As filed with the Securities and Exchange Commission on August 16, 2006
Securities Act Registration No. __________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. ____ Post-effective Amendment No. ____
(Check appropriate box or boxes)
AIM VARIABLE INSURANCE FUNDS
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 100
Houston, TX 77046
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
PETER A. DAVIDSON, ESQUIRE THOMAS H. DUNCAN, ESQUIRE
AIM Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1225 17th Street
Suite 100 Suite 2300
Houston, TX 77046 Denver, CO 80202
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on September 15,
2006, pursuant to Rule 488.
The title of the securities being registered are Series I and Series II of
AIM V.I. Capital Appreciation Fund. No filing fee is due in reliance on Section
24(f) of the Investment Company Act of 1940.
(A I M LOGO)
AIM V.I. DEMOGRAPHIC TRENDS FUND,
A PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
September __, 2006
Dear Contract Owner:
We are seeking your approval of a Plan of Reorganization (the "Plan")
that provides for the sale of the assets of AIM V.I. Demographic Trends Fund
(the "Fund") to AIM V.I. Capital Appreciation Fund ("Buying Fund"). This
transaction will result in the combination of the two funds.
Shares of the Fund and Buying Fund are each sold to and held by
separate accounts of various insurance companies to fund variable annuity or
variable life insurance contracts offered by the insurance companies. The
separate accounts invest in shares of the Fund and Buying Fund in accordance
with instructions from variable annuity or variable life contract owners. Except
as otherwise might be provided by applicable law, the separate accounts provide
pass-through voting to contract owners, and you, as a contract owner, have the
right to instruct the separate account on how to vote shares of your Fund held
by the separate account under your contract.
A I M Advisors, Inc. ("AIM"), the investment advisor to AIM Variable
Insurance Funds, conducted a review of its funds and concluded that it would be
appropriate to consolidate certain funds having similar investment objectives
and strategies. Your Fund is one of the funds that AIM recommended, and your
Board of Trustees approved, for consolidation. The attached Proxy Statement and
Prospectus seeks your approval of the combination of your Fund with Buying Fund.
The enclosed Proxy Statement and Prospectus describes the proposed
combination and compares, among other things, the investment objectives and
strategies, operating expenses and performance history of your Fund and Buying
Fund. You should review the enclosed materials carefully.
After careful consideration, the Board of Trustees of AIM Variable
Insurance Funds has approved the Plan and proposed combination. They recommend
that you vote FOR the proposal.
Your vote is important. Please take a moment after reviewing the
enclosed materials to sign and return your proxy card or voting instruction card
in the enclosed postage paid return envelope. If you attend the meeting, you may
vote in person, with proper authorization from the life insurance company that
issued your variable contract. If you expect to attend the meeting in person, or
have questions, please notify us by calling (800) 952-3502. If we do not hear
from you after a reasonable amount of time, you may receive a telephone call
from our proxy solicitor, Management Information Services, reminding you to
vote.
Sincerely,
/s/ Philip A. Taylor
Philip A. Taylor
President
AIM V.I. DEMOGRAPHIC TRENDS FUND,
A PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 31, 2006
We cordially invite you to attend our Special Meeting of Shareholders
to:
1. Approve a Plan of Reorganization (the "Plan") under which all of the
assets of AIM V.I. Demographic Trends Fund (the "Fund"), an investment portfolio
of AIM Variable Insurance Funds ("Trust"), will be transferred to AIM V.I.
Capital Appreciation Fund ("Buying Fund"), which is also an investment portfolio
of Trust. Buying Fund will assume the liabilities of the Fund and Trust will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of the Fund.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 31, 2006 at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on August 24, 2006
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment of the Special Meeting.
Shares of the Fund are sold to and held by separate accounts of various
insurance companies to fund variable annuity or variable life insurance
contracts offered by the insurance companies. The separate accounts invest in
shares of the Fund in accordance with instructions from variable annuity or
variable life contract owners. Except as otherwise might be provided by
applicable law, the separate accounts provide pass-through voting to contract
owners, and you, as a contract owner, have the right to instruct the separate
account on how to vote shares of the Fund held by the separate account under
your contract.
The Board of Trustees of Trust is sending this Notice of Special
Meeting of Shareholders, Combined Proxy Statement and Prospectus, and proxy
solicitation materials to (i) all separate accounts, which are the shareholders
who owned shares of beneficial interest in the Fund at the close of business on
August 24, 2006 (the "Record Date"), and (ii) all contract owners who had their
variable annuity or variable life contract values allocated to the Fund as of
the close of business on the Record Date and who are entitled to instruct the
corresponding separate account on how to vote.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD OR VOTING INSTRUCTION CARD, WHICH IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF TRUST. YOUR VOTE IS IMPORTANT FOR THE
PURPOSE OF ENSURING A QUORUM AT THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS EXERCISED BY EXECUTING AND SUBMITTING A REVISED PROXY
CARD OR VOTING INSTRUCTION CARD, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
SECRETARY OF TRUST OR BY VOTING IN PERSON, WITH PROPER AUTHORIZATION FROM THE
LIFE INSURANCE COMPANY THAT ISSUED YOUR VARIABLE CONTRACT, AT THE SPECIAL
MEETING.
