registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as an investment advisor and engages in the business of acting as an investment advisor; WHEREAS, the Company's charter authorizes the Board of Directors of the Company to classify or reclassify authorized but unissued shares of the Company, and as of the date of this Agreement, the Company's Board of Directors has authorized the issuance of seven series of shares representing interests in seven investment portfolios (such portfolios and any other portfolios hereafter added to the Company being referred to collectively herein as the "Portfolios"); and WHEREAS, the Company and the Advisor desire to enter into an agreement to provide for investment advisory services to the Funds 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 agree as follows: 1. Advisory Services. The Advisor shall act as investment advisor for the Funds and shall, in such capacity, supervise all aspects of the Funds' operations, including the investment and reinvestment of cash, securities or other properties comprising the Funds, subject at all times to the policies and control of the Company's Board of Directors. The Advisor shall give the Company and the Funds the benefit of its best judgment, efforts and facilities in rendering its services as investment advisor. 2. Investment Analysis and Implementation. In carrying out its obligations under Section 1 hereof, the Advisor shall: (a) supervise all aspects of the operations of the Funds; (b) obtain and evaluate pertinent information about significant developments and economic, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or the Funds, and whether concerning the individual issuers whose securities are included in the Funds or the activities in which such issuers engage, or with respect to securities which the Advisor considers desirable for inclusion in the Funds; (c) determine which issuers and securities shall be represented in the Funds' investment portfolios and regularly report thereon to the Company's Board of Directors; and (d) formulate and implement continuing programs for the purchases and sales of the securities of such issuers and regularly report thereon to the Company's Board of Directors; and take, on behalf of the Company and the Funds, all actions which appear to the Company and the Funds necessary to carry into effect such purchase and sale programs and supervisory functions as aforesaid, including but not limited to the placing of orders for the purchase and sale of securities for the Funds. 3. Delegation of Responsibilities. Subject to the approval of the Board of Directors and the shareholders of the Funds, the Advisor may delegate to a sub-advisor certain of its duties enumerated in Section 2 hereof, provided that the Advisor shall continue to supervise the performance of any such sub-advisor. 4. Control by Board of Directors. Any investment program undertaken by the Advisor pursuant to this Agreement, as well as any other activities undertaken by the Advisor on behalf of the Funds, shall at all times be subject to any directives of the Board of Directors of the Company. 1 5. Compliance with Applicable Requirements. In carrying out its obligations under this Agreement, the Advisor shall at all times conform to: (a) all applicable provisions of the 1940 Act and the Advisers Act and any rules and regulations adopted thereunder; (b) the provisions of the registration statement of the Company, 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 of the Company, as the same may be amended from time to time; (d) the provisions of the by-laws of the Company, as the same may be amended from time to time; and (e) any other applicable provisions of state or federal law. 6. Broker-Dealer Relationships. The Advisor is responsible for decisions to buy and sell securities for the Funds, broker-dealer selection, and negotiation of brokerage commission rates. The Advisor's primary consideration in effecting a security transaction will be execution at the most favorable price. In selecting a broker-dealer to execute each particular transaction, the Advisor will take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker- dealer; the size of and the difficulty in executing the order; and the value of the expected contribution of the broker-dealer to the investment performance of the Funds on a continuing basis. Accordingly, the price to the Funds 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. Subject to such policies as the Board of Directors may from time to time determine, the Advisor shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Funds to pay a broker or dealer that provides brokerage and research services to the Advisor an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Advisor determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Advisor's overall responsibilities with respect to a particular Fund, other Portfolios of the Company, and to other clients of the Advisor as to which the Advisor exercises investment discretion. The Advisor is further authorized to allocate the orders placed by it on behalf of the Funds to such brokers and dealers who also provide research or statistical material, or other services to the Funds, to the Advisor, or to any sub-advisor. Such allocation shall be in such amounts and proportions as the Advisor shall determine and the Advisor will report on said allocations regularly to the Board of Directors of the Company indicating the brokers to whom such allocations have been made and the basis therefor. In making decisions regarding broker-dealer relationships, the Advisor may take into consideration the recommendations of any sub-advisor appointed to provide investment research or advisory services in connection with the Funds, and may take into consideration any research services provided to such sub-advisor by broker-dealers. 7. Compensation. The Company shall pay the Advisor as compensation for services rendered hereunder an annual fee, payable monthly, based upon the average daily net assets of the Funds as the same is set forth in Appendix A attached hereto. The average daily net asset value of the Funds shall be determined in the manner set forth in the corporate charter and registration statement of the Company, as amended from time to time. 8. Additional Services. Upon the request of the Company's Board of Directors, the Advisor may perform certain accounting, shareholder servicing or other administrative services on behalf of the Funds which are not required by this Agreement. Such services will be performed on behalf of the Funds and the Advisor may receive from the Funds such reimbursement for costs or reasonable compensation for such services as may be agreed upon between the Advisor and the Company's Board of Directors based on a finding by the Board of Directors that the provision of such services by the Advisor is in the best interests of the Company and its shareholders. Payment or assumption by the Advisor of any expense that the Advisor is not otherwise required to pay or assume under this Agreement shall not relieve the Advisor of any of its obligations to the Funds nor obligate the Advisor to pay or assume any similar Funds' expense on any subsequent occasions. Such services may include, but are not limited to: (a) the services of a principal financial officer of the Company (including applicable office space, facilities and equipment) whose normal duties consist of maintaining the financial accounts and books and records of the Company and the Funds, including the review and calculation of daily net asset value and the preparation of tax 2 returns; the services (including applicable office space, facilities and equipment) of any of the personnel operating under the director of such principal financial officer; (b) the services of staff to respond to shareholder inquiries concerning the status of their accounts; providing assistance to shareholders in exchanges among the mutual funds managed or advised by the Advisor; changing account designations or changing addressees; assisting in the purchase or redemption of shares; supervising the operations of the custodian, transfer agent(s) or dividend disbursing agent(s) for the Funds; or otherwise providing services to shareholders of the Funds; and (c) such other administrative services as may be furnished from time to time by the Advisor to the Company or the Funds at the request of the Company's Board of Directors. 9. Expenses of the Funds. All of the ordinary business expenses incurred in the operations of the Funds and the offering of their shares shall be borne by the Funds unless specifically provided otherwise in this Agreement. These expenses borne by the Funds include but are not limited to 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 and the cost of printing copies of prospectuses and statements of additional information distributed to the Funds' shareholders. 10. Non-Exclusivity. The services of the Advisor to the Company and the Funds are not to be deemed to be exclusive, and the Advisor shall be free to render investment advisory and administrative or other services to others (including other investment companies) and to engage in other activities. It is understood and agreed that officers or directors of the Advisor may serve as officers or directors of the Company , and that officers or directors of the Company may serve as officers or directors of the Advisor to the extent permitted by law; and that the officers and directors of the Advisor are not prohibited from engaging in any other business activity or from rendering 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. 11. Term and Approval. This Agreement shall become effective if approved by the shareholders of each of the Funds, and if so approved, this Agreement shall thereafter continue in force and effect until June 30, 1994, and may be continued from year to year thereafter, provided that the continuation of the Agreement is specifically approved at least annually; (a) (i) by the Company's Board of Directors or (ii) by the vote of "a majority of the outstanding voting securities" of the Funds (as defined in Section 2(a) (42) of the 1940 Act); and (b) by the affirmative vote of a majority of the directors who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of a party to this Agreement (other than as Company directors), by votes cast in person at a meeting specifically called for such purpose. 12. Termination. This Agreement may be terminated as to the Company or any one or more of the Funds at any time, without the payment of any penalty, by vote of the Company's Board of Directors or by vote of a majority of the Funds' outstanding voting securities, or by the Advisor, on sixty (60) days' written notice to the other party. The notice provided for herein may be waived by either party. 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. 13. Liability of Advisor and Indemnification. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Advisor or any of its officers, directors or employees, the Advisor shall not be subject to liability to the Company or to the Funds or to any shareholder of the Funds 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. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Advisor or any officer, director or employee of the Advisor, the Company hereby agrees to indemnify and hold the Advisor harmless from and against all claims, actions, suits, and proceedings at law or in equity, whether brought or asserted by a private party or a governmental agency, instrumentality or entity of any kind, relating to the sale, purchase, pledge of, advertisement of, or solicitation of sales or purchases of any security (whether of a Fund or 3 otherwise) by the Company, its officers, directors, employees or agents in alleged violation of applicable federal, state or foreign laws, rules or regulations. 14. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Company shall be and that of the Advisor shall be Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046. 15. Questions of Interpretation. 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, regulation or order. 16. License Agreement. The Company shall be entitled to use the name "AIM" to designate its shares only so long as AIM Advisors, Inc. serves as investment manager or advisor to the Company. 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. AIM VARIABLE INSURANCE FUNDS, INC. (a Maryland corporation) 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) 4 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. VALUE FUND ANNUAL NET ASSETS RATE - ---------- ------ First $250 million............................................ .65% Over $250 million............................................. .60% AIM V.I. DIVERSIFIED INCOME FUND ANNUAL NET ASSETS RATE - ---------- ------ First $250 million............................................ .60% Over $250 million............................................. .55% AIM V.I. GOVERNMENT SECURITIES FUND ANNUAL NET ASSETS RATE - ---------- ------ First $250 million............................................ .50% Over $250 million............................................. .45% AIM V.I. INTERNATIONAL EQUITY FUND ANNUAL NET ASSETS RATE - ---------- ------ First $250 million............................................ .75% Over $250 million............................................. .70% AIM V.I. MONEY MARKET FUND ANNUAL NET ASSETS RATE - ---------- ------ First $250 million............................................ .40% Over $250 million............................................. .35% 5 EX-6.A 11 AMT TO MASTER DISTRIBUTION AGMT EXHIBIT 6(a) AMENDMENT TO SCHEDULE A TO MASTER DISTRIBUTION AGREEMENT OF AIM VARIABLE INSURANCE FUNDS, INC. . AIM V.I. CAPITAL APPRECIATION FUND . AIM V.I. DIVERSIFICATION INCOME FUND . AIM V.I. GOVERNMENT SECURITIES FUND . AIM V.I. GROWTH FUND . AIM V.I. GROWTH AND INCOME FUND . AIM V.I. INTERNATIONAL EQUITY FUND . AIM V.I. MONEY MARKET FUND . AIM V.I. UTILITIES FUND . AIM V.I. VALUE FUND Effective Date: 4/28/94 AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ STEPHEN I. WINER By: /s/ ROBERT H. GRAHAM --------------------------- -------------------------------- Assistant Secretary President A I M DISTRIBUTORS, INC. Attest: /s/ STEPHEN I. WINER By: /s/ MICHAEL J. CEMO --------------------------- -------------------------------- Assistant Secretary President EX-6.B 12 MASTER DISTRIBUTION AGMT EXHIBIT 6(b) MASTER DISTRIBUTION AGREEMENT BETWEEN AIM VARIABLE INSURANCE FUNDS, INC. AND A I M DISTRIBUTORS, INC. THIS AGREEMENT, made this 18th day of October, 1993, is by and between AIM VARIABLE INSURANCE FUNDS, INC., a Maryland corporation (the "Company"), with respect to its series of shares shown on Schedule A attached hereto (the "Funds"), and A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H: 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: FIRST: The Company on behalf of the Funds hereby appoints the Distributor as its principal underwriter and exclusive distributor for the sale of shares of the Funds to the separate accounts of United States life insurance companies. SECOND: The Company shall not sell any shares of the Funds except through the Distributor and under the terms and conditions set forth in paragraph FOURTH below. THIRD: The Distributor hereby accepts appointment as exclusive agent for the sale of the shares of the Funds and agrees that it will use its best efforts to sell such shares; provided, however, that: (A) the Distributor may, and when requested by the Company on behalf of the Funds shall, suspend its efforts to effectuate such sales at any time when, in the opinion of the Distributor or of the Company, no sales should be made because of market or other economic considerations or abnormal circumstances of any kind; and (B) the Company may withdraw the offering of the shares of the Funds (i) at any time with the consent of the Distributor, or (ii) without such consent when so required by the provisions of any statute or of any order, rule or regulation of any governmental body having jurisdiction. It is mutually understood and agreed that the Distributor does not undertake to sell any specific amount of the shares of the Funds. The Company shall have the right to specify minimum amounts for initial and subsequent orders for the purchase of shares of the Funds. FOURTH: The public offering price of shares of the Funds (the "offering price") shall be the net asset value per share. Net asset value per share shall be determined in accordance with the provisions of the then current prospectus of the Company. 1 FIFTH: The Distributor shall act as agent of the Company on behalf of the Funds in connection with the sale and repurchase of shares of the Funds. SIXTH: The Funds shall bear: (A) the expenses of qualification of shares of the Fund for sale in connection with such public offerings in any jurisdictions where said qualification is required by law; and (B) all legal expenses in connection with the foregoing. SEVENTH: The Distributor shall bear the expenses of printing from the final proof and distributing the Funds' prospectuses and statements of additional information (including supplements thereto) relating to the sale of shares of the Funds made by the Distributor pursuant to this Agreement (which shall not include those prospectuses and statements of additional information, and supplements thereto, to be distributed to shareholders of the Funds). EIGHTH: The Distributor will accept orders for the purchase of shares of the Funds only to the extent of purchase orders actually received and not in excess of such orders, and it will not avail itself of any opportunity of making a profit by expediting or withholding orders. NINTH: The Company, on behalf of the Funds, and the Distributor shall each comply with all applicable provisions of the 1940 Act, the Securities Act of 1933 and of all other federal and state laws, rules and regulations governing the issuance and sale of shares of the Funds. TENTH: (A) In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Distributor, the Company on behalf of the Funds agrees to indemnify the Distributor against any and all claims, demands, liabilities and expenses which the Distributor may incur under the Securities Act of 1933, or common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in any registration statement or prospectus of the Funds, or any omission to state a material fact therein, the omission of which makes any statement contained therein misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Company or Funds in connection therewith by or on behalf of the Distributor. The Distributor agrees to indemnify the Company and the Funds against any and all claims, demands, liabilities and expenses which the Company or the Funds may incur arising out of or based upon any act or deed of the Distributor or its sales representatives which has not been authorized by the Company or the Funds in the prospectus or in this Agreement. (B) The Distributor agrees to indemnify the Company and the Funds against any and all claims, demands, liabilities and expenses which the Company or the Funds may incur under the Securities Act of 1933, or common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in any registration statement or prospectus of the Funds, or any omission to state a material fact therein if such statement or omission was made in reliance upon, and in conformity with, information furnished to the Company or the Funds in connection therewith by or on behalf of the Distributor. 2 (C) Notwithstanding any other provision of this Agreement, the Distributor shall not be liable for any errors of the Funds' transfer agent(s), or for any failure of any such transfer agent to perform its duties. ELEVENTH: Nothing herein contained shall require the Company to take any action contrary to any provision of its Articles of Incorporation, or to any applicable statute or regulation. TWELFTH: This Agreement shall become effective at the close of business on the date hereof, shall continue until June 30, 1994, and shall continue in force and effect from year to year thereafter, provided, that such continuance is specifically approved at least annually (a)(i) by the Board of Directors of the Company or (ii) by the vote of a majority of the Funds' outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act), and (b) by vote of a majority of the Company's directors who are not parties to this Agreement or "interested persons" (as defined in Section 2(a)(19) of the 1940 Act) of any party to this Agreement cast in person at a meeting called for such purpose. THIRTEENTH: (A) This Agreement may be terminated at any time, without the payment of any penalty, by vote of the Board of Directors of the Company or by vote of a majority of the outstanding voting securities of the Funds, or by the Distributor, on sixty (60) days' written notice to the other party. (B) This Agreement shall automatically terminate in the event of its assignment, the term "assignment" having the meaning set forth in Section 2(a)(4) of the 1940 Act. FOURTEENTH: Any notice under this Agreement shall be in writing, addressed and delivered, or mailed postage prepaid, to the other party at such address as the other party may designate for the receipt of notices. Until further notice to the other party, it is agreed that the addresses of both the Company and the Distributor shall be Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046. 3 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate on the day and year first above written. 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 4 SCHEDULE A . AIM V.I. CAPITAL APPRECIATION FUND . AIM V.I. DIVERSIFICATION FUND . AIM V.I. GOVERNMENT SECURITIES FUND . AIM V.I. GROWTH FUND . AIM V.I. INTERNATIONAL EQUITY FUND . AIM V.I. MONEY MARKET FUND . AIM V.I. VALUE FUND 5 EX-7.A 13 RETIREMENT PLAN ELIGIBLE DIR/TRUSTEE EXHIBIT 7(a) AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES Effective as of March 8, 1994 As Restated September 18, 1995 AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES TABLE OF CONTENTS Page ---- ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1 (a) Accrued Benefit . . . . . . . . . . . . . . . . . . . 1 (b) Actuary . . . . . . . . . . . . . . . . . . . . . . . 1 (c) Administrator . . . . . . . . . . . . . . . . . . . . 1 (d) AIM Funds . . . . . . . . . . . . . . . . . . . . . . 1 (e) Board of Directors . . . . . . . . . . . . . . . . . 1 (f) Code . . . . . . . . . . . . . . . . . . . . . . . . 2 (g) Compensation . . . . . . . . . . . . . . . . . . . . 2 (h) Deferred Retirement Date . . . . . . . . . . . . . . 2 (i) Director . . . . . . . . . . . . . . . . . . . . . . 2 (j) Disability . . . . . . . . . . . . . . . . . . . . . 2 (k) Effective Date . . . . . . . . . . . . . . . . . . . 2 (l) Fund . . . . . . . . . . . . . . . . . . . . . . . . 2 (m) Normal Retirement Date . . . . . . . . . . . . . . . 2 (n) Participant . . . . . . . . . . . . . . . . . . . . . 2 (o) Plan . . . . . . . . . . . . . . . . . . . . . . . . 2 (p) Plan Year . . . . . . . . . . . . . . . . . . . . . . 2 (q) Retirement . . . . . . . . . . . . . . . . . . . . . 2 (r) Retirement Benefit . . . . . . . . . . . . . . . . . 3 (s) Service . . . . . . . . . . . . . . . . . . . . . . . 3 (t) Year of Service . . . . . . . . . . . . . . . . . . . 3 1.2 Plurals and Gender . . . . . . . . . . . . . . . . . . . . . . 3 1.3 Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . 3 1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE II PARTICIPATION . . . . . . . . . . . . . . . . . . . . . 4 2.1 Commencement of Participation . . . . . . . . . . . . . . . . 4 2.2 Termination of Participation . . . . . . . . . . . . . . . . . 4 2.3 Resumption of Participation . . . . . . . . . . . . . . . . . 4 2.4 Determination of Eligibility . . . . . . . . . . . . . . . . . 4 -i- Page ---- ARTICLE III BENEFITS UPON RETIREMENT AND OTHER TERMINATION OF SERVICE. . . . . . . . . . . . . . . . . 4 3.1 Retirement. . .. . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Termination of Service Before Retirement . . . . . . . . . . . 5 3.3 Termination of Service by Reason of Death. . . . . . . . . . . 5 3.4 Benefits Calculated in the Aggregate for all of the AIM Funds. 5 ARTICLE IV DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . 5 4.1 Death Prior to Commencement of Benefits . . . . . . . . . . . 5 4.2 Death Subsequent to Commencement of Benefits . . . . . . . . 5 4.3 Death of Spouse . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE V SUSPENSION OF BENEFITS, ETC. . . . . . . . . . . . . . 6 5.1 Suspension of Benefits Upon Resumption of Service . . . . . . 6 5.2 Payments Due Missing Persons . . . . . . . . . . . . . . . . . 6 ARTICLE VI ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . 7 6.1 Appointment of Administrator . . . . . . . . . . . . . . . . . 7 6.2 Powers and Duties of Administrator . . . . . . . . . . . . . . 7 6.3 Action by Administrator . . . . . . . . . . . . . . . . . . . 8 6.4 Participation by Administrators . . . . . . . . . . . . . . . 8 6.5 Agents and Expenses. . . . . . . . . . . . . . . . . . . . . . 8 6.6 Allocation of Duties . . . . . . . . . . . . . . . . . . . . . 8 6.7 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 9 6.8 Administrator's Action Conclusive . . . . . . . . . . . . . . 9 6.9 Records and Reports . . . . . . . . . . . . . . . . . . . . . 9 6.10 Information from the AIM Funds . . . . . . . . . . . . . . . . 9 6.11 Reservation of Rights by Boards of Directors . . . . . . . . . 9 6.12 Liability and Indemnification. . . . . . . . . . . . . . . . . 9 ARTICLE VII AMENDMENTS AND TERMINATION . . . . . . . . . . . . . . 10 7.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 10 8.1 Rights of Creditors . . . . . . . . . . . . . . . . . . . . . 10 8.2 Liability Limited. . . . . . . . . . . . . . . . . . . . . . . 11 8.3 Incapacity . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.4 Cooperation of Parties . . . . . . . . . . . . . . . . . . . . 11 8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11 8.6 Nonguarantee of Directorship . . . . . . . . . . . . . . . . . 12 8.7 Counsel . . . . . . . . . . . . . . . .. . . . . . . . . . . . 12 8.8 Spendthrift Provision . . . . . . . . . . . . . . . . . . . . 12 8.9 Forfeiture for Cause . . . . . . . . . . . . . . . . . . . . . 12 -ii- Page ---- ARTICLE IX CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . 12 9.1 Notice of Denial . . . . . . . . . . . . . . . . . . . . . . . 12 9.2 Right to Reconsideration . . . . . . . . . . . . . . . . . . . 13 9.3 Review of Documents. . . . . . . . . . . . . . . . . . . . . . 13 9.4 Decision by Administrator. . . . . . . . . . . . . . . . . . . 13 9.5 Notice by Administrator. . . . . . . . . . . . . . . . . . . . 13 -iii- AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES PREAMBLE Effective as of March 8, 1994, the regulated investment companies managed, administered and/or distributed by AIM Advisors, Inc. or its affiliates (the "AIM Funds") have adopted THE AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES (the "Plan") for the benefit of each of the directors and trustees of each of the AIM Funds who is not an employee of any of the AIM Funds, A I M Management Group Inc. or any of their affiliates. As the Plan does not benefit any employees of the AIM Funds, it is not intended to be classified as an employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION ------------------------------------ 1.1 Definitions. ------------ Unless a different meaning is plainly implied by the context, the following terms as used in this Plan shall have the following meanings: (a) "Accrued Benefit" shall mean, as of any date prior to a Participant's Normal Retirement Date, his Retirement Benefit commencing on his Normal Retirement Date, but based upon his Compensation and Years of Service computed as of such date of determination. (b) "Actuary" shall mean the independent actuary selected by the Administrator. (c) "Administrator" shall mean the administrative committee provided for in Article VI. (d) "AIM Funds" shall mean the regulated investment companies managed, administered or distributed by A I M Advisors, Inc. or its affiliates. (e) "Board of Directors" shall mean the Board of Directors of each of the AIM Funds. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. (g) "Compensation" shall mean, for any Director, the amount of the retainer paid or accrued by the 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 AIM Funds and the Director. The amount of such retainer Compensation shall be as determined by the Administrator. (h) "Deferred Retirement Date" shall mean the first day of the month coincident with or next following the date on which a Participant terminated Service after his Normal Retirement Date. (i) "Director" shall mean an individual who is a director or trustee of one or more of the AIM Funds which have adopted the Plan but who is not an employee of any of the AIM Funds, A I M Management Group Inc. or any of their affiliates. (j) "Disability" shall mean the inability of the Participant to participate in meetings of the Board of Directors, either in person or by telephone, for a period of at least nine (9) months. (k) "Effective Date" shall mean March 8, 1994. (l) "Fund" shall mean an AIM Fund which has adopted this Plan. (m) "Normal Retirement Date" shall mean, the date on which a Participant has both attained age 65 (or at least age 55 in the event of the Director's termination of Service by reason of death or Disability) and has completed at least five continuous and non-forfeited Years of Service (and thirty months of Service with one or more of the AIM Funds). (n) "Participant" shall mean a Director who has met all of the eligibility requirements of the Plan and who is currently included in the Plan as provided in Article II hereof. (o) "Plan" shall mean the "AIM Funds Retirement Plan for Eligible Directors/Trustees" as described herein or as hereafter amended from time to time. (p) "Plan Year" shall mean the calendar year. (q) "Retirement" shall mean a Director's termination of his active Service with the AIM Funds on or after his Normal Retirement Date, due to his death, Disability, or voluntary or involuntary termination of his Service. (r) "Retirement Benefit" shall mean the benefit described under Section 3.1 hereof. -2- (s) "Service" shall mean an individual's serving as a Director of one or more of the AIM Funds. Furthermore, any unbroken service provided by a Participant (i) to an AIM Fund immediately prior to its being managed or administered by A I M Advisors, Inc. (or any of its affiliates) or (ii) to a predecessor of an AIM Fund immediately prior to its being merged into such AIM Fund, will be taken into account in determining such Participant's Years of Service, subject to all restrictions and other forfeiture provisions contained herein. (t) "Year of Service" shall mean a twelve consecutive month period of Service. For all purposes in this Plan, if a Participant's Service terminates prior to his Retirement, he shall forfeit credit for all Years of Service completed prior to such termination unless (a) he again becomes a Director and (b) the number of Years of Service he accumulated prior to such termination exceeded the number of years in which he did not serve as a Director. 1.2 Plurals and Gender. Where appearing in the Plan, the masculine gender shall include the feminine and neuter genders, and the singular shall include the plural, and vice versa, unless the context clearly indicates a different meaning. 1.3 Directors/Trustees. Where appropriate, the term "director" shall refer to "trustee", "directorship" shall refer to "trusteeship" and "Board of Directors" shall refer to "Board of Trustees." 1.4 Headings. The headings and sub-headings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof. 1.5 Severability. In case any provision of this Plan shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. -3- ARTICLE II PARTICIPATION ------------- 2.1 Commencement of Participation. ------------------------------ Each Director shall become a Participant hereunder on the date his directorship of one or more of the AIM Funds commences. 2.2 Termination of Participation. ----------------------------- After commencement or resumption of his participation, a Director shall remain a Participant until the earliest of the following dates: (a) His actual Retirement date; (b) His date of death; (c) The date on which he otherwise incurs a termination of Service; or (d) The effective date of the termination of the Plan. 2.3 Resumption of Participation. ---------------------------- Any Participant whose Service terminates and who thereafter again becomes a Director shall resume participation immediately upon again becoming a Director except that, as provided in Section 1.1(t) hereof, if his Service is terminated prior to his Normal Retirement Date, for all purposes of this Plan he shall forfeit credit for all Years of Service completed prior to such termination of his Service. 2.4 Determination of Eligibility. ----------------------------- The Administrator shall determine the eligibility of Directors in accordance with the provisions of this Article. ARTICLE III BENEFITS UPON ------------- RETIREMENT AND OTHER TERMINATION OF SERVICE ------------------------------------------- 3.1 Retirement. ----------- Upon Retirement a Participant shall be entitled to receive an annual benefit from the AIM Funds commencing on the first day of the calendar quarter coincident with or next following his date of Retirement, payable in quarterly installments for a period of no more than -4- ten (10) years (or, if less, the number of his Years of Service) equal to seventy-five percent (75%) of his Compensation. 3.2 Termination of Service Before Retirement. ----------------------------------------- In the event that a Participant's Service terminates by reason of death, Disability or removal by the Board for cause (as defined in Section 8.9) prior to his Normal Retirement Date, he shall not be entitled to receive any benefits hereunder. If a Participant's Service terminates for any other reason and he has accumulated at least five (5) continuous and non-forfeited Years of Service, he shall be entitled to receive his Accrued Benefit determined as of such date of termination. 3.3 Termination of Service by Reason of Death. ------------------------------------------ No benefits will be paid under this Plan with respect to a Participant after his death other than as provided in Article IV. 3.4 Benefits Calculated in the Aggregate for all of the AIM Funds. -------------------------------------------------------------- With respect to each Participant, the benefits payable hereunder shall be based on the aggregate Compensation paid by the AIM Funds and on the Participant's non-forfeited Years of Service. Each Fund's share of the obligation to provide such benefits shall be determined by use of accounting methods adopted by the Administrator. ARTICLE IV DEATH BENEFITS -------------- 4.1 Death Prior to Commencement of Benefits. ---------------------------------------- In the event of a Participant's death subsequent to his Normal Retirement Date, but prior to the commencement of his Retirement Benefits under Article III hereof, the surviving spouse (if any) of such Participant shall be entitled to receive a quarterly survivor's benefit for a period of no more than ten (10) years (or, if less, the number of the Participant's Years of Service) beginning on the first day of the calendar quarter next following the date of the Participant's death equal to fifty percent (50%) of the amount of the quarterly installments of Retirement Benefits that would have been paid to the Participant under Sections 3.1 or 3.2 hereof had his Retirement occurred on his date of death. 4.2 Death Subsequent to Commencement of Benefits. --------------------------------------------- In the event a Participant dies after the commencement of his Retirement Benefit under Article III, but prior to the cessation of the payment of such Retirement Benefits, the surviving spouse (if any) of such Participant shall be entitled to receive survivor's benefits equal to fifty percent (50%) of the amount of the annual Retirement Benefit payable to the Participant -5- under Article III hereunder, paid at such times, and for such period, as such Retirement Benefit would have continued to have been paid to the Participant had he not died. 4.3 Death of Spouse. ---------------- (a) In the event a Participant is not survived by a spouse, no benefits will be paid hereunder upon the Participant's death. (b) If a deceased Participant's surviving spouse dies while receiving survivor's benefits hereunder, any installments not paid at the time of the surviving spouse's death shall be forfeited. ARTICLE V SUSPENSION OF BENEFITS, ETC. ---------------------------- 5.1 Suspension of Benefits Upon Resumption of Service. -------------------------------------------------- In the case of a Participant who, at a time when he is receiving Retirement Benefits under Article III of this Plan, resumes Service with any AIM Fund, such Retirement Benefits shall be suspended until his subsequent Retirement, termination of Service or death. Subject to the Years of Service limitations of Section 3.1 hereof, in the event of his Retirement or termination of Service following such a suspension, the quarterly amount of his remaining Retirement Benefits shall thereafter be adjusted, if appropriate, to reflect any additional Years of Service completed by, or a higher rate of Compensation received by, such Participant. 5.2 Payments Due Missing Persons. ----------------------------- The Administrator shall make a reasonable effort to locate all persons entitled to benefits (including Retirement Benefits and survivor's benefits for spouses) under the Plan; however, notwithstanding any provisions of this Plan to the contrary, if, after a period of 5 years from the date any of such benefits first become due, any such persons entitled to benefits have not been located, their rights under the Plan shall stand suspended. Before this provision becomes operative, the Administrator shall send a certified letter to all such persons (if any) at their last known address advising them that their benefits under the Plan shall be suspended. Any such suspended amounts shall be held by the AIM Funds for a period of 3 additional years (or a total of 8 years from the time the benefits first became payable) and thereafter such amounts shall be forfeited. -6- ARTICLE VI ADMINISTRATOR ------------- 6.1 Appointment of Administrator. ----------------------------- This Plan shall be administered by the Nominating and Compensation Committees of the Boards of Directors of the AIM Funds. The members of such committees are not "interested persons" (within the meaning of Section 2(a)(19) of the Investment Company Act of 1940) of any of the AIM Funds. The term "Administrator" as used in this Plan shall refer to the members of such committees, either individually or collectively, as appropriate. 6.2 Powers and Duties of Administrator. ----------------------------------- Except as provided below, the Administrator shall have the following duties and responsibilities in connection with the administration of this Plan: (a) To promulgate and enforce such rules, regulations and procedures as shall be proper for the efficient administration of the Plan; (b) To determine all questions arising in the administration, interpretation and application of the Plan, including questions of eligibility and of the status and rights of Participants and any other persons hereunder; (c) To decide any dispute arising hereunder; provided, however, that no Administrator shall participate in any matter involving any questions relating solely to his own participation or benefits under this Plan; (d) To advise the Boards of Directors of the AIM Funds regarding the known future need for funds to be available for distribution; (e) To correct defects, supply omissions and reconcile inconsistencies to the extent necessary to effectuate the Plan; (f) To compute the amount of benefits and other payments which shall be payable to any Participant or surviving spouse in accordance with the provisions of the Plan and to determine the person or persons to whom such benefits shall be paid; (g) To make recommendations to the Boards of Directors of the AIM Funds with respect to proposed amendments to the Plan; (h) To file all reports with government agencies, Participants and other parties as may be required by law, whether such reports are initially the obligation of the AIM Funds, or the Plan; -7- (i) To engage the Actuary of the Plan and to cause the liabilities of the Plan to be evaluated by the Actuary; and (j) To have all such other powers as may be necessary to discharge its duties hereunder. 6.3 Action by Administrator. ------------------------ The Administrator may elect a Chairman and Secretary from among its members and may adopt rules for the conduct of its business. A majority of the members then serving shall constitute a quorum for the transacting of business. All resolutions or other action taken by the Administrator shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by at least a majority of the members. All documents, instruments, orders, requests, directions, instructions and other papers shall be executed on behalf of the Administrator by either the Chairman or the Secretary of the Administrator, if any, or by any member or agent of the Administrator duly authorized to act on the Administrator's behalf. 6.4 Participation by Administrators. -------------------------------- No Administrator shall be precluded from becoming a Participant in the Plan if he would be otherwise eligible, but he shall not be entitled to vote or act upon matters or to sign any documents relating specifically to his own participation under the Plan, except when such matters or documents relate to benefits generally. If this disqualification results in the lack of a quorum, then the Boards of Directors, by majority vote of the members of a majority of such Boards of Directors (a "Majority Vote"), shall appoint a sufficient number of temporary Administrators, who shall serve for the sole purpose of determining such a question. 6.5 Agents and Expenses. -------------------- The Administrator may employ agents and provide for such clerical, legal, actuarial, accounting, medical, advisory or other services as it deems necessary to perform its duties under this Plan. The cost of such services and all other expenses incurred by the Administrator in connection with the administration of the Plan shall be allocated to each Fund pursuant to the method utilized under Section 3.4 hereof with respect to costs related to benefit accruals. For purposes of the preceding sentence, if an individual serves as a Director for more than one Fund, he shall be deemed to be a separate Director for each such Fund in determining the aggregate number of Directors of the AIM Funds. 6.6 Allocation of Duties. --------------------- The duties, powers and responsibilities reserved to the Administrator may be allocated among its members so long as such allocation is pursuant to written procedures adopted by the Administrator, in which case no Administrator shall have any liability, with respect to any duties, powers or responsibilities not allocated to him, for the acts or omissions of any other Administrator. -8- 6.7 Delegation of Duties. --------------------- The Administrator may delegate any of its duties to employees of A I M Advisors, Inc. or any of its affiliates or to any other person or firm, provided that the Administrator shall prudently choose such agents and rely in good faith on their actions. 6.8 Administrator's Action Conclusive. ---------------------------------- Any action on matters within the discretion of the Administrator shall be final and conclusive. 6.9 Records and Reports. -------------------- The Administrator shall maintain adequate records of its actions and proceedings in administering this Plan and shall file all reports and take all other actions as it deems appropriate in order to comply with any federal or state law. 6.10 Information from the AIM Funds. ------------------------------- The AIM Funds shall promptly furnish all necessary information to the Administrator to permit it to perform its duties under this Plan. The Administrator shall be entitled to rely upon the accuracy and completeness of all information furnished to it by the AIM Funds, unless it knows or should have known that such information is erroneous. 6.11 Reservation of Rights by Boards of Directors. --------------------------------------------- When rights are reserved in this plan to the Boards of Directors, such rights shall be exercised only by Majority Vote of the Boards of Directors, except where the Boards of Directors, by unanimous written resolution, delegate any such rights to one or more persons or to the Administrator. Subject to the rights reserved to the Boards of Directors as set forth in this Plan, no member of the Boards of Directors shall have any duties or responsibilities under this Plan, except to the extent he shall be acting in the capacity of an Administrator. 6.12 Liability and Indemnification. ------------------------------ (a) The Administrator shall perform all duties required of it under this Plan in a prudent manner. The Administrator shall not be responsible in any way for any action or omission of the AIM Funds or their employees in the performance of their duties and obligations as set forth in this Plan. The Administrator also shall not be responsible for any act or omission of any of its agents provided that such agents were prudently chosen by the Administrator and that the Administrator relied in good faith upon the action of such agents. (b) Except for its own gross negligence, willful misconduct or willful breach of the terms of this Plan, the Administrator shall be indemnified and held harmless by the AIM Funds against any and all liability, loss, damages, cost and expense which may arise, occur by reason of, or be based upon, any matter connected with or related to this Plan or its -9- administration (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending any litigation, commenced or threatened, or in settlement of any such claim). ARTICLE VII AMENDMENTS AND TERMINATION -------------------------- 7.1 Amendments. ----------- The Boards of Directors reserve the right at any time and from time to time, and retroactively if deemed necessary or appropriate by them, to amend in whole or in part by Majority Vote any or all of the provisions of this Plan, provided that: (a) No amendment shall make it possible for any part of a Participant's or former Participant's Retirement Benefit to be used for, or diverted to, purposes other than for the exclusive benefit of such Participant or surviving spouse, except to the extent otherwise provided in this Plan; (b) No amendment may reduce any Participant's or former Participant's Retirement Benefit as of the effective date of the amendment; Amendments may be made in the form of Board of Directors' resolutions or separate written document. 7.2 Termination. ------------ Except as provided below, the Boards of Directors reserve the right to terminate this Plan at any time by Majority Vote by giving to the Administrator notice in writing of such desire to terminate. The Plan shall terminate upon the date of receipt of such notice and the rights of all Participants to their Retirement Benefits (determined as of the date the Plan is terminated) shall become payable upon the effective date of the termination of the Plan in quarterly installments or in an actuarially equivalent lump sum as determined by the Administrator. ARTICLE VIII MISCELLANEOUS ------------- 8.1 Rights of Creditors. -------------------- (a) The Plan is unfunded. Neither the Participants nor any other persons shall have any interest in any fund or in any specific asset or assets of any of the AIM Funds by -10- reason of any Accrued or Retirement Benefit hereunder, nor any rights to receive distribution of any Retirement Benefit except and as to the extent expressly provided hereunder. (b) The Accrued and Retirement Benefits of each Participant are unsecured and shall be subject to the claims of the general creditors of the AIM Funds. 8.2 Liability Limited. ------------------ Neither the AIM Funds, the Administrator, nor any agents, employees, officers, directors or shareholders of any of them, nor any other person shall have any liability or responsibility with respect to this Plan, except as expressly provided herein. 8.3 Incapacity. ----------- If the Administrator shall receive evidence satisfactory to it that a Participant or surviving spouse entitled to receive any benefit under the Plan is, at the time when such benefit becomes payable, physically or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such Participant or surviving spouse and that no guardian, committee or other representative of the estate of such Participant or surviving spouse shall have been duly appointed, the Administrator may make payment of such benefit otherwise payable to such Participant or surviving spouse to such other person or institution, and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. 8.4 Cooperation of Parties. ----------------------- All parties to this Plan and any person claiming any interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary or desirable for carrying out this Plan or any of its provisions. 