/s/ John M. Zerr
John M. Zerr
Secretary
September __, 2006
AIM V.I. DEMOGRAPHIC TRENDS FUND, AIM V.I. CAPITAL APPRECIATION FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM VARIABLE INSURANCE FUNDS AIM VARIABLE INSURANCE FUNDS
11 GREENWAY PLAZA, SUITE 100 11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
(800) 410-4246 (800) 410-4246
COMBINED PROXY STATEMENT AND PROSPECTUS
SEPTEMBER __, 2006
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
AIM V.I. Demographic Trends Fund. The Special Meeting will be held on October
31, 2006 at 3:00 p.m., Central Time. We intend to mail this Proxy
Statement/Prospectus, the enclosed Notice of Special Meeting of Shareholders and
the enclosed proxy card or voting instruction card on or about September __,
2006 to all shareholders entitled to vote at the Special Meeting.
Each series of AIM Variable Insurance Funds ("Trust") is used solely as
an investment vehicle for variable annuity and variable life insurance contracts
issued by certain life insurance companies. You cannot purchase shares of any
series of the Trust directly. As a contract owner of a variable annuity or
variable life insurance contract that offers one or more series of the Trust as
an investment option, however, you may allocate contract values to a separate
account of the life insurance company that invests in a series of the Trust. All
references in this Proxy Statement/Prospectus to "shareholder" or "shareholders"
shall mean the "contract owner/separate account" or the "contract
owners/separate accounts," respectively. All references in this Proxy
Statement/Prospectus to "you" or "your" shall mean the "contract owner/separate
account."
At the Special Meeting, we are asking shareholders of AIM V.I.
Demographic Trends Fund (your "Fund") to consider and approve a Plan of
Reorganization (the "Plan") that provides for the reorganization of your Fund,
an investment portfolio of Trust, with AIM V.I. Capital Appreciation Fund
("Buying Fund"), which is also an investment portfolio of Trust (the
"Reorganization").
In accordance with current law, the life insurance companies and their
separate accounts, which are the shareholders of record of Trust, in effect,
pass along their voting rights to the contract owners. Essentially, each life
insurance company seeks instructions as to how its contract owners wish the life
insurance company to vote the shares of Trust (i) owned by the life insurance
company, but (ii) in which their contract owners may have or be deemed to have a
beneficial interest. The life insurance companies communicate directly with the
contract owners about the procedures that the life insurance companies follow in
seeking instructions and voting shares under the particular separate accounts.
Each share of a series of Trust that a contract owner beneficially owns entitles
the contract owner to one vote on each proposal set forth in this Proxy
Statement/Prospectus (a fractional share has a fractional vote).
All references in this Proxy Statement/Prospectus to "proxy card" shall
mean the "proxy card" or "voting instruction card" you have received from Trust
or from your applicable insurance company.
Under the Plan, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Trust will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of Buying Fund shares attributable to each contract owner
immediately after and as a result of the Reorganization will be the same as the
value of your Fund shares attributable to each contract owner immediately prior
to the Reorganization. The Reorganization has been structured as a tax-free
transaction. No sales charges will be imposed in connection with the
Reorganization.
The Board of Trustees of Trust (the "Board") has approved the Plan and
the Reorganization as being advisable and in the best interests of your Fund.
i
Trust is a registered open-end management investment company that
issues its shares in separate series. Your Fund and Buying Fund are both series
of Trust. A I M Advisors, Inc. ("AIM") serves as the investment advisor to both
your Fund and Buying Fund. AIM is a wholly owned subsidiary of AMVESCAP PLC
("AMVESCAP"), an independent global investment management company.
Your Fund and Buying Fund have similar investment objectives and invest
in similar types of securities. Your Fund seeks long-term growth of capital and
Buying Fund seeks growth of capital. See "Comparison of Investment Objectives
and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you
should know before voting on the Plan. It is both the Proxy Statement of your
Fund and the Prospectus of Buying Fund. You should read and retain this Proxy
Statement/Prospectus for future reference.