8.5 Governing Law. -------------- All rights under the Plan shall be governed by and construed in accordance with rules of Federal law applicable to such plans and, to the extent not preempted, by the laws of the State of Texas without regard to principles of conflicts of law. No action shall be brought by or on behalf of any Participant for or with respect to benefits due under this Plan unless the person bringing such action has timely exhausted the Plan's claim review procedure. Any such action must be commenced within three years. This three-year period shall be computed from the earlier of (a) the date a final determination denying such benefit, in whole or in part, is issued under the Plan's claim review procedure or (b) the date such individual's cause of action first accrued. Any dispute, controversy or claim arising out of or in connection with this Plan (including the applicability of this arbitration provision) and not resolved pursuant to the Plan's claim review procedure shall be determined and settled by arbitration conducted by the American Arbitration Association ("AAA") in the County and State of the Funds' principal place of business and in accordance with the then existing rules, regulations, practices and procedures of the AAA. Any award in such arbitration shall be final, conclusive and binding upon the -11- parties to the arbitration and may be enforced by either party in any court of competent jurisdiction. Each party to the arbitration will bear its own costs and fees (including attorney's fees). 8.6 Nonguarantee of Directorship. ----------------------------- Nothing contained in this Plan shall be construed as a guaranty or right of any Participant to be continued as a Director of one or more of the AIM Funds (or of a right of a Director to any specific level of Compensation) or as a limitation of the right of the AIM Funds to remove any of its directors. 8.7 Counsel. -------- The Administrator may consult with legal counsel, who may be counsel for one or more of the Boards of Directors of the AIM Funds and for the Administrator, with respect to the meaning or construction of this Plan, its obligations or duties hereunder or with respect to any action or proceeding or any question of law, and they shall be fully protected with respect to any action taken or omitted by them in good faith pursuant to the advice of legal counsel. 8.8 Spendthrift Provision. ---------------------- A Participant's interest in his Accrued Benefit or Retirement Benefit may not be transferred, alienated, assigned nor become subject to execution, garnishment or attachment, and any attempt to do so will render benefits hereunder immediately forfeitable. 8.9 Forfeiture for Cause. --------------------- Notwithstanding any other provision of this Plan to the contrary, any benefits to which a Participant (or his surviving spouse) may otherwise be entitled hereunder will be forfeited in the event the Administrator, in its sole discretion, determines that a Participant's termination of Service is due to such Participant's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Director. ARTICLE IX CLAIMS PROCEDURE ---------------- 9.1 Notice of Denial. ----------------- If a Participant is denied any Retirement Benefit (or a surviving spouse is denied a survivor's benefit) under this Plan, either in total or in an amount less than the full Retirement Benefit to which he would normally be entitled, the Administrator shall advise the Participant (or surviving spouse) in writing of the amount of his Retirement Benefit (or survivor's benefit), if any, and the specific reasons for the denial. The Administrator shall also furnish the Participant (or surviving spouse) at that time with a written notice containing: -12- (a) A specific reference to pertinent Plan provisions. (b) A description of any additional material or information necessary for the Participant (or surviving spouse) to perfect his claim, if possible, and an explanation of why such material or information is needed. (c) An explanation of the Plan's claim review procedure. 9.2 Right to Reconsideration. ------------------------- Within 60 days of receipt of the information stated in Section 9.1 above, the Participant (or surviving spouse) shall, if he desires further review, file a written request for reconsideration with the Administrator. 9.3 Review of Documents. -------------------- So long as the Participant's (or surviving spouse's) request for review is pending (including the 60 day period in 9.2 above), the Participant (or surviving spouse) or his duly authorized representative may review pertinent Plan documents and may submit issues and comments in writing to the Administrator. 9.4 Decision by Administrator. -------------------------- A final and binding decision shall be made by the Administrator within 60 days of the filing by the Participant (or surviving spouse) of his request for reconsideration, provided, however, that if the Administrator, in its discretion, feels that a hearing with the Participant (or surviving spouse) or his representative present is necessary or desirable, this period shall be extended an additional 60 days. 9.5 Notice by Administrator. ------------------------ The Administrator's decision shall be conveyed to the Participant (or surviving spouse) in writing and shall include specific reasons for the provisions on which the decision is based. -13- EX-7.C 14 DEF COMP PLAN ELIGIBLE DIRECTORS/TRUSTEES EXHIBIT 7(c) THE AIM GROUP OF FUNDS DEFERRED COMPENSATION PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES DEFERRED COMPENSATION AGREEMENT SUMMARY Your Deferred Compensation Agreement (the "Agreement") allows you to defer some or all of your annual trustee's fees otherwise payable by the Funds. Deferred fees are deemed invested in certain mutual funds selected by you. The deferral is pre-tax, and the deferred amount and the credited gains, losses and income are not subject to tax until paid out to you. Your deferrals (and investment experience) are posted to a bookkeeping account maintained by the Funds in your name. In order for you to enjoy the tax deferral, the payments due under the Agreement will be paid from the Funds' general assets, and you are considered a general unsecured creditor of the Funds; you may not transfer your right to receive payments under the Agreement to any other person, nor may you pledge that right to secure any debt or other obligation; finally, an election to defer must be made in writing before the first day of the calendar year for which the fees are earned (the "Election Date") and elections can be changed only prospectively, effective for the next calendar year. An important change has been made to your Agreement to give you greater flexibility to select the time of payment of amounts that you defer: for amounts previously deferred and for future elections you now designate a specific Payment Date. PAYMENT DATE ELECTION Deferred fees (and the income, gains and losses credited during the deferral period) will be paid out in a single sum in cash within 30 days of the Payment Date elected for that deferral. (For payments in connection with your termination of service as a trustee, see below.) Deferrals must be for a minimum three year period (unless the your retirement date under the Retirement Plan is earlier). Thus, the Payment Date may be the first day of any calendar quarter that follows the third anniversary of the applicable Election Date or your retirement date. For your first Payment Date election that applies to previously deferred fees, the Election Date is considered to be January 1, 1996. Thus, fees previously deferred and fees payable for the calendar year beginning January 1, 1996 may be deferred to the first day of any calendar quarter in any year from 1999. EXTENDING A PAYMENT DATE One year prior to any Payment Date, you will have a one-time opportunity to extend that Date, provided that the additional period of deferral satisfies the requirements described above. TERMINATION OF SERVICE Upon your death, your account under the Agreement will be paid out in a single sum in cash as soon as practicable. Payment will be made to your designated Beneficiary or Beneficiaries or to your estate if there is no surviving Beneficiary. Upon termination of your service as trustee for any reason other than death or your retirement (as defined in the Retirement Plan), your account will be paid to you as a single sum (or in installments if you had elected that method) in cash within three months following the end of the fiscal year in which you terminate, regardless of the Payment Dates you elected. ARTICLE Page ------- ---- 1. Definitions of Terms and Construction 1 2. Period During Which Compensation Deferrals are Permitted 2 3. Compensation Deferrals 2 4. Distributions from Deferral Account 4 5. Amendments and Termination 5 6. Miscellaneous DEFERRED COMPENSATION AGREEMENT ------------------------------- AGREEMENT, made on this __ day of _______, 19__, by and between the registered open-end investment companies listed on Appendix A hereto (the "Funds"), and ________________________________________________________________ (the "Director") residing at ___________________________________________________. WHEREAS, the Funds and the Director have entered into agreements pursuant to which the Director will serve as a director/trustee of the Funds; and WHEREAS, the Funds and the Director have previously entered into an additional agreement whereby the Funds will provide to the Director a vehicle under which the Director can defer receipt of directors' fees payable by the Funds and now desire to amend and restate such agreement. NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Agreement, the Funds and the Director hereby agree as follows: 1. DEFINITION OF TERMS AND CONSTRUCTION ------------------------------------ 1.1 Definitions. Unless a different meaning is plainly implied by the context, the following terms as used in this Agreement shall have the following meanings: (a) "Beneficiary" shall mean such person or persons designated pursuant to Section 4.3 hereof to receive benefits after the death of the Director. (b) "Boards of Directors" shall mean the respective Boards of Directors of the Funds. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. (d) "Compensation" shall mean the amount of directors' fees paid by each of the Funds to the Director during a Deferral Year prior to reduction for Compensation Deferrals made under this Agreement. (e) "Compensation Deferral" shall mean the amount or amounts of the Director's Compensation deferred under the provisions of Section 3 of this Agreement. -1- (f) "Deferral Accounts" shall mean the accounts maintained to reflect the Director's Compensation Deferrals made pursuant to Section 3 hereof and any other credits or debits thereto. (g) "Deferral Year" shall mean each calendar year during which the Director makes, or is entitled to make, Compensation Deferrals under Section 3 hereof. (h) "Retirement" shall have the same meaning as set forth under the Retirement Plan. (i) "Retirement Plan" shall mean the "AIM Funds Retirement Plan for Eligible Directors/Trustees." (j) "Valuation Date" shall mean the last business day of each calendar year and any other day upon which the Funds makes valuations of the Deferral Accounts. 1.2 Plurals and Gender. Where appearing in this Agreement the singular shall include the plural and the masculine shall include the feminine, and vice versa, unless the context clearly indicates a different meaning. 1.3 Directors and Trustees. Where appearing in this Agreement, "Director" shall also refer to "Trustee" and "Board of Directors" shall also refer to "Board of Trustees." 1.4 Headings. The headings and sub-headings in this Agreement are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof. 1.5 Separate Agreement for Each Fund. This Agreement is drafted, and shall be construed, as a separate agreement between the Director and each of the Funds. 2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED -------------------------------------------------------- 2.1 Commencement of Compensation Deferrals. The Director may elect, on a form provided by, and submitted to, the Presidents of the respective Funds, to commence Compensation Deferrals under Section 3 hereof for the period beginning on the later of (i) the date this Agreement is executed or (ii) the date such form is submitted to the Presidents of the Funds. 2.2 Termination of Deferrals. The Director shall not be eligible to make Compensation Deferrals after the earliest of the following dates: (a) The date on which he ceases to serve as a Director of all of the Funds; or (b) The effective date of the termination of this Agreement. -2- 3. COMPENSATION DEFERRALS ---------------------- 3.1 Compensation Deferral Elections. (a) On or prior to the first day of any Deferral Year, the Director may elect, on the form described in Section 2.1 hereof, to defer the receipt of all or a portion of his Compensation for such Deferral Year. Such writing shall set forth the amount of such Compensation Deferral (in whole percentage amounts). Such election shall continue in effect for all subsequent Deferral Years unless it is canceled or modified as provided below. (b) Compensation Deferrals shall be withheld from each payment of Compensation by the Funds to the Director based upon the percentage amount elected by the Director under Section 3.1(a) hereof. (c) The Director may cancel or modify the amount of his Compensation Deferrals on a prospective basis by submitting to the Presidents of the Funds a revised Compensation Deferral election form. Such change will be effective as of the first day of the Deferral Year following the date such revision is submitted to the Presidents of the Funds. 3.2 Valuation of Deferral Account. (a) Each Fund shall establish a bookkeeping Deferral Account to which will be credited an amount equal to the Director's Compensation Deferrals under this Agreement made with respect to Compensation earned from each such Fund. Compensation Deferrals shall be allocated to the Deferral Accounts on the first business day following the date such Compensation Deferrals are withheld from the Director's Compensation. As of the date of this Agreement, the Deferral Accounts also shall be credited with the amounts credited to the Director under each other outstanding elective deferred compensation agreement entered into by and between the Funds and the Director which is superseded by this Agreement pursuant to Section 6.11 hereof. The Deferral Accounts shall be debited to reflect any distributions from such Accounts. Such debits shall be allocated to the Deferral Accounts as of the date such distributions are made. (b) As of each Valuation Date, income, gain and loss equivalents (determined as if the Deferral Accounts are invested in the manner set forth under Section 3.3, below) attributable to the period following the next preceding Valuation Date shall be credited to and/or deducted from the Director's Deferral Accounts. 3.3 Investment of Deferral Account Balances. (a) (1) The Director may select, from various options made available by the Funds, the investment media in which all or part of his Deferral Accounts shall be deemed to be invested. -3- (2) The Director shall make an investment designation on a form provided by the Presidents of the Funds which shall remain effective until another valid direction has been made by the Director as herein provided. The Director may amend his investment designation as of the end of each calendar quarter by giving written direction to the Presidents of the Funds at least thirty (30) days prior to the end of such calendar quarter. A timely change to a Director's investment designation shall become effective on the first day of the calendar quarter following receipt by the Presidents of the Funds. (3) The investment media deemed to be made available to the Director, and any limitation on the maximum or minimum percentages of the Director's Deferral Accounts that may be invested any particular medium, shall be the same as from time-to-time communicated to the Director by the Presidents of the Funds. (b) Except as provided below, the Director's Deferral Accounts shall be deemed to be invested in accordance with his investment designations, provided such designations conform to the provisions of this Section. If - (1) the Director does not furnish the Presidents of the Funds with complete, written investment instructions, or (2) the written investment instructions from the Director are unclear, then the Director's election to make Compensation Deferrals hereunder shall be held in abeyance and have no force or effect until such time as the Director shall provide the Presidents of the Funds with complete investment instructions. Notwithstanding the above, the Boards of Directors, in their sole discretion, may disregard the Director's election and determine that all Compensation Deferrals shall be deemed to be invested in a fund determined by the Boards of Directors. In the event that any fund under which any portion of the Director's Deferral Accounts is deemed to be invested ceases to exist, such portion of the Deferral Accounts thereafter shall be held in the successor to such fund, subject to subsequent deemed investment elections. The Fund shall provide an annual statement to the Director showing such information as is appropriate, including the aggregate amount in the Deferral Accounts, as of a reasonably current date. -4- 4. DISTRIBUTIONS FROM DEFERRAL ACCOUNTS ------------------------------------ 4.1 Payment Date and Methods. (a) Designation of Date. Each deferral direction given pursuant to Section 3.1 shall include designation of the Payment Date for the value of the amount deferred. Such Payment Date shall be the first day of any calendar quarter, subject to the limitation set forth in paragraph 4.1(c). (b) Extension Date. One year before the Payment Date initially designated pursuant to paragraph 4.1(a) above, the Participant may irrevocably elect to extend such Payment Date to the first day of any calendar quarter, subject to the limitation set forth in paragraph 4.1(c). (c) Limitation. The Director shall select a Payment Date (or extended Payment Date) that is no sooner than the earlier of (i) the January 1 that follows the third anniversary of the Participant's deferral election made pursuant to paragraph 4.1(a) or (b) or (ii) the January 1 of the year after the Participant's Retirement. (d) Methods of Payment. Distributions from the Director's Deferral Accounts shall be paid in cash. A Participant may elect, at the time a Payment Date is selected, to receive the amount which will become payable as of such Payment Date in generally equal quarterly installments over a period not to exceed ten (10) years. Except as may be elected pursuant to this paragraph, all amounts becoming payable under this Plan shall be paid in a single sum. (e) Irrevocability. Except as provided in paragraph 4.1(b), a designation of a Payment Date and an election of installment payments shall be irrevocable; provided, however, that payment shall be made or begin on a different date as follows: (1) Upon the Director's death, payment shall be made in accordance with Section 4.2, (2) Upon the Director's ceasing to serve as a director of all of the Funds for reasons other than death or Retirement, payment shall be made or begin within three months after the end of the calendar year in which such termination occurs in accordance with the method elected by the Director pursuant to paragraph 4.1(d), except that the Boards of Directors, in their sole discretion, may accelerate the distribution of such Deferral Accounts, (3) Upon termination of this Agreement, payment shall be made in accordance with Section 5.2, and (4) In the event of the liquidation, dissolution or winding up of a Fund or the distribution of all or substantially all of a Fund's assets and property relating to one or -5- more series of its shares to the shareholders of such series (for this purpose a sale, conveyance or transfer of a Fund's assets to a trust, partnership, association or corporation in exchange for cash, shares or other securities with the transfer being made subject to, or with the assumption by the transferee of, the liabilities of the Fund shall not be deemed a termination of the Fund or such a distribution), all unpaid balances of the Deferral Accounts related to such Fund as of the effective date thereof shall be paid in a lump sum on such effective date. 4.2 Death Prior to Complete Distribution of Deferral Accounts. Upon the death of the Director prior to the commencement of the distribution of the amounts credited to his Deferral Accounts, the balance of such Accounts shall be distributed to his Beneficiary in a lump sum as soon as practicable after the Director's death. In the event of the death of the Director after the commencement of such distribution, but prior to the complete distribution of his Deferral Accounts, the balance of the amounts credited to his Deferral Accounts shall be distributed to his Beneficiary over the remaining period during which such amounts were distributable to the Director under Section 4.1 hereof. Notwithstanding the above, the Boards of Directors, in their sole discretion, may accelerate the distribution of the Deferral Accounts. 4.3 Designation of Beneficiary. For purposes of Section 4.2 hereof, the Director's Beneficiary shall be the person or persons so designated by the Director in a written instrument submitted to the Presidents of the Funds. In the event the Director fails to properly designate a Beneficiary, his Beneficiary shall be the person or persons in the first of the following classes of successive preference Beneficiaries surviving at the death of the Director: the Director's (1) surviving spouse or (2) estate. 4.4 Payments Due Missing Persons. The Funds shall make a reasonable effort to locate all persons entitled to benefits under this Agreement. However, notwithstanding any provisions of this Agreement to the contrary, if, after a period of five (5) years from the date such benefit shall be due, any such persons entitled to benefits have not been located, their rights under this Agreement shall stand suspended. Before this provision becomes operative, the Funds shall send a certified letter to all such persons to their last known address advising them that their benefits under this Agreement shall be suspended. Any such suspended amounts shall be held by the Funds for a period of three (3) additional years (or a total of eight (8) years from the time the benefits first become payable) and thereafter, if unclaimed, such amounts shall be forfeited. 5. AMENDMENTS AND TERMINATION -------------------------- 5.1 Amendments. (a) The Funds and the Director may, by a written instrument signed by, or on behalf of, such parties, amend this Agreement at any time and in any manner. -6- (b) The Funds reserve the right to amend, in whole or in part, and in any manner, any or all of the provisions of this Agreement by action of their Boards of Directors for the purposes of complying with any provision of the Code or any other technical or legal requirements, provided that: (1) No such amendment shall make it possible for any part of the Director's Deferral Accounts to be used for, or diverted to, purposes other than for the exclusive benefit of the Director or his Beneficiaries, except to the extent otherwise provided in this Agreement; and (2) No such amendment may reduce the amount of the Director's Deferral Accounts as of the effective date of such amendment. 5.2 Termination. The Director and the Funds may, by written instrument signed by, or on behalf of, such parties, terminate this Agreement at any time. In the event of the termination of this Agreement, the Boards of Directors, in their sole discretion, may choose to pay out the Director's Deferral Accounts prior to the designated Payment Dates. Otherwise, following a termination of the Plan, such Accounts shall continue to be maintained in accordance with the provisions of this Plan until the time they are paid out. 6. MISCELLANEOUS. -------------- 6.1 Rights of Creditors. (a) This Agreement is unfunded. Neither the Director nor any other persons shall have any interest in any specific asset or assets of the Funds by reason of any Deferral Accounts hereunder, nor any rights to receive distribution of his Deferral Accounts except and as to the extent expressly provided hereunder. The Funds shall not be required to purchase, hold or dispose of any investments pursuant to this Agreement; however, if in order to cover their obligations hereunder the Funds elect to purchase any investments the same shall continue for all purposes to be a part of the general assets and property of the Funds, subject to the claims of their general creditors and no person other than the Funds shall by virtue of the provisions of this Agreement have any interest in such assets other than an interest as a general creditor. (b) The rights of the Director and the Beneficiaries to the amounts held in the Deferral Accounts are unsecured and shall be subject to the creditors of the Funds. With respect to the payment of amounts held under the Deferral Accounts, the Director and his Beneficiaries have the status of unsecured creditors of the Funds. This Agreement is executed on behalf of the Funds by an officer, or other representative, of the Funds as such and not individually. Any obligation of the Funds hereunder shall be an unsecured obligation of the Funds and not of any other person. -7- 6.2 Agents. The Funds may employ agents and provide for such clerical, legal, actuarial, accounting, advisory or other services as it deems necessary to perform their duties under this Agreement. The Funds shall bear the cost of such services and all other expenses they incur in connection with the administration of this Agreement. 6.3 Liability and Indemnification. Except for their own gross negligence, willful misconduct or willful breach of the terms of this Agreement, the Funds shall be indemnified and held harmless by the Director against liability or losses occurring by reason of any act or omission of the Funds or any other person. 6.4 Incapacity. If the Funds shall receive evidence satisfactory to them that the Director or any Beneficiary entitled to receive any benefit under the Agreement is, at the time when such benefit becomes payable, a minor, or is physically or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of the Director or Beneficiary and that no guardian, committee or other representative of the estate of the Director or Beneficiary shall have been duly appointed, the Funds may make payment of such benefit otherwise payable to the Director or Beneficiary to such other person or institution, including a custodian under a Uniform Gifts to Minors Act, or corresponding legislation (who shall be an adult, a guardian of the minor or a trust company), and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. 6.5 Cooperation of Parties. All parties to this Agreement and any person claiming any interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary or desirable for carrying out this Agreement or any of its provisions. 6.6 Governing Law. This Agreement is made and entered into in the State of Texas and all matters concerning its validity, construction and administration shall be governed by the laws of the State of Texas. 6.7 Nonguarantee of Directorship. Nothing contained in this Agreement shall be construed as a contract or guarantee of the right of the Director to be, or remain as, a director of any of the Funds or to receive any, or any particular rate of, Compensation from any of the Funds. 6.8 Counsel. The Funds may consult with legal counsel with respect to the meaning or construction of this Agreement, their obligations or duties hereunder or with respect to any action or proceeding or any question of law, and they shall be fully protected with respect to any action taken or omitted by them in good faith pursuant to the advice of legal counsel. 6.9 Spendthrift Provision. The Director's and Beneficiaries' interests in the Deferral Accounts may not be anticipated, sold, encumbered, pledged, mortgaged, charged, transferred, -8- alienated, assigned nor become subject to execution, garnishment or attachment and any attempt to do so by any person shall render the Deferral Accounts immediately forfeitable. 6.10 Notices. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or mailed by United States registered or certified mail, return receipt requested, postage prepaid, or by nationally recognized overnight delivery service providing for a signed return receipt, addressed to the Director at the home address set forth in the Funds' records and to the Funds at the address set forth on the first page of this Agreement, provided that all notices to the Funds shall be directed to the attention of the Presidents of the Funds or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 6.11 Entire Agreement. This Agreement contains the entire understanding between the Funds and the Director with respect to the payment of non-qualified elective deferred compensation by the Fund to the Director. Effective as of the date hereof, this Agreement replaces, and supersedes, all other non-qualified elective deferred compensation agreements by and between the Director and the Funds. 6.12 Interpretation of Agreement. Interpretations of, and determinations (including factual determinations) related to, this Agreement made by the Funds in good faith, including any determinations of the amounts of the Deferral Accounts, shall be conclusive and binding upon all parties; and the Funds shall not incur any liability to the Director for any such interpretation or determination so made or for any other action taken by it in connection with this Agreement in good faith. 6.13 Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of, the Funds and their successors and assigns and to the Director and his heirs, executors, administrators and personal representatives. 6.14 Severability. In the event any one or more provisions of this Agreement are held to be invalid or unenforceable, such illegality or unenforceability shall not affect the validity or enforceability of the other provisions hereof and such other provisions shall remain in full force and effect unaffected by such invalidity or unenforceability. 6.15 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. -9- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. The Funds ________________________ By:_________________________ Witness Name: Title: ________________________ ____________________________ Witness Director -10- APPENDIX A ---------- AIM EQUITY FUNDS, INC. AIMS FUNDS GROUP AIM INTERNATIONAL FUNDS, INC. AIM INVESTMENT SECURITIES FUNDS AIM STRATEGIC INCOME FUND, INC. AIM SUMMIT FUND, INC. AIM TAX-EXEMPT FUNDS, INC. AIM VARIABLE INSURANCE FUNDS, INC. SHORT-TERM INVESTMENTS CO. SHORT-TERM INVESTMENTS TRUST TAX-FREE INVESTMENTS CO. DEFERRED COMPENSATION AGREEMENT DEFERRAL ELECTION FORM ------------------------------- TO: Presidents of the AIM Funds FROM: DATE: With respect to the Deferred Compensation agreement (the "Agreement") dated as of ________________ by and between the undersigned and the AIM Funds, I hereby make the following elections: Deferral of Compensation ------------------------ Starting with Compensation to be paid to me with respect to services provided by me to the AIM Funds after the date this election Form is received by the AIM Funds, I hereby elect that ______ percent (_____%) of my Compensation (as defined under the Agreement) be reduced and that the Fund establish a bookkeeping account credited with amounts equal to the amount so reduced (the "Deferral Account"). The Deferral Account shall be further credited with income equivalents as provided under the Agreement. I understand that this election will remain in effect with respect to Compensation I earn in subsequent years unless I modify or revoke it. I further understand that such modification or revocation will be effective only prospectively and will apply commencing with the Compensation I earn in the calendar year that begins after the change is received by you. Payment Date ------------ I hereby designate ________ 1 (select the first month in any calendar quarter) in the year ______ (select a year that is at least four years after the year this election is made) as the Payment Date for the amounts credited to my Deferral Account pursuant to the election made above. If my Retirement (as defined in the Agreement) occurs sooner, I o do o do not (check the appropriate box) want payment of such amounts to commence effective the January 1 following my Retirement. I understand that amounts credited to my Deferral Account may be paid to me prior to the Payment Date as provided in the Agreement. Payment Method -------------- I hereby elect to receive the amounts credited to my Deferral Account in (check one) o a single payment in cash o annual installments for a period of ____ (select no more than 10 years) -12- beginning within 30 days following the payment date selected above. I understand that the amounts credited to my Deferral Account shall remain the general assets of the AIM Funds and that, with respect to the payment of such amounts, I am merely a general creditor of the AIM Funds. I may not sell, encumber, pledge, assign or otherwise alienate the amounts credited to my Deferral Account. I hereby agree that the terms of the Agreement are incorporated herein and are made a part hereof. Dated as of the day and year first above written. WITNESS: DIRECTOR: _________________________ ______________________________ WITNESS: RECEIVED: _________________________ AIM Funds By:___________________________ Date:_________________________ -13- DEFERRED COMPENSATION AGREEMENT INVESTMENT DIRECTION FORM ------------------------------- TO: Presidents of the AIM Funds FROM: DATE: With respect to the Deferred Compensation Agreement (the "Agreement") dated as of ________________ by and between the undersigned and the AIM Funds, I hereby elect that my Deferral Account under the Agreement be considered to be invested as follows (in multiples of 10%): AIM WEINGARTEN FUND ____________% AIM CONSTELLATION FUND ____________% AIM HIGH YIELD FUND ____________% AIM INTERNATIONAL EQUITY FUND ____________% AIM AGGRESSIVE GROWTH EQUITY FUND __________% AIM LIMITED MATURITY TREASURY SHARES FUND __________% AIM VALUE FUND _____________% AIM MONEY MARKET FUND ___________% AIM BALANCED FUND ____________% AIM CHARTER FUND _____________% I acknowledge that I may amend this Investment Agreement in the manner, and at such time, as permitted under the Agreement. Furthermore, I acknowledge that, pursuant to Section 3.3(b) of the Agreement, the Fund has reserved the right to disregard the elections made above to consider my Deferral Account to be deemed to be invested in a fund of its choosing. WITNESS: DIRECTOR: _________________________ ______________________________ WITNESS: RECEIVED: _________________________ AIM Funds By:___________________________ Date:_________________________ DEFERRED COMPENSATION AGREEMENT BENEFICIARY DESIGNATION FORM ------------------------------- TO: Presidents of the AIM Funds FROM: DATE: With respect to the Deferred Compensation Agreement (the "Agreement") dated as of _____________ by and between the undersigned and the AIM Funds, I hereby make the following beneficiary designations: I. Primary Beneficiary ------------------- I hereby appoint the following as my Primary Beneficiary(ies) to receive at my death the amounts credited to my Deferral Account under the Agreement. In the event I am survived by more than one Primary Beneficiary, such Primary Beneficiaries shall share equally in such amounts unless I indicate otherwise on an attachment to this form: _________________________________________________________________ Name Relationship _________________________________________________________________ Address _________________________________________________________________ City State Zip II. Secondary Beneficiary --------------------- In the event I am not survived by any Primary Beneficiary, I hereby appoint the following as Secondary Beneficiary(ies) to receive death benefits under the Agreement. In the event I am survived by more than one Secondary Beneficiary, such Secondary Beneficiaries shall share equally unless I indicate otherwise on an attachment to this form: _________________________________________________________________ Name Relationship _________________________________________________________________ Address _________________________________________________________________ City State Zip I understand that I may revoke or amend the above designations at any time. I further understand that if I am not survived by a Primary or Secondary Beneficiary, my Beneficiary shall be as set forth under the Agreement. WITNESS: DIRECTOR: _________________________ ______________________________ WITNESS: RECEIVED: _________________________ AIM Funds By:___________________________ Date:_________________________ -2- INITIAL PAYMENT DATE ELECTION FORM FOR PREVIOUSLY DEFERRED COMPENSATION ------------------------------------ TO: Presidents of the AIM Funds FROM: DATE: With respect to the Deferred Compensation agreement (the "Agreement") dated as of ________________ by and between the undersigned and the AIM Funds, pursuant to which I have previously elected to defer Compensation, I hereby designate ________ 1 (select the first month in any calendar quarter) in the year ______ (select a year that is at least four years after the year this election is made) as the Payment Date for the amounts previously credited to my Deferral Account and amounts subsequently credited thereto. If my Retirement (as defined in the Agreement) occurs sooner, I o do o do not (check the appropriate box) want payment of such amounts to commence effective the January 1 following my Retirement. I understand that amounts credited to my Deferral Account may be paid to me prior to the Payment Date as provided in the Agreement. I understand that I may amend this Investment Agreement in the manner, and at such time, as permitted under the Agreement. WITNESS: DIRECTOR: _________________________ ______________________________ WITNESS: RECEIVED: _________________________ AIM Funds By:___________________________ Date:_________________________ -3- EX-8.A 15 AMT 2 TO CUST CONTRACT EXHIBIT 8(a) AMENDMENT NO. 2 TO CUSTODIAN CONTRACT AMENDMENT No. 2 made as of this 19th day of September, 1995 to that certain Custodian Contract dated as of March 31, 1993, as amended (the "Custody Agreement") between State Street Bank and Trust Company, a Massachusetts trust company (the "Custodian") and AIM Variable Insurance Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Custodian and Fund have previously entered into a Custody Agreement; WHEREAS, the Fund and the Custodian desire to amend the Custody Agreement to provide for the implementation of Electronic Trade Delivery ("ETD"), the automated process of notifying the Custodian of trades for settlement processing; and WHEREAS, the Board of Directors of the Fund has approved the amendment of the Custody Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises set forth, the Fund and the Custodian agree to amend the Custody Agreement by replacing "Section 5. - - Proper Instructions" in its entirety with the following: 5. Proper Instructions Proper Instructions as used throughout this Contract includes the following: (a) a writing signed or initialled by one or more person or persons as the Board of Directors shall have from time to time authorized. Each such writing shall set forth the specific transaction or type or transaction involved, including a specific statement of the purpose for which such action is requested; (b) communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors and the Custodian are satisfied that procedures relating to the use of such electro-mechanical and electronic devices afford adequate safeguards for the Portfolios' assets and have been followed. The Fund shall provide a Certificate of the Secretary or the Assistant Secretary as to the authorization for use of electro-mechanical or electronic devices by the Board of Directors of the Fund accompanied by a detailed description of procedures approved by the Fund's Board of Directors; (c) oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing or through electro- mechanical or electronic devices; or (d) Proper Instructions in connection with a segregated asset account which has been established pursuant to Section 2.11, hereof, shall include instructions received by the Custodian in accordance with the provisions of any three-party agreement, to which the Fund and the Custodian are each a party, governing such account or accounts. IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the day and year first above written. ATTEST STATE STREET BANK AND TRUST COMPANY /s/ ILLEGIBLE By /s/ N. GRADY - ---------------------------------- --------------------------------- Assistant Secretary ATTEST AIM VARIABLE INSURANCE FUNDS, INC. /s/ NANCY L. MARTIN By /s/ ROBERT H. GRAHAM - ---------------------------------- --------------------------------- Assistant Secretary 2 EX-8.B 16 AMT 1 TO CUST CONTRACT EXHIBIT 8(b) AMENDMENT NO.1 TO CUSTODIAN CONTRACT Pursuant to paragraph 17 of the Custodian Contract dated March 31, 1993 between AIM Variable Insurance Funds, Inc. (the "Fund") and State Street Bank and Trust Company (the "Custodian"), the Fund hereby requests that the Custodian render services as custodian to the following additional portfolios: AIM V. I. Growth and Income Fund AIM V. I. Utilities Fund Please indicate acceptance of this addition by signing and returning this Amendment to our offices at Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046. Effective Date: 4/25/94 AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM --------------------------- --------------------------- Assistant Secretary President STATE STREET BANK AND TRUST COMPANY Attest: /s/ A. CONNELLY By: /s/ N. GRADY --------------------------- --------------------------- Assistant Secretary Authorized Officer EX-8.C 17 CUST AGMT EXHIBIT 8(C) CUSTODIAN CONTRACT Between AIM VARIABLE INSURANCE FUNDS, INC. and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS -----------------
Page ---- 1. Employment of Custodian and Property to be Held By It........................................... 1 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian in the United States........................................... 3 2.1 Holding Securities......................................................................... 3 2.2 Delivery of Securities..................................................................... 3 2.3 Registration of Securities................................................................. 8 2.4 Bank Accounts.............................................................................. 9 2.5 Availability of Federal Funds.............................................................. 10 2.6 Collection of Income....................................................................... 10 2.7 Payment of Fund Monies..................................................................... 11 2.8 Liability for Payment in Advance of Receipt of Securities Purchased............................................................ 14 2.9 Appointment of Agents...................................................................... 15 2.10 Deposit of Fund Assets in Securities System................................................ 15 2.10A Fund Assets Held in the Custodian's Direct Paper System.................................... 18 2.11 Segregated Account......................................................................... 20 2.12 Ownership Certificates for Tax Purposes.................................................... 21 2.13 Proxies.................................................................................... 22 2.14 Communications Relating to Portfolio Securities............................................ 22 3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States.................................................................................... 23 3.1 Appointment of Foreign Sub-Custodians...................................................... 23 3.2 Assets to be Held.......................................................................... 23 3.3 Foreign Securities Depositories............................................................ 24 3.4 Segregation of Securities.................................................................. 24 3.5 Agreements with Foreign Banking Institutions............................................... 25 3.6 Access of Independent Accountants of the Fund.............................................. 25 3.7 Reports by Custodian....................................................................... 26 3.8 Transactions in Foreign Custody Account.................................................... 26 3.9 Liability of Foreign Sub-Custodians........................................................ 27 3.10 Liability of Custodian..................................................................... 28 3.11 Reimbursement for Advances................................................................. 29 3.12 Monitoring Responsibilities................................................................ 29 3.13 Branches of U.S. Banks..................................................................... 30 3.14 Tax Law.................................................................................... 30 4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund............................ 31 5. Proper Instructions.............................................................................. 32 6. Actions Permitted Without Express Authority...................................................... 33 7. Evidence of Authority.............................................................................. 34 8. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value and Net Income........................................................................................... 34
Page ---- 9. Records.................................................................................... 35 10. Opinion of Fund's Independent Accountants.................................................. 35 11. Reports to Fund by Independent Public Accountants.......................................... 36 12. Compensation of Custodian.................................................................. 36 13. Responsibility of Custodian................................................................ 36 14. Effective Period, Termination and Amendment................................................ 39 15. Successor Custodian........................................................................ 40 16. Interpretive and Additional Provisions..................................................... 42 17. Additional Funds........................................................................... 42 18. Massachusetts Law to Apply................................................................. 43 19. Prior Contracts............................................................................ 43 20. Shareholder Communications................................................................. 43