The Prospectuses of your Fund (Series I and Series II) dated May 1,
2006, (the "Selling Fund Prospectuses"), together with the related Statement of
Additional Information dated May 1, 2006, as supplemented, are on file with the
Securities and Exchange Commission (the "SEC"). The Selling Fund Prospectuses
are incorporated by reference into this Proxy Statement/Prospectus. The
Prospectuses of Buying Fund (Series I and Series II) dated May 1, 2006, (the
"Buying Fund Prospectuses"), and the related Statement of Additional Information
dated May 1, 2006, and the Statement of Additional Information relating to the
Reorganization dated September __, 2006, are on file with the SEC. The Buying
Fund Prospectuses are incorporated by reference into this Proxy
Statement/Prospectus and copies of the Buying Fund Prospectuses are attached as
Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated September __, 2006, also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Trust.
Copies of the Prospectuses of Buying Fund and your Fund and the related
Statements of Additional Information are available without charge by writing to
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, or by calling (800) 410-4246.
Trust has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semi-annual
report succeeding the annual report, if any. If you have not received such
reports or would like to receive an additional copy, please contact A I M
Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or
by calling (800) 410-4246. Such reports will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
PAGE
----
INTRODUCTION......................................................................................................1
SUMMARY...........................................................................................................1
The Reorganization.......................................................................................1
Comparison of Fees and Expenses..........................................................................2
Comparison of Performance................................................................................4
Comparison of Investment Objectives and Principal Strategies.............................................6
Comparison of Multiple Class Structures..................................................................7
Comparison of Sales Charges..............................................................................7
Comparison of Distribution and Purchase and Redemption Procedures........................................7
The Board's Recommendation...............................................................................7
RISK FACTORS......................................................................................................8
Risks Associated with Buying Fund........................................................................8
Comparison of Risks of Buying Fund and Your Fund.........................................................8
INFORMATION ABOUT BUYING FUND.....................................................................................8
Description of Buying Fund Shares........................................................................8
Management's Discussion of Fund Performance..............................................................8
Financial Highlights.....................................................................................8
ADDITIONAL INFORMATION ABOUT THE PLAN.............................................................................9
Terms of the Reorganization..............................................................................9
The Reorganization.......................................................................................9
Board Considerations.....................................................................................9
Other Terms.............................................................................................11
Federal Income Tax Consequences.........................................................................12
Accounting Treatment....................................................................................13
RIGHTS OF SHAREHOLDERS...........................................................................................13
CAPITALIZATION...................................................................................................13
LEGAL MATTERS....................................................................................................13
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...........................................................13
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION....................................................14
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING.................................................................14
General Information.....................................................................................14
Proxy Statement/Prospectus..............................................................................14
Time and Place of Special Meeting.......................................................................15
Voting in Person........................................................................................15
Voting by Proxy.........................................................................................15
Quorum Requirement and Adjournment......................................................................15
Vote Necessary to Approve the Plan......................................................................16
Proxy Solicitation......................................................................................16
Other Matters...........................................................................................16
Ownership of Shares.....................................................................................16
Security Ownership of Management and Trustees...........................................................16
EXHIBIT A.........................Classes of Shares of Your Fund and Corresponding Classes of Shares of Buying Fund
EXHIBIT B..............................................Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT C..........................................................................Ownership of Shares of Your Fund
EXHIBIT D........................................................................Ownership of Shares of Buying Fund
iii
APPENDIX I .................................................................................Plan of Reorganization
APPENDIX II ...................................................Prospectuses of Buying Fund (Series I and Series II)
APPENDIX III ..............................................................Discussion of Performance of Buying Fund
APPENDIX IV ...........................................Financial Highlights of Buying Fund (Series I and Series II)
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTMENTS, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM
INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE
FONDOS AND DESIGN, INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE, THE AIM
COLLEGE SAVINGS PLAN, AIM SOLO 401(k), AIM INVESTMENTS AND DESIGN AND YOUR
GOALS. OUR SOLUTIONS. ARE REGISTERED SERVICE MARKS AND AIM BANK CONNECTION, AIM
INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM PRIVATE ASSET MANAGEMENT AND
DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE ASSETS AND DESIGN, AND
MYAIM.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. AIM TRIMARK IS A
REGISTERED SERVICE MARK OF A I M MANAGEMENT GROUP INC. AND AIM FUNDS MANAGEMENT
INC.
No dealer, salesperson or any other person has been authorized to give
any information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iv
INTRODUCTION
During 2003 and 2004, AMVESCAP, the parent company of AIM, undertook an
integration initiative with respect to its United States mutual fund operations.
Among other things, AMVESCAP's integration initiative included the establishment
of a single distributor for all AMVESCAP U.S. mutual funds, the integration of
back office support for AMVESCAP's U.S. mutual funds, the allocation of primary
responsibility for investment advisory, administrative, accounting, and legal
and compliance services for all of AMVESCAP's U.S. mutual funds to AIM and
streamlining the various mutual funds offered by AMVESCAP's subsidiaries in the
U.S.
Since completion of the AMVESCAP integration initiative, AIM has
undertaken an extensive review of its U.S. mutual fund offerings and has
concluded that it would be appropriate to consolidate certain funds having
similar investment objectives and strategies. AIM believes that the shareholders
of your Fund will benefit from the proposed Reorganization because the
combination of the funds will allow Buying Fund the best available opportunities
for investment management, growth prospects and potential operating
efficiencies.
SUMMARY
The Board, including the independent trustees, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. Your Fund and Buying Fund have similar investment
objectives, utilize similar investment strategies and invest in similar
securities. The Board believes that a larger combined fund should have greater
market presence and may achieve greater operating efficiencies because certain
fixed costs, such as legal, accounting, shareholder services and trustee
expenses, will be spread over the greater assets of the combined fund. For
additional information concerning the factors the Board considered in approving
the Plan, see "Additional Information About the Plan -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Plan. For more
complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with
Buying Fund. Both your Fund and Buying Fund are separate series of Trust, a
Delaware statutory trust.
If shareholders of your Fund approve the Plan and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund, and Trust
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Plan -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of Buying Fund shares attributable to each
contract owner immediately after and as a result of the Reorganization will be
the same as the value of your Fund shares attributable to each contract owner
immediately prior to the Reorganization. A copy of the Plan is attached as
Appendix I to this Proxy Statement/Prospectus. See "Additional Information About
the Plan."
Trust will receive an opinion of Ballard Spahr Andrews & Ingersoll, LLP
to the effect that the Reorganization will constitute a tax-free reorganization
for Federal income tax purposes. Thus, shareholders will not have to pay
additional Federal income tax as a result of the Reorganization. See "Additional
Information About the Plan -- Federal Income Tax Consequences."
1
COMPARISON OF FEES AND EXPENSES
Fee Table
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Series I and
Series II shares of your Fund and of Series I and Series II shares of Buying
Fund. Pro Forma Combined Expense Ratios of Buying Fund giving effect to the
Reorganization are also provided. There is no guarantee that actual expenses
will be the same as those shown in the table. The following table does not
represent the effect of any fees or other expenses in connection with your
variable contract, and if it did, expenses would be higher.
AIM V.I. CAPITAL
APPRECIATION FUND
AIM V.I. DEMOGRAPHIC TRENDS FUND AIM V.I. CAPITAL APPRECIATION FUND BUYING FUND
YOUR FUND BUYING FUND PRO FORMA COMBINED
(12/31/05) (12/31/05) (12/31/05)
SERIES I SERIES II SERIES I SERIES II SERIES I SERIES II
SHARES SHARES SHARES SHARES SHARES SHARES
-------- --------- -------- --------- -------- ---------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge (Load)
Imposed on Purchase
(as a percentage of offering
price) N/A N/A N/A N/A N/A N/A
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) N/A N/A N/A N/A N/A N/A
ANNUAL FUND OPERATING
EXPENSES(1,2)
(expenses that are deducted
from fund assets)
Management fees 0.77% 0.77% 0.61% 0.61% 0.61% 0.61%
Distribution and/or Service
(12b-1) Fees -- 0.25% -- 0.25% -- 0.25%
Other Expenses 0.38% 0.38% 0.29% 0.29% 0.29% 0.29%
Total Annual Fund Operating
Expenses 1.15% 1.40% 0.90% 1.15% 0.90% 1.15%
Fee Waiver(3,4,5) 0.14% 0.14% -- -- -- --
Net Annual Fund Operating
Expenses 1.01% 1.26% 0.90% 1.15% 0.90% 1.15%
"N/A" in the table above means "not applicable."
(1) Except as otherwise noted, figures shown in the table are for the year ended
December 31, 2005 and are expressed as percentage of the Fund's average daily
net assets. There is no guarantee that actual expenses will be the same as those
shown in the table.
(2) As a result of a reorganization of another fund into AIM V.I. Capital
Appreciation Fund, which occurred on May 1, 2006, AIM V.I. Capital Appreciation
Fund's Total Annual Fund Operating Expenses have been restated to reflect such
reorganization.
(3) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
V.I. Demographic Trends Fund has contractually agreed to waive a portion of its
advisory fees to the extent necessary so that the advisory fees payable by the
Fund (based on the Fund's average daily net assets) do not exceed the annual
rate of 0.695% of the first $250 million, plus 0.67% of the next $250 million,
plus 0.645% of the next $500 million, plus 0.595% of the Fund's daily net assets
excess over $2.5 billion, plus 0.57% of the next $2.5 billion, plus 0.545% of
the next $2.5 billion, plus 0.52% of the Fund's daily net assets in excess of
$10 billion. The Fee Waiver reflects this agreement.