CUSTODIAN CONTRACT ------------------ This Contract between AIM Variable Insurance Funds, Inc., a corporation organized and existing under the laws of the State of Maryland, having its principal place of business at 11 Greenway Plaza, Houston, Texas, 77046 hereinafter called the "Fund", and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in seven series, AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund, and AIM V.I. Value Fund (such series together with all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 17, being herein referred to as the "Portfolio(s)"); NOW THEREFORE, in consideration of the mutual covenants and agreement hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It ----------------------------------------------------- The Fund hereby employs the Custodian as the custodian of the assets of the Portfolios of the Fund, including securities which the Fund, on behalf of the applicable Portfolio desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities") consistent with the provisions of the Articles of Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of capital stock of the Fund representing interests in the Portfolios, ("Shares") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians, located in the United States but only in accordance with an applicable vote by the Board of Directors of the Fund on behalf of the applicable Portfolio(s), and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub- custodian has to the Custodian. 2 The Custodian may employ as sub-custodian for the Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedule A hereto but only in accordance with the provisions of Article 3. 2. Duties of the Custodian with Respect to Property of the Fund Held By the ------------------------------------------------------------------------ Custodian in the United States ------------------------------ 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States including all domestic securities owned by such Portfolio, other than (a) securities which are maintained pursuant to Section 2.10 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System" and (b) commercial paper of an issuer for which State Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper") which is deposited and/or maintained in the Direct Paper System of the Custodian pursuant to Section 2.10A. 2.2 Delivery of Securities. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian or in a Securities System account of the Custodian or in the Custodian's Direct Paper book entry system account ("Direct Paper System Account") only upon receipt of Proper Instructions from the Fund on behalf of 3 the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.10 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.9 or into the name or nominee name 4 of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the custodian; 7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new 5 securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, right or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral; 6 11) For delivery as security in connection with any borrowings by the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of the Portfolio, but only against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio of the Fund; 13) For delivery in accordance with the provisions of any agreement among the fund on behalf of the Portfolio, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization 7 or organizations, regarding account deposits in connection with transactions by the Portfolio of the Fund; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund, related to the Portfolio ("Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Directors or of the Executive committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities of the Portfolio to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 8 2.3 Registration of Securities. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.9 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Contract shall be in "street name" or other good delivery form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers. 2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or 9 accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board of Directors of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on behalf of each applicable Portfolio and the Custodian, the Custodian shall, upon the receipt of Proper Instructions from the Fund on behalf of a Portfolio, make federal funds available to such Portfolio as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of such Portfolio which are deposited into the Portfolio's account. 10 2.6 Collection of Income. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the Securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of income to which the Portfolio is properly entitled. 2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio, which may be continuing instructions when 11 deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.10 hereof; (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.10A; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the 12 Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Portfolio or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined in Article 5; 2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Portfolio as set forth in Article 4 hereof; 4) For the payment of any expense or liability incurred by the Portfolio, including but not 13 limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends on Shares of the Portfolio declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions from the Fund on behalf of the Portfolio, a certified copy of a resolution of the Board of Directors or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 14 2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except as specifically stated otherwise in this Contract, in any and every case where payment for purchase of domestic securities for the account of a Portfolio is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund on behalf of such Portfolio to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. 2.9 Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit and/or maintain securities owned by a Portfolio in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and 15 certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Portfolio in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Portfolio which are maintained in a Securities System shall identify by book-entry those securities belonging to the Portfolio; 3) The Custodian shall pay for securities purchased for the account of the Portfolio upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Portfolio. The Custodian shall transfer securities sold 16 for the account of the Portfolio upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Portfolio. Copies of all advices from the Securities System of transfers of securities for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio in the form of a written advice or notice and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Portfolio. 4) The Custodian shall provide the Fund for the Portfolio with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 17 5) The Custodian shall have received from the Fund on behalf of the Portfolio the initial or annual certificate, as the case may be, required by Article 14 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for the benefit of the Portfolio for any loss or damage to the Portfolio resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Portfolio has not been made whole for any such loss or damage. 2.10A Fund Assets Held in the Custodian's Direct Paper System The Custodian may deposit and/or maintain securities owned by a Portfolio in the Director Paper System of the Custodian subject to the following provisions: 18 1) No transaction relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions from the Fund on behalf of the Portfolio; 2) The Custodian may keep securities of the Portfolio in the Direct Paper System only if such securities are represented in an account ("Account") of the Custodian in the Direct Paper system which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3) The records of the Custodian with respect to securities of the Portfolio which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Portfolio; 4) The Custodian shall pay for securities purchased for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such payment and transfer of securities to the account of the Portfolio. The Custodian shall transfer securities sold for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Portfolio; 19 5) The Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Portfolio; 6) The Custodian shall provide the Fund on behalf of the Portfolio with any report on its system of internal accounting control as the Fund may reasonably request from time to time. 2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions from the Fund on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under 20 the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 21 2.12 Ownership certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities. 2.13 Proxies. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities. 2.14 Communications Relating to Portfolio Securities Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to 22 the Portfolio all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Portfolio desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Portfolio shall notify the Custodian at least three business days prior to the date on which the Custodian to take such action. 3. Duties of the Custodian with Respect to Property of the Fund Held Outside -------------------------------------------------------------------------- of the United States -------------------- 3.1 Appointment of Foreign Sub-Custodians The Fund hereby authorizes and instructs the Custodian to employ as sub- custodians for the Portfolios' securities and other assets maintained outside the United States the foreign banking institutions and foreign securities depositories designated on Schedule A hereto ("foreign sub- custodians"). Upon receipt of "Proper Instructions", as defined in Section 5 of this Contract, together with a certified resolution of the Fund's Board of Directors, the Custodian and the Fund may agree to amend Schedule A hereto from time to time to designate additional foreign banking institutions and foreign securities depositories to act as sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct the Custodian to cease the employment of any one or more such sub-custodians for maintaining custody of the Portfolios' assets. 23 3.2 Assets to be Held. The Custodian shall limit the securities and other assets maintained in the custody of the foreign sub-custodians to: (a) "foreign securities", as defined in paragraph (c) (1) of Rule 17f-5 under the Investment Company Act of 1940, and (b) cash and cash equivalents in such amounts as the Custodian or the Fund may determine to be reasonably necessary to effect the Portfolios' foreign securities transactions. 3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in writing by the Custodian and the Fund, assets of the Portfolios shall be maintained in foreign securities depositories only through arrangements implemented by the foreign banking institutions serving as sub-custodians pursuant to the terms hereof. Where possible, such arrangements shall include entry into agreement containing the provisions set forth in Section 3.5 hereof. 3.4 Segregation of Securities. The Custodian shall identify on its books as belonging to each applicable Portfolio of the Fund, the foreign securities of such Portfolios held by each foreign sub-custodian. Each agreement pursuant to which the Custodian employs a foreign banking institution shall require that such institution establish a custody account for the Custodian on behalf of the Fund for each applicable Portfolio of the Fund and physically segregate in each account, securities and other assets of the Portfolios, and, in the event that such institution 24 deposits the securities of one or more of the Portfolios in a foreign securities depository, that it shall identify on its books as belonging to the Custodian, as agent for each applicable Portfolio, the securities so deposited. 3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign banking institution shall be substantially in the form set forth in Exhibit 1 hereto and shall provide that: (a) the assets of each Portfolio will not subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign banking institution or its creditors or agent, except a claim of payment for their safe custody or administration; (b) beneficial ownership for the assets for each Portfolio will be freely transferable without the payment of money or value other than for custody or administration; (c) adequate records will be maintained identifying the assets as belonging to each applicable Portfolio; (d) officers of or auditors employed by, or other representatives of the Custodian, including to the extent permitted under applicable law the independent public accounts for the Fund, will be given access to the books and records of the foreign banking institution relating to its actions under its agreement with the Custodian; and (e) assets of the Portfolios held by the foreign sub-custodian will be subject only to the instructions of the Custodian or its agents. 25 3.6 Access of Independent Accountants of the Fund. Upon request of the Fund, the Custodian will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as a foreign sub-custodian insofar as such books and record relate to the performance of such foreign banking institution under its agreement with the Custodian. 3.7 Reports by Custodian. The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of the Portfolio(s) held by foreign sub-custodians, including but not limited to an identification of entities having possession of the Portfolios(s) securities and other assets and advices or notifications of any transfers of securities to or from each custodial account maintained by a foreign banking institution for the Custodian on behalf of each applicable Portfolio indicating, as to securities acquired for a Portfolio, the identity of the entity having physical possession of such securities. 3.8 Transactions in Foreign Custody Account (a) Except as otherwise provided in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to the foreign securities of the Fund held outside the United States by foreign sub-custodians. 26 (b) Notwithstanding any provision of this Contract to the contrary, settlement and payment for securities received for the account of each applicable Portfolio and delivery of securities maintained for the account of each applicable Portfolio may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. (c) Securities maintained in the custody of a foreign sub-custodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of this Contract, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such securities. 3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the Custodian employs a foreign banking institution as a foreign sub- custodian shall require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Custodian and the Fund with respect to each Portfolio from and against any loss, damage, cost, expense, liability or claim arising out of or in 27 connection with the institution's performance of such obligations. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a foreign banking institution as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim. 3.10 Liability of Custodian. The Custodian shall be liable for the acts or omissions of a foreign banking institution to the same extent as set forth with respect to sub-custodians generally in this Contract and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism or any loss where the sub-custodian has otherwise exercised reasonable care. Notwithstanding the foregoing provisions of this paragraph 3.10, in delegating custody duties to State Street London Ltd., the Custodian shall not be relieved of any responsibility to the Fund for any loss due to such delegation, except such loss as may result from (a) political risk (including, but not limited to, exchange control restrictions, confiscation, expropriation, 28 nationalization, insurrection, civil strife or armed hostilities) or (b) other losses (excluding a bankruptcy or insolvency of State Street London Ltd. not caused by political risk) due to Acts of God, nuclear incident or other losses under circumstances where the Custodian and State Street London Ltd. have exercised reasonable care. 3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance cash or securities for any purpose for the benefit of a Portfolio including the purchase or sale of foreign exchange or of contracts for foreign exchange, or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly after notice, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolios assets to the extent necessary to obtain reimbursement. 3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the Fund, during the month of June, information concerning the foreign sub- custodians employed by the Custodian. Such information shall be similar in kind and scope to that furnished to the Fund 29 in connection with the approval of this Contract. In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition of a foreign sub-custodian or any material loss of the assets of the Fund or in the case of any foreign sub- custodian not the subject or an exemptive order from the Securities and Exchange Commission is notified by such foreign sub-custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (U.S. dollars or the equivalent thereof) or that is shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted U.S. accounting principles). 3.13 Branches of U.S. Banks (a) Except as otherwise set forth in this Contract, the provisions hereof shall not apply where the custody of the Portfolios assets are maintained in a foreign branch of a banking institution which is a "bank" as defined by Section 2(a) (5) of the Investment Company Act of 1940 meeting the qualification set forth in Section 26(a) of said Act. The appointment of any such branch as a sub-custodian shall be governed by paragraph 1 of this Contract. (b) Cash held for each Portfolio of the Fund in the United Kingdom shall be maintained in an interest bearing account established for the Fund with the Custodian's 30 London branch, which account shall be subject to the direction of the Custodian, State Street London Ltd. or both. 3.14 Tax Law The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States of America or any state or political subdivision thereof. It shall be responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of jurisdictions other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information. 4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund ----------------------------------------------------------------------- The Custodian shall receive from the distributor for the Shares or from the Transfer Agent of the Fund and deposit into the account of the appropriate Portfolio such payments as are received for Shares of that Portfolio issued or sold from time to time by the Fund. The Custodian will provide timely notification 31 to the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio. From such funds as may be available for the purpose but subject to the limitations of the Articles of Incorporation and any applicable votes of the Board of Directors of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 5. Proper Instructions ------------------- Proper Instructions as used throughout this Contract means a writing signed or initialed by one or more person or persons as the Board of Directors shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. 32 Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors of the Fund accompanied by a detailed description of procedures approved by the Board of Directors, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors and the Custodian are satisfied that such procedures afford adequate safeguards for the Portfolios' assets. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any three-party agreement which requires a segregated asset account in accordance with Section 2.11. 6. Actions Permitted without Express Authority -------------------------------------------- The Custodian may in its discretion, without express authority from the Fund on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio; 2) surrender securities in temporary from for securities in definitive form; 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 33 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board of Directors of the Fund. 7. Evidence of Authority --------------------- The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Directors of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Directors pursuant to the Articles of Incorporation as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 8. Duties of Custodian with Respect to the Books of Account and Calculation of --------------------------------------------------------------------------- Net Asset Value and Net Income - ------------------------------ The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Directors of the Fund to keep the books of account of each Portfolio and/or compute the net asset value per share of the outstanding shares of each Portfolio or, if directed in writing to do so by the Fund on behalf of the Portfolio, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate 34 daily the net income of the Portfolio as described in the Fund's currently effective prospectus related to such Portfolio and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of each Portfolio shall be made at the time or times described from time to time in the Fund's currently effective prospectus related to such Portfolio. 9. Records ------- The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. 35 10. Opinion of Fund's Independent Accountant ---------------------------------------- The Custodian shall take all reasonable action, as the Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and From N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such commission. 11. Reports to Fund by Independent Public Accountants ------------------------------------------------- The Custodian shall provide the Fund, on behalf of each of the Portfolios at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 12. Compensation of Custodian ------------------------- The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon in writing from time to time between the Fund on behalf of each applicable Portfolio and the Custodian. 36 13. Responsibility of Custodian --------------------------- So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be liable for the acts or omissions of a foreign banking institution appointed pursuant to the provisions of Article 3 to the same extent as set forth in Article 1 hereof with respect to sub-custodians located in the United States (except as specifically provided in Article 3.10) and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage, 37 cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Fund to maintain custody of any securities or cash of the Fund in a foreign country including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism. If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) for the benefit of a Portfolio including the purchase or sale of foreign exchange or of contracts for foreign exchange or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall 38 be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement. 14. Effective Period, Termination and Amendment ------------------------------------------- This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors of the Fund has approved the initial use of a particular Securities System by such Portfolio and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors has reviewed the use by such Portfolio of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended and that the Custodian shall not with respect to a Portfolio act under Section 2.10a hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors has approved the initial use of the Direct Paper System by such Portfolio and the receipt of an annual certificate of the Secretary or an 39 Assistant Secretary that the Board of Directors has reviewed the use by such Portfolio of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Articles of Incorporation, and further provided, that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board of Directors (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 15. Successor Custodian ------------------- If a successor custodian for the Fund, of one or more of the Portfolios shall be appointed by the Board of Directors of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System. 40 If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000 all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Contract on behalf of each applicable Portfolio and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board of 41 Directors to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 16. Interpretive and Additional Provisions -------------------------------------- In connection with the operation of this Contract, the Custodian and the Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Articles of Incorporation of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 17. Additional Funds ---------------- In the event that the Fund establishes one or more series of Shares in addition to AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund, and AIM V.I. Value Fund with respect to which it desires to have the Custodian render services as 42 custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. 18. Massachusetts Law to Apply -------------------------- This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 19. Prior Contracts --------------- This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund on behalf of each of the Portfolios and the Custodian relating to the custody of the Fund's assets. 20. Shareholder Communication ------------------------- Securities and Exchange Commission Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, we need you to indicate whether you authorize us to provide your name, address, and share position to requesting companies whose stock you own. If you tell us "no", we will not provide this information to requesting companies. If you tell us "yes" or do not check either "yes" or "no" below, we are required by the rule to treat you as consenting to disclosure of this information for all securities owned by you or any funds or 43 by the rule to treat you as consenting to disclosure of this information for all securities owned by you or any funds or accounts established by you. For your protection, the Rule prohibits the requesting company from using your name and address for any purpose other than corporate communications. Please indicate below whether you consent or object by checking one of the alternatives below. YES [ ] You are authorized to release our name, address, and share positions. NO [ ] You are not authorized to release our name, address, and share positions. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 31st day of March, 1993. ATTEST AIM VARIABLE INSURANCE FUNDS, INC. /s/ NANCY L. MARTIN /s/ ROBERT H. GRAHAM _______________________________ By: ______________________________________ Assistant Secretary President ATTEST STATE STREET BANK AND TRUST COMPANY /s/ ILLEGIBLE /s/ ILLEGIBLE ___________________________ By: ______________________________________ Assistant Secretary Executive Vice President 44 EX-9.A 18 AMT 1 TO TRANSFER AGCY AGMT EXHIBIT 9(a) AMENDMENT NO. 1 TO TRANSFER AGENCY AND SERVICE AGREEMENT Pursuant to Article 8 of the Transfer Agency and Service Agreement dated March 19, 1993 between AIM Variable Insurance Funds, Inc. (the "Fund") and State Street Bank and Trust Company (the "Bank"), the Fund hereby requests that the Bank render services as transfer agent to the following additional portfolios: AIM V. I. Growth and Income Fund AIM V. I. Utilities Fund Please indicate acceptance of this addition by signing and returning this Amendment to our offices at Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046. Effective Date: 4/25/94 AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM --------------------------- -------------------------------- Assistant Secretary President STATE STREET BANK AND TRUST COMPANY Attest: /s/ ILLEGIBLE By: /s/ ILLEGIBLE --------------------------- -------------------------------- Assistant Secretary Authorized Officer EX-9.B 19 TRANSFER AGCY AGMT EXHIBIT 9(b) TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN AIM VARIABLE INSURANCE FUNDS, INC. AND STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS -----------------
Page ---- Article 1 Terms of Appointment; Duties of the Bank 3 Article 2 Fees and Expenses 6 Article 3 Representations and Warranties of the Bank 6 Article 4 Representations and Warranties of the Fund 7 Article 5 Indemnification 7 Article 6 Covenants of the Fund and the Bank 10 Article 7 Termination of Agreement 11 Article 8 Additional Funds 12 Article 9 Assignment 12 Article 10 Amendment 12 Article 11 Massachusetts Law to Apply 13 Article 12 Merger of Agreement 13 Article 13 Counterparts 13
2 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the 19th day of March 1993, by and between AIM VARIABLE INSURANCE FUNDS, INC. a Maryland Corporation, having its principal office and place of business at Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund on behalf of each of the AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund, and AIM V.I. Value Fund (the "Portfolios") desires to appoint the Bank as its transfer agent, and agent in connection with certain other activities, with respect to the Portfolios, and the Bank desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual convenants herein contained, the parties hereto agree as follows: ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to act as, and the Bank agrees to act as its transfer agent for the authorized and issued shares of beneficial interest of the Fund representing interests in each of the respective Portfolios ("Shares"), dividend disbursing agent, ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund on behalf of the Portfolios, 3 including without limitation any periodic investment plan or periodic withdrawal program. 1.02 The Bank agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund on behalf of each of the Portfolios, as applicable and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Charter of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii)Receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation thereof to the Custodian; (iv) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the Fund; (v) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vi) Prepare and transmit payments for dividends and distributions declared by the Fund on behalf of the applicable Portfolio; (vii) Maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and 4 (viii) Record the issuance of Shares of the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of Shares which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Bank shall also provide the Fund on a regular basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which function shall be the sole responsibility of the Fund. (b) In addition to and neither in lieu nor in contravention of the services set forth in the above paragraph (a), the Bank shall: (i) perform the customary services of a transfer agent, including but not limited to: maintaining all Shareholder accounts, mailing Shareholder reports and prospectuses to current Shareholder, preparing and mailing confirmation forms and statements of accounts to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information. (c) Procedures as to who shall provide certain of these services in Article 1 may be established from time to time by agreement between the Fund on behalf of each Portfolio and the Bank per the attached service responsibility schedule. The Bank may at times perform only a portion of these services and the Fund or its agent may perform these services on the Fund's behalf. 5 ARTICLE 2 FEES AND EXPENSES 2.01 For performance by the Bank pursuant to this Agreement, the Fund agrees on behalf of each of the Portfolios to pay the Bank a transaction fee for each Shareholder transaction as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. 2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees on behalf of each of the Portfolios to reimburse the Bank for out-of- pocket expenses or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by the Bank at the request or with the consent of the Fund, will be reimbursed by the Fund on behalf of the applicable Portfolio. 2.03 The Fund agrees on behalf of each of the Portfolios to pay all fees and reimbursable expenses following the mailing of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all Shareholder accounts shall be advanced to the Bank by the Fund at least (7) days prior to the mailing date of such materials. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BANK The Bank represents and warrants to the Fund that: 3.01 It is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.02 It is duly qualified to carry on its business in the Commonwealth of Massachusetts. 3.03 It is empowered under applicable laws and by its Charter and By- Laws to enter into and perform this Agreement. 6 3.04 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.05 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to the Bank that: 4.01 It is a business corporation duly organized and existing and in good standing under the laws of Maryland. 4.02 It is empowered under applicable laws and by its Charter By-Laws to enter into and perform this Agreement. 4.03 All corporate proceedings required by said Charter and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.04 It is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended. 4.05 A registration statement under the Securities Act of 1933, as amended on behalf of each of the Portfolios is currently effective and will remain effective, with respect to all Shares of the Fund being offered for sale. ARTICLE 5 INDEMNIFICATION 5.01 The Bank shall not be responsible for, and the Fund shall on behalf of the applicable Portfolio, indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: 7 (a) All actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Fund's lack of good faith, negligence or willful misconduct which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records and documents or services which (i) are received or relied upon by the Bank or its agents or subcontractors and/or furnished to it or performed by on behalf of the Fund, and (ii) have been prepared, maintained and/or performed by the Fund or any other person or firm on behalf of the Fund. (d) The reliance on, or the carrying out by the bank or its agents or subcontractors of any instructions or requests of the Fund on behalf of the applicable Portfolio. (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. (f) The Bank will accept shareholder activity from the Fund with respect to each Portfolio, through electronic transmission; however, the Bank shall not be responsible for the execution of or content of such transmission. The execution of said transmission is the Fund's authorization for the Bank to accept the content of the transmission. 8 5.02 The Bank shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by the Bank as result of the Bank's lack of good faith, negligence or willful misconduct. 5.03 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund on behalf of the applicable Portfolio for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. 5.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 9 5.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. 5.06 In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. ARTICLE 6 COVENANTS OF THE FUND AND THE BANK 6.01 The fund shall on behalf of each of the Portfolios promptly furnish to the Bank the following: (a) A certified copy of the resolution of the Board of Directors of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Articles of Incorporation and By-Laws of the Fund and all amendments thereto. 6.02 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records 10 prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 6.03 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 6.04 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. ARTICLE 7 TERMINATION OF AGREEMENT 7.01 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 7.02 Should the Fund exercise its right to terminate all out-ofpocket expenses associated with the movement of records and material will be borne by the Fund on behalf for the applicable Portfolio(s). Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination and/or a charge equivalent to the average of three (3) months' fees. 11 ARTICLE 8 ADDITIONAL FUNDS 8.01 In the event that the Fund establishes one or more series of Shares in addition to the Portfolios with respect to which it desires to have the Bank render services as transfer agent under the terms hereof, it shall so notify the Bank in writing, and if the Bank agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. ARTICLE 9 ASSIGNMENT 9.01 Except as provided in Section 9.03 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 9.02 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 9.03 The Bank may, without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934 as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate; provided, however, that the Bank shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. ARTICLE 10 AMENDMENT 10.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Board of Directors of the Fund. 12 ARTICLE 11 MASSACHUSETTS LAW TO APPLY 11.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. ARTICLE 12 MERGER OF AGREEMENT 12.01 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. ARTICLE 13 COUNTERPARTS 13.01 This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. AIM VARIABLE INSURANCE FUNDS, INC. /s/ ROBERT H. GRAHAM BY:______________________________________ President ATTEST: /s/ NANCY L. MARTIN - -------------------------------------- Assistant Secretary STATE STREET BANK AND TRUST COMPANY /s/ DOUGLASS L. COUPE BY:_________________________________ Douglass L. Coupe Vice President ATTEST: /s/ J. S. BROOKS BY:_______________________________ Jeanetta Shaw-Brooks Vice President 14 STATE STREET BANK AND TRUST COMPANY TRANSFER AGENT SUPPORT SERVICES FOR AIM VARIABLE INSURANCE FUNDS, INC. Services rendered in support of in-house transfer agency include: . Systems Support . Receipt of Trade Data . Trade Confirmation . Reconciliation/Communication with Custody Group (As Appropriate) . Communication with AIM Management . Wire Processing Coordination (As Appropriate) - -------------------------------------------------------------------------------- $2.00 per trade, to be billed monthly Out-of-Pocket Expenses - To be billed at cost to AIM, including paper, mailing, communication, year-end reporting, faxing and similar incurred expenses. AIM VARIABLE INSURANCE STATE STREET BANK FUNDS, INC. AND TRUST COMPANY By: /s/ ROBERT H. GRAHAM BY: /s/ DOUGLASS L. COUPE ------------------------- ------------------------ TITLE: President TITLE: Vice President ---------------------- --------------------- DATE: June 15, 1993 DATE: June 11, 1993 ----------------------- ---------------------- 15 EX-9.C 20 AMT 1 TO MASTER ADMIN SVCS AGMT EXHIBIT 9(c) AMENDMENT NO. 1 TO MASTER ADMINISTRATIVE SERVICES AGREEMENT This Amendment, dated as of April 28, 1994, is made to the Master Administrative Services Agreement, (the "Agreement"), dated October 18, 1993, by and between A I M ADVISORS, INC. (the "Administrator") and AIM VARIABLE INSURANCE FUNDS, INC. (the "Company") add the following Funds to the provisions of the agreement: AIM V. I. Growth and Income Fund AIM V. I. Utilities 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-9.D 21 MASTER ADMIN SVCS AGMT EXHIBIT 9(d) MASTER ADMINISTRATIVE SERVICES AGREEMENT This MASTER ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement"), dated as of the 18th day of October, 1993, is by and between A I M ADVISORS, INC., a Delaware corporation (the "Administrator"), and AIM VARIABLE INSURANCE FUNDS, INC., a Maryland corporation (the "Company"). W I T N E S S E T H: - - - - - - - - - -- WHEREAS, the Company is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Board of Directors of the Company has authorized the issuance of seven series of shares representing interests in seven investment portfolios: the AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund and AIM V.I. Value Fund (the "Funds"); and WHEREAS, the Company, on behalf of the Funds, has retained the Administrator to provide investment advisory services pursuant to an Investment Advisory Agreement which provides that the Administrator may perform (or arrange for the performance of) accounting, shareholder servicing and other administrative services as well as investment advisory services to the Funds, and that the Administrator may receive reasonable compensation or may be reimbursed for its costs in providing such additional services, upon the request of the Board of Directors and upon a finding by the Board of Directors that the provision of such services is in the best interests of the Company and its shareholders; and WHEREAS, the Board of Directors has found that the provision of such administrative services is in the best interests of the Company and its shareholders, and has requested that the Administrator perform such services; NOW, THEREFORE, the parties hereby agree as follows: 1. The Administrator hereby agrees to provide, or arrange for the provision of, any or all of the following services by the Administrator or its affiliates: (a) the services of a principal financial officer of the Company (including related office space, facilities and equipment) whose normal duties consist of maintaining the financial accounts and books and records of the Company and the Funds, including the review of daily net asset value calculations and the preparation of tax returns; and the services (including related office space, facilities and equipment) of any of the personnel operating under the direction of such principal financial officer; and (b) such other administrative services as may be furnished from time to time by the Administrator to the Company or the Funds at the request of the Company's Board of Directors. 1 2. The services provided hereunder shall at all times be subject to the direction and supervision of the Company's Board of Directors. 3. As full compensation for the services performed and the facilities furnished by or at the direction of the Administrator, the Funds shall reimburse the Administrator for expenses incurred by it or its affiliates in accordance with the methodologies established from time to time by the Company's Board of Directors. Such amounts shall be paid to the Administrator on a quarterly basis. 4. The Administrator shall not be liable for any error of judgment or for any loss suffered by the Company or the Funds in connection with any matter to which this Agreement relates, except a loss resulting from the Administrator's willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard of its obligations and duties under this Agreement. 5. The Company and the Administrator each hereby represent and warrant, but only as to themselves, that each has all requisite authority to enter into, execute, deliver and perform its obligations under this Agreement and that this Agreement is legal, valid and binding, and enforceable in accordance with its terms. 6. Nothing in this Agreement shall limit or restrict the rights of any director, officer or employee of the Administrator who may also be a director, officer or employee of the Company to engage in any other business or to devote his time and attention in part to the management or other aspects of any business, whether of a similar or a dissimilar nature, nor limit or restrict the right of the Administrator to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 7. This Agreement shall be in effect until June 30, 1994, and shall continue in effect from year to year thereafter; provided that such continuance is specifically approved at least annually: (a) (i) by the Company's Board of Directors or (ii) by the vote of a majority of the outstanding voting securities of each of the Funds (as defined in Section 2(a)(42) of the 1940 Act); and (b) by the affirmative vote of a majority of the Company's directors who are not parties to this Agreement or interested persons of a party to this Agreement, by votes cast in person at a meeting specifically called for such purpose. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a) (4) of the 1940 Act) or in the event of termination of the Investment Advisory Agreement relating to the Funds between the Company and the Administrator. 8. This Agreement may be amended or modified, but only by a written instrument signed by both the Company and the Administrator. 9. Any notice or other communication required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (a) to the 2 Administrator at Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046, Attention: Shareholder Services, with a copy to the General Counsel, or (b) to the Company at Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046, Attention: Executive Vice President, with a copy to the General Counsel. 11. This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. 12. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. A I M ADVISORS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM --------------------------- -------------------------------- [Assistant] Secretary President (SEAL) AIM VARIABLE INSURANCE FUNDS, INC. Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM --------------------------- -------------------------------- [Assistant] Secretary President (SEAL) 3 EX-9.F 22 PARTIC AGMT EXHIBIT 9(f) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., CONNECTICUT GENERAL LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS AND CIGNA FINANCIAL ADVISORS, INC. 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...................................................... 5 3.1 General............................................................... 5 3.2 Registration.......................................................... 5 3.3 Other (Non-Sales-Related)............................................. 5 3.4 Other (Sales-Related)................................................. 6 3.5 Parties To Cooperate.................................................. 6 Section 4. Legal Compliance........................................................ 6 4.1 Tax Laws.............................................................. 6 4.2 Insurance and Certain Other Laws...................................... 8 4.3 Securities Laws....................................................... 9 4.4 Notice of Certain Proceedings and Other Circumstances................. 10 4.5 CG LIFE and the Underwriter To Provide Documents; Information About AVIF............................................... 10 4.6 AVIF To Provide Documents; Information About CG LIFE and the Underwriter..................................................... 11 Section 5. Mixed and Shared Funding................................................ 12 5.1 General............................................................... 12 5.2 Disinterested Directors............................................... 13 5.3 Monitoring for Material Irreconcilable Conflicts...................... 13 5.4 Conflict Remedies..................................................... 14 5.5 Notice to CG LIFE..................................................... 15 5.6 Information Requested by Board of Directors........................... 15 5.7 Compliance with SEC Rules............................................. 16
i
DESCRIPTION PAGE - ----------- ---- 5.8 Other Requirements.................................................... 16 Section 6. Termination............................................................. 16 6.1 Events of Termination................................................. 16 6.2 Notice Requirement for Termination.................................... 17 6.3 Funds To Remain Available............................................. 18 6.4 Survival of Warranties and Indemnifications........................... 18 6.5 Continuance of Agreement for Certain Purposes......................... 18 Section 7. Parties To Cooperate Respecting Termination............................. 18 Section 8. Assignment.............................................................. 19 Section 9. Notices................................................................. 19 Section 10. Voting Procedures...................................................... 19 Section 11. Foreign Tax Credits.................................................... 20 Section 12. Indemnification........................................................ 20 12.1 Of AVIF by CG LIFE and the Underwriter............................... 20 12.2 Of CG LIFE and the Underwriter by AVIF............................... 22 12.3 Effect of Notice..................................................... 25 12.4 Successors........................................................... 25 Section 13. Applicable Law......................................................... 25 Section 14. Execution in Counterparts.............................................. 26 Section 15. Severability........................................................... 26 Section 16. Rights Cumulative...................................................... 26 Section 17. Headings............................................................... 26