(4) Effective, July 1, 2005, the advisor for AIM V.I. Demographic Trends Fund
has contractually agreed to waive advisory fees and/or reimburse expenses of
Series I and Series II shares to the extent necessary to limit Total Annual Fund
Operating Expenses (excluding certain items discussed below) of Series I shares
and Series II shares to 1.01% and 1.26% of average daily nets assets,
respectively. In determining the advisor's obligation to waive advisory fees
and/or reimburse expenses, the following expenses are not taken into account,
and could cause the Net Annual Fund Operating Expenses to exceed the number
reflected above: (i) interest, (ii) taxes: (iii) dividend expense on short
sales; (iv) extraordinary items; and (v) expenses that the Fund has incurred but
did not actually pay because of an expense offset arrangement. Currently, the
expense offset arrangements from which the Fund may benefit are in the
2
form of credits that the Fund receives from banks where the Fund or its transfer
agent has deposit accounts in which it holds uninvested cash. Those credits are
used to pay certain expenses incurred by the Fund. The Fee Waiver has been
restated to reflect this agreement. This limitation agreement is in effect
through at least April 30, 2008.
(5) Effective upon the close of the Reorganization, the advisor for AIM V.I.
Capital Appreciation has contractually agreed to waive advisory fees and/or
reimburse expenses of Series I and Series II shares to the extent necessary to
limit Total Annual Fund Operating Expenses (excluding certain items discussed
above in footnote 4) of Series I shares and Series II shares to 1.01% and 1.26%
of average daily net assets, respectively. The expense limitation agreement is
in effect through at least April 30, 2008.
Expense Example
This Example is intended to help you compare the costs of investing in
different classes of your Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the Reorganization are also provided. All costs
are based upon the information set forth in the Fee Table above.
The Example assumes that you invest $10,000 for the time periods
indicated. The Example also assumes that your investment has a 5% return each
year, that the operating expenses remain the same and includes the effects of
contractual fee waivers and/or expense reimbursements that are contractual, if
any, but does not reflect voluntary fee waivers and/or expense reimbursements.
To the extent fees are waived and/or expenses are reimbursed voluntarily, your
expenses will be lower. The following table does not represent the effect of any
fees or other expenses in connection with your variable contract, and if it did,
expenses would be higher. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
One Three Five Ten
Year Years Years Years
------------ ------------ ------------ ------------
AIM V.I. DEMOGRAPHIC TRENDS FUND (YOUR FUND)
Series I .................................................... $ 103 $ 337 $ 597 $ 1,364
Series II ................................................... 128 415 730 1,647
AIM V.I. CAPITAL APPRECIATION FUND (BUYING FUND)
Series I .................................................... $ 92 $ 287 $ 498 $ 1,108
Series II ................................................... 117 365 633 1,398
AIM V.I. CAPITAL APPRECIATION FUND (BUYING FUND) --
PRO FORMA COMBINED
Series I .................................................... $ 92 $ 287 $ 498 $ 1,108
Series II ................................................... 117 365 633 1,398
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT YOUR FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
3
Advisor Compensation
The current investment advisory fee schedule of Buying Fund is lower
than that of your Fund. As a result, if shareholders approve the Reorganization,
the current investment advisory fee schedule applicable to Buying Fund will
remain in effect for the combined fund, as follows:
Annual Rate Net Assets
----------- ----------
0.65% First $250 million
0.60% Excess over $250 million
While AIM has contractually agreed to waive its advisory fees through
December 31, 2009, on both your Fund and Buying Fund in connection with a
settlement agreement reached with the New York Attorney General, the waiver for
Buying Fund is lower than the waiver for your Fund. For the period January 1,
2005 to December 31, 2009, the following advisory fee rates will apply after the
waiver:
Annual Rate Net Assets
----------- ----------
0.695% First $250 million
0.625% Next $750 million
0.62% Next $1.5 billion
0.595% Next $2.5 billion
0.57% Next $2.5 billion
0.545% Next $2.5 billion
0.52% Amounts over $10 billion
Before and after giving effect to the Reorganization, the total annual
operating expenses of the combined fund as a percentage of average net assets
are expected to be lower than that of your Fund.
COMPARISON OF PERFORMANCE
Bar charts showing the annual total returns for calendar years ended
December 31, 2005 for Series I shares of your Fund and Buying Fund can be found
below. Also included below are tables showing the average annual total returns
for the periods indicated for your Fund and Buying Fund. For more information
regarding the total return of your Fund, see the "Financial Highlights" section
of the Selling Fund Prospectuses, which have been made a part of this Proxy
Statement/Prospectus by reference. For more information regarding the total
return of Buying Fund, see "Information About Buying Fund -- Financial
Highlights." Past performance cannot guarantee comparable future results.
AIM V.I. Demographic Trends Fund (Your Fund)
The following bar chart shows changes in the performance of your Fund's
Series I shares from year to year. All performance shown assumes the
reinvestment of dividends and capital gains. The bar chart shown does not
reflect charges assessed in connection with your variable product; if it did,
the performance shown would be lower.