ii PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 8th day of April, 1996 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"); Connecticut General Life Insurance Company, a Connecticut life insurance company ("CG LIFE"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and CIGNA Financial Advisors, Inc., a Connecticut corporation and the principal underwriter of the Contracts and Policies referred to below ("Underwriter") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of nine separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, CG LIFE will be the issuer of certain variable annuity contracts ("Contracts") and/or variable life insurance policies ("Policies") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts and Policies (hereinafter collectively, the "Policies"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, CG LIFE 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, CG LIFE will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Policies will be registered as securities under the 1933 Act (or exempt therefrom); and 1 WHEREAS, to the extent permitted by applicable insurance laws and regulations, CG LIFE intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Policies provided, that AVIF implements Mixed and Shared Funding, described below, pursuant to an exemptive order from the SEC or otherwise; and WHEREAS, the 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 CG LIFE for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. -------------------------------------------- The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the 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 SECTION 2. PROCESSING TRANSACTIONS ----------------------------------- 2.1 TIMELY PRICING AND ORDERS. -------------------------- (a) AVIF or its designated agent will use its best efforts to provide CG LIFE with the net asset value per Share for each Fund by 5:30 p.m. Central time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value and (iii) CG LIFE is open for business. (b) CG LIFE will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. CG LIFE will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9 a.m. Central time the following Business Day; provided, however, that AVIF shall provide additional time to CG LIFE in the event that AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to CG LIFE. (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 CG LIFE and of redemption proceeds by AVIF, CG LIFE and AVIF shall net purchase and redemption orders with respect to all Funds and shall transmit one net payment for all of the Funds in accordance with Section 2.2, below. Each order to purchase or redeem Shares shall also specify whether the order results from purchase payments, surrenders, partial withdrawals, routine withdrawals of charges, or requests for other transactions under Policies (collectively, "Policy transactions"). (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), CG LIFE shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly by AVIF upon discovery to CG LIFE. 2.2 TIMELY PAYMENTS. ---------------- CG LIFE will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by CG LIFE by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five calendar days after the date the Order is placed in order to enable CG LIFE to pay redemption 3 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 and redemption orders that result from Policy transactions and that CG LIFE receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), the Underwriter shall be the designated agent of AVIF for receipt of orders relating to Policy transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided, that AVIF receives notice of such orders by 9 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 CG LIFE will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. --------------------------- AVIF will furnish notice promptly to CG LIFE of any income dividends or capital gain distributions payable on the Shares of any Fund. CG LIFE hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until CG LIFE otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. CG LIFE reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. ---------- Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to CG LIFE. Shares ordered from AVIF will be recorded in an appropriate title for CG LIFE, on behalf of each its Accounts. 4 SECTION 3. COSTS AND EXPENSES ------------------------------ 3.1 GENERAL. ------- Except as otherwise specifically provided herein, each Party will bear all expenses incident to its performance under this Agreement. 3.2 REGISTRATION. ------------ (a) AVIF will bear the cost of its registering as a management investment company under the 1940 Act and registering its Shares under the 1933 Act, and keeping such registrations current and effective; including, without limitation, the preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of all applicable registration or filing fees with respect to any of the foregoing. (b) CG LIFE will bear the cost of registering, to the extent required, each Account as a unit investment trust under the 1940 Act and registering units of interest under the Policies under the 1933 Act and keeping such registrations current and effective; including, without limitation, the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to each Account and its units of interest and payment of all applicable registration or filing fees with respect to any of the foregoing. 3.3 OTHER (NON-SALES-RELATED). ------------------------- (a) AVIF will bear, or arrange for others to bear, the costs of preparing, filing with the SEC and setting for printing AVIF's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "AVIF Prospectus"), periodic reports to shareholders, proxy materials, and other materials required by law to be furnished to Participants, as defined below (collectively, the "Required Materials"). (b) CG Life will bear the cost of printing and delivering the Required Materials. (c) CG LIFE will bear the costs of preparing, filing with the SEC, printing, and delivering each Account's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "Account Prospectus"), any periodic reports to Policy owners, annuitants or participants under the Policies (collectively, "Participants"), voting instruction solicitation material, and other Participant communications. 3.4 OTHER (SALES-RELATED). --------------------- 5 The Underwriter will bear the expenses of distributing Fund Shares and the Policies. These expenses would include by way of illustration, but are not limited to, the costs of printing and distributing to offerees the AVIF Prospectus and periodic reports of AVIF. These costs would also include the costs of preparing, printing, and distributing sales literature and advertising relating to the Funds, as well as filing such materials with, and obtaining approval from, the SEC, NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required. 3.5 PARTIES TO COOPERATE. -------------------- Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. 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 CG LIFE immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify CG LIFE immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. (c) CG LIFE agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of CG LIFE or, to CG LIFE's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of section 817(h) of the Code or CG LIFE otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) CG LIFE shall promptly notify AVIF of such assertion or potential claim; (ii) CG LIFE shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; 6 (iii) CG LIFE shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) CG LIFE shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; (v) any written materials to be submitted by CG LIFE to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by CG LIFE to AVIF (together with any supporting information or analysis) at least ten (10) business days prior to the day on which such proposed materials are to be submitted and (b) shall not be submitted by CG LIFE to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) CG LIFE shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of CG LIFE) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against it or its affiliates arising from such a failure or alleged failure; (vii) CG LIFE shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (z) 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 CG LIFE shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if CG LIFE fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. 7 Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, CG LIFE may, in its discretion, authorize AVIF or its affiliates to act in the name of CG LIFE in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided that in no event shall CG LIFE have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) CG LIFE represents and warrants that the Policies currently are and will be treated as annuity, endowment, or life insurance contracts under applicable provisions of the Code and that it will use its best efforts to maintain such treatment; CG LIFE will notify AVIF immediately upon having a reasonable basis for believing that any of the Policies have ceased to be so treated or that they might not be so treated in the future. (e) CG LIFE represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. CG LIFE will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. --------------------------------- (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by CG LIFE. (b) CG LIFE represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Connecticut 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 38a-433 of the Connecticut Insurance Code and the regulations thereunder, and (iii) the Policies comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (d) The Underwriter represents and warrants that it is a Connecticut corporation duly organized, validly existing, and in good standing under the laws of the State of Connecticut and has 8 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) CG LIFE and the Underwriter represent and warrant that (i) interests in each Account pursuant to the Policies will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Policies will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Connecticut 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) CG LIFE will amend the registration statement for its Policies under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Policies or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF 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) the AVIF Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. ----------------------------------------------------- (a) AVIF will immediately notify CG LIFE of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, 9 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 CG LIFE. AVIF will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) CG LIFE and the Underwriter will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Policies or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Policies, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. CG LIFE will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 CG LIFE AND THE UNDERWRITER TO PROVIDE DOCUMENTS; INFORMATION ------------------------------------------------------------- ABOUT AVIF. - ---------- (a) CG LIFE or the Underwriter will provide to AVIF or its designated agent at least one 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 and supplements to any of the above, that relate to each Account or the Policies, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) The Underwriter will provide to AVIF or its designated agent with at least one complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least seven (7) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates its investment adviser as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to CG LIFE in the manner required by Section 9 hereof. 10 (c) Neither CG LIFE, the Underwriter, nor any of their respective affiliates will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Policies other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF or its designee. (d) CG LIFE and the Underwriter shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Participants or offerees) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expense relating to the improper use of such broker only materials. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT CG LIFE AND THE ------------------------------------------------------------ UNDERWRITER. - ----------- (a) AVIF will provide to CG LIFE at least one 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 and supplements 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 CG LIFE or the Underwriter camera ready or computer diskette copies of all Required Materials (described in Section 3.3(a)) hereof. AVIF will provide such copies to CG LIFE in a timely manner so as to enable CG LIFE to print and distribute the Required Materials within the time required by law to be furnished to Participants. CG LIFE agrees to print in quantity and deliver the Required Materials to existing Participants in a timely manner. (c) AVIF will provide to CG LIFE or its designated agent with at least one complete copy of each piece of sales literature or other promotional material in which CG LIFE, the Underwriter or any of their respective affiliates is named, or that refers to the Policies, at least seven (7) 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 CG LIFE or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. CG LIFE shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning CG LIFE, the Underwriter, each Account, or the Policies other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Policies, as such 11 registration statement and Account Prospectus may be amended from time to time; or (ii) in reports or voting instruction materials for each Account; or (iii) in sales literature or other promotional material approved by CG LIFE or its affiliates, except with the express written permission of CG LIFE. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning CG LIFE, the Underwriter, and their respective affiliates that is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Participants or offerees) ("broker only materials") is so used, and neither CG LIFE, the Underwriter, nor any of their respective affiliates shall be liable for any losses, damages or expense relating to the improper use of such broker only materials. SECTION 5. MIXED AND SHARED FUNDING ------------------------------------ 5.1 GENERAL. ------- AVIF has obtained an order from the SEC exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable life insurance contracts, separate accounts of insurance companies unaffiliated with CG LIFE, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply, if and only if AVIF implements Mixed and Shared Funding, pursuant to such an exemptive order or otherwise. AVIF hereby notifies CG LIFE that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a 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 45 days if the vacancy or vacancies may be filled by the Board; (b) for a period of 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 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"). CG LIFE agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no- action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, CG LIFE will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by CG LIFE to disregard voting instructions of Participants. 5.4 CONFLICT REMEDIES. ----------------- (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, CG LIFE will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of 13 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 CG LIFE's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, CG LIFE may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six months after AVIF gives notice to CG LIFE that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by CG LIFE for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to CG LIFE conflicts with the majority of other state regulators, then CG LIFE will withdraw each Account's investment in AVIF within six months after AVIF's Board of Directors informs CG LIFE that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by CG LIFE for the purchase and redemption of Shares of AVIF. (d) CG LIFE agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Policies. CG LIFE 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 CG LIFE. ----------------- 14 AVIF will promptly make known in writing to CG LIFE the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. ------------------------------------------- CG LIFE and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or the 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. AVIF will provide reasonable prior notice to CG Life of the nature of all reports requested by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. ------------------------- If, at any time during which AVIF is serving as an investment medium for variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. ------------------ AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. SECTION 6. TERMINATION ----------------------- 6.1 EVENTS OF TERMINATION. --------------------- 15 Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of AVIF or CG LIFE upon six (6) months' written notice to the other; or (b) at the option of AVIF upon institution of formal proceedings against CG LIFE or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding CG LIFE'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 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 CG LIFE upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, CG LIFE reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on CG LIFE, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law or (ii) such law precludes the use of such Shares as an underlying investment medium of the Policies issued or to be issued by CG LIFE; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of CG LIFE if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if CG LIFE reasonably believes that the Fund may fail to so qualify; (g) at the option of CG LIFE if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if CG LIFE reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Policies issued by CG LIFE cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the 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 16 (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 Section 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 Section 6.1(b) or Section 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 Section 6.1(d), Section 6.1(f), Section 6.1(g), Section 6.1(h) or Section 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 Participant-initiated transactions, (b) as required by state insurance laws or regulations, (c) as required pursuant to Section 5 of this Agreement, or (d) with respect to any Fund as to which this Agreement has terminated pursuant to Section 6.1 hereof, CG LIFE shall not (i) redeem AVIF Shares attributable to the Policies (as opposed to AVIF Shares attributable to CG LIFE'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 CG LIFE shall have notified AVIF of its intention to do so. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. ------------------------------------------- All warranties and indemnifications will survive the termination of this Agreement. 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 17 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 CG LIFE may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION ------------------------------------------------------- The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Policies in such Fund. SECTION 8. ASSIGNMENT ---------------------- This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES ------------------- Notices and communications required or permitted by Section 2 hereof will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: Connecticut General Life Insurance Company CIGNA Financial Advisors, Inc. 900 Cottage Grove Road, S-321 Hartford, CT 06152-2321 Facsimile: 860-726-1778 Attn: Robert A. Picarello, Esq. Chief Counsel, Individual Insurance Operations AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046 18 Facsimile: 713-993-9185 Attn: Nancy L. Martin, Esq. SECTION 10. VOTING PROCEDURES ------------------------------ Subject to the cost allocation procedures set forth in Section 3 hereof, CG LIFE will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. CG LIFE will vote Shares in accordance with timely instructions received from Participants. CG LIFE will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares in an Account or Subaccount 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 CG LIFE nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. CG LIFE reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. CG LIFE shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify CG LIFE of any changes of interpretations or amendments to any Mixed and Shared Funding exemptive order it obtains in the future. SECTION 11. FOREIGN TAX CREDITS -------------------------------- AVIF agrees to consult in advance with CG LIFE concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION ---------------------------- 12.1 OF AVIF BY CG LIFE AND THE UNDERWRITER. -------------------------------------- (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, CG LIFE and the Underwriter each agrees to indemnify and hold harmless AVIF, its affiliates, and each of their respective directors and officers, and each person, if any, who controls AVIF or its affiliates within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in 19 settlement with the written consent of CG LIFE) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions are related to the sale or acquisition of AVIF's Shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Policies, or sales literature or advertising for the Policies (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to CG LIFE or the Underwriter by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Policies, or sales literature or advertising or otherwise for use in connection with the sale of Policies or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of CG LIFE or the Underwriter and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of CG LIFE, the Underwriter or their respective affiliates or persons under their control (including, without limitation, their employees and "Associated Persons," as that term is defined in paragraph (m) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Policies or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state 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 by or on behalf of CG LIFE, the Underwriter or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by CG LIFE or the Underwriter to perform the obligations, provide the services and furnish the materials required of them under the 20 terms of this Agreement, or any material breach of any representation and/or warranty made by CG LIFE or the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by CG LIFE or the Underwriter; or (v) arise as a result of failure by the Policies issued by CG LIFE 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 CG LIFE nor the Underwriter shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement or (ii) to AVIF. (c) Neither CG LIFE nor the Underwriter shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified CG LIFE or the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify CG LIFE or the Underwriter of any such action shall not relieve CG LIFE or the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, CG LIFE or the Underwriter shall be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from CG LIFE or the Underwriter to such Indemnified Party of its election to assume the defense thereof, the Indemnified Party will cooperate fully with CG LIFE and shall bear the fees and expenses of any additional counsel retained by it, and CG LIFE will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF CG LIFE AND THE 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 CG LIFE, the Underwriter, their respective affiliates, and each of their respective directors and officers, and each person, if any, who controls CG LIFE, the Underwriter, or their respective affiliates within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) 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 21 otherwise, insofar as such losses, claims, damages, liabilities or actions are related to the sale or acquisition of AVIF's Shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of CG LIFE or its affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Policies, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, its affiliates or persons under their control (including, without limitation, their employees and "Associated Persons"), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Policies, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to CG LIFE, the Underwriter, or their respective affiliates by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the 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 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, 22 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 CG LIFE or the Underwriter pursuant to the Policies, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by CG LIFE of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that CG LIFE reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall not be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement or (ii) to CG LIFE, each Account, the Underwriter or Participants. (d) AVIF shall not be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including without limitation, CG LIFE, the Underwriter, or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by CG LIFE or the Underwriter hereunder or by any Participating 23 Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by CG LIFE or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by CG LIFE or any Participating Insurance Company to maintain its variable annuity and/or variable life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as life insurance, endowment or annuity contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. ---------------- Any notice given by the indemnifying Party to an Indemnified Party referred to in Section 12.1(c) or 12.2(e) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. ---------- A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW --------------------------- This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. 24 SECTION 14. EXECUTION IN COUNTERPARTS -------------------------------------- This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY ------------------------- If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE ------------------------------ The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS --------------------- The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. 25 -------------------------- 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. /s/ GARY T. CRUM By_____________________________________ Sr. Vice President Title___________________________________ CONNECTICUT GENERAL LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts /s/ KAREN R. MATHESON By_____________________________________ Vice President Title___________________________________ CIGNA FINANCIAL ADVISORS, INC. /s/ KAREN R. MATHESON By_____________________________________ Vice President Title___________________________________ 26 DATED: APRIL 8, 1996 SCHEDULE A ---------- FUNDS AVAILABLE UNDER THE POLICIES - ---------------------------------- AIM V.I. Capital Appreciation Fund AIM V.I. Growth Fund AIM V.I. Diversified Income Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS - ------------------------------------- CG Variable Life Insurance Separate Account II POLICIES FUNDED BY THE SEPARATE ACCOUNTS - ---------------------------------------- Flexible Premium Variable Life Insurance of Connecticut General Life Insurance Company (Form Nos. ALEN 605, ALEN 615, ALEN 617 and state variations thereof) 27 EX-9.GCOV 23 PARTIC AGMT EXHIBIT 9(g) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., A I M DISTRIBUTORS, INC., GLENBROOK LIFE AND ANNUITY COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS AND ALLSTATE LIFE FINANCIAL SERVICES, INC. TABLE OF CONTENTS - -----------------
DESCRIPTION PAGE - ----------- Section 1. Available Funds.................................................................... 2 1.1 Availability..................................................................... 2 1.2 Addition, Deletion or Modification of Funds...................................... 3 1.3 No Sales to the General Public................................................... 3 Section 2. Processing Transactions............................................................ 3 2.1 Timely Pricing and Orders........................................................ 3 2.2 Timely Payments.................................................................. 4 2.3 Applicable Price................................................................. 4 2.4 Dividends and Distributions...................................................... 4 2.5 Book Entry....................................................................... 5 Section 3. Costs and Expenses................................................................. 5 3.1 General.......................................................................... 5 3.2 Parties To Cooperate............................................................. 5 Section 4. Legal Compliance................................................................... 5 4.1 Tax Laws......................................................................... 5 4.2 Insurance and Certain Other Laws................................................. 8 4.3 Securities Laws.................................................................. 8 4.4 Notice of Certain Proceedings and Other Circumstances............................ 9 4.5 Glenbrook or the Underwriter To Provide Documents; Information About AVIF........ 10 4.6 AVIF or AIM To Provide Documents; Information About Glenbrook and the Underwriter 11 Section 5. Mixed and Shared Funding........................................................... 12 5.1 General.......................................................................... 12 5.2 Disinterested Directors.......................................................... 12 5.3 Monitoring for Material Irreconcilable Conflicts................................. 13 5.4 Conflict Remedies................................................................ 14 5.5 Notice to Glenbrook.............................................................. 15 5.6 Information Requested by Board of Directors...................................... 15 5.7 Compliance with SEC Rules........................................................ 15 5.8 Requirements for Other Insurance Companies....................................... 16
i Section 6. Termination........................................................................ 16 6.1 Events of Termination.............................................................. 16 6.2 Notice Requirement for Termination................................................. 17 6.3 Funds To Remain Available.......................................................... 18 6.4 Survival of Warranties and Indemnifications........................................ 18 6.5 Continuance of Agreement for Certain Purposes...................................... 18 Section 7. Parties To Cooperate Respecting Termination........................................ 18 Section 8. Assignment......................................................................... 19 Section 9. Notices............................................................................ 19 Section 10. Voting Procedures.................................................................. 20 Section 11. Foreign Tax Credits................................................................ 20 Section 12. Indemnification.................................................................... 21 12.1 Of AVIF and AIM by Glenbrook and the Underwriter................................. 21 12.2 Of Glenbrook and the Underwriter by AVIF and AIM................................. 23 12.3 Effect of Notice................................................................. 25 12.4 Successors....................................................................... 26 Section 13. Applicable Law..................................................................... 26 Section 14. Execution in Counterparts.......................................................... 26 Section 15. Severability....................................................................... 26 Section 16. Rights Cumulative.................................................................. 26 Section 17. Headings........................................................................... 26 SCHEDULE A..................................................................................... 28 SCHEDULE B..................................................................................... 29 SCHEDULE C..................................................................................... 30
ii PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 19th day of December, 1995 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"); Glenbrook Life and Annuity Company, an Illinois life insurance company ("Glenbrook"), 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., a Delaware corporation and the principal underwriter of the Contracts and Policies referred to below ("Underwriter") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of nine separate series, shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, AIM is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, AIM currently serves as the distributor for the Shares; and WHEREAS, Glenbrook will be the issuer of certain variable annuity contracts ("Contracts") and/or variable life insurance policies ("Policies") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts and Policies (hereinafter collectively, the "Policies"), if required by applicable law, will be registered under the 1933 Act; and 1 WHEREAS, the Accounts 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, Glenbrook will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Policies will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, Glenbrook intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Policies provided, that AVIF implements Mixed and Shared Funding, described below, pursuant to an exemptive order from the SEC or otherwise; and WHEREAS, the Underwriter is a broker-dealer registered with the SEC under the 1934 Act and a member in good standing of the NASD; and WHEREAS, the Underwriter intends to enter into Selling Group Agreements with entities that may legally sell the Policies (the "Selling Group Members"); and 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 Glenbrook 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. 2 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. SECTION 2. PROCESSING TRANSACTIONS ----------------------------------- 2.1 TIMELY PRICING AND ORDERS. -------------------------- (a) AVIF or its designated agent will use its best efforts to provide Glenbrook 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 and (ii) AVIF calculates the Fund's net asset value. (b) Glenbrook 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. Glenbrook will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9 a.m. Central time the following Business Day; provided, however, that AVIF shall provide additional time to Glenbrook 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 Glenbrook. (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 Glenbrook and of redemption proceeds by AVIF, Glenbrook 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, 3 partial withdrawals, routine withdrawals of charges, or requests for other transactions under Policies (collectively, "Policy transactions"). (d) If AVIF provides materially incorrect Share net asset value information, Glenbrook 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 Glenbrook. 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. ---------------- Glenbrook 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 Glenbrook 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 calendar days after the date the order is placed in order to enable Glenbrook 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 and redemption orders that result from Policy transactions and that Glenbrook 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), Glenbrook 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 a.m. Central time on the next following Business Day or such later time computed in accordance with Section 2.1(b) hereof. (b) All other Share purchases and redemptions by Glenbrook 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 Glenbrook of any income dividends or capital gain distributions payable on the Shares of any Fund. Glenbrook hereby elects to reinvest all dividends 4 and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until Glenbrook 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. Glenbrook 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 Glenbrook. Shares ordered from AVIF will be recorded in an appropriate title for Glenbrook, on behalf of its Account. SECTION 3. COSTS AND EXPENSES ------------------------------ 3.1 GENERAL. -------- Except as otherwise specifically provided in Schedule C, attached hereto and made a part hereof, each Party will bear all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. --------------------- Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. 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 Glenbrook immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. 5 (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 Glenbrook 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) Glenbrook agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of Glenbrook or, to Glenbrook'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 Glenbrook 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) Glenbrook shall promptly notify AVIF of such assertion or potential claim; (ii) Glenbrook shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) Glenbrook 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 Glenbrook 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 Glenbrook, to the effect that a reasonable basis exists for making such a demonstration; (iv) Glenbrook shall permit AVIF, its affiliates and their legal and accounting advisors to attend, advise and otherwise assist Glenbrook (which assistance Glenbrook shall consider and/or accept in good faith) with respect to 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 that Glenbrook shall control, in good faith, the conduct of such conferences, discussions, proceedings, or contests or appeals thereof; (v) any written materials to be submitted by Glenbrook 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 Glenbrook to AVIF (together with any supporting information or analysis) 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 6 such proposed materials are to be submitted and (b) shall not be submitted by Glenbrook to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) Glenbrook 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 Glenbrook that may be reasonably requested by or on behalf of AVIF and that Glenbrook 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) Glenbrook 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 Glenbrook 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 counsel approved by Glenbrook, 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 Glenbrook should be more likely than not to prevail on such appeal), and provided further that each Party shall bear one-half of the expenses of any judicial appeal; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if Glenbrook 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, Glenbrook may, in its discretion, authorize AVIF or its affiliates to act in the name of Glenbrook 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 Glenbrook have 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) Glenbrook 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. Glenbrook will notify AVIF immediately upon having a reasonable basis for believing that 7 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 Glenbrook's investigation of any such circumstances to the extent permitted by applicable law. (e) Glenbrook 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. Glenbrook 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 Glenbrook. (b) Glenbrook 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. (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) The 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. ---------------- 8 (a) Glenbrook and the Underwriter represent and warrant that (i) interests in each Account pursuant to the Policies will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Policies will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and 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) Glenbrook will amend the registration statement for its Policies under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Policies or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF and AIM represent and warrant that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. ------------------------------------------------------ (a) AVIF and/or AIM will immediately notify Glenbrook of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law or (b) such law precludes the use of such Shares 9 as an underlying investment medium of the Policies issued or to be issued by Glenbrook. 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) Glenbrook and/or the Underwriter will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Policies or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Policies, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. Glenbrook 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 GLENBROOK OR THE UNDERWRITER TO PROVIDE DOCUMENTS; INFORMATION -------------------------------------------------------------- ABOUT AVIF. - ----------- (a) Glenbrook or the Underwriter will provide to AVIF or its designated agent at least one complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Policies, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) The Underwriter will provide to AVIF or its designated agent at least one 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 [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 adviser as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to Glenbrook in the manner required by Section 9 hereof. (c) Neither Glenbrook, 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 10 contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) Glenbrook and the Underwriter shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Participants or offerees) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expense relating to the improper use of such broker only materials. 4.6 AVIF OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT GLENBROOK AND ------------------------------------------------------------------ THE UNDERWRITER. - ---------------- (a) AVIF will provide to Glenbrook at least one 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 Glenbrook or the Underwriter camera ready or computer diskette copies of all AVIF Prospectuses, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Policy value to a Fund. AVIF will provide such copies to Glenbrook or the Underwriter in a timely manner so as to enable Glenbrook or the Underwriter, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AIM will provide to Glenbrook or its designated agent at least one complete copy of each piece of sales literature or other promotional material in which Glenbrook, the Underwriter or any of their respective affiliates is named, or that refers to the Policies, at least 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 Glenbrook or its designated agent objects to such use within 10 Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. Glenbrook 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 Glenbrook, the Underwriter, each Account, or the Policies other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Policies, as such 11 registration statement and Account Prospectus may be amended from time to time; or (ii) in reports or voting instruction materials for each Account; or (iii) in sales literature or other promotional material approved by Glenbrook or its affiliates, except with the express written permission of Glenbrook. (e) AIM shall adopt and implement procedures reasonably designed to ensure that information concerning Glenbrook, the Underwriter, and their respective affiliates that is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Participants or offerees) ("broker only materials") is so used, and neither Glenbrook, the Underwriter, nor any of their respective affiliates shall be liable for any losses, damages or expense relating to the improper use of such broker only materials. SECTION 5. MIXED AND SHARED FUNDING ------------------------------------ 5.1 GENERAL. -------- AVIF has applied for an order from the SEC exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable life insurance contracts, separate accounts of insurance companies unaffiliated with Glenbrook, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply, if and only if AVIF implements Mixed and Shared Funding, pursuant to such an exemptive order or otherwise. AVIF hereby notifies Glenbrook 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 45 days if the vacancy or vacancies may be filled by the Board; (b) for a period of 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 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 on all qualified retirement and pension plans investing in AVIF ("Participating Plans"). Glenbrook 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, Glenbrook 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 Glenbrook to disregard voting instructions of Participants. 13 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, Glenbrook 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) 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 Glenbrook's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, Glenbrook 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 months after AVIF gives notice to Glenbrook that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by Glenbrook 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 Glenbrook conflicts with the majority of other state regulators, then Glenbrook will withdraw each Account's investment in AVIF within six months after AVIF's Board of Directors informs Glenbrook that it has determined that such decision has created a material irreconcilable conflict (after consideration of the interests of all Participants), and until such withdrawal AVIF shall continue to accept and implement orders by Glenbrook for the purchase and redemption of Shares of AVIF. (d) Glenbrook 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 (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. Glenbrook 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 GLENBROOK. -------------------- AVIF will promptly make known in writing to Glenbrook 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. -------------------------------------------- Glenbrook and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive application filed with the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. -------------------------- If, at any time during which AVIF is serving as an investment medium for variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 15 5.8 REQUIREMENTS FOR OTHER INSURANCE COMPANIES. ------------------------------------------- AVIF will require that each Participating Insurance Company 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 Glenbrook 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 Glenbrook or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding Glenbrook'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 Glenbrook 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, Glenbrook 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 Glenbrook, 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 Glenbrook; or 16 (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of Glenbrook if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if Glenbrook reasonably believes that the Fund may fail to so qualify; (g) at the option of Glenbrook if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions (other than by reason of the failure of the Policies issued by Glenbrook 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 Glenbrook reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF or AIM if the Policies issued by Glenbrook 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 Section 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 Section 6.1(b) or Section 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 Section 6.1(d), Section 6.1(f), Section 6.1(g), Section 6.1(h) or Section 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. 17 6.3 FUNDS TO REMAIN AVAILABLE. -------------------------- Except (a) as necessary to implement Participant-initiated transactions, (b) as required by state insurance laws or regulations, (c) as required pursuant to Section 5 of this Agreement, or (d) with respect to any Fund as to which this Agreement has terminated pursuant to Section 6.1 hereof, Glenbrook shall not (i) redeem AVIF Shares attributable to the Policies (as opposed to AVIF Shares attributable to Glenbrook'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 Glenbrook 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 Glenbrook 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 18 shares for those of the affected Fund, or otherwise terminating participation by the Policies in such Fund. SECTION 8. ASSIGNMENT ---------------------- This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES ------------------- Notices and communications required or permitted by Section 2 hereof will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: Glenbrook Life and Annuity Company 3100 Sanders Road, Suite J5D Northbrook, Illinois 60062 Facsimile: (708) 402-3781 Attn: Michael Velotta, Esq. Allstate Life Financial Services, Inc. 3100 Sanders Road, Suite J5B Northbrook, Illinois 60062 Facsimile: (708) 402-3781 Attn: John Hedrick, Esq. AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. 19 A I M Distributors, Inc. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn.: Nancy L. Martin, Esq. SECTION 10. VOTING PROCEDURES ------------------------------ Subject to the cost allocation procedures established pursuant to Section 3.1 hereof, Glenbrook 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. Glenbrook will vote Shares in accordance with timely instructions received from Participants. Glenbrook 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. Neither Glenbrook 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 Glenbrook 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. Glenbrook reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. Glenbrook shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by any Mixed and Shared Funding exemptive order that AVIF may obtain in the future. AVIF will notify Glenbrook (i) of any changes of interpretations or amendments to any Mixed and Shared Funding exemptive order it obtains in the future and (ii) of any proposal to be submitted to Participants for their approval (prior to any Board of Directors meeting of AVIF at which such proposals are presented). SECTION 11. FOREIGN TAX CREDITS -------------------------------- AVIF agrees to consult in advance with Glenbrook 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. 20 SECTION 12. INDEMNIFICATION ---------------------------- 12.1 OF AVIF AND AIM BY GLENBROOK AND THE UNDERWRITER. ------------------------------------------------- (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, Glenbrook and the Underwriter each agrees to indemnify and hold harmless AVIF, its affiliates (including AIM) except Participants, and each of their respective directors and officers, and each person, if any, who controls AVIF or its affiliates (including AIM) within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Glenbrook) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions are related to the sale or acquisition of AVIF's Shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Policies, or sales literature or advertising for the Policies (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Glenbrook or the Underwriter by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Policies, or sales literature or advertising or otherwise for use in connection with the sale of Policies or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of Glenbrook or the Underwriter and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of Glenbrook, the Underwriter or their respective affiliates or persons under their control (including, without limitation, their employees and "Associated Persons," as that term is defined in paragraph (m) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Policies or Shares; or 21 (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF or AIM by or on behalf of Glenbrook, the Underwriter or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by Glenbrook or the Underwriter to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by Glenbrook or the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by Glenbrook or the Underwriter; or (v) arise as a result of failure by the Policies issued by Glenbrook 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 Glenbrook nor the Underwriter shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement or (ii) to AVIF. (c) Neither Glenbrook nor the Underwriter shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF or AIM shall have notified Glenbrook or the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Glenbrook or the Underwriter of any such action shall not relieve Glenbrook or the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, Glenbrook or the Underwriter shall be entitled to participate, at its own expense, in the defense of such action and Glenbrook or the Underwriter 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 Glenbrook or the Underwriter to such Indemnified Party 22 of its election to assume the defense thereof, the Indemnified Party will cooperate fully with Glenbrook and shall bear the fees and expenses of any additional counsel retained by it, and Glenbrook will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF GLENBROOK AND THE UNDERWRITER BY AVIF AND AIM. ------------------------------------------------- (a) Except to the extent provided in Sections 12.2(d), 12.2(e) and 12.2(f), below, to the extent permitted by law, AVIF and/or AIM each agrees to indemnify and hold harmless Glenbrook, the Underwriter, their respective affiliates, and each of their respective directors and officers, and each person, if any, who controls Glenbrook, the Underwriter, or their respective affiliates within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise, insofar as such losses, claims, damages, liabilities or actions are related to the sale or acquisition of AVIF's Shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of Glenbrook or its affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Policies, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, its affiliates or persons under their control (including, without limitation, their employees and "Associated Persons"), in connection with the sale or distribution of AVIF Shares; or 23 (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 Glenbrook, the Underwriter, or their respective affiliates by AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Policies, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF or AIM to perform their respective obligations, provide the services (including, but not limited to, the provision of correct net asset value) and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF or AIM in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF or AIM. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF 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 Glenbrook or the Underwriter pursuant to the Policies, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by Glenbrook of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that Glenbrook reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall not be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement or (ii) to Glenbrook, each Account, the Underwriter or Participants. 24 (d) AVIF shall not be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including without limitation, Glenbrook, the Underwriter, or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by Glenbrook or the Underwriter hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by Glenbrook 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 Glenbrook or any Participating Insurance Company to maintain its variable annuity and/or variable life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as life insurance, endowment or annuity contracts under applicable provisions of the Code; 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 Glenbrook or any Participating Insurance Company resulted from the 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 Section 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 25 responsibility, and the Indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. ----------- A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW --------------------------- This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION IN COUNTERPARTS -------------------------------------- This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY ------------------------- If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE ------------------------------ The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS --------------------- The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. 26 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. By /s/ ROBERT H. GRAHAM ------------------------------------ Title President A I M DISTRIBUTORS, INC. By /s/ MICHAEL J. CEMO ------------------------------------ Title President GLENBROOK LIFE AND ANNUITY COMPANY, on behalf of itself and its Separate Accounts as provided in Schedule A By /s/ CRAIG WHITEHEAD ------------------------------------ Title Senior Vice President ALLSTATE LIFE FINANCIAL SERVICES, INC. By /s/ ROBERT J. KELLY ------------------------------------ Title President 27 SCHEDULE A ---------- FUNDS AVAILABLE UNDER THE POLICIES - ---------------------------------- AIM Variable Insurance Funds, Inc. AIM V.I. Capital Appreciation Fund AIM V.I. Diversified Income Fund AIM V.I. Global Utilities Fund AIM V.I. Government Securities Fund AIM V.I. Growth Fund AIM V.I. Growth and Income Fund AIM V.I. International Equity Fund AIM V.I. Money Market Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS - ------------------------------------- Glenbrook Life and Annuity Company Separate Account A POLICIES FUNDED BY THE SEPARATE ACCOUNTS - ---------------------------------------- Individual and Group Flexible Premium Deferred Variable Annuity Contracts 28 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 Glenbrook, 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 Glenbrook has not mailed redemption checks to Participants, Glenbrook 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 Glenbrook for Glenbrook's reprocessing costs in the amount of $3.00 per contract affected by $10 or more. The Pricing Policies described herein may be modified by AVIF as approved by its Board of Directors. AIM agrees to use its best efforts to notify Glenbrook at least five days prior to any such meeting of the Board of Directors of AVIF to consider such proposed changes. 29 SCHEDULE C ---------- EXPENSE ALLOCATIONS ---------------------------------
DESCRIPTION GLENBROOK AIM/AVIF - ------------------------------------------------------------------------------------------------------ Registration - ------------ Prepare and file Account registration Fund registration statements registration statements(1) statements 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 Account Supplements (unless Fund Supplements (unless Printing changes relate only to the changes relate only to the Fund) Account) Fund Supplements (for Account Supplements (for changes that relate only to changes that relate only to Account) Fund) - -------------------------------------------------------------------------------------------------------
- --------------------- (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 Glenbrook and AIM are printed together, the printing cost shall be allocated in proportion to the number of pages attributable to each document. 30
DESCRIPTION GLENBROOK AIM/AVIF - ------------------------------------------------------------------------------------------------------ Financial Reports - ----------------- Typesetting Account Reports Fund Reports Printing(2) Account Reports Fund Reports - ------------------------------------------------------------------------------------------------------- Mailing and Distribution(3) - --------------------------- To Contract owners Account and Fund Supplements (for which Prospectuses, SAIs, AIM/AVIF is responsible to Supplements (for which typeset and print) Glenbrook is responsible to typeset and print) and Reports To Offerees Supplements (for which Account and Fund Glenbrook is responsible to Prospectuses, SAIs, typeset and print) Supplements (for which AIM/AVIF is responsible to typeset and print) and Reports - ------------------------------------------------------------------------------------------------------- Proxies(4) - ---------- Typesetting, printing Account and Fund Proxies Account and Fund Proxies and mailing of proxy where the matters submitted where the matters submitted solicitation materials and are solely Account related are solely Fund related voting instruction solicitation materials and tabulation of proxies to Participants - -------------------------------------------------------------------------------------------------------
- ---------------------------- (3)To the extent required by law. (4)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 Glenbrook and AIM. 31
DESCRIPTION GLENBROOK AIM/AVIF - ------------------------------------------------------------------------------------------------------ Other (Sales Related) - --------------------- Contract owner Account related items Fund related items communication Distribution Policies Administration Account (Policies) - ----------------------------------------------------------------------------------------------------
32 EX-9.H 24 PARTIC AGMT EXHIBIT 9(h) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., A I M DISTRIBUTORS, INC. AND IDS LIFE INSURANCE COMPANY ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS 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 Registration................................................................................... 4 3.3 Other (Non-Sales-Related)...................................................................... 5 3.4 Other (Sales-Related).......................................................................... 5 3.5 Parties To Cooperate........................................................................... 6 Section 4. Legal Compliance................................................................................ 6 4.1 Tax Laws....................................................................................... 6 4.2 Insurance and Certain Other Laws.............................................................. 8 4.3 Securities Laws............................................................................... 9 4.4 Notice of Certain Proceedings and Other Circumstances......................................... 10 4.5 IDS Life To Provide Documents; Information About AVIF......................................... 10 4.6 AVIF To Provide Documents; Information About IDS Life......................................... 11 Section 5. Mixed and Shared Funding........................................................................ 14 5.1 General....................................................................................... 14 5.2 Disinterested Directors....................................................................... 14 5.3 Monitoring for Material Irreconcilable Conflicts.............................................. 14 5.4 Conflict Remedies............................................................................. 15 5.5 Notice to IDS Life............................................................................ 16 5.6 Information Requested by Board of Directors................................................... 16 5.7 Compliance with SEC Rules..................................................................... 17 5.8 Other Requirements............................................................................ 17
i
DESCRIPTION PAGE - ----------- ---- Section 6. Termination................................................................................... 17 6.1 Events of Termination........................................................................ 17 6.2 Notice Requirement for Termination........................................................... 18 6.3 Funds To Remain Available.................................................................... 19 6.4 Survival of Warranties and Indemnifications.................................................. 19 6.5 Continuance of Agreement for Certain Purposes................................................ 19 Section 7. Parties To Cooperate Respecting Termination................................................... 19 Section 8. Assignment.................................................................................... 19 Section 10. Voting Procedures............................................................................. 21 Section 11. Foreign Tax Credits........................................................................... 21 Section 12. Indemnification............................................................................... 22 12.1 Of AVIF andA I M by IDS Life.................................................................. 22 12.2 Of IDS Life by AVIF andA I M.................................................................. 25 12.3 Effect of Notice.............................................................................. 27 12.4 Successors.................................................................................... 27 Section 13. Applicable Law................................................................................ 28 Section 14. Execution in Counterparts..................................................................... 28 Section 15. Severability.................................................................................. 28 Section 16. Rights Cumulative............................................................................. 28 Section 17. Headings...................................................................................... 28 Section 18. Confidentiality............................................................................... 28 Section 19. Trademarks and Fund Names..................................................................... 29 Section 20. Parties to Cooperate.......................................................................... 30
ii PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 4th day of March, 1996 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM"); IDS Life Insurance Company, a Minnesota life insurance company and the principal underwriter of the Contracts referred to below ("IDS Life"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of nine separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, IDS Life 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, IDS Life will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, IDS Life will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and 1 WHEREAS, to the extent permitted by applicable insurance laws and regulations, IDS Life intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, IDS Life 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 IDS Life for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. ------------------------------------------- The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. ------------------------------ AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. 2 SECTION 2. PROCESSING TRANSACTIONS ----------------------------------- 2.1 TIMELY PRICING AND ORDERS. ------------------------- (a) AVIF or its designated agent will use its best efforts to provide IDS Life with the net asset value per Share for each Fund by 5:30 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) IDS Life is open for business. (b) IDS Life will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. IDS Life will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to IDS Life in the event that AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to IDS Life. (c) With respect to payment of the purchase price by IDS Life and of redemption proceeds by AVIF, IDS Life and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), IDS Life shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to IDS Life. 2.2 TIMELY PAYMENTS. --------------- IDS Life will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by IDS Life by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable IDS Life to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. ---------------- (a) Share purchase payments and redemption orders that result from purchase payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that IDS 3 Life receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), IDS Life shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. (b) All other Share purchases and redemptions by IDS Life will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. --------------------------- AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to IDS Life of any income dividends or capital gain distributions payable on the Shares of any Fund. IDS Life hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until IDS Life otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. IDS Life reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. ---------- Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to IDS Life. Shares ordered from AVIF will be recorded in an appropriate title for IDS Life, on behalf of its Account. SECTION 3. COSTS AND EXPENSES ------------------------------ 3.1 GENERAL. ------- Except as otherwise specifically provided herein, each Party will bear all expenses incident to its performance under this Agreement. 3.2 REGISTRATION. ------------ (a) AVIF will bear the cost of its registering as a management investment company under the 1940 Act and registering its Shares under the 1933 Act, and keeping such registrations current and effective; including, without limitation, the preparation of and filing with the SEC of 4 Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of all applicable registration or filing fees with respect to any of the foregoing. (b) IDS Life will bear the cost of registering, to the extent required, each Account as a unit investment trust under the 1940 Act and registering units of interest under the Contracts under the 1933 Act and keeping such registrations current and effective; including, without limitation, the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to each Account and its units of interest and payment of all applicable registration or filing fees with respect to any of the foregoing. 3.3 OTHER (NON-SALES-RELATED). ------------------------- (a) AVIF will bear, or arrange for others to bear, the costs of preparing, filing with the SEC and setting for printing AVIF's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF proxy material and other shareholder communications. (b) IDS Life will bear the costs of preparing, filing with the SEC and setting for printing each Account's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "Account Prospectus"), any periodic reports to Contract owners, annuitants or participants under the Contracts (collectively, "Participants"), voting instruction solicitation material, and other Participant communications. (c) IDS Life will print in quantity and deliver to existing Participants the documents described in Section 3.3(b) above and the prospectus provided by AVIF in camera ready or computer diskette form. AVIF will print the AVIF statement of additional information, proxy materials relating to AVIF and periodic reports of AVIF. 3.4 OTHER (SALES-RELATED). --------------------- IDS Life will bear the expenses of distribution. These expenses would include by way of illustration, but are not limited to, the costs of distributing to Participants the following documents, whether they relate to the Account or AVIF: prospectuses, statements of additional information, proxy materials and periodic reports. These costs would also include the costs of preparing, printing, and distributing sales literature and advertising relating to the Funds, as well as filing such materials with, and obtaining approval from, the SEC, NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required. 5 3.5 PARTIES TO COOPERATE. -------------------- Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. SECTION 4. LEGAL COMPLIANCE ---------------------------- 4.1 TAX LAWS. -------- (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify IDS Life immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify IDS Life immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) IDS Life agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of IDS Life or, to IDS Life's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or IDS Life otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) IDS Life shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) IDS Life shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) IDS Life shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; 6 (iv) IDS Life shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that IDS Life will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by IDS Life to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by IDS Life to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by IDS Life to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) IDS Life shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of IDS Life) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) IDS Life shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that IDS Life shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if IDS Life fails to comply with any of the foregoing clauses (i) 7 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, IDS Life may, in its discretion, authorize AVIF or its affiliates to act in the name of IDS Life in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall IDS Life have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) IDS Life represents and warrants that the Contracts currently are and will be treated as annuity contracts under applicable provisions of the Code and that it will use its best efforts to maintain such treatment; IDS Life will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) IDS Life represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. IDS Life will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. -------------------------------- (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by IDS Life, including, the furnishing of information not otherwise available to IDS Life which is required by state insurance law to enable IDS Life to obtain the authority needed to issue the Contracts in the various states. (b) IDS Life represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of 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 61A.14 of the Minnesota 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. 8 (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) IDS Life represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and 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) IDS Life will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b- 1 to finance distribution expenses. 9 (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 IDS Life of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by IDS Life. AVIF will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) IDS Life will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. IDS Life will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 IDS LIFE TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. ----------------------------------------------------- (a) IDS Life will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 10 (b) IDS Life will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates A I M as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to IDS Life in the manner required by Section 9 hereof. (c) Neither IDS Life nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) IDS Life shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on- line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT IDS LIFE. ----------------------------------------------------- (a) AVIF will provide to IDS Life at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to 11 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 IDS Life camera ready or computer diskette copies of all AVIF prospectuses and printed copies, in an amount specified by IDS Life, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to IDS Life in a timely manner so as to enable IDS Life, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to IDS Life or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which IDS Life, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if IDS Life or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. IDS Life shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning IDS Life, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by IDS Life for distribution; or (iii) in sales literature or other promotional material approved by IDS Life or its affiliates, except with the express written permission of IDS Life. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning IDS Life, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither IDS Life, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on- line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other 12 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 life insurance contracts, separate accounts of insurance companies unaffiliated with IDS Life, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies IDS Life that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2 DISINTERESTED DIRECTORS. ----------------------- AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the Rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board; (b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. ------------------------------------------------ AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). IDS Life agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: 13 (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, IDS Life will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by IDS Life to disregard voting instructions of Participants. 5.4 CONFLICT REMEDIES. ----------------- (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, IDS Life will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and 14 (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 IDS Life 's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, IDS Life may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to IDS Life that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by IDS Life for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to IDS Life conflicts with the majority of other state regulators, then IDS Life will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs IDS Life that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by IDS Life for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) IDS Life agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. IDS Life will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO IDS LIFE. ------------------ AVIF will promptly make known in writing to IDS Life the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. ------------------------------------------- IDS Life and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said 15 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 (b) at the option of AVIF upon institution of formal proceedings against IDS Life or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding IDS Life's obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or 16 (c) at the option of IDS Life upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, IDS Life reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on IDS Life, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by IDS Life; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of IDS Life if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if IDS Life reasonably believes that the Fund may fail to so qualify; or (g) at the option of IDS Life if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if IDS Life reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by IDS Life cease to qualify as annuity 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 Section 6.1(a) or Section 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; 17 (b) in the event that any termination is based upon the provisions of Section 6.1(b) or Section 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 Section 6.1(d), Section 6.1(f), Section 6.1(g), Section 6.1(h) or Section 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 IDS Life, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts."). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. ------------------------------------------- All warranties and indemnifications will survive the termination of this Agreement. 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. --------------------------------------------- If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that IDS Life may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION ------------------------------------------------------- The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant 18 to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT ---------------------- This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 9. NOTICES ------------------- Notices and communications required or permitted by Section 9 hereof will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: IDS Life Insurance Company 105 Tower 10 Minneapolis, MN 55440-0010 Facsimile: 612-671-2269 Attn: Mr. Wendell Halvorson American Express Financial Advisors Inc. cc: IDS Life Insurance Company IDS Tower 10 Minneapolis, MN 55440-0010 Facsimile: 612-671-3767 Attn: Mary Ellyn Minenko, Esq. Counsel AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046 Facsimile: 713-993-9185 Attn: Nancy L. Martin, Esq. 19 A I M Distributors, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046 Facsimile: 713-993-9185 Attn: Mr. Gary Littlepage SECTION 10. VOTING PROCEDURES ------------------------------ Subject to the cost allocation procedures set forth in Section 3 hereof, IDS Life will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. IDS Life will vote Shares in accordance with timely instructions received from Participants. IDS Life will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither IDS Life nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. IDS Life reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. IDS Life shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify IDS Life of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS -------------------------------- AVIF agrees to consult in advance with IDS Life concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. 20 SECTION 12. INDEMNIFICATION ---------------------------- 12.1 OF AVIF ANDAIM BY IDS LIFE. -------------------------- (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, IDS Life agrees 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 any of their 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 IDS Life) 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 IDS Life 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 IDS Life and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of IDS Life or its affiliates or persons under their control (including, without limitation, their employees and "Associated Persons," as that term is defined in paragraph (m) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF 21 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 by or on behalf of IDS Life or its 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 IDS Life 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 IDS Life in this Agreement or arise out of or result from any other material breach of this Agreement by IDS Life ; or (v) arise as a result of failure by the Contracts issued by IDS Life to qualify as 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) IDS Life shall not 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) IDS Life shall not be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF orAIM shall have notified IDS Life 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 IDS Life of any such action shall not relieve IDS Life from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, IDS Life shall be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from IDS Life to such Indemnified Party of its election to assume the defense thereof, the Indemnified Party will cooperate fully with IDS Life and shall bear the fees and expenses of any additional counsel retained by it, and IDS Life 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 12.2 OF IDS LIFE 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 IDS Life its affiliates, and each person, if any, who controls IDS Life, or its affiliates within the meaning of Section 15 of the 1933 Act and any of its directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF and AIM ) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of IDS Life or its 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, their affiliates or persons under their control (including, without limitation, their employees and "Associated Persons" as that Term is defined in Section (n) of Article 1 of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or 23 omission was made in reliance upon and in conformity with information furnished to IDS Life or its affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF or AIM to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF or AIM in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF or AIM. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against IDS Life pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by IDS Life of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that IDS Life reasonably deems necessary or appropriate as a result of the noncompliance. (c) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to IDS Life, each Account or Participants. (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and AIM in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF and AIM of any such action shall not relieve AVIF and AIM from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF and AIM will be entitled to participate, at their own expense, in 24 the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF or AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall bear the fees and expenses of any additional counsel retained by it, and neither AVIF nor AIM will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF or AIM be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, IDS Life, 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 IDS Life hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by IDS Life or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by IDS Life or any Participating Insurance Company to maintain its variable annuity insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. ---------------- Any notice given by the indemnifying Party to an Indemnified Party referred to in Section 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. 25 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 IDS Life or any of its affiliates (collectively, the "IDS Life Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the IDS Life Protected Parties or any of their employees or agents in connection with IDS Life's performance of its duties under this Agreement are the valuable property of the IDS Life Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the IDS Life Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the IDS Life Protected Parties' customers, or any other information or property of the IDS Life Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the IDS Life Protected Parties' customers 26 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 IDS Life's prior written consent; or (b) as required by law or judicial process. IDS Life acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. IDS Life agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by IDS Life from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with IDS Life, IDS Life will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND FUND NAMES -------------------------------------- (a) AIM, or its affiliates, owns all right, title and interest in and to the name, trademark and service mark "AIM" and such other tradenames, trademarks and service marks as may be set forth on Schedule B, as amended from time to time by written notice from AIM to IDS Life (the "AIM licensed marks" or the "licensor's licensed marks") and is authorized to use and to license other persons to use such marks. AIM hereby grants to IDS Life and its affiliates a non-exclusive license to use the AIM licensed marks in connection with IDS Life's performance of the services contemplated under this Agreement, subject to the terms and conditions set forth in this Section 19. (b) The grant of license by AIM (a "licensor") to IDS Life and its affiliates ( the "licensee") shall terminate automatically upon termination of this Agreement. Upon automatic termination, the licensee shall cease to use the licensor's licensed marks, except that IDS Life shall have the right to continue to service any outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's elective termination of this license, IDS Life and its affiliates shall immediately cease to issue any new annuity contracts bearing any of the AIM licensed marks and shall likewise cease any activity which suggests that it has any right under any of the AIM licensed marks or that it has any association with AIM, except that IDS Life shall have the right to continue to service outstanding Contracts bearing any of the AIM licensed marks. 27 (c) The licensee shall obtain the prior written approval of the licensor for the public release by such licensee of any materials bearing the licensor's licensed marks. The licensor's approvals shall not be unreasonably withheld. (d) During the term of this grant of license, a licensor may request that a licensee submit samples of any materials bearing any of the licensor's licensed marks which were previously approved by the licensor but, due to changes circumstances, the licensor may wish to reconsider. If, on reconsideration, or on initial review, respectively, any such samples fail to meet with the written approval of the licensor, then the licensee shall immediately cease distributing such disapproved materials. The licensor's approval shall not be unreasonably withheld, and the licensor, when requesting reconsideration of a prior approval, shall assume the reasonable expenses of withdrawing and replacing such disapproved materials. The licensee shall obtain the prior written approval of the licensor for the use of any new materials developed to replace the disapproved materials, in the manner set forth above. (e) The licensee hereunder: (i) acknowledges and stipulates that, to the best of the knowledge of the licensee, the licensor's licensed marks are valid and enforceable trademarks and/or service marks and that such licensee does not own the licensor's licensed marks and claims no rights therein other than as a licensee under this Agreement; (ii) agrees never to contend otherwise in legal proceedings or in other circumstances; and (iii) acknowledges and agrees that the use of the licensor's licensed marks pursuant to this grant of license shall inure to the benefit of the licensor. SECTION 20. PARTIES TO COOPERATE --------------------------------- Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. -------------------------------------- 28 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. By: /s/ ROBERT H. GRAHAM _________________________________________ Title: President _________________________________________ A I M DISTRIBUTORS, INC. By: /s/ W. GARY LITTLEPAGE _________________________________________ Title: Senior Vice President _________________________________________ IDS LIFE, on behalf of itself and its separate accounts By: /s/ JANIS E. MILLER _________________________________________ Title: VP _________________________________________ Attest: /s/ PAUL D. SAND ----------------------------------------- Assistant Secretary 29 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS - ----------------------------------- . AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Growth and Income Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS - ------------------------------------- . IDS Life Variable Account 10 CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS - ----------------------------------------- . Flexible Premium Deferred Variable Annuity Contract Form Nos. 31030, 31031 and 31032-IRA and state variations thereof 30 SCHEDULE B . A I M VARIABLE INSURANCE FUNDS, INC. AIM V.I. Growth and Income Fund . AIM and Design [AIM LOGO APPEARS HERE] 31 EX-9.I 25 PARTIC AGMT EXHIBIT 9(i) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC. AND CITICORP LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND CITICORP LIFE VARIABLE ANNUITY SEPARATE ACCOUNT THIS AGREEMENT, made and entered into this 10th day of February, 1995, by and among AIM VARIABLE INSURANCE FUNDS, INC., an open-end, series, management investment company ("AVIF"), and CITICORP LIFE INSURANCE COMPANY, an Arizona corporation (the "Company"), on its own behalf and on behalf of the CITICORP LIFE VARIABLE ANNUITY SEPARATE ACCOUNT and other segregated asset accounts of the Company as set forth on Schedule A attached hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"). WHEREAS, AVIF is a Maryland corporation registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, AVIF is comprised of nine investment portfolios (the "Funds"), shares of which are currently sold only to insurance company separate accounts to fund benefits under variable annuity contracts; WHEREAS, the Funds to be offered by AVIF to the Company and the Accounts are set forth on Schedule A attached hereto, as the parties hereto may amend from time to time (each, a "Portfolio," and, collectively, the "Portfolios"); WHEREAS, A I M Advisors, Inc. ("AIM Advisors") is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities law, and is AVIF's investment adviser; WHEREAS, the Company will issue certain variable annuity contracts ("Contracts") and/or variable life insurance policies ("Policies") as set forth on Schedule A attached hereto, as the parties hereto may amend from time to time, which Contracts and Policies, if required by applicable law, will be registered under the 1933 Act; WHEREAS, each Account is or will be a segregated asset account, duly organized and validly existing under the laws of the State of Arizona, and established by resolution of the Board of Directors of the Company to set aside and invest assets attributable to the Policies that are allocated to the Accounts; WHEREAS, the Company has registered or will register the Accounts as unit investment trusts under the 1940 Act (unless exempt therefrom); WHEREAS, A I M Distributors, Inc. (the "Underwriter") is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc., (the "NASD"); 1 WHEREAS, Landmark Funds Broker-Dealer Services, Inc. ("Landmark"), the underwriter for the Policies, is registered as a broker-dealer with the SEC under the 1934 Act and is a member in good standing of the NASD; WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in one or more of the Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts and Policies (hereinafter collectively, the "Policies,"); provided, however, that Shares will be sold to Accounts funding variable life insurance policies only following the receipt by AVIF of an exemptive order from the SEC permitting AVIF to be available for investment by separate accounts funding variable life insurance policies ("Mixed Funding") and by separate accounts of insurance companies unaffiliated with the Company ("Shared Funding"); and WHEREAS, AVIF intends to sell such Shares to the Accounts at net asset value; NOW, THEREFORE, in consideration of their mutual promises, AVIF, and the Company, on behalf of itself and the Accounts, agree as follows: ARTICLE I. SALE OF TRUST SHARES 1.1. AVIF agrees to sell to the Company those Shares that the Accounts order (based on orders placed by owners of Policies (collectively, "Policy owners") on each Business Day before the time as of which AVIF computes the net asset value of its Shares on that Business Day, as defined below) and that are available for purchase by such Accounts, executing such orders on a daily basis at the net asset value next computed after receipt by AVIF or its designee of the order for the Shares. For purposes of this Section 1.1 Landmark shall be the designee of AVIF for receipt of such orders from Policy owners and receipt by such designee shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:30 a.m. New York time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange (the "NYSE") is open for trading and on which AVIF calculates its net asset value pursuant to the rules of the SEC. 1.2. AVIF agrees to make the Shares available indefinitely for purchase at the applicable net asset value per share by the Company and the Accounts on those days on which AVIF calculates its net asset value pursuant to rules of the SEC, and AVIF shall calculate such net asset value on each day on which the NYSE is open for trading. Notwithstanding the foregoing, the Board of Directors of AVIF (the "Board") may refuse to sell Shares of any Portfolio to the Company and the Accounts, or suspend or terminate the offering of the Shares if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of AVIF's 2 Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interest of the Shareholders of such Portfolio. 1.3. AVIF agrees that it will sell Shares only to insurance companies that have entered into participation agreements with AVIF (the "Participating Insurance Companies"), the separate accounts of Participating Insurance Companies, qualified pension and retirement plans, and AVIF or its affiliates. In the event AVIF implements Mixed and Shared Funding, AVIF will not sell Shares to any Participating Insurance Company or separate account thereof unless an agreement containing provisions substantially the same as Section 2.7 of Article II, Sections 3.5 and 3.6 of Article III, and Article VII of this Agreement is in effect to govern such sales. The Company will not resell the Shares except to AVIF or its agents. 1.4. AVIF agrees to redeem for cash, on the Company's request, any full or fractional Shares held by the Accounts (based on orders placed by Policy owners on each Business Day before the time as of which AVIF calculates the net asset value of its Shares on that Business Day), executing such request at the net asset value per Share next computed after receipt by AVIF or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of AVIF for receipt of requests for redemption from Policy owners and receipt by such designee shall constitute receipt by AVIF, provided that AVIF receives notice of such request for redemption by 9:30 a.m. New York time on the next following Business Day. 1.5. Purchase, redemption and exchange orders placed by the Company shall be placed separately for each Portfolio and shall not be netted. However, with respect to payment of the purchase price by the Company and of redemption proceeds by AVIF, the Company and AVIF shall net purchase and redemption orders with respect to each Portfolio and shall transmit one net payment per Portfolio in accordance with Section 1.6. 1.6. In the event of net purchases, the Company shall pay for the Shares by 2:00 p.m. New York time on the next Business Day after an order to purchase the Shares is made in accordance with the provisions of Section 1.1. hereof. In the event of net redemptions, AVIF shall pay the redemption proceeds by 2:00 p.m. New York time on the next Business Day after an order to redeem the Shares is made in accordance with the provisions of Section 1.4. hereof, or as soon thereafter as is reasonably practicable, and in any event within five calendar days after the date the order is placed in order to enable the Company to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act. All such payments shall be in federal funds transmitted by wire. 1.7. Issuance and transfer of the Shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. The Shares ordered from AVIF will be recorded in an appropriate title for the Accounts or the appropriate subaccounts of the Accounts. 