YEARS %
----- -------
2000 -17.90%
2001 -31.91%
2002 -32.20%
2003 37.47%
2004 8.25%
2005 6.21%
During the periods shown in the bar chart, the highest quarterly return
was 23.67% (quarter ended December 31, 2001) and the lowest quarterly return was
- -31.56% (quarter ended March 31, 2001). The year-to-date return of your Fund's
Series I shares as of June 30 ,2006 was 0.67%.
The following performance table compares your Fund's performance to the
performance of an unmanaged broad-based securities market index, a style
specific index and a peer group index. The indices may not reflect payment of
fees, expenses or taxes. Your Fund is not managed to track the performance of
any particular index,
4
including the indices shown below, and consequently, the performance of your
Fund may deviate significantly from the performance of the indices shown below.
A fund's performance is not necessarily an indication of its future performance.
The performance table shown below does not reflect charges assessed in
connection with your variable product if it did, the performance shown would be
lower.
AVERAGE ANNUAL TOTAL RETURNS
SINCE
(FOR THE PERIODS ENDED DECEMBER 31, 2005) 1-YEAR 5-YEARS INCEPTION INCEPTION DATE
- ----------------------------------------- ------------ ------------ ------------ --------------
Series I 6.21% (6.11)% (8.81)% 12/29/99
Series II(1) 6.07 (6.31) (8.38) 12/29/99
S&P 500 Index(2) 4.91 0.54 (1.13)(6) 12/31/99(5)
Russell 3000--Registered Trademark-- Growth Index(3) 5.17 (3.15) (6.67)(6) 12/31/99(5)
Lipper Multi-Cap Growth Fund Index(4) 9.13 (2.90) (4.49)(6) 12/31/99(5)
- ----------
(1) The returns shown for these periods are the blended returns of the
historical performance of your Fund's Series II shares since their
inception and the restated historical performance of the predecessor to
your Fund's Series I shares (for periods prior to inception of the Series
II shares) adjusted to reflect the Rule 12b-1 fees applicable to the Series
II shares. The inception date shown in the table is that of your Fund's
Series I shares. The inception date of your Fund's Series II shares is
November 7, 2001.
(2) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. Your Fund has also included the Russell
3000--Registered Trademark-- Growth Index, which your Fund believes more
closely reflects the performance of the types of securities in which your
Fund invests. In addition, your Fund has included the Lipper Multi-Cap
Growth Fund Index (which may or may not include your Fund) for comparison
to a peer group.
(3) The Russell 3000--Registered Trademark-- Growth Index measures the
performance of those stocks in the Russell 3000--Registered Trademark--
Index with higher price-to-book ratios and higher forecasted growth values.
The stocks in this index are members of either the Russell 1000--Registered
Trademark-- Growth or Russell 2000--Registered Trademark-- Growth indices.
The Russell 3000--Registered Trademark-- index includes a representative
sample of 3000 of the largest U.S. companies in leading industries and
represents approximately 98% of the investable U.S. Equity market.
(4) The Lipper Multi-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Multi-Cap Growth
category. These funds, by portfolio practice, invest in a variety of market
capitalization ranges without concentrating 75% of their assets in any one
market capitalization range over an extended period of time. Multi-Cap
funds typically have between 25% and 75% of their assets invested in
companies with market capitalizations (on a three-year weighted basis)
above 300% of the dollar-weighted median market capitalization of the
middle 1,000 securities of the S&P SuperComposite 1500 Index. Multi-Cap
Growth funds typically have an above-average price-to-earnings ratio,
price-to-book ratio, and three-year sales-per-share growth value, compared
to the S&P 500 Index. The S&P SuperComposite 500 Index is a market cap
weighted index made up of 1500 liquid securities of companies with market
capitalizations of $300 million and above, and represents the small-, mid-,
and large-cap markets.
(5) The average annual total return given is since the month end closest to the
inception date of the class with the longest performance history.
AIM V.I. Capital Appreciation Fund (Buying Fund)
The following bar chart shows changes in the performance of Buying
Fund's Series I shares from year to year. All performance shown assumes the
reinvestment of dividends and capital gains. The bar chart shown does not
reflect charges assessed in connection with your variable product; if it did,
the performance shown would be lower.
YEARS %
----- -------
1996 17.58%
1997 13.50%
1998 19.30%
1999 44.61%
2000 -10.91%
2001 -23.28%
2002 -24.35%
2003 29.52%
2004 6.62%
2005 8.83%
During the periods shown in the bar chart, the highest quarterly return
was 35.78% (quarter ended December 31, 1999) and the lowest quarterly return was
- -23.09% (quarter ended September 30, 2001). The year-to-date return of Buying
Fund's Series I shares as of June 30 ,2006 was 0.36%.