3 1.8. AVIF shall furnish same day notice (by wire or telephone followed by written confirmation) to the Company of any dividends or capital gain distributions payable on the Shares. The Company hereby elects to receive all such dividends and distributions as are payable on a Portfolio's Shares in additional Shares of that Portfolio. AVIF shall notify the Company of the number of Shares so issued as payment of such dividends and distributions. 1.9. AVIF shall make the net asset value per share for each Portfolio available to the Company on each Business Day as soon as reasonably practical after the net asset value per Share is calculated and shall use its best efforts to make such net asset value per Share available by 6:30 p.m. New York time. In the event that AVIF is unable to meet the 6:30 p.m. time stated herein, it shall provide additional time for the Company to place orders for the purchase and redemption of Shares. Such additional time shall be equal to the additional time that AVIF takes to make the net asset value available to the Company. If AVIF provides materially incorrect Share net asset value information, the 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 the Company. ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS 2.1. The Company represents and warrants that the Policies are or will be registered under the 1933 Act or are exempt from or not subject to registration thereunder, and that the Policies will be issued, sold, and distributed in compliance in all material respects with all applicable federal and state laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. The Company further represents and warrants that it is an insurance company duly organized and in good standing under Arizona law and that it has legally and validly established the Accounts as segregated asset accounts under Arizona law and has registered or, prior to any issuance or sale of the Policies, will register the Accounts as unit investment trusts in accordance with the provisions of the 1940 Act (unless exempt therefrom) to serve as segregated investment accounts for the Policies, and that it will maintain such registration for so long as any Policies are outstanding. The Company shall amend the registration statements under the 1933 Act for the Policies and the registration statements under the 1940 Act for the Accounts from time to time as required in order to effect the continuous offering of the Policies or as may otherwise be required by applicable law. The Company shall register and qualify the Policies for sale in accordance with the securities laws of the various states only if and to the extent deemed necessary by the Company. 2.2. Subject to Article VI, the Company represents and warrants that the Policies are currently and at the time of issuance will be treated as life insurance, endowment or annuity contracts 4 under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that it will make every effort to maintain such treatment and that it will notify AVIF immediately upon having a reasonable basis for believing that the Policies have ceased to be so treated or that they might not be so treated in the future. 2.3. The Company represents and warrants that Landmark, the underwriter for the Policies, is a member in good standing of the NASD and is a registered broker- dealer with the SEC. The Company represents and warrants that the Company and Landmark, will sell and distribute such policies in accordance in all material respects with all applicable federal and state securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.4 AVIF represents and warrants that the Shares sold pursuant to this Agreement shall be registered under the 1933 Act, that the Shares shall be duly authorized for issuance and sold in compliance with the laws of the State of Maryland and all applicable federal and state securities laws and that AVIF is and shall remain registered as a management investment company under the 1940 Act. AVIF shall amend the registration statement for its Shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its Shares. AVIF shall register and qualify the Shares for sale in accordance with the laws of the various states only if and to the extent it deems necessary. 2.5. AVIF represents and warrants that the Underwriter is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. AVIF represents that AVIF and the Underwriter will sell and distribute the Shares in accordance in all material respects with all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.6. AVIF represents that it is lawfully organized and validly existing under the laws of the State of Maryland and that it does and will comply in all material respects with the 1940 Act and any applicable regulations thereunder. 2.7. No less frequently than annually, the Company shall submit to the Board such reports, material or data as the Board may reasonably request from time to time so that it may carry out fully the obligations imposed upon it by the conditions contained in any exemptive application filed in the future by AVIF pursuant to which the SEC may grant exemptive relief to permit Mixed and Shared Funding (the "Mixed and Shared Funding Exemptive Order"). ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING 3.1 AVIF or its designee shall provide the Company such documentation (including a "camera ready" copy of the current prospectus (describing only the Portfolios listed in Schedule A hereto) 5 for the Shares as set in type or, at the request of the Company, as a diskette in the form sent to the financial printer) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Shares is supplemented or amended) to have the prospectus for the Policies and the prospectus for the Shares printed together in one document; the expense of such printing to be borne by the Company. AVIF shall be responsible for providing the prospectus in the format in which it or AVIF is accustomed to formatting prospectuses and shall bear the expense of providing the prospectus in such format (e.g., typesetting expenses), and the Company shall bear the expense of adjusting or changing the format to conform with any of its prospectuses. 3.2 The prospectus for the Shares shall state that the statement of additional information for the Shares is available from AVIF or its designee. AVIF or its designee, at its expense, shall provide a master of such statement of additional information suitable for duplication by the Company, at its expense, for distribution to any owner of a Policy funded by the Shares, to a prospective purchaser who requests such statement or to an owner of a Policy not funded by the Shares. 3.3 AVIF or its designee shall provide the Company camera ready copies, if and to the extent applicable to the Shares, of AVIF's proxy materials, reports to Shareholders and other communications to Shareholders as the Company shall reasonably require for distribution to Policy owners. The Company shall, at its expense, print and distribute such materials to Policy owners. 3.4 Notwithstanding the provisions of Section 3.1., 3.2., and 3.3. above, or of Article V below, the Company shall pay the expense of printing or providing documents to the extent such cost is considered a distribution expense. Distribution expenses would include by way of illustration, but are not limited to, the printing of the Shares' prospectus or prospectuses for distribution to prospective purchasers or to owners of existing Policies not funded by such Shares. 3.5 AVIF hereby notifies the 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. 3.6 If and to the extent required by law, the Company shall: (a) solicit voting instructions from Policy owners: (b) vote the Shares in accordance with timely instructions received from Policy owners; and 6 (c) vote the Shares for which no timely instructions have been received, as well as Shares it owns, in the same proportion as the Shares of such Portfolio for which instructions have been received from Policy owners; so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Policy owners. The Company will in no way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Policy owners. The Company reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. The Company shall be responsible for assuring that each of their separate accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by any Mixed and Shared Funding Exemptive Order that AVIF may obtain in the future. AVIF will notify the Company of any changes of interpretations or amendments to any Mixed and Shared Funding Exemptive Order it obtains in the future. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1. The Company shall furnish, or shall cause to be furnished, to AVIF or its designee, each piece of sales literature or other promotional material in which AVIF, AIM Advisors, any other investment adviser to AVIF, or any affiliate of AVIF are named, at least five (5) Business Days prior to its use. No such material shall be used if AVIF, AIM Advisors or their respective designees reasonably objects to such use within five (5) Business Days after receipt of such material. 4.2. The Company shall not give any information or make any representations or statement on behalf of AVIF, AIM Advisors, any other investment adviser to AVIF, or any affiliate of AVIF in connection with the sale of the Policies other than the information or representations contained in the registration statement, prospectus or statement of additional information for the Shares, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements prepared by or for AVIF, or in sales literature or other promotional material approved by AVIF, AIM Advisors, or their respective designees, except with the permission of AVIF, AIM Advisors, or their respective designees. AVIF agrees, and shall cause AIM Advisors and their respective designees, to respond to any request for approval on a prompt and timely basis. The Company shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF, AIM Advisors, or any of their affiliates which is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Policy owners or prospective Policy owners) is so used, and neither AVIF, AIM Advisors nor any of their affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. 7 4.3. AVIF or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or the Accounts is named, at least five (5) Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within five (5) Business Days after receipt of such material. 4.4. AVIF shall not give any information or make any representations on behalf of the Company or concerning the Company, the Accounts, or the Policies in connection with the sale of the Policies other than the information or representations contained in a registration statement, prospectus, or statement of additional information for the Policies, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports for the Accounts, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. The Company agrees to respond to any request for approval on a prompt and timely basis. The parties hereto agree that this Section 4.4. is neither intended to designate nor otherwise imply that AVIF is an underwriter or distributor of the Policies. 4.5. The Company and AVIF (or their designees) will each provide to the other at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Accounts or the Policies, or to AVIF or its Shares, prior to or contemporaneously with the filing of such document with the SEC or other regulatory authorities. The Company and AVIF shall also each promptly inform the other of the results of any examination by the SEC (or other regulatory authorities) that relates to the Accounts or the Policies, AVIF or its Shares, and the party that was the subject of the examination shall provide the other party with a copy of relevant portions of any "deficiency letter" or other correspondence or written report regarding any such examination. 4.6. AVIF will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Portfolio, and of any material change in AVIF's registration statement. AVIF will cooperate with the Company so as to enable the Company to solicit proxies from Policy owners or to make corresponding changes to the Policy prospectus, statement of additional information or registration statement, in an orderly manner. AVIF will make reasonable efforts to attempt to have changes affecting Policy prospectuses become effective simultaneously with the annual updates for such prospectuses. 4.7. For purposes of this Article IV and Article VIII, 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), 8 and sales literature (such as brochures, circulars, reprints or excerpts or any other advertisement, sales literature, or published articles), distributed or made generally available to customers or the public, educational or training materials or communications distributed or made generally available to some or all agents or employees. ARTICLE V. FEES AND EXPENSES 5.1. AVIF shall pay no fee or other compensation to the Company under this Agreement, and the Company shall pay no fee or other compensation to AVIF, except that if AVIF or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution and shareholder servicing expenses, then, subject to obtaining any required exemptive orders or regulatory approvals, AVIF may make payments to the Company or to the underwriter for the Policies if and in amounts agreed to by AVIF in writing. The Company, however, shall, in accordance with the allocation of expenses specified in Articles III and V hereof, reimburse AVIF for expenses initially paid by AVIF or its designee but allocated to the Company. In addition, nothing herein shall prevent the parties hereto from otherwise agreeing to perform, and arranging for appropriate compensation for, other services relating to the Portfolios and/or to the Accounts. 5.2. AVIF or its designee shall bear the expenses for the cost of registration and qualification of the Shares under all applicable federal and state laws, including preparation and filing of AVIF's registration statement, and payment of filing fees and registration fees; preparation and filing of AVIF's proxy materials and reports to Shareholders; setting in type its prospectus and statement of additional information, including any amendments or supplements thereto (to the extent provided by and as determined in accordance with Article III above); setting in type the proxy materials, reports and other communications to Shareholders (to the extent provided by and as determined in accordance with Article III above); the preparation of all statements and notices required of AVIF by any federal or state law with respect to its Shares; any taxes on the issuance or transfer of the Shares; and any expenses permitted to be paid or assumed by AVIF pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. AVIF shall not bear any expenses of marketing the Policies. 5.3. The Company shall bear the expenses of printing and distributing the prospectus and statement of additional information, including any amendments or supplements thereto, relating to Portfolio Shares in connection with existing Policy owners and new sales of the Policies and of printing and distributing AVIF's Shareholder proxy materials, reports and other communications to existing Policy owners. The Company shall bear all expenses associated with the registration, qualification, and filing of the Policies under applicable federal securities and state insurance laws; the cost of preparing, printing and distributing the Policy prospectus 9 and statement of additional information; and the cost of preparing, printing and distributing annual individual account statements for Policy owners as required by state insurance laws. ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS 6.1. AVIF, on behalf of each Portfolio, represents and warrants that it will use every effort to comply with the diversification requirements of Section 817(h)(1) of the Code and Treas. Reg. 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, as they may be amended from time to time (and any revenue rulings, revenue procedures, notices, and other published announcements of the Internal Revenue Service interpreting these sections) as if those requirements applied directly to each such Portfolio. In the event that any Portfolio is not so diversified at the end of any applicable quarter, AVIF will notify the Company and will use every effort to adequately diversify the Portfolio so as to achieve compliance within the grace period afforded by Treas. Reg. 1.817-5. 6.2. AVIF represents that each Portfolio will elect to be qualified as a regulated investment company under Subchapter M of the Code and that best efforts will be made to maintain such qualification (under Subchapter M or any successor or similar provision) and that AVIF or its designee will notify the Company promptly upon having a reasonable basis for believing that any Portfolio has ceased to so qualify or that any Portfolio might not so qualify in the future. 6.3 The Company agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of the Company or, to the Company's knowledge, of any Policy owner, that any Portfolio has failed to comply with the diversification requirements of section 817(h) of the Code or the 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) the Company shall promptly notify AVIF of such assertion or potential claim; (ii) the 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) the 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) the 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 Policy owner or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; (v) any written materials to be submitted by the Company to the IRS, any Policy owner 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 the Company to AVIF (together with any 10 supporting information or analysis) at least ten (10) business days prior to the day on which such proposed materials are to be submitted and (b) shall not be submitted by the Company to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) the 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 the 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) the Company shall not with respect to any claim of the IRS or any Policy owner 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 judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that the Company shall not be required 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 (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if the 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, the Company may, in its discretion, authorize AVIF or its affiliates to act in the name of the 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 further that in no event shall any liability to the Company exceed the amount which would have otherwise attached had the proposed settlement or compromise been accepted by AVIF. ARTICLE VII. POTENTIAL MATERIAL CONFLICTS 7.1. The parties hereto agree that the provisions of this Article VII shall apply if and only if AVIF implements Mixed and Shared Funding pursuant to an exemptive order from the SEC or otherwise. AVIF agrees that the Board, constituted with a majority of disinterested Directors, will monitor each Portfolio for the existence of any material irreconcilable conflict between the interests of the variable annuity contract owners and the variable life insurance policy owners (collectively, "Participants") of the Participating Insurance Companies investing in AVIF. An irreconcilable material conflict may arise for a variety of reasons, including: (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 11 investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance policy Participants or by Participants of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants. The Board shall have the sole authority to determine if a material irreconcilable conflict exists, and such determination shall be binding on the Company only if approved in the form of a resolution by a majority of the Board, or a majority of the disinterested Directors of the Board. The Board will give prompt notice of any such determination to the Company. 7.2. The Company agrees that it will be responsible for assisting the Board in carrying out its responsibilities under the conditions set forth in any exemptive application pursuant to which the SEC has granted the Mixed and Shared Funding Exemptive Order by providing the Board, as it may reasonably request, with all information necessary for the Board to consider any issues raised and agrees that it will be responsible for promptly reporting any potential or existing conflicts of which it is aware to the Board including, but not limited to, an obligation by the Company to inform the Board whenever Participant voting instructions are disregarded. The Company agrees to carry out these responsibilities with a view only to the interests of the Participants. The Company also agrees that, if a material irreconcilable conflict arises, it will at its own cost remedy or eliminate such conflict up to and including (a) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of AVIF, or submitting to a vote of all affected Participants whether to withdraw assets from AVIF or any Portfolio and reinvesting such assets in a different investment medium and, as appropriate, segregating the assets attributable to any appropriate group of Participants that votes in favor of such segregation, or offering to any of the affected Participants the option of segregating the assets attributable to their contracts or policies, and (b) establishing a new registered management investment company and segregating the assets underlying the Policies, unless a majority of Policy owners materially adversely affected by the conflict have voted to decline the offer to establish a new registered management investment company. 7.3. A majority of the disinterested Directors of the Board shall determine whether any proposed action by the Company adequately remedies any material irreconcilable conflict. In the event that the Board determines that any proposed action does not adequately remedy any material irreconcilable conflict, the Company will withdraw from investment in AVIF each of the Accounts designated by the disinterested Directors and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required to remedy any such material irreconcilable conflict as determined by a majority of the disinterested Directors of the Board. 12 7.4 If a material irreconcilable conflict arises because of the Company's decision to disregard contractowner voting instructions, and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the election of AVIF, to withdraw its Account(s) investments herein, and 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's Board informs the 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 the Company for the purchase and redemption of shares of AVIF. 7.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the Account's investment in AVIF within six (6) months after AVIF's Board informs the 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 the Company for the purchase and redemption of shares of AVIF. 7.6 The 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 Policy owners. 7.7 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 AIM Advisors be required to establish a new funding medium for any Policies. 7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to Mixed or Shared Funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed Shared Funding Exemptive Order, then (a) AVIF and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 2.7, 3.5, 3.6 and 7.1 through 7.8 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 13 ARTICLE VIII. INDEMNIFICATION 8.1. Indemnification by the Company The Company agrees to indemnify and hold harmless AVIF, AIM Advisors, any affiliates of AVIF, and each of their respective directors/trustees, officers and each person, if any, who controls AVIF or AIM Advisors within the meaning of Section 15 of the 1933 Act, and any agents or employees of the foregoing (each an "Indemnified Party," or collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including reasonable counsel fees) to which an Indemnified Party may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Shares or the Policies and; (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or statement of additional information for the Policies or contained in the Policies or sales literature or other promotional material 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 reasonable reliance upon and in conformity with information furnished to the Company or its designee by or on behalf of AVIF or any affiliate of AVIF for use in the registration statement, prospectus or statement of additional information for the Policies or in the Policies or sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or Shares; or (b) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material of AVIF not supplied by the Company or its designee, or persons under its control and on which the Company has reasonably relied) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Policies or Shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, statement of additional information, or sales literature or other promotional literature of AVIF, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or 14 omission was made in reliance upon information furnished to AVIF by or on behalf of the Company; or (d) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; or (e) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement, as limited by and in accordance with the provisions of this Article VIII. 8.2 Indemnification by AVIF AVIF agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, and any agents or employees of the foregoing (each an "Indemnified Party," or collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or expenses (including reasonable counsel fees) to which any Indemnified Party may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Shares or the Policies and: (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material 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 statement 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 reasonable reliance upon and in conformity with information furnished to AVIF, AIM Advisors, the Underwriter or their respective designees by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for AVIF or in sales literature or other promotional material for AVIF (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or Shares; or (b) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material for the Policies not supplied by AVIF, AIM Advisors, the Underwriter or any of their respective designees or persons under their respective control and on which any such entity has reasonably relied) or wrongful conduct of 15 AVIF or persons under its control, with respect to the sale or distribution of the Policies or Shares; or (c) arise out of or result from 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; or (d) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; or (e) arise as a result of any failure by AVIF to provide the services and furnish the materials under the terms of the Agreement, as limited by and in accordance with the provisions of this Article VIII. 8.3. In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including without limitation, the Company, or any Participating Insurance Company or any Policy owner, 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 the Company hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by the Company or any Participating Insurance Company to maintain its segregated asset account (which invests in any Portfolio) 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 the Company or any Participating Insurance Company to maintain its variable annuity and/or variable life insurance contracts (with respect to which any Portfolio serves as an underlying funding vehicle) as life insurance, endowment or annuity contracts under applicable provisions of the Code. 8.4. Neither the Company nor AVIF shall be liable under the indemnification provisions contained in this Agreement with respect to any losses, claims, damages, liabilities or expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, willful misconduct, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 8.5. Promptly after receipt by an Indemnified Party under this Section 8.5. of commencement of action, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party ("Indemnifying Party") under this section, notify the indemnifying party of the commencement thereof; but the omission so to notify the Indemnifying Party will not relieve it from any liability which it may have to any Indemnified Party otherwise than under this Article 16 VIII. In case any such action is brought against any Indemnified Party, and it notified the Indemnifying Party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the Indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the Indemnifying Party shall not be liable to such Indemnified Party under this section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. 8.6. Each party agrees promptly to notify the other party of the commencement of any litigation or proceeding against it or any of its respective officers, directors, trustees, employees or 1933 Act control persons in connection with this Agreement, the issuance or sale of the Policies, the operation of the Accounts, or the sale or acquisition of Shares. 8.7. A successor by law of the parties to this Agreement shall be entitled to the benefits of the indemnification contained in this Article VIII. The indemnification provisions contained in this Article VIII shall survive any termination of this Agreement. ARTICLE IX. APPLICABLE LAW 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Maryland. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. NOTICE OF FORMAL PROCEEDINGS AVIF and the Company agree that each shall promptly notify the other, in writing, of the institution of any formal proceedings brought against such party or its designees by the NASD, the SEC, or any insurance department or any other regulatory body regarding such party's duties under this Agreement or related to the sale of the Policies, the operation of the Accounts, or the purchase of the Shares. 17 ARTICLE XI. TERMINATION 11.1. This Agreement shall terminate with respect to the Accounts, or one, some, or all Portfolios: (a) at the option of the Company to the extent that the Shares of Portfolios are not "appropriate funding vehicles" for the Policies, as reasonably determined by the Company. Without limiting the generality of the foregoing, the Shares of a Portfolio would not be "appropriate funding vehicles" if, for example, such Shares did not meet the diversification or other requirements referred to in Article VI hereof. Prompt notice of the election to terminate for such cause and an explanation of such cause shall be furnished to AVIF by the Company; or (b) at the option of AVIF if the Policies issued by the Company cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of a Portfolio's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in the Accounts under the Policies are not registered, where required, and, in all material respects, are not issued or sold in accordance with applicable federal or state law. Prompt notice of the election to terminate for such cause and an explanation of such cause shall be furnished to the Company by AVIF; or (c) at the option of AVIF upon institution of formal proceedings against the Company by the NASD, the SEC, or any insurance department or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Policies, the operation of the Accounts, or the purchase of the Shares; or (d) at the option of the Company upon institution of formal proceedings against AVIF by the NASD, the SEC, or any state securities or insurance department or any other regulatory body regarding AVIF's duties under this Agreement or related to the sale of the Shares; or (e) at the option of the Company or AVIF upon receipt of any necessary regulatory approvals and/or the vote of the Policy owners having an interest in the Accounts (or any subaccounts) to substitute the shares of another investment company for the corresponding Portfolio Shares in accordance with the terms of the Policies for which those Portfolio Shares had been selected to serve as the underlying investment media. The Company will give thirty (30) day's prior written notice to AVIF of the date of any proposed vote or other action taken to replace the Shares; or (f) at the option of AVIF, upon 30 days' written notice, if the Board of AVIF determines, in its sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or 18 (g) at the option of the Company, upon 30 days' written notice, if the Company determines, in its sole judgment exercised in good faith, that AVIF has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) at the option of any party to this Agreement, upon another party's material breach of any provision of this Agreement; or (i) upon assignment of this Agreement, unless made with the written consent of the parties hereto. 11.2. Unless otherwise specified in Section 11.1, the party terminating the Agreement shall provide the other at least 30 days notice to the other party. The notice shall specify the Portfolio or Portfolios, Policies and, if applicable, the Accounts as to which the Agreement is to be terminated. 11.3. Except as necessary to implement Policy owner initiated transactions, or as required by state insurance laws or regulations, the Company shall not redeem the Shares attributable to the Policies (as opposed to the Shares attributable to the Company's assets held in the Accounts), and the Company shall not prevent Policy owners from allocating payments to a Portfolio that was otherwise available under the Policies, until six (6) months after the Company shall have notified AVIF of its intention to do so and until 24 full calendar months shall have expired from the date on which an Account first invested in any Portfolio. 11.4. Notwithstanding any termination of this Agreement, AVIF shall, at the option of the Company, continue to make available additional shares of the Portfolios pursuant to the terms and conditions of this Agreement, for all Policies in effect on the effective date of termination of this Agreement (the "Existing Policies"), except as otherwise provided under Article VII of this Agreement. Specifically, without limitation, the owners of the Existing Policies shall be permitted to transfer or reallocate investment under the Policies, redeem investments in any Portfolio and/or invest in AVIF upon the making of additional purchase payments under the Existing Policies. ARTICLE XII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party 19 may from time to time specify in writing to the other party. If to AVIF: AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046 Attn: Nancy L. Martin, Esq. If to the Company: Citicorp Insurance Group Citibank, N.A. One Court Square Long Island City, NY 11120 Attn: Alan F. Liebowitz, Senior Vice President, General Counsel and Secretary ARTICLE XIII. MISCELLANEOUS 13.1. Subject to the requirement of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the Policy owners and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement or as otherwise required by applicable law or regulation, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as it may come into the public domain. 13.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 13.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 13.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 20 13.5. The Schedule attached hereto, as modified from time to time, is incorporated herein by reference and is part of this Agreement. 13.6. Each party hereto shall cooperate with each other party in connection with inquiries by appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) relating to this Agreement or the transactions contemplated hereby. 13.7. 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, which the parties hereto are entitled to under federal and state laws. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified above. AIM VARIABLE INSURANCE FUNDS, INC. By: /s/ ROBERT H. GRAHAM ------------------------------- Title: President --------------------------- CITICORP LIFE INSURANCE COMPANY, on behalf of itself and CITICORP LIFE VARIABLE ANNUITY SEPARATE ACCOUNT By: /s/ ILLEGIBLE ------------------------------- Title: E.V.P. --------------------------- 21 SCHEDULE A ACCOUNTS, POLICIES AND PORTFOLIOS SUBJECT TO THE PARTICIPATION AGREEMENT ------------------------------------------------------------------------ Name of Separate Account and Date Established by Board of Directors: - ---------------------------------- Citicorp Life Variable Annuity Separate Account (July 6, 1994) Policies Funded by Separate Account: - ------------------------------------ Portfolios Applicable to Policies: - ---------------------------------- AIM V.I. Capital Appreciation Fund 22 EX-9.J 26 PARTIC AGMT EXHIBIT 9(j) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC. AND FIRST CITICORP LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND FIRST CITICORP LIFE VARIABLE ANNUITY SEPARATE ACCOUNT THIS AGREEMENT, made and entered into this 10th day of February, 1995, by and among AIM VARIABLE INSURANCE FUNDS, INC., an open-end, series, management investment company ("AVIF"), and FIRST CITICORP LIFE INSURANCE COMPANY, a New York corporation (the "Company"), on its own behalf and on behalf of the FIRST CITICORP LIFE VARIABLE ANNUITY SEPARATE ACCOUNT and other segregated asset accounts of the Company as set forth on Schedule A attached hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"). WHEREAS, AVIF is a Maryland corporation registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, AVIF is comprised of nine investment portfolios (the "Funds"), shares of which are currently sold only to insurance company separate accounts to fund benefits under variable annuity contracts; WHEREAS, the Funds to be offered by AVIF to the Company and the Accounts are set forth on Schedule A attached hereto, as the parties hereto may amend from time to time (each, a "Portfolio," and, collectively, the "Portfolios"); WHEREAS, A I M Advisors, Inc. ("AIM Advisors") is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities law, and is AVIF's investment adviser; WHEREAS, the Company will issue certain variable annuity contracts ("Contracts") and/or variable life insurance policies ("Policies") as set forth on Schedule A attached hereto, as the parties hereto may amend from time to time, which Contracts and Policies, if required by applicable law, will be registered under the 1933 Act; WHEREAS, each Account is or will be a segregated asset account, duly organized and validly existing under the laws of the State of New York, and established by resolution of the Board of Directors of the Company to set aside and invest assets attributable to the Policies that are allocated to the Accounts; WHEREAS, the Company has registered or will register the Accounts as unit investment trusts under the 1940 Act (unless exempt therefrom); WHEREAS, A I M Distributors, Inc. (the "Underwriter") is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc., (the "NASD"); 1 WHEREAS, Landmark Funds Broker-Dealer Services, Inc. ("Landmark"), the underwriter for the Policies, is registered as a broker-dealer with the SEC under the 1934 Act and is a member in good standing of the NASD; WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in one or more of the Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts and Policies (hereinafter collectively, the "Policies,"); provided, however, that Shares will be sold to Accounts funding variable life insurance policies only following the receipt by AVIF of an exemptive order from the SEC permitting AVIF to be available for investment by separate accounts funding variable life insurance policies ("Mixed Funding") and by separate accounts of insurance companies unaffiliated with the Company ("Shared Funding"); and WHEREAS, AVIF intends to sell such Shares to the Accounts at net asset value; NOW, THEREFORE, in consideration of their mutual promises, AVIF, and the Company, on behalf of itself and the Accounts, agree as follows: ARTICLE I. SALE OF TRUST SHARES 1.1. AVIF agrees to sell to the Company those Shares that the Accounts order (based on orders placed by owners of Policies (collectively, "Policy owners") on each Business Day before the time as of which AVIF computes the net asset value of its Shares on that Business Day, as defined below) and that are available for purchase by such Accounts, executing such orders on a daily basis at the net asset value next computed after receipt by AVIF or its designee of the order for the Shares. For purposes of this Section 1.1 Landmark shall be the designee of AVIF for receipt of such orders from Policy owners and receipt by such designee shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:30 a.m. New York time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange (the "NYSE") is open for trading and on which AVIF calculates its net asset value pursuant to the rules of the SEC. 1.2. AVIF agrees to make the Shares available indefinitely for purchase at the applicable net asset value per share by the Company and the Accounts on those days on which AVIF calculates its net asset value pursuant to rules of the SEC, and AVIF shall calculate such net asset value on each day on which the NYSE is open for trading. Notwithstanding the foregoing, the Board of Directors of AVIF (the "Board") may refuse to sell Shares of any Portfolio to the Company and the Accounts, or suspend or terminate the offering of the Shares if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of AVIF's 2 Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interest of the Shareholders of such Portfolio. 1.3. AVIF agrees that it will sell Shares only to insurance companies that have entered into participation agreements with AVIF (the "Participating Insurance Companies"), the separate accounts of Participating Insurance Companies, qualified pension and retirement plans, and AVIF or its affiliates. In the event AVIF implements Mixed and Shared Funding, AVIF will not sell Shares to any Participating Insurance Company or separate account thereof unless an agreement containing provisions substantially the same as Section 2.7 of Article II, Sections 3.5 and 3.6 of Article III, and Article VII of this Agreement is in effect to govern such sales. The Company will not resell the Shares except to AVIF or its agents. 1.4. AVIF agrees to redeem for cash, on the Company's request, any full or fractional Shares held by the Accounts (based on orders placed by Policy owners on each Business Day before the time as of which AVIF calculates the net asset value of its Shares on that Business Day), executing such request at the net asset value per Share next computed after receipt by AVIF or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of AVIF for receipt of requests for redemption from Policy owners and receipt by such designee shall constitute receipt by AVIF, provided that AVIF receives notice of such request for redemption by 9:30 a.m. New York time on the next following Business Day. 1.5. Purchase, redemption and exchange orders placed by the Company shall be placed separately for each Portfolio and shall not be netted. However, with respect to payment of the purchase price by the Company and of redemption proceeds by AVIF, the Company and AVIF shall net purchase and redemption orders with respect to each Portfolio and shall transmit one net payment per Portfolio in accordance with Section 1.6. 1.6. In the event of net purchases, the Company shall pay for the Shares by 2:00 p.m. New York time on the next Business Day after an order to purchase the Shares is made in accordance with the provisions of Section 1.1. hereof. In the event of net redemptions, AVIF shall pay the redemption proceeds by 2:00 p.m. New York time on the next Business Day after an order to redeem the Shares is made in accordance with the provisions of Section 1.4. hereof, or as soon thereafter as is reasonably practicable, and in any event within five calendar days after the date the order is placed in order to enable the Company to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act. All such payments shall be in federal funds transmitted by wire. 1.7. Issuance and transfer of the Shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. The Shares ordered from AVIF will be recorded in an appropriate title for the Accounts or the appropriate subaccounts of the Accounts. 3 1.8. AVIF shall furnish same day notice (by wire or telephone followed by written confirmation) to the Company of any dividends or capital gain distributions payable on the Shares. The Company hereby elects to receive all such dividends and distributions as are payable on a Portfolio's Shares in additional Shares of that Portfolio. AVIF shall notify the Company of the number of Shares so issued as payment of such dividends and distributions. 1.9. AVIF shall make the net asset value per share for each Portfolio available to the Company on each Business Day as soon as reasonably practical after the net asset value per Share is calculated and shall use its best efforts to make such net asset value per Share available by 6:30 p.m. New York time. In the event that AVIF is unable to meet the 6:30 p.m. time stated herein, it shall provide additional time for the Company to place orders for the purchase and redemption of Shares. Such additional time shall be equal to the additional time that AVIF takes to make the net asset value available to the Company. If AVIF provides materially incorrect Share net asset value information, the 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 the Company. ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS 2.1. The Company represents and warrants that the Policies are or will be registered under the 1933 Act or are exempt from or not subject to registration thereunder, and that the Policies will be issued, sold, and distributed in compliance in all material respects with all applicable federal and state laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. The Company further represents and warrants that it is an insurance company duly organized and in good standing under New York law and that it has legally and validly established the Accounts as segregated asset accounts under New York law and has registered or, prior to any issuance or sale of the Policies, will register the Accounts as unit investment trusts in accordance with the provisions of the 1940 Act (unless exempt therefrom) to serve as segregated investment accounts for the Policies, and that it will maintain such registration for so long as any Policies are outstanding. The Company shall amend the registration statements under the 1933 Act for the Policies and the registration statements under the 1940 Act for the Accounts from time to time as required in order to effect the continuous offering of the Policies or as may otherwise be required by applicable law. The Company shall register and qualify the Policies for sale in accordance with the securities laws of the various states only if and to the extent deemed necessary by the Company. 2.2. Subject to Article VI, the Company represents and warrants that the Policies are currently and at the time of issuance will be treated as life insurance, endowment or annuity contracts 4 under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that it will make every effort to maintain such treatment and that it will notify AVIF immediately upon having a reasonable basis for believing that the Policies have ceased to be so treated or that they might not be so treated in the future. 2.3. The Company represents and warrants that Landmark, the underwriter for the Policies, is a member in good standing of the NASD and is a registered broker- dealer with the SEC. The Company represents and warrants that the Company and Landmark, will sell and distribute such policies in accordance in all material respects with all applicable federal and state securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.4 AVIF represents and warrants that the Shares sold pursuant to this Agreement shall be registered under the 1933 Act, that the Shares shall be duly authorized for issuance and sold in compliance with the laws of the State of Maryland and all applicable federal and state securities laws and that AVIF is and shall remain registered as a management investment company under the 1940 Act. AVIF shall amend the registration statement for its Shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its Shares. AVIF shall register and qualify the Shares for sale in accordance with the laws of the various states only if and to the extent it deems necessary. 2.5. AVIF represents and warrants that the Underwriter is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. AVIF represents that AVIF and the Underwriter will sell and distribute the Shares in accordance in all material respects with all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.6. AVIF represents that it is lawfully organized and validly existing under the laws of the State of Maryland and that it does and will comply in all material respects with the 1940 Act and any applicable regulations thereunder. 2.7. No less frequently than annually, the Company shall submit to the Board such reports, material or data as the Board may reasonably request from time to time so that it may carry out fully the obligations imposed upon it by the conditions contained in any exemptive application filed in the future by AVIF pursuant to which the SEC may grant exemptive relief to permit Mixed and Shared Funding (the "Mixed and Shared Funding Exemptive Order"). ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING 3.1. AVIF or its designee shall provide the Company such documentation (including a "camera ready" copy of the current prospectus (describing only the Portfolios listed in Schedule A hereto) 5 for the Shares as set in type or, at the request of the Company, as a diskette in the form sent to the financial printer) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Shares is supplemented or amended) to have the prospectus for the Policies and the prospectus for the Shares printed together in one document; the expense of such printing to be borne by the Company. AVIF shall be responsible for providing the prospectus in the format in which it or AVIF is accustomed to formatting prospectuses and shall bear the expense of providing the prospectus in such format (e.g., typesetting expenses), and the Company shall bear the expense of adjusting or changing the format to conform with any of its prospectuses. 3.2 The prospectus for the Shares shall state that the statement of additional information for the Shares is available from AVIF or its designee. AVIF or its designee, at its expense, shall provide a master of such statement of additional information suitable for duplication by the Company, at its expense, for distribution to any owner of a Policy funded by the Shares, to a prospective purchaser who requests such statement or to an owner of a Policy not funded by the Shares. 3.3 AVIF or its designee shall provide the Company camera ready copies, if and to the extent applicable to the Shares, of AVIF's proxy materials, reports to Shareholders and other communications to Shareholders as the Company shall reasonably require for distribution to Policy owners. The Company shall, at its expense, print and distribute such materials to Policy owners. 3.4 Notwithstanding the provisions of Section 3.1., 3.2., and 3.3. above, or of Article V below, the Company shall pay the expense of printing or providing documents to the extent such cost is considered a distribution expense. Distribution expenses would include by way of illustration, but are not limited to, the printing of the Shares' prospectus or prospectuses for distribution to prospective purchasers or to owners of existing Policies not funded by such Shares. 3.5 AVIF hereby notifies the 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. 3.6 If and to the extent required by law, the Company shall: (a) solicit voting instructions from Policy owners: (b) vote the Shares in accordance with timely instructions received from Policy owners; and 6 (c) vote the Shares for which no timely instructions have been received, as well as Shares it owns, in the same proportion as the Shares of such Portfolio for which instructions have been received from Policy owners; so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Policy owners. The Company will in no way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Policy owners. The Company reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. The Company shall be responsible for assuring that each of their separate accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by any Mixed and Shared Funding Exemptive Order that AVIF may obtain in the future. AVIF will notify the Company of any changes of interpretations or amendments to any Mixed and Shared Funding Exemptive Order it obtains in the future. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1. The Company shall furnish, or shall cause to be furnished, to AVIF or its designee, each piece of sales literature or other promotional material in which AVIF, AIM Advisors, any other investment adviser to AVIF, or any affiliate of AVIF are named, at least five (5) Business Days prior to its use. No such material shall be used if AVIF, AIM Advisors or their respective designees reasonably objects to such use within five (5) Business Days after receipt of such material. 4.2. The Company shall not give any information or make any representations or statement on behalf of AVIF, AIM Advisors, any other investment adviser to AVIF, or any affiliate of AVIF in connection with the sale of the Policies other than the information or representations contained in the registration statement, prospectus or statement of additional information for the Shares, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements prepared by or for AVIF, or in sales literature or other promotional material approved by AVIF, AIM Advisors, or their respective designees, except with the permission of AVIF, AIM Advisors, or their respective designees. AVIF agrees, and shall cause AIM Advisors and their respective designees, to respond to any request for approval on a prompt and timely basis. The Company shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF, AIM Advisors, or any of their affiliates which is intended for use only by brokers or agents selling the Policies (i.e., information that is not intended for distribution to Policy owners or prospective Policy owners) is so used, and neither AVIF, AIM Advisors nor any of their affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. 7 4.3. AVIF or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or the Accounts is named, at least five (5) Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within [FIVE (5)] Business Days after receipt of such material. 4.4. AVIF shall not give any information or make any representations on behalf of the Company or concerning the Company, the Accounts, or the Policies in connection with the sale of the Policies other than the information or representations contained in a registration statement, prospectus, or statement of additional information for the Policies, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports for the Accounts, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. The Company agrees to respond to any request for approval on a prompt and timely basis. The parties hereto agree that this Section 4.4. is neither intended to designate nor otherwise imply that AVIF is an underwriter or distributor of the Policies. 4.5. The Company and AVIF (or their designees) will each provide to the other at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Accounts or the Policies, or to AVIF or its Shares, prior to or contemporaneously with the filing of such document with the SEC or other regulatory authorities. The Company and AVIF shall also each promptly inform the other of the results of any examination by the SEC (or other regulatory authorities) that relates to the Accounts or the Policies, AVIF or its Shares, and the party that was the subject of the examination shall provide the other party with a copy of relevant portions of any "deficiency letter" or other correspondence or written report regarding any such examination. 4.6. AVIF will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Portfolio, and of any material change in AVIF's registration statement. AVIF will cooperate with the Company so as to enable the Company to solicit proxies from Policy owners or to make corresponding changes to the Policy prospectus, statement of additional information or registration statement, in an orderly manner. AVIF will make reasonable efforts to attempt to have changes affecting Policy prospectuses become effective simultaneously with the annual updates for such prospectuses. 4.7. For purposes of this Article IV and Article VIII, 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), 8 and sales literature (such as brochures, circulars, reprints or excerpts or any other advertisement, sales literature, or published articles), distributed or made generally available to customers or the public, educational or training materials or communications distributed or made generally available to some or all agents or employees. ARTICLE V. FEES AND EXPENSES 5.1. AVIF shall pay no fee or other compensation to the Company under this Agreement, and the Company shall pay no fee or other compensation to AVIF, except that if AVIF or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution and shareholder servicing expenses, then, subject to obtaining any required exemptive orders or regulatory approvals, AVIF may make payments to the Company or to the underwriter for the Policies if and in amounts agreed to by AVIF in writing. The Company, however, shall, in accordance with the allocation of expenses specified in Articles III and V hereof, reimburse AVIF for expenses initially paid by AVIF or its designee but allocated to the Company. In addition, nothing herein shall prevent the parties hereto from otherwise agreeing to perform, and arranging for appropriate compensation for, other services relating to the Portfolios and/or to the Accounts. 5.2. AVIF or its designee shall bear the expenses for the cost of registration and qualification of the Shares under all applicable federal and state laws, including preparation and filing of AVIF's registration statement, and payment of filing fees and registration fees; preparation and filing of AVIF's proxy materials and reports to Shareholders; setting in type its prospectus and statement of additional information, including any amendments or supplements thereto (to the extent provided by and as determined in accordance with Article III above); setting in type the proxy materials, reports and other communications to Shareholders (to the extent provided by and as determined in accordance with Article III above); the preparation of all statements and notices required of AVIF by any federal or state law with respect to its Shares; any taxes on the issuance or transfer of the Shares; and any expenses permitted to be paid or assumed by AVIF pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. AVIF shall not bear any expenses of marketing the Policies. 5.3. The Company shall bear the expenses of printing and distributing the prospectus and statement of additional information, including any amendments or supplements thereto, relating to Portfolio Shares in connection with existing Policy owners and new sales of the Policies and of printing and distributing AVIF's Shareholder proxy materials, reports and other communications to existing Policy owners. The Company shall bear all expenses associated with the registration, qualification, and filing of the Policies under applicable federal securities and state insurance laws; the cost of preparing, printing and distributing the Policy prospectus and 9 statement of additional information; and the cost of preparing, printing and distributing annual individual account statements for Policy owners as required by state insurance laws. ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS 6.1. AVIF, on behalf of each Portfolio, represents and warrants that it will use every effort to comply with the diversification requirements of Section 817(h)(1) of the Code and Treas. Reg. 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, as they may be amended from time to time (and any revenue rulings, revenue procedures, notices, and other published announcements of the Internal Revenue Service interpreting these sections) as if those requirements applied directly to each such Portfolio. In the event that any Portfolio is not so diversified at the end of any applicable quarter, AVIF will notify the Company and will use every effort to adequately diversify the Portfolio so as to achieve compliance within the grace period afforded by Treas. Reg. 1.817-5. 6.2. AVIF represents that each Portfolio will elect to be qualified as a regulated investment company under Subchapter M of the Code and that best efforts will be made to maintain such qualification (under Subchapter M or any successor or similar provision) and that AVIF or its designee will notify the Company promptly upon having a reasonable basis for believing that any Portfolio has ceased to so qualify or that any Portfolio might not so qualify in the future. 6.3 The Company agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of the Company or, to the Company's knowledge, of any Policy owner, that any Portfolio has failed to comply with the diversification requirements of section 817(h) of the Code or the 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) the Company shall promptly notify AVIF of such assertion or potential claim; (ii) the 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) the 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) the 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 Policy owner or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; (v) any written materials to be submitted by the Company to the IRS, any Policy owner 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 the Company to AVIF (together with any 10 supporting information or analysis) at least ten (10) business days prior to the day on which such proposed materials are to be submitted and (b) shall not be submitted by the Company to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) the 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 the 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) the Company shall not with respect to any claim of the IRS or any Policy owner 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 judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that the Company shall not be required 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 (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if the 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, the Company may, in its discretion, authorize AVIF or its affiliates to act in the name of the 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 further that in no event shall any liability to the Company exceed the amount which would have otherwise attached had the proposed settlement or compromise been accepted by AVIF. ARTICLE VII. POTENTIAL MATERIAL CONFLICTS 7.1. The parties hereto agree that the provisions of this Article VII shall apply if and only if AVIF implements Mixed and Shared Funding pursuant to an exemptive order from the SEC or otherwise. AVIF agrees that the Board, constituted with a majority of disinterested Directors, will monitor each Portfolio for the existence of any material irreconcilable conflict between the interests of the variable annuity contract owners and the variable life insurance policy owners (collectively, "Participants") of the Participating Insurance Companies investing in AVIF. An irreconcilable material conflict may arise for a variety of reasons, including: (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 11 investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance policy Participants or by Participants of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants. The Board shall have the sole authority to determine if a material irreconcilable conflict exists, and such determination shall be binding on the Company only if approved in the form of a resolution by a majority of the Board, or a majority of the disinterested Directors of the Board. The Board will give prompt notice of any such determination to the Company. 7.2. The Company agrees that it will be responsible for assisting the Board in carrying out its responsibilities under the conditions set forth in any exemptive application pursuant to which the SEC has granted the Mixed and Shared Funding Exemptive Order by providing the Board, as it may reasonably request, with all information necessary for the Board to consider any issues raised and agrees that it will be responsible for promptly reporting any potential or existing conflicts of which it is aware to the Board including, but not limited to, an obligation by the Company to inform the Board whenever Participant voting instructions are disregarded. The Company agrees to carry out these responsibilities with a view only to the interests of the Participants. The Company also agrees that, if a material irreconcilable conflict arises, it will at its own cost remedy or eliminate such conflict up to and including (a) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of AVIF, or submitting to a vote of all affected Participants whether to withdraw assets from AVIF or any Portfolio and reinvesting such assets in a different investment medium and, as appropriate, segregating the assets attributable to any appropriate group of Participants that votes in favor of such segregation, or offering to any of the affected Participants the option of segregating the assets attributable to their contracts or policies, and (b) establishing a new registered management investment company and segregating the assets underlying the Policies, unless a majority of Policy owners materially adversely affected by the conflict have voted to decline the offer to establish a new registered management investment company. 7.3. A majority of the disinterested Directors of the Board shall determine whether any proposed action by the Company adequately remedies any material irreconcilable conflict. In the event that the Board determines that any proposed action does not adequately remedy any material irreconcilable conflict, the Company will withdraw from investment in AVIF each of the Accounts designated by the disinterested Directors and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required to remedy any such material irreconcilable conflict as determined by a majority of the disinterested Directors of the Board. 12 7.4 If a material irreconcilable conflict arises because of the Company's decision to disregard contractowner voting instructions, and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the election of AVIF, to withdraw its Account(s) investments herein, and 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's Board informs the 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 the Company for the purchase and redemption of shares of AVIF. 7.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the Account's investment in AVIF within six (6) months after AVIF's Board informs the 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 the Company for the purchase and redemption of shares of AVIF. 7.6 The 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 Policy owners. 7.7 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 AIM Advisors be required to establish a new funding medium for any Policies. 7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to Mixed or Shared Funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed Shared Funding Exemptive Order, then (a) AVIF and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 2.7, 3.5, 3.6 and 7.1 through 7.8 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 13 ARTICLE VIII. INDEMNIFICATION 8.1. Indemnification by the Company The Company agrees to indemnify and hold harmless AVIF, AIM Advisors, any affiliates of AVIF, and each of their respective directors/trustees, officers and each person, if any, who controls AVIF or AIM Advisors within the meaning of Section 15 of the 1933 Act, and any agents or employees of the foregoing (each an "Indemnified Party," or collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including reasonable counsel fees) to which an Indemnified Party may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Shares or the Policies and; (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or statement of additional information for the Policies or contained in the Policies or sales literature or other promotional material 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 reasonable reliance upon and in conformity with information furnished to the Company or its designee by or on behalf of AVIF or any affiliate of AVIF for use in the registration statement, prospectus or statement of additional information for the Policies or in the Policies or sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or Shares; or (b) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material of AVIF not supplied by the Company or its designee, or persons under its control and on which the Company has reasonably relied) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Policies or Shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, statement of additional information, or sales literature or other promotional literature of AVIF, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or 14 omission was made in reliance upon information furnished to AVIF by or on behalf of the Company; or (d) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; or (e) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement, as limited by and in accordance with the provisions of this Article VIII. 8.2 Indemnification by AVIF AVIF agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, and any agents or employees of the foregoing (each an "Indemnified Party," or collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF) or expenses (including reasonable counsel fees) to which any Indemnified Party may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Shares or the Policies and: (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material 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 statement 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 reasonable reliance upon and in conformity with information furnished to AVIF, AIM Advisors, the Underwriter or their respective designees by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for AVIF or in sales literature or other promotional material for AVIF (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or Shares; or (b) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material for the Policies not supplied by AVIF, AIM Advisors, the Underwriter or any of their respective designees or persons under their respective control and on which any such entity has reasonably relied) or wrongful conduct of 15 AVIF or persons under its control, with respect to the sale or distribution of the Policies or Shares; or (c) arise out of or result from 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; or (d) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; or (e) arise as a result of any failure by AVIF to provide the services and furnish the materials under the terms of the Agreement, as limited by and in accordance with the provisions of this Article VIII. 8.3. In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including without limitation, the Company, or any Participating Insurance Company or any Policy owner, 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 the Company hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by the Company or any Participating Insurance Company to maintain its segregated asset account (which invests in any Portfolio) 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 the Company or any Participating Insurance Company to maintain its variable annuity and/or variable life insurance contracts (with respect to which any Portfolio serves as an underlying funding vehicle) as life insurance, endowment or annuity contracts under applicable provisions of the Code. 8.4. Neither the Company nor AVIF shall be liable under the indemnification provisions contained in this Agreement with respect to any losses, claims, damages, liabilities or expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, willful misconduct, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 8.5. Promptly after receipt by an Indemnified Party under this Section 8.5. of commencement of action, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party ("Indemnifying Party") under this section, notify the indemnifying party of the commencement thereof; but the omission so to notify the Indemnifying Party will not relieve it from any liability which it may have to any Indemnified Party otherwise than under this Article 16 VIII. In case any such action is brought against any Indemnified Party, and it notified the Indemnifying Party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the Indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the Indemnifying Party shall not be liable to such Indemnified Party under this section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. 8.6. Each party agrees promptly to notify the other party of the commencement of any litigation or proceeding against it or any of its respective officers, directors, trustees, employees or 1933 Act control persons in connection with this Agreement, the issuance or sale of the Policies, the operation of the Accounts, or the sale or acquisition of Shares. 8.7. A successor by law of the parties to this Agreement shall be entitled to the benefits of the indemnification contained in this Article VIII. The indemnification provisions contained in this Article VIII shall survive any termination of this Agreement. ARTICLE IX. APPLICABLE LAW 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Maryland. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. NOTICE OF FORMAL PROCEEDINGS AVIF and the Company agree that each shall promptly notify the other, in writing, of the institution of any formal proceedings brought against such party or its designees by the NASD, the SEC, or any insurance department or any other regulatory body regarding such party's duties under this Agreement or related to the sale of the Policies, the operation of the Accounts, or the purchase of the Shares. 17 ARTICLE XI. TERMINATION 11.1. This Agreement shall terminate with respect to the Accounts, or one, some, or all Portfolios: (a) at the option of the Company to the extent that the Shares of Portfolios are not "appropriate funding vehicles" for the Policies, as reasonably determined by the Company. Without limiting the generality of the foregoing, the Shares of a Portfolio would not be "appropriate funding vehicles" if, for example, such Shares did not meet the diversification or other requirements referred to in Article VI hereof. Prompt notice of the election to terminate for such cause and an explanation of such cause shall be furnished to AVIF by the Company; or (b) at the option of AVIF if the Policies issued by the Company cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of a Portfolio's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in the Accounts under the Policies are not registered, where required, and, in all material respects, are not issued or sold in accordance with applicable federal or state law. Prompt notice of the election to terminate for such cause and an explanation of such cause shall be furnished to the Company by AVIF; or (c) at the option of AVIF upon institution of formal proceedings against the Company by the NASD, the SEC, or any insurance department or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Policies, the operation of the Accounts, or the purchase of the Shares; or (d) at the option of the Company upon institution of formal proceedings against AVIF by the NASD, the SEC, or any state securities or insurance department or any other regulatory body regarding AVIF's duties under this Agreement or related to the sale of the Shares; or (e) at the option of the Company or AVIF upon receipt of any necessary regulatory approvals and/or the vote of the Policy owners having an interest in the Accounts (or any subaccounts) to substitute the shares of another investment company for the corresponding Portfolio Shares in accordance with the terms of the Policies for which those Portfolio Shares had been selected to serve as the underlying investment media. The Company will give thirty (30) day's prior written notice to AVIF of the date of any proposed vote or other action taken to replace the Shares; or (f) at the option of AVIF, upon 30 days' written notice, if the Board of AVIF determines, in its sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or 18 (g) at the option of the Company, upon 30 days' written notice, if the Company determines, in its sole judgment exercised in good faith, that AVIF has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) at the option of any party to this Agreement, upon another party's material breach of any provision of this Agreement; or (i) upon assignment of this Agreement, unless made with the written consent of the parties hereto. 11.2. Unless otherwise specified in Section 11.1, the party terminating the Agreement shall provide the other at least 30 days notice to the other party. The notice shall specify the Portfolio or Portfolios, Policies and, if applicable, the Accounts as to which the Agreement is to be terminated. 11.3. Except as necessary to implement Policy owner initiated transactions, or as required by state insurance laws or regulations, the Company shall not redeem the Shares attributable to the Policies (as opposed to the Shares attributable to the Company's assets held in the Accounts), and the Company shall not prevent Policy owners from allocating payments to a Portfolio that was otherwise available under the Policies, until six (6) months after the Company shall have notified AVIF of its intention to do so and until 24 full calendar months shall have expired from the date on which an Account first invested in any Portfolio. 11.4. Notwithstanding any termination of this Agreement, AVIF shall, at the option of the Company, continue to make available additional shares of the Portfolios pursuant to the terms and conditions of this Agreement, for all Policies in effect on the effective date of termination of this Agreement (the "Existing Policies"), except as otherwise provided under Article VII of this Agreement. Specifically, without limitation, the owners of the Existing Policies shall be permitted to transfer or reallocate investment under the Policies, redeem investments in any Portfolio and/or invest in AVIF upon the making of additional purchase payments under the Existing Policies. ARTICLE XII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party 19 may from time to time specify in writing to the other party. If to AVIF: AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046 Attn: Nancy L. Martin, Esq. If to the Company: Citicorp Insurance Group Citibank, N.A. One Court Square Long Island City, NY 11120 Attn: Alan F. Liebowitz, Senior Vice President, General Counsel and Secretary ARTICLE XIII. MISCELLANEOUS 13.1. Subject to the requirement of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the Policy owners and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement or as otherwise required by applicable law or regulation, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as it may come into the public domain. 13.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 13.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 13.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 20 13.5. The Schedule attached hereto, as modified from time to time, is incorporated herein by reference and is part of this Agreement. 13.6. Each party hereto shall cooperate with each other party in connection with inquiries by appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) relating to this Agreement or the transactions contemplated hereby. 13.7. 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, which the parties hereto are entitled to under federal and state laws. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified above. AIM VARIABLE INSURANCE FUNDS, INC. By: /s/ ROBERT H. GRAHAM ------------------------------- Title: President --------------------------- FIRST CITICORP LIFE INSURANCE COMPANY, on behalf of itself and FIRST CITICORP LIFE VARIABLE ANNUITY SEPARATE ACCOUNT By: /s/ ILLEGIBLE ------------------------------- Title: V.P. --------------------------- 21 SCHEDULE A ACCOUNTS, POLICIES AND PORTFOLIOS SUBJECT TO THE PARTICIPATION AGREEMENT ------------------------------------------------------------------------ Name of Separate Account and Date Established by Board of Directors: - ---------------------------------- First Citicorp Life Variable Annuity Separate Account (July 6, 1994) Policies Funded by Separate Account: - ------------------------------------ Portfolios Applicable to Policies: - ---------------------------------- AIM V.I. Capital Appreciation Fund 22 EX-9.K 27 PARTIC AGMT EXHIBIT 9(k) AIM VARIABLE INSURANCE FUNDS, INC. PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into this 25th day of February, 1993 by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY ("CG LIFE") on its own behalf and on behalf of CG VARIABLE ANNUITY SEPARATE ACCOUNT (the "SEPARATE ACCOUNT"), and the AIM VARIABLE INSURANCE FUNDS, INC. (the "FUND") and AIM DISTRIBUTORS, INC. ("DISTRIBUTOR"). WITNESSETH WHEREAS, CG LIFE and A I M MANAGEMENT GROUP INC. have entered into an agreement dated June 30, 1992 entitled "PRODUCT DEVELOPMENT AGREEMENT" to jointly develop a variable annuity product; and WHEREAS, the FUND has been organized for investment of life insurance companies' customers through separate accounts; and WHEREAS, CG LIFE intends to purchase shares in the FUND on behalf of the SEPARATE ACCOUNT; and WHEREAS, DISTRIBUTOR is authorized to sell such shares to the SEPARATE ACCOUNT; NOW, THEREFORE, in consideration of the covenants, mutual promises herein contained and other good and valuable consideration the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 The Parties agree that the following terms shall have the meanings set forth below: Board - The Board of Directors of the FUND; Business Day - Any day on which the FUND computes its net asset value pursuant to rules of the SEC and as described in the Prospectus for the FUND. Code - The Internal Revenue Code of 1986, as amended; Contract(s) - Any individual or group variable annuity contract or combination fixed and variable annuity contract or certificate issued under a 1 group contract by CG LIFE or any of its affiliates which provides for the FUND as an investment through the SEPARATE ACCOUNT; Distribution Agreement - The Agreement between the FUND and DISTRIBUTOR dated ___________________ concerning the sale and distribution of FUND shares; General Account - The assets of CG LIFE other than those allocated to the SEPARATE ACCOUNT or any other separate accounts of CG LIFE established under Connecticut insurance statutes; NASD - The National Association of Securities Dealers, Inc.; Owners - The person, persons, entity, or entities entitled to the ownership rights stated in the Contracts; Participants - Individuals who participate under group Contracts; Portfolio - A separate class or series of shares of the FUND constituting an investment sub-account as described in the FUND Prospectus with investment objectives, policies and restrictions distinct from the other investment sub- accounts of the FUND; Prospectus - The current prospectus and corresponding statement of additional information for either the FUND or the Contracts; Sales Literature - 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), sales literature (such as any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, or reprints or excerpts of any other advertisement, sales literature, or published article), registration statements, prospectuses, statements of additional information, shareholder reports and proxy materials, and any other material constituting sales literature or advertising under NASD rules, the 1940 Act or the 1933 Act. SEC - The United States Securities and Exchange Commission; 1940 Act - The Investment Company Act of 1940 including the rules thereunder; 1933 Act - The Securities Act of 1933 including the rules thereunder; 1934 Act - The Securities Exchange Act of 1934 including the rules thereunder; 2 ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 CG LIFE represents and warrants that: (a) It is a life insurance company duly organized and in good standing under the laws of the State of Connecticut with the right to do business and proper authority to issue fixed and variable annuity contracts in 50 states. (b) The SEPARATE ACCOUNT has been legally and validly established as a segregated asset account of CG LIFE by resolution of the Board of Directors of CG LIFE on May 15, 1992 under Section 38a-433 of the Connecticut Insurance Statutes, to set aside and invest assets attributed to the Contracts and that the income, gains and losses, whether or not realized, from assets allocated to the SEPARATE ACCOUNT are, in accordance with state law and the Contracts, to be credited to or charged against such SEPARATE ACCOUNT without regard to other income, gains or losses from assets allocated to any other accounts of CG LIFE. (c) The assets of the SEPARATE ACCOUNT are and will be kept separate from the assets of the General Account and any other separate account of CG LIFE, and will not be charged with liabilities from any business that CG LIFE may conduct or the liabilities of any companies affiliated with CG LIFE. (d) The SEPARATE ACCOUNT is an insurance company separate account under the 1940 Act and is registered as a unit investment trust in accordance with provisions of the 1940 Act to the extent required by said Act. (e) The Contracts or interests therein have been duly registered under the 1933 Act and will be issued and sold in compliance with the 1933 Act, the 1934 Act, NASD rules and regulations, and applicable state law. (f) The Contracts are currently treated as annuity contracts under the Code and CG LIFE will make every effort to maintain such treatment and will notify the FUND and DISTRIBUTOR immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. (g) CG LIFE will not on its own behalf or on behalf of the SEPARATE ACCOUNT directly or indirectly transfer or otherwise convey shares of the FUND to any party including another insurance company separate account without the prior written consents of DISTRIBUTOR and the FUND, which consents will not be unreasonably withheld. (h) All legal and regulatory licenses, approvals and consents have been obtained and shall be maintained, as required, to offer the Contracts for sale. 3 2.2 The FUND represents and warrants that: (a) It is a series type open end management investment company registered under the 1940 Act to the extent required by said Act. (b) FUND shares sold pursuant to this Agreement are registered under the 1933 Act to the extent required by said Act and are duly authorized for issuance and sold in compliance with all applicable federal securities laws. FUND will register and qualify its shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the FUND or DISTRIBUTOR. (c) Interests in the FUND are currently divided into seven Portfolios each representing a separately managed portfolio of securities and other assets. (d) It possesses and shall maintain, all legal and regulatory licenses, approvals and consents required to offer its shares as an investment for the SEPARATE ACCOUNT under the Contracts. (e) It is currently qualified as a Regulated Investment Company under Subchapter M of the Code; and it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify CG LIFE immediately upon having a reasonable basis for believing that it no longer qualifies or that it might not so qualify in the future. (f) The assets of the FUND are currently managed and invested in a manner that complies with section 817(h) of the Code. 2.3 DISTRIBUTOR represents and warrants that: (a) It is registered as a broker-dealer with the SEC and is a member in good standing of the NASD. (b) It is authorized, pursuant to the Distribution Agreement, to sell shares of the FUND to CG LIFE and the SEPARATE ACCOUNT at net asset value. ARTICLE III SALE, ISSUANCE, AND REDEMPTION OF FUND SHARES 3.1 DISTRIBUTOR will, subject to the terms of the Distribution Agreement, sell to CG LIFE those shares of the FUND that CG LIFE orders on behalf of the SEPARATE ACCOUNT based on transactions under the Contracts, executing such orders on a daily basis at the FUND's net asset value per share computed as of the close of business on the Business Day immediately prior to the date the order is received by DISTRIBUTOR, provided that DISTRIBUTOR receives notice of such orders by 11:00 a.m., Eastern Time. Any orders to purchase shares of the FUND not based 4 on transactions under Contracts will be effected at the FUND's net asset value per share next computed after the order is received by the DISTRIBUTOR. 3.2 The FUND, pursuant to the FUND's Prospectus, will redeem for cash, upon request, any full or fractional shares that CG LIFE holds on behalf of the SEPARATE ACCOUNT based on transactions under the Contracts, executing such requests on a daily basis at the FUND's net asset value per share computed as of the close of business on the Business Day immediately prior to the date the order is received by the FUND provided said order to redeem is received by the FUND by 11:00 a.m. Eastern Time. Any orders to redeem shares of the FUND not based on transactions under Contracts will be effected at the FUND's net asset value per share next computed after the order is received by the FUND. Subject to the applicable rules and regulations, if any, of the SEC, and pursuant to the FUND's Prospectus, the FUND may pay the redemption price, in whole or in part, by a distribution in kind of securities from the respective Portfolios of the FUND in lieu of money when such payment is pursuant to a change in advisor or a reclassification, substitution, merger or other restructuring of the FUND or its shares. 3.3 To the extent the purchase of FUND shares on a given Business Day pursuant to Paragraph 3.1 herein, exceeds the redemption of FUND shares, pursuant to Paragraph 3.2 herein, CG LIFE shall make all reasonable efforts to transmit to the FUND payment in Federal Funds of the net purchase amount by 3:00 p.m. Eastern Time on the Business Day DISTRIBUTOR receives the notice of the order, but in any event not later than the close of business hours of the bank designated by the FUND for receipt of said payment. A purchase request that does not satisfy the conditions specified within this Article III will be effected at the net asset value per share computed on the Business Day prior to the Business Day upon which such conditions have been satisfied. 3.4 The FUND will make its shares available to CG LIFE and the SEPARATE ACCOUNT for purchase at the applicable net asset value per share on any Business Day. 3.5 Notwithstanding Paragraph 3.4 above, the FUND may suspend the sale or redemption of shares pursuant to the conditions set forth in the FUND's Prospectus and the Board may refuse to sell shares of the FUND, or suspend or terminate the offering of shares of the FUND if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of the FUND. The FUND or its designee will provide CG LIFE advance notice of any such suspension or refusal to sell whenever possible. 3.6 Issuance and transfer of FUND shares will be by book entry only. Stock certificates will not be issued to CG LIFE or the SEPARATE ACCOUNT. Shares ordered from the FUND will be recorded by the FUND's transfer agent in an appropriate title for CG LIFE on behalf of the SEPARATE ACCOUNT. 3.7 The FUND shall furnish same day notice (by wire or telephone, followed by written confirmation) to CG LIFE of any income dividends or capital gain 5 distributions payable on the shares of the FUND. CG LIFE hereby elects to receive all such income dividends and capital gain distributions as are payable on FUND shares in the form of additional shares of the FUND. CG LIFE reserves the right to revoke this election and to receive all income dividends and capital gain distributions in cash. The FUND shall notify CG LIFE of the number of shares so issued as payment of such dividends and distributions. 3.8 The FUND shall make the net asset value per share for the FUND available to CG LIFE, on a daily basis, as soon as reasonably practical after the net asset value per share is calculated, and shall use its best efforts to make such net asset value per share available by 6:00 p.m. Eastern Time. In the event that the FUND is unable to meet the 6:00 p.m. time stated herein it shall provide additional time for CG LIFE to place orders for the purchase (pursuant to Paragraph 3.1) or redemption (pursuant to Paragraph 3.2) of FUND shares. Said additional time shall be equal to the additional time which the FUND takes to make the net asset value per share available to CG LIFE. 3.9 The FUND, on behalf of the Portfolios, agrees at all times to invest money from the SEPARATE ACCOUNT in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the Code and the regulations issued thereunder in so far as such investment is required for such treatment. CG LIFE undertakes to promptly notify the FUND, in writing, of any change in the Code and regulations with respect to the requirements for annuity tax treatment. 3.10 The FUND may, but is not required to, establish additional Portfolios to provide additional investments for the SEPARATE ACCOUNT, and may delete existing Portfolios. The shares of any additional Portfolios of the FUND may be made available to the SEPARATE ACCOUNT by DISTRIBUTOR, pursuant to the terms of this Agreement, and any reference to Portfolio of the FUND or its shares herein shall include any such new Portfolio of the FUND. 3.11 FUND shares will not be sold directly to the general public. In addition, FUND shares will not be sold to separate accounts of life insurance companies other than CG LIFE, Nationale-Nederlanden ("NN"), or affiliates of either CG LIFE or NN in accordance with the Product Development Agreement ("PDA") dated June 30, 1992, between AIM Management Group Inc. and CG LIFE, provided the market place acceptance levels, as defined in the PDA, are met. In accordance with Paragraph 20 of the PDA, if said acceptance levels are not met, DISTRIBUTOR and the FUND may, but are not required to, sell FUND shares to other life insurance company separate accounts and CG LIFE agrees that the restrictions contained in the PDA are hereby amended to correspond with this provision. 3.12 The FUND shall provide a monthly statement of account to CG LIFE as of the end of each month by the fifteenth (15th) Business Day of the following month. FUND shall also provide daily performance reports for each Portfolio to CG LIFE. 6 ARTICLE IV PROSPECTUS, PROXY STATEMENTS, AND VOTING 4.1 DISTRIBUTOR will provide CG LIFE or its designee with copies of the FUND's current prospectus as the same may be amended or supplemented from time to time in such quantities as CG LIFE may reasonably request. In lieu thereof, DISTRIBUTOR and CG LIFE may agree to have the new prospectus for the Contracts and the new prospectus for the FUND printed together in one document. In this event, the FUND will produce a final copy of the new prospectus for the FUND and any amendments or supplements thereto (set in type) and CG LIFE will produce a final copy of the prospectus for the Contracts and any amendments or supplements thereto (set in type) and the FUND or CG LIFE will have the two prospectuses printed in one document. 4.2 The FUND Prospectus will state that the Statement of Additional Information ("SAI") for the FUND is available from DISTRIBUTOR (or the Prospectus will state that the SAI is available from the FUND), and DISTRIBUTOR or the FUND will provide the SAI free of charge to CG LIFE and to any Owner or Participant who requests same. 4.3 The FUND will provide CG LIFE or its designee with copies of its proxy materials, reports to shareholders, other communications to shareholders, including amendments or revisions thereto, in such quantity as CG LIFE may reasonably require for delivery to Owners or Participants. 4.4 CG LIFE or its designee will deliver in a timely manner all materials described in Paragraph 4.1 and Paragraph 4.3 herein to Owners and Participants in compliance with the requirements of relevant provisions of federal and state law and any rules or interpretations thereof. 4.5 The FUND, in complying with all provisions of the 1940 Act requiring voting by shareholders, will solicit the vote of CG LIFE by means of proxy material. 4.6 CG LIFE will, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through and echo voting, (a) solicit voting instructions from Owners or Participants, (b) vote FUND shares held in the SEPARATE ACCOUNT attributable to Contracts in accordance with instructions received from Owners or Participants, and (c) vote FUND shares for which no instructions have been received in the same proportion as the FUND shares for which instructions have been received. 4.7 CG LIFE will vote FUND shares held in its own right (not attributable to Contracts) in the SEPARATE ACCOUNT or held by the General Account, in any manner which would comply with the 1940 Act, the regulations thereunder, and current interpretations of SEC staff. 7 ARTICLE V SALES MATERIAL AND INFORMATION 5.1 CG LIFE will furnish, or will cause to be furnished, to the FUND or DISTRIBUTOR or other designee, each piece of Sales Literature or other promotional material in which the FUND or its investment adviser or DISTRIBUTOR is named, at least thirty (30) business days prior to its intended use. No such material will be used if the FUND or DISTRIBUTOR or other designee object to such use in writing within thirty (30) business days after receipt of such material. 5.2 CG LIFE will not give any information or make any representations or statements, or cause such information to be given or representations to be made, on behalf of the FUND or concerning any Portfolio of the FUND in connection with the sale of the Contracts other than the information or representations contained in the registration statement or Prospectus for FUND shares, as such registration statement and Prospectus may be amended or supplemented from time to time, or in reports or proxy materials for the FUND, or in Sales Literature or other promotional material prepared by the FUND or its designee or by DISTRIBUTOR, except with the written permission of the FUND or DISTRIBUTOR or other designee. 5.3 DISTRIBUTOR or its designee will furnish, or will cause to be furnished, to CG LIFE or its designee, each piece of Sales Literature or other promotional material of the FUND in which CG LIFE or the SEPARATE ACCOUNT is named, at least thirty (30) business days prior to its intended use. No such material will be used if CG LIFE or its designee object to such intended use in writing within thirty (30) business days after receipt of such material. 5.4 DISTRIBUTOR will not give any information or make any representations or statements, or cause such information to be given or representations to be made, on behalf of or concerning CG LIFE, the SEPARATE ACCOUNT or the Contracts other than the information or representations contained in a registration statement or Prospectus for such Contracts, as such registration statement and Prospectus may be amended or supplemented from time to time, or in reports for the SEPARATE ACCOUNT that are prepared and approved by CG LIFE for distribution to Owners and Participants, or in Sales Literature or other promotional material approved by CG LIFE or its designee, except with the written permission of CG LIFE. 5.5 The FUND will provide to CG LIFE one complete copy of all registration statements, Prospectuses, reports (other than reports to shareholders), any preliminary proxy material, Sales Literature and other promotional material, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the FUND or its shares, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 8 5.6 CG Life will provide to the FUND and DISTRIBUTOR one complete copy of all registration statements, prospectuses, statements of additional information, reports, solicitations for voting instructions, Sales Literature and other promotional material, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Contracts or the SEPARATE ACCOUNT, contemporaneously with the filing of such document with the SEC or other regulatory authorities. ARTICLE VI FEES AND EXPENSES 6.1 All expenses incident to performance by the FUND under this Agreement will be paid by the FUND or the FUND's designee. The FUND will bear, or arrange for others to bear, the expenses of registration and qualification of its shares, preparation and filing of its Prospectus and registration statement, proxy material and reports to shareholders. The Fund will also bear, or arrange for others to bear, the costs of setting in type the FUND Prospectus, proxy material and reports to shareholders, SAI, and printing FUND materials described in this Paragraph 6.1 in quantities sufficient for delivery to Contract Owners and Participants, and delivery of said materials to CG LIFE or the SEPARATE ACCOUNT. The FUND will also bear, or arrange for others to bear, the costs associated with preparation of all FUND statements and FUND notices required by any federal or state law, and all taxes on the issuance or transfer of FUND shares. 6.2 All expenses incident to performance by CG LIFE and the SEPARATE ACCOUNT under this Agreement will be paid by CG LIFE or CG LIFE's designee. CG LIFE shall bear or arrange for others to bear the expenses of registration and qualification of the units of interests in the SEPARATE ACCOUNT and/or the Contracts, preparation and filing of the corresponding Prospectus and registration statement, voting instructions forms and related correspondence for Contract Owners and Participants, and CG LIFE reports to Contract Owners and Participants. CG LIFE will also bear, or arrange for others to bear, the costs of setting in type the SEPARATE ACCOUNT or Contract Prospectus, the voting instructions forms and related correspondence, the SEPARATE ACCOUNT or Contract SAI, printing SEPARATE ACCOUNT or Contract materials described in this Paragraph 6.2 in quantities sufficient for delivery to Contract Owners and Participants, and delivery of said materials to Contract Owners and/or Participants. CG LIFE will also bear, or arrange for others to bear, the costs associated with preparation of all SEPARATE ACCOUNT or Contract statements and SEPARATE ACCOUNT or Contract notices required by any federal or state law, and all taxes on the issuance or transfer of the units of interest of the SEPARATE ACCOUNT or the Contracts. 6.3 CG LIFE will bear the expenses of delivery of the FUND proxy materials, proxy cards and voting instruction forms (collectively "proxy information") to Contract Owners and Participants, tabulating the results of proxy solicitations to Owners and Participants, delivery of the FUND prospectuses as they may be amended or supplemented from time to time to Owners and Participants, and any expenses associated with preparation of, filing for state approvals, issuance, 9 shareholder service, and administration of the Contracts otherwise contemplated by this Agreement. 6.4 The FUND, at its expense, will provide the monthly statement of account and daily performance reports required by Paragraph 3.12 of this Agreement. ARTICLE VII INDEMNIFICATION 7.1 Indemnification By CG LIFE -------------------------- (a) CG LIFE will indemnify and hold harmless the FUND and DISTRIBUTOR and each of its Board members, officers and employees and each person, if any, who controls the FUND within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Paragraph 7.1.) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of CG LIFE) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, and which: (i) arise out of or are based upon any failure by CG LIFE to perform the duties or assume the general business responsibilities of CG LIFE with respect to the design, drafting, state approvals, issuance, servicing and administration of the Contracts, or the establishment and maintenance of the SEPARATE ACCOUNTS; or (ii) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or Prospectus for the Contracts or the SEPARATE ACCOUNT or contained in the Contracts or Sales Literature for the Contracts or the SEPARATE ACCOUNT (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 a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnification will 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 in writing to CG LIFE by or on behalf of the FUND or DISTRIBUTOR for use in the registration statement or Prospectus for the Contracts or the SEPARATE ACCOUNT or in the Contracts or Sales Literature (or any amendment or supplement thereto) or otherwise for use in connection with the Contracts or the SEPARATE ACCOUNT; or (iii) arise out of, or are based upon, statements or representations (other than statements or representations contained in the registration statement, Prospectus or Sales Literature of the FUND not supplied by CG LIFE, or persons under its control) made by CG Life or persons under its control; or arise out of or are based upon failure 10 to supervise persons under CG LIFE'S control or entities or individuals with which CG LIFE contracts; or arise out of, or are based upon, wrongful conduct of CG LIFE or persons under its control; with respect to the sale or distribution of the Contracts or the SEPARATE ACCOUNT; or (iv) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, or Sales Literature of the FUND or any amendment thereof or supplement thereto 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 information furnished in writing to the FUND or the DISTRIBUTOR by or on behalf of CG LIFE; or (v) arise out of or result from any failure by CG LIFE to provide the services and furnish the materials contemplated by this Agreement; or (vi) arise out of or result from any material breach of any representation and/or warranty made by CG LIFE in this Agreement or arise out of or result from any other material breach of this Agreement by CG LIFE; except to the extent provided in Paragraph 7.1(b) and Paragraph 7.1(c) hereof. (b) CG LIFE will not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to CG LIFE, whichever is applicable. (c) CG LIFE will not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified CG LIFE in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim 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 CG LIFE of any such claim will not relieve CG LIFE from any liability that it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, CG LIFE shall be entitled to participate, at its own expense, in the defense of such action. CG LIFE also will be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from CG LIFE to such party of CG LIFE'S election to assume the defense thereof, the Indemnified Party will bear the fees and expenses of any additional counsel retained by it, and CG LIFE will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 11 (d) The Indemnified Parties will promptly notify CG LIFE of the commencement of any litigation or proceeding against them in connection with the transactions which are the subject of this Agreement whether or not indemnification is being sought hereunder. 7.2 Indemnification by DISTRIBUTOR (a) DISTRIBUTOR will indemnify and hold harmless CG LIFE and each of its Board members, officers and employees and each person, if any, who controls CG LIFE within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Paragraph 7.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of DISTRIBUTOR) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, and which: (i) arise out of or are based upon any failure by the DISTRIBUTOR to perform the duties or assume the general business responsibilities of the DISTRIBUTOR with respect to the sale of shares of the FUND to CG LIFE on behalf of the SEPARATE ACCOUNTS; or (ii) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Sales Literature for the FUND and/or the Sales Literature prepared by DISTRIBUTOR for the Contracts, or arise out of or are based upon the omission or the alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify will 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 in writing to DISTRIBUTOR by or on behalf of CG LIFE for use in the Sales Literature or otherwise for use in connection with the sale of FUND shares; or (iii) arise out of or are based upon statements or representations (other than statements or representations contained in the registration statement, Prospectus or Sales Literature of the FUND or the Contracts not supplied by DISTRIBUTOR, or persons under its control) made by DISTRIBUTOR or persons under its control; or arise out of or are based upon failure to supervise persons under DISTRIBUTOR'S control or arise out of or are based upon wrongful conduct of DISTRIBUTOR or persons under its control; all of the foregoing with respect to the sale or distribution of FUND shares; or (iv) arise out of any untrue statement or alleged untrue statement of a material fact contained in Sales Literature designed and produced by CG LIFE for the Contracts or the FUND or any amendment thereof or supplement thereto 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 information furnished in writing to CG LIFE by or on behalf of DISTRIBUTOR; or 12 (v) arise out of or result from any failure by DISTRIBUTOR to provide the services and furnish the materials contemplated by this Agreement; or (vi) arise out of or result from any material breach of any representation and/or warranty made by DISTRIBUTOR in this Agreement or arise out of or result from any other material breach of this Agreement by DISTRIBUTOR. (b) DISTRIBUTOR will not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to DISTRIBUTOR, whichever is applicable. (c) DISTRIBUTOR will not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified DISTRIBUTOR in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim 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 DISTRIBUTOR of any such claim will not relieve DISTRIBUTOR from any liability that it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, DISTRIBUTOR shall be entitled to participate, at its own expense, in the defense of such action. DISTRIBUTOR also will be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from DISTRIBUTOR to such party of DISTRIBUTOR's election to assume the defense thereof, the Indemnified Party will bear the fees and expenses of any additional counsel retained by it, and DISTRIBUTOR will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Indemnified Parties will promptly notify DISTRIBUTOR of the commencement of any litigation or proceeding against them in connection with the transactions which are the subject of this Participation Agreement whether or not indemnification is being sought hereunder. ARTICLE VIII TERMINATION OF THIS AGREEMENT 8.1 Termination. This Agreement will terminate: ----------- 13 (a) as to any party hereto, at the option of that party, for any reason or for no reason upon prior written notice to the other parties as provided in Paragraph 8.2 herein; or (b) at the option of the FUND or DISTRIBUTOR in the event that formal administrative proceedings are instituted against CG LIFE by the NASD, the SEC, any insurance commissioner or any other regulatory body regarding CG LIFE's duties under this Agreement or related to the sale of the Contracts, with respect to the operation of the SEPARATE ACCOUNT, or the purchase of the FUND shares, provided, however, that the FUND determines, in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of CG LIFE to perform its obligations under this Agreement; or (c) at the option of CG LIFE in the event that formal administrative proceedings are instituted against the FUND or the DISTRIBUTOR by the NASD, the SEC, or any state securities or insurance commission or any other regulatory body, regarding the duties of the FUND or the DISTRIBUTOR under this Agreement or related to the operation of the FUND or with respect to the sale of FUND shares provided, however, that CG LIFE determines, in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the FUND or the DISTRIBUTOR to perform its respective obligations under this Agreement; or (d) at the option of CG LIFE with respect to the SEPARATE ACCOUNT, upon receipt of any requisite regulatory authority to substitute the shares of another investment company for shares of the FUND in accordance with the terms of the Contracts and in accordance with the investment policy or standards of conduct of the SEPARATE ACCOUNT. (e) at the option of CG LIFE, in the event any of the FUND's shares are not registered, issued or sold in accordance with applicable federal and any state law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by CG LIFE; or (f) at the option of CG LIFE, if the FUND fails to meet the diversification requirements specified in Paragraph 2.2(f) hereof; or (g) at the option of the FUND, if the Contracts fail to satisfy the diversification requirements of the Code and the regulations thereunder, or fail to be treated as annuity contracts under the Code. 8.2 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 all 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 Paragraph 8.1(a), hereof, such prior written notice shall be given at least 180 days in advance of the effective date of termination as required by such provision; and 14 (b) in the event that any termination is based upon the provisions of Paragraph 8.1(b) or Paragraph 8.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination. (c) in the event that any termination is based upon the provisions of Paragraph 8.1(d) CG LIFE will give at least 60 days prior written notice to the FUND of the date of any proposed action to substitute FUND shares, including the filing of any applicable exemptive application under the 1940 Act relating to the SEPARATE ACCOUNT; and CG LIFE will provide the FUND and the DISTRIBUTOR with a copy of any such exemptive application in accordance with Paragraph 5.6 of this Agreement. (d) in the event that any termination is based upon the provisions of Paragraph 8.1(e), Paragraph 8.1(f), or Paragraph 8.1(g) hereof, such prior written notice shall be given as soon as possible within 24 hours after the terminating party learns of the event causing termination to be required. 8.3 Partial Termination. It is also understood that this Agreement may be terminated with regard to a specific Portfolio or Portfolios of the Fund, or the entire Fund at the discretion of the terminating party. Notwithstanding any termination of this Agreement, the FUND and DISTRIBUTOR shall, at the option of CG LIFE, continue to make available additional shares of the FUND pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the Owners of the Existing Contracts shall be permitted to transfer or reallocate investments under the Contracts, redeem investments in the FUND and/or invest in the FUND upon the making of additional purchase payments under the Existing Contracts. ARTICLE IX NOTICES Any notice will be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to CG LIFE Connecticut General Life Insurance Company or the Hartford, Connecticut 06152 SEPARATE ACCOUNT: Attention: Robert A. Picarello, Esquire If to the FUND: AIM VARIABLE INSURANCE FUNDS, INC. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046-1173 Attention: Corporate Secretary 15 If to DISTRIBUTOR: A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046-1173 Attention: General Counsel ARTICLE X MISCELLANEOUS 10.1 This Agreement will be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Maryland; provided, however, that if such laws or any of the provisions of this Agreement conflict with applicable provisions of the 1940 Act, the latter shall control. 10.2 If any provision of this Agreement will be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement will not be effected thereby. 10.3 This Agreement contains the entire understanding and agreement with respect to the subject matter of this Agreement and may not be amended except in writing by the parties hereto. 10.4 Each party hereto shall cooperate with the other parties and all appropriate government authorities and shall permit access to its books and records in connection with any investigation or inquiry relating to the transactions contemplated by this Agreement. 16 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. CONNECTICUT GENERAL LIFE INSURANCE COMPANY by: /s/ ILLEGIBLE /s/ ILLEGIBLE - ---------------------------- ------------------------------------------------- Attest Title: Vice President ------------------------------------------ AIM VARIABLE INSURANCE FUNDS, INC. by: /s/ NANCY L. MARTIN /s/ ROBERT H. GRAHAM - ---------------------------- ------------------------------------------------- Attest Title: President ------------------------------------------ A I M DISTRIBUTORS, INC. by: /s/ CAROL F. RELIHAN /s/ MICHAEL J. CEMO - ---------------------------- ------------------------------------------------- Attest Title: President ------------------------------------------ 17 EX-9.L 28 ACCTG SVCS AGMT EXHIBIT 9(l) ACCOUNTING SERVICES AGREEMENT ----------------------------- AGREEMENT made between AIM Variable Insurance Funds, Inc., a corporation organized and existing under the laws of Maryland having its principal place of business at 11 Greenway Plaza, Houston, Texas (the "Fund") and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110, ("State Street"). WHEREAS, the Fund desires to retain State Street to perform certain accounting and recordkeeping duties on behalf of the Fund's AIM V.I. International Equity Fund Services (the "Portfolio"); and WHEREAS, State Street is willing to perform such services on the terms provided herein. NOW, THEREFORE, the parties agree as follows: Section 1. Duties of State Street. ----------------------- 1.1 Books of Account. ----------------- State Street shall maintain the books of account of the Portfolio and shall perform the following duties in the manner prescribed by the Portfolio's currently effective prospectus, statement of additional information or other governing document certified copies of which have been supplied to State Street (a "governing document"): - Record general ledger entries. - Calculate daily expenses. - Calculate daily income. - Reconcile daily activity to the trial balance. - Calculate net asset value. - Prepare account balances. The Fund on behalf of the Portfolio shall provide timely prior notice to State Street of any modification in the manner in which such calculations are to be performed as prescribed in any revision to the Portfolio's governing documents. State Street shall not be responsible for any revisions to calculations unless such revisions are communicated in writing to State Street. 1.2 Records. -------- State Street shall create and maintain all records relating to its activities and obligations under this Agreement in such a manner as will meet the obligations of the Fund under the Investment Company Act of 1940, specifically Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of State Street be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. Subject to Section 3 below, State Street shall preserve for the period required by law the records required to be maintained thereunder. Section 2. A. Duties of the Fund ------------------ The Fund on behalf of the Portfolio shall provide, or shall cause a third party to provide, timely notice to State Street of certain data as a condition to the State Street's 2 performance described in Section 1 above. The data required to be provided pursuant to this section are set forth in Schedule A hereof, which schedule may be separately amended or supplemented by the parties from time to time. State Street is authorized and instructed to rely upon the information it receives from the Fund or at the direction of the Fund, any third party. State Street shall have no responsibility to review, confirm or otherwise assume any duty with respect to the accuracy or completeness of any data supplied to it by or on behalf of the Fund. B. Proper Instructions. -------------------- The Fund on behalf of the Portfolio shall communicate to State Street by means of Proper Instructions. Proper Instructions shall mean (i) a writing signed or initialed by the Fund's Chief Financial Officer, Treasurer or Assistant Treasurer or by one or more persons as the Fund's Board of Directors shall have from time to time authorized or (ii) communication effected directly between the Fund or its third-party agent and State Street by electro-mechanical or electronic devices, provided that the Fund and the State Street have approved such procedures. State Street may rely upon any Proper Instruction believed by it to be genuine and to have been properly issued by or on behalf of the Fund. Oral instructions shall be considered Proper Instructions if State Street reasonably believes them to have been given by a person authorized to give such instructions. The Fund shall cause all oral instructions to be confirmed in accordance with clauses (i) 3 or (ii) above, as appropriate. The Fund shall give timely Proper Instructions to State Street in regard to matters affecting accounting practices and State Street's performance pursuant to this Agreement. Section 3. Successor Agent. ---------------- If a successor agent for the Portfolio shall be appointed by the Fund, State Street shall upon termination hereof deliver to such successor agent at the office of State Street all properties of the Portfolio held by it hereunder. If no such successor agent shall be appointed, State Street shall at its office upon receipt of Proper Instructions deliver such properties in accordance with such instructions. In the event that no written order designating a successor agent or Proper Instructions shall have been delivered to State Street on or before the date when such termination shall become effective, then State Street shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $2,000,000, all properties held by State Street under this Agreement. Thereafter, such bank or trust company shall be the successor of State Street under this Agreement. Section 4. Warranties. ----------- If the Fund on behalf of the Portfolio promptly notifies State Street that any of its accounting services are 4 erroneous in any material respect, State Street shall endeavor as quickly as practicable to correct such error. Organizations from which State Street may obtain certain data included in the accounting services are solely responsible for the contents of such data and the Fund agrees to make no claim against State Street arising out of the contents of such third-party data including, but not limited to, the accuracy thereof. State Street makes no warranties with respect to the calculations and data processing it provides the Fund and/or any third party agent of the Fund insofar as such calculations and data processing relate to the qualification of the Fund and/or the Portfolio as a regulated investment company under state or federal securities and tax laws, or any requirements or obligations thereunder. Section 5. Limitation of Liability. ------------------------ State Street shall use reasonable care in the performance of its obligations hereunder and shall not be liable to the Fund or any third-party for any loss or damage claimed to have resulted from the use of the accounting services except for the direct loss or damage resulting from the negligence of the State Street. STATE STREET SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) IN ANY WAY DUE TO THE FUND'S USE OF THE ACCOUNTING SERVICES OR THE PERFORMANCE OF OR FAILURE TO PERFORM STATE STREET'S OBLIGATIONS UNDER THIS AGREEMENT. This disclaimer applies without limitation to claims regardless of the form of action, whether 5 in contract, tort (including negligence), strict liability, or otherwise and regardless of whether such damages are foreseeable. Further, in no event shall State Street be liable for any claims that arise more than one (1) year prior to the institution of suit therefor or any claim arising from causes beyond State Street's control. Section 6. Force Majeure. -------------- State Street shall have no liability for cessation of services hereunder or any damages resulting therefrom to the Fund as a result of work stoppage, power or other mechanical failure, natural disaster, governmental action, communication disruption or other impossibility of performance. Section 7. Exclusive Remedy. ----------------- In consideration of the fees charged hereunder, the Fund's exclusive remedy regardless of the basis of the claim asserted by it against State Street shall not exceed six (6) times the average monthly fees billed to the Fund hereunder and computed by averaging the monthly billing for each of the twelve months preceding the month in which the damage or injury is alleged to have occurred, but if this Agreement has not been in effect for twelve months preceding such date, then by averaging the monthly billings for each of the preceding months that this Agreement has been in effect. Section 8. Indemnification. ---------------- The Fund agrees to indemnify and hold State Street free and harmless from any expense, loss, damage or claim, including reasonable attorney's fees, suffered by State Street 6 and caused by or resulting from the acts or omissions of the Fund or any third- party approved by the Fund and whose services State Street must rely upon in performing accounting services hereunder. Section 9. General. -------- 9.1 Term of Agreement. ------------------ 1. This Agreement is effective the date hereof and shall remain in full force and effect until terminated as hereinafter provided. Either party may, in its discretion, terminate this Agreement for any reason by giving the other party at least thirty (30) days prior written notice of termination. In addition, either party may terminate this Agreement for failure of the other party to comply with any of its terms and conditions by giving the other party written notice of termination. 9.2 Fees. ----- The Fund agrees to pay State Street such reasonable compensation for its services and expenses as is agreed upon from time to time. Payments for services shall be due 30 days net. The Fund shall reimburse State Street for all costs and expenses, including reasonable attorney's fees, incurred by State Street to collect any charges due under this Agreement. 9.3 Notices. -------- All notices shall be in writing and deemed given when delivered in person, by facsimile, by overnight delivery through a commercial courier service, or by registered or certified mail, return receipt requested. Notices shall be 7 addressed to each party at its address set forth below, or such other address as the recipient may have specified by earlier notice to the sender. If to State Street: 1776 Heritage Drive North Quincy, Massachusetts 02171 Attention: Nancy E. Grady Telephone: (617) 985-6188 Telefax: (617) 985-6149 If to the Fund: AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046 Attention: President Telephone: (713) 626-1919 Telefax: (713) 993-9890 9.4 Assignment; Successors. ----------------------- This Agreement shall not be assigned by either party without the prior written consent of the other party, except that either party may assign to a successor all of or a substantial portion of its business, or to a party controlling, controlled by, or under common control with such party. 9.5 Entire Agreement. ----------------- This Agreement (including all schedules and attachments hereto) constitutes the entire Agreement between the parties with respect to its subject matter; all prior Agreements, representations, statements, negotiations and undertakings with respect to such subject matter are terminated and superseded hereby. 8 9.6 Amendments. ----------- No amendment to this Agreement shall be effective unless it is in writing and signed by a duly authorized representative of each party. The term "Agreement" as used herein, includes all schedules and attachments hereto and any future written amendments, modifications, or supplements made in accordance herewith. 9.7 Headings Not Controlling. ------------------------- Headings used in this Agreement are for reference purposes only and shall not be deemed a part of this Agreement. 9.8 Survival. --------- After expiration or termination of this Agreement, all provisions relating to payment shall survive until completion of required payments. In addition to those provisions which specifically provide for survival beyond expiration or termination, all provisions regarding indemnification, warranty, liability and limits thereon shall survive, unless and until the expiration of any time period specified elsewhere in this Agreement with respect to the provision in question. 9.9 Severability. ------------- In the event any provision of this Agreement is held illegal, void or unenforceable, the balance shall remain in effect. 9.10 Governing Law, Jurisdiction. ---------------------------- This Agreement shall be deemed to have been made in the Commonwealth of Massachusetts and shall be governed by and 9 construed in accordance with the laws of the Commonwealth of Massachusetts. The parties agree that any dispute arising herefrom shall be subject to the exclusive jurisdiction of courts sitting in the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the 31st day of March, 1993. STATE STREET BANK AND TRUST COMPANY By: /s/ ILLEGIBLE ------------------------------- Title: Executive Vice President ---------------------------- Date: March 31, 1993 ---------------------------- AIM VARIABLE INSURANCE FUNDS, INC. By: /s/ ROBERT H. GRAHAM ---------------------------- Title: President ---------------------------- Date: April 5, 1993 ---------------------------- 10 SCHEDULE A ----------
How Supplied and When Data Items By Whom Supplied ------------------- --------------------- --------------- 1. Shareholder fund State Street Bank and Trade date share activity Trust Company via Fax plus one 2. Portfolio AIM Advisors, Inc. Trade date transactions via Fax plus one* 3. Expense Accrual AIM Advisors, Inc. Accruals will Information be adjusted as needed 4. Pricing Information AIM Advisors, Inc. Daily as needed when not available from regular pricing service
* If securities are purchased to settle same day as trade date, notification will be made to State Street on trade date. 11 [STATE STREET LOGO APPEARS HERE] STATE STREET BANK AND TRUST COMPANY GLOBAL CUSTODY AND ACCOUNTING FEE SCHEDULE AIM V.I. INTERNATIONAL EQUITY FUND - ------------------------------------------------------------------------------- I. PORTFOLIO AND FUND ACCOUNTING ----------------------------- Maintaining multicurrency investment ledgers, and providing position and income reports. Maintaining general ledger and capital stock accounts in compliance with GAAP (FAS 52). Preparing daily trial balances. Calculating net asset values daily. Providing selected general ledger reports. Securities yield or market value quotations will be provided to State Street by the fund or via State Street's pricing service (See Section III). (The fee is calculated using basis points per portfolio per annum: 1 basis point = 0.01%.) First $50 Million 5 BP Next $50 Million 3 BP Over $100 Million 1.5 BP Minimum monthly charge of $3,000 waived for one year after start date. II. CUSTODY ------- Maintaining custody of fund assets. Settling portfolio purchases and sales. Reporting buy and sell fails. Determining and collecting portfolio income. Making cash disbursements and reporting cash transactions. Monitoring corporate actions. Withholding foreign taxes. Filing foreign tax reclaims. A. Holding Fees (basis points per portfolio per annum): ------------
Group I Group II Group III Group IV Group V Group VI -------------- ----------- ----------- ----------- -------- --------- Cedel Australia Austria Belgium Korea Argentina Euroclear Canada Ireland Finland Portugal Brazil Germany France Netherlands Indonesia Spain Chile Japan Italy Singapore Malaysia Taiwan Greece U.S. Norway Switzerland Sweden Thailand Mexico United Kingdom New Zealand Denmark Philippines Hong Kong Turkey Venezuela
Group I Group II Group III Group IV Group V Group VI ---------- ----------- ----------- ---------- --------- ----------- First $50 Million 3.0 7.0 9.0 11.0 20.0 30.0 Next $50 Million 2.5 6.0 8.0 10.0 18.0 30.0 Over $100 Million 2.0 5.0 7.0 8.0 15.0 30.0
[STATE STREET LOGO APPEARS HERE] B. Transaction Charges (U.S. dollars): -----------------------------------
Group I Group II Group III Group IV Group V Group VI ------- ----------- --------- -------- ------------ ----------- $30 $60 $75 $100 $125 Greece**-20 BP Cedel Australia Switzerland Argentina Indonesia per settlement, min Euroclear Chile Brazil Belgium Phillippines $10. Germany Hong Kong Ireland Denmark Portugal - $200 per Japan Italy Mexico Finland settlement. Korea Norway Venezuela Spain Turkey - $.50 per United Kingdom Austria Sweden security settled; Taiwan* Netherlands Thailand max. $7,500, min France New Zealand $250. Canada Singapore Malaysia - 25 BP purchase, 12.5 BP sale (if shares registered)
* Excludes: agent, depository andlocal auditing fees. ** Transaction charge waived if brokerage provided by National Securities Company. UNITED STATES - for each line item proceeded: State Street Bank Repos $ 7.00 DTC or Fed Book Entry $ 7.00 New York Physical $ 16.00 PTC Buy/Sell $ 6.00 Option charge for each option written or closing contract, per issue, per broker $ 25.00 Option expiration/Option exercised $ 15.00 Interest Rate Futures - no security movement $ 8.00 Holdings charge per security per month $5.00 Principal Reduction Payment per Paydown $ 3.00 Dividend Charges (for items held at the Request of Traders over record date in street form) $ 50.00 III. PRICING SERVICE --------- Monthly Base Fee per portfolio $375.00 Monthly Quote Charge: (based on the average number of positions in portfolio) . Municipal Bonds via Muller Data $ 21.00 . Municipal Bonds via Kenny Information System $ 16.00 . Government, Corporate and Convertible Bonds via Merrill Lynch $ 11.00 . Corporate and Government Bonds via Muller Data $ 11.00 . Options, Futures and Private Placements $ 6.00 . Foreign Equities and Bonds via Extel Ltd. $ 6.00 . Listed Equities, OTC Equities, and Bonds $ 6.00 . Corporate, Municipal, Convertible and Government Bonds, Adjustable Rate Preferred $ 6.00 Stocks via IDSI [STATE STREET LOGO APPEARS HERE] IV. SPECIAL SERVICES ---------------- Fees for activities of a non-recurring nature such as fund consolidations or reorganizations, extraordinary security shipments and the preparation of special reports will be subject to negotiation. Fees for tax accounting/record keeping for options, financial futures, standardized yield calculation, securities lending and other special items will be negotiated separately. V. OUT-OF-POCKET EXPENSES ---------------------- A billing for the recovery of applicable Out-of-Pocket expenses will be made as of the end of each month. Out-of-Pocket expenses include, but are not limited to the following: Telephone Wire Charges ($5.25 per wire in and $5.00 out) Postage and Insurance Courier Service Duplicating Legal Fees Transfer Fees Sub-Custodian Charges (e.g., Stamp Duties, Registration, etc.) Price Waterhouse Audit Letter Federal Reserve Fee For Return Check Items Over $2,500-$5.25 GNMA Transfer-$15 each Approved:: Approved /S/ ROBERT H. GRAHAM /S/ N. GRADY - ----------------------------------- ----------------------------------- AIM V.I. International Equity Fund State Street Bank & Trust Co. 4-12-93 4-1-93 - ----------------------------------- ----------------------------------- Date Date EX-10.D 29 F,L,K,S CONSENT [Letterhead of Freedman, Levy, Kroll & Simonds] EXHIBIT 10(d) CONSENT OF ---------- FREEDMAN, LEVY, KROLL & SIMONDS ------------------------------- We hereby consent to the reference to our firm under the caption "Legal Counsel" in the prospectus and "Legal Matters" in the statement of additional information contained in the Form N-1A Registration Statement of AIM Variable Insurance Funds, Inc. (File No. 33-57340), as amended. /s/ FREEDMAN, LEVY, KROLL & SIMONDS FREEDMAN, LEVY, KROLL & SIMONDS Washington, D.C. April 12, 1996 EX-10.E 30 CONSENT OF TAIT, WELLER & BAKER EXHIBIT 10(e) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the use of our reports each dated January 26, 1996 on the financial statements and financial highlights of AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Global Utilities Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund, and AIM V.I. Value Fund, each a series of AIM Variable Insurance Funds, Inc. Such financial statements and financial highlights are included in the Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A of AIM Variable Insurance Funds, Inc. We also consent to the references to our Firm in such Registration Statement. /s/ TAIT, WELLER & BAKER TAIT, WELLER & BAKER Philadelphia, Pennsylvania April 10, 1996 EX-13.A 31 AGMTS RE INITIAL CAPITALIZATION EXHIBIT 13(a) May 3, 1994 Board of Directors AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046-1173 Re: Initial Capital Investment in AIM Variable Insurance Funds, Inc. (the "Fund") Gentlemen: We are purchasing shares of the Fund for the purpose of providing initial investment for the two new investment portfolios of the Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment. 1. We hereby agree to purchase shares equal to the following dollar amount for each portfolio: AIM V.I. Growth and Income Fund $ 500,000 AIM V.I. Utilities Fund 500,000 2. We understand that the initial net asset value per share for each of the portfolios 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 that the Fund Shares purchased pursuant to this letter will be redeemed on the earlier of (i) one year from the date invested or (ii) such time as the total net assets for each portfolio equal or exceed the amounts specified below: AIM V.I. Growth and Income Fund $ 26,000,000 AIM V.I. Utilities Fund 26,000,000 Board of Directors May 3, 1994 AIM Variable Insurance Funds, Inc. Page 2 We further agree to provide the applicable Fund with at least 10 days' advance written notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place a burden on the Fund and to facilitate normal portfolio management of the Fund. Sincerely yours, A I M ADVISORS, INC. By: /s/ ROBERT H. GRAHAM May 11, 1994 Board of Directors AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046-1173 Re: Initial Capital Investment in AIM Variable Insurance Funds, Inc. (the "Fund") Gentlemen: We are purchasing shares of the Fund for the purpose of providing initial investment for the two new investment portfolios of the Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment. 1. We hereby agree to purchase shares equal to the following dollar amount for each portfolio: AIM V.I. Growth and Income Fund $ 500,000 AIM V.I. Utilities Fund 500,000 2. We understand that the initial net asset value per share for each of the portfolios 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 that the Fund Shares purchased pursuant to this letter will be redeemed on the earlier of (i) one year from the date invested or (ii) such time as the total net assets for each portfolio equal or exceed the amounts specified below: AIM V.I. Growth and Income Fund $ 26,000,000 AIM V.I. Utilities Fund 26,000,000 Board of Directors May 11, 1994 AIM Variable Insurance Funds, Inc. Page 2 We further agree to provide the applicable Fund with at least 10 days' advance written notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place a burden on the Fund and to facilitate normal portfolio management of the Fund. Sincerely yours, Connecticut General Life Insurance Company By: /s/ ILLEGIBLE EX-13.B 32 AGMTS RE INITIAL CAPITALIZATION EXHIBIT 13(b) March 31, 1993 Board of Directors AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046-1173 RE: Initial Capital Investment in AIM Variable Insurance Funds, Inc. (the "Fund") Gentlemen: We are purchasing shares of the Fund for the purpose of providing initial investment for the seven investment portfolios of the Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment. 1. We hereby agree to purchase shares equal to the following dollar amount for each portfolio:
AIM V.I. Capital Appreciation Fund $ 500,000 AIM V.I. Diversified Income Fund 1,000,000 AIM V.I. Government Bond Fund 1,000,000 AIM V.I. Growth Fund 500,000 AIM V.I. International Equity Fund 500,000 AIM V.I. Money Market Fund 500,000 AIM V.I. Value Fund 500,000
2. We understand that the initial net asset value per share for each of the portfolios (other than the AIM V.I. Money Market Fund) named above will be $10.00. We understand that the initial net asset value per share for the AIM V.I. Money Market Fund will be $1.00. 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. Board of Directors March 31, 1993 AIM Variable Insurance Funds, Inc. Page 2 4.We hereby agree that the Fund Shares purchased pursuant to this letter will be redeemed on the earlier of (i) one year from the date invested or (ii) such time as the total net assets for each portfolio equal or exceed the amounts specified below:
AIM V.I. Capital Appreciation Fund $26,000,000 AIM V.I. Diversified Income Fund 37,000,000 AIM V.I. Government Bond Fund 37,000,000 AIM V.I. Growth Fund 26,000,000 AIM V.I. International Equity Fund 26,000,000 AIM V.I. Money Market Fund 36,000,000 AIM V.I. Value Fund 26,000,000
We further agree to provide the applicable Fund with at least 10 days' advance written notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place a burden on the Fund and to facilitate normal portfolio management of the Fund. Sincerely yours, A I M ADVISORS, INC. By: /s/ ROBERT H. GRAHAM March 31, 1993 Board of Directors AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046-1173 Re: Initial Capital Investment in AIM Variable Insurance Funds, Inc. (the "Fund") Gentlemen: We are purchasing shares of the Fund for the purpose of providing initial investment for the seven investment portfolios of the Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment. 1. We hereby agree to purchase shares equal to the following dollar amount for each portfolio:
AIM V.I. Capital Appreciation Fund $ 500,000 AIM V.I. Diversified Income Fund 1,000,000 AIM V.I. Government Bond Fund 1,000,000 AIM V.I. Growth Fund 500,000 AIM V.I. International Equity Fund 500,000 AIM V.I. Money Market Fund 500,000 AIM V.I. Value Fund 500,000
2. We understand that the initial net asset value per share for each of the portfolios (other than the AIM V.I. Money Market Fund) named above will be $10.00. We understand that the initial net asset value per share for the AIM V.I. Money Market Fund will be $1.00. 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. Board of Directors March 31, 1993 AIM Variable Insurance Funds, Inc. Page 2 4. We hereby agree that the Fund Shares purchased pursuant to this letter will be redeemed until the occurrence of either of the following events; 1) passage of one year from the date of our investment, or (2) such time as the total net assets for each portfolio equal or exceed the amounts specified below:
AIM V.I. Capital Appreciation Fund $26,000,000 AIM V.I. Diversified Income Fund 37,000,000 AIM V.I. Government Bond Fund 37,000,000 AIM V.I. Growth Fund 26,000,000 AIM V.I. International Equity Fund 26,000,000 AIM V.I. Money Market Fund 36,000,000 AIM V.I. Value Fund 26,000,000
We further agree to provide the applicable Fund with at least 10 days' advance written notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place an unreasonable burden on the Fund and to facilitate normal portfolio management of the Fund. Very truly yours, CONNECTICUT GENERAL LIFE INSURANCE COMPANY By: /s/ FRANK G. DRANGINIS Frank G. Dranginis Vice President EX-27.A 33 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Capital Appreciation Fund series for the December, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 1 AIM V.I. CAPITAL APPRECIATION FUND 11-MOS DEC-31-1995 DEC-31-1995 172435151 211782961 623677 15757 0 212422395 126516 0 143456 269972 0 172910083 12822408 7318355 516011 0 (491023) 0 39217352 212152423 286021 1270163 0 1023581 532603 3521243 33203988 37257834 0 (45369) 0 0 6155688 (654458) 2823 123975151 28777 (4012266) 0 0 882870 0 1023581 148432750 12.05 0.04 4.46 0 0 0 16.55 0.75 0 0
EX-27.B 34 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Diversified Income Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 2 AIM V.I. DIVERSIFIED INCOME FUND 11-MOS DEC-31-1995 DEC-31-1995 42232557 43642532 1010773 15048 21896 44690249 0 0 60104 60104 0 43080526 4461727 2770435 987410 0 (871395) 0 1433604 44630145 0 2745013 0 284604 2460409 675894 2440780 5577083 653844 (2879611) 0 0 1807566 (409796) 293522 19358960 752768 (1547289) 0 0 193008 0 284604 35153645 9.12 0.69 0.94 (0.75) 0 0 10.00 0.88 0 0
EX-27.C 35 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Government Securities Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 3 AIM V.I. GOVERNMENT SECURITIES FUND 11-MOS DEC-31-1995 DEC-31-1995 18692275 19327299 235597 23864 0 19586760 0 0 41369 41369 0 18951306 1921357 1372034 409777 0 (450716) 0 635024 19545391 0 990824 0 169584 821240 (148986) 1343577 2015831 199339 (852380) 0 0 693584 (229935) 85675 12887216 241578 (301730) 0 0 71080 0 169584 15535425 9.39 0.54 0.74 (0.50) 0 0 10.17 1.19 0 0
EX-27.D 36 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Growth Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 4 AIM V.I. GROWTH FUND 11-MOS DEC-31-1995 DEC-31-1995 92358116 102491904 1570140 15172 0 104077216 1468849 0 8255 1477104 0 84619787 7107114 4248627 628628 0 7067210 0 10284487 102600112 564913 635065 0 562543 637435 9511105 8357905 18506445 0 (48608) 0 0 3110541 (255480) 3426 57103096 39801 (2443895) 0 0 434620 0 562543 73070671 10.71 0.09 3.65 (0.01) 0 0 14.44 0.84 0 0
EX-27.E 37 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. International Equity Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 5 AIM V.I. INTERNATIONAL EQUITIY FUND 11-MOS DEC-31-1995 DEC-31-1995 66760505 77992061 1705064 14798 3986961 83698884 1280092 0 161937 1442029 0 71759941 6020540 4989995 374899 0 (1106243) 0 11235528 82256855 972190 184428 0 699094 457524 (107659) 13454304 13804169 0 (123270) 0 0 1612585 (591239) 9199 27237776 127710 (1092919) 0 0 457559 0 699094 66670268 11.03 0.07 2.58 (0.02) 0 0 13.66 1.15 0 0
EX-27.F 38 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Money Market Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 6 AIM V.I. MONEY MARKET FUND 11-MOS DEC-31-1995 DEC-31-1995 65140712 65140712 383892 14916 0 65539520 0 0 33766 33766 0 65521991 65521991 31015948 0 0 (16237) 0 0 65505754 0 2503796 0 225554 2278242 (17141) 0 2261101 0 2278242 0 0 80119674 (47891871) 2278241 34488902 0 904 0 0 168901 0 225554 46144418 1.00 0.05 0 (0.05) 0 0 1.00 0.53 0 0
EX-27.G 39 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Value Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 7 AIM V.I. VALUE FUND 11-MOS DEC-31-1995 DEC-31-1995 227669641 256791581 1327163 16033 57844 258192621 795777 0 185057 980834 0 208555673 15969839 9234449 1819581 0 16941375 0 29895158 257211787 1723041 1353855 0 1240651 1836245 19312304 25543678 46692227 0 (124487) 0 0 6903801 (176240) 7829 147954320 107823 (2370929) 0 0 1078007 0 1240651 181240121 11.83 0.11 4.18 (0.01) 0 0 16.11 0.75 0 0
EX-27.H 40 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Growth and Income Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 8 AIM V.I. GROWTH AND INCOME FUND 11-MOS DEC-31-1995 DEC-31-1995 36207923 38749195 260853 5252 0 39015300 376637 0 71451 448088 0 35794953 3041229 739467 10307 0 220680 0 2541272 38567212 327833 145216 0 136678 336371 1441764 2467076 4245211 0 (325888) (1114895) 0 2208514 22290 115538 31187066 (176) (106189) 0 0 181621 0 204480 19135889 9.98 0.14 3.11 (0.14) (0.41) 0 12.68 0.78 0 0
EX-27.I 41 ART 6 FINANCIAL DATA SCHEDULE
6 This schedule contains summary financial information for the AIM V.I. Global Utilities Fund series for the December 31, 1995 annual report. 0000896435 AIM VARIABLE INSURANCE FUNDS, INC. 9 AIM V.I. GLOBAL UTILITIES FUND 11-MOS DEC-31-1995 DEC-31-1995 7345626 8309070 98650 5181 20328 8433229 21873 0 17389 39262 0 7423006 721345 305237 769 0 8441 0 963289 8393967 170888 80845 0 70788 180945 80096 929383 1190424 0 (186096) (9403) 0 535828 (134462) 17742 5436300 0 0 0 0 32703 0 117291 5261394 9.69 0.29 1.98 (0.31) (0.01) 0 11.64 1.47 0 0
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