5
The following performance table compares Buying Fund's performance to
the performance of an unmanaged broad-based securities market index, a style
specific index and a peer group index. The indices may not reflect payment of
fees, expenses or taxes. Buying Fund is not managed to track the performance of
any particular index, including the indices shown below, and consequently, the
performance of Buying Fund may deviate significantly from the performance of the
indices shown below. A fund's performance is not necessarily an indication of
its future performance. The performance table shown below does not reflect
charges assessed in connection with your variable product, if it did, the
performance shown would be lower.
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 2005 1-YEAR 5-YEARS 10-YEARS INCEPTION DATE
- ---------------------------------------- ------------ ------------ ------------ --------------
Series I 8.83% (2.70)% 5.99% 05/05/93
Series II(1) 8.58 (2.94) 5.73 05/05/93
S&P 500 Index(2) 4.91 (2.30) 12.07
Russell 1000 Growth Index(3) 5.26 (9.29) 9.59
Lipper Multi-Cap Growth Fund Index(4) 9.13 (7.00) 9.43
- ----------
(1) The returns shown for these periods are the blended returns of the
historical performance of Buying Fund's Series II shares since their
inception and the restated historical performance of the predecessor Buying
Fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the Rule 12b-1 fees applicable to the Series II
shares. The inception date shown in the table is that of the Buying Fund's
Series I shares. The inception date of Buying Fund's Series II shares is
September 19, 2001.
(2) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. Buying Fund has elected to use the Standard
& Poor's 500 Index as its broad-based index. Buying Fund has also included
the Russell 1000--Registered Trademark-- Index, which Buying Fund believes
more closely reflects the performance of the types of securities in which
Buying Fund invests. In addition, Buying Fund has included the Lipper
Multi-Cap Growth Fund Index (which may or may not include Buying Fund) for
comparison to a peer group.
(3) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those securities in the Russell 1000--Registered Trademark--
Index with a higher than average growth forecast. The Russell
1000--Registered Trademark-- Growth Index measures the performance of the
largest 1,000 companies domiciled in the United States.
(4) The Lipper Multi-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Multi-Cap Growth
category. These funds typically have an above-average price-to-earnings
ratio, price-to-book ratio, and a three year sales-per-share growth value,
compared to the S&P 500 Index.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund have similar investment objectives and invest
in similar types of securities. Your Fund seeks long-term growth of capital and
Buying Fund seeks growth of capital. Your Fund invests primarily in Demographic
Trends companies, which are large or medium-sized companies that have market
leading positions and certain financial characteristics described in your Fund's
Prospectus. Buying Fund invests primarily in large-capitalization companies that
AIM believes have the potential for above-average growth in revenues and
earnings.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectuses and the Buying Fund Prospectuses,
respectively.
AIM V.I. DEMOGRAPHIC TRENDS FUND AIM V.I. CAPITAL APPRECIATION FUND
(YOUR FUND) (BUYING FUND)
INVESTMENT OBJECTIVES
o Long-term growth of capital o Growth of capital
6
INVESTMENT STRATEGIES
o Invests in securities of companies that are likely to o Invests principally in common stocks of companies the
benefit from changing demographics, economic and portfolio managers believe are likely to benefit from
lifestyle trends. These securities may include common new or innovative products, services or processes as
stocks, convertible bonds, convertible preferred stocks well as those that have experienced above-average,
and warrants of companies within a broad range of long-term growth in earnings and have excellent
market capitalizations. The portfolio managers purchase prospects for future growth. The portfolio managers
securities of companies that have experienced, or that consider whether to sell a particular security when any
they believe have the potential for, above-average, of these factors materially changes.
long-term growth in revenues and earnings. The
portfolio managers consider whether to sell a
particular security when they believe the security no
longer has that potential.
o May invest up to 25% of its total assets in foreign o May invest up to 25% of its total assets in foreign
securities. securities.
o No corresponding strategy. o A larger position in cash or cash equivalents could
also detract from the achievement of the fund's
objective, but could also reduce the fund's exposure in
the event of a market downturn.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are currently
available to investors and the corresponding share class of Buying Fund that
shareholders of your Fund will receive in the Reorganization can be found at
Exhibit A. For information regarding the features of each of the share classes
of your Fund and Buying Fund, see the Selling Fund Prospectuses and the Buying
Fund Prospectuses, respectively.
COMPARISON OF SALES CHARGES
No sales charges are applicable to shares of Buying Fund received by
holders of your Fund's shares in connection with the Reorganization. In
addition, no sales charges are applicable to Series I or Series II shares of
either your Fund or Buying Fund. There may be, however, sales and additional
other expenses associated with your variable annuity or variable life contract
through which you invest in your Fund and Buying Fund.
COMPARISON OF DISTRIBUTION AND PURCHASE AND REDEMPTION PROCEDURES
Shares of your Fund and Buying Fund are distributed by A I M
Distributors, Inc. ("AIM Distributors"), a registered broker-dealer and wholly
owned subsidiary of AIM.
Your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
their Series II shares. Both your Fund and Buying Fund have engaged AIM
Distributors to provide such services either directly or through third parties.
The fee tables on [PAGE ___] include comparative information about the
distribution and service fees payable by the Series II shares of your Fund and
Buying Fund. The Series II shares of Buying Fund have the same distribution and
service fees as the Series II shares of your Fund.
The purchase and redemption procedures of your Fund and Buying Fund are
identical. For information regarding the purchase and redemption procedures of
your Fund and Buying Fund, see the Selling Fund Prospectuses and the Buying Fund
Prospectuses, respectively.
THE BOARD'S RECOMMENDATION
The Board, including the independent trustees of your Fund, unanimously
recommends that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with
Buying Fund.
There is a risk that you could lose all or a portion of your investment
in Buying Fund. The value of your investment in Buying Fund will go up and down
with the prices of the securities in which Buying Fund invests. The prices of
equity securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
The values of convertible securities in which Buying Fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which these securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to Buying
Fund.
Foreign securities have additional risks, including exchange rate
changes, political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
An investment in Buying Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to
those described above for Buying Fund because the two funds have similar
investment objectives and investment strategies.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value at the
option of the shareholder or at the option of Trust in certain circumstances.
Each share of Buying Fund represents an equal proportionate interest in Buying
Fund with each other share and is entitled to such dividends and distributions
out of the income belonging to Buying Fund as are declared by the Board. Each
share of Buying Fund generally has the same voting, dividend, liquidation and
other rights; however, each class of shares of Buying Fund is subject to
different class-specific expenses. There are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual
report to shareholders for the annual period ended December 31, 2005 is set
forth in Appendix III of this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" of Buying Fund attached to this Proxy
Statement/Prospectus as Appendix IV, which are more current than and should be
read in lieu of the "Financial Highlights" sections of the Buying Fund
Prospectuses that are attached to this Proxy Statement/Prospectus as Appendix
II.
8
ADDITIONAL INFORMATION ABOUT THE PLAN
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix I to this Proxy
Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur
on November 6, 2006, at 8:00 a.m., Eastern Time (the "Effective Time") on the
basis of values calculated as of the close of regular trading on the New York
Stock Exchange on November 3, 2006 (the "Valuation Date"). The last day that
purchases or redemptions may be made on your Fund is November 2, 2006. Any
purchase or redemption orders received by your Fund from insurance companies on
November 6, 2006, with a requested trade date of November 3, 2006, will be
processed as of November 3, 2006 for the Buying Fund. At the Effective Time, all
of the assets of your Fund will be delivered to Trust's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Trust directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Plan. Upon delivery of such assets, Buying Fund will receive
good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment
as a "regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Trust will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended December
31, 2005 and for the shorter taxable year beginning on January 1, 2006 and
ending on the Closing and (b) all of your Fund's net capital gain recognized in
its taxable year ended December 31, 2005 and in such short taxable year (after
reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Plan.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Trust will redeem the outstanding
shares of your Fund from shareholders in accordance with the Plan and
Declaration of Trust, Bylaws and the Delaware Statutory Trust Act.
BOARD CONSIDERATIONS
AIM proposed that the Board consider the Reorganization at an in-person
meeting of the Board held on June 27, 2006, at which preliminary discussions of
the Reorganization took place. After careful consideration and after weighing
the pros and cons of the Reorganization, the Board of your Fund determined that
the Reorganization is advisable and in the best interests of your Fund and will
not dilute the interests of your Fund's shareholders, and approved the Plan and
the Reorganization at a meeting of the Board held on August 1, 2006.
Over the course of the Board meetings, the Board received from AIM
written materials that contained information concerning your Fund and Buying
Fund, including comparative total return and fee and expense information, a
comparison of investment objectives and strategies of your Fund and Buying Fund
and pro forma expense ratios for Buying Fund giving effect to the
Reorganization. AIM also provided the Board with written materials concerning
the structure of the proposed Reorganization and the Federal tax consequences of
the Reorganization.
In evaluating the Reorganization, the Board considered a number of
factors, including:
o The investment objective and principal investment strategies
of your Fund and Buying Fund.
9
o The comparative expenses of your Fund and Buying Fund and the
pro forma expenses of Buying Fund after giving effect to the
Reorganization.
o The comparative performance of your Fund and Buying Fund.
o The comparative sizes of your Fund and Buying Fund.
o Any fees and expenses that will be borne directly or
indirectly by your Fund or Buying Fund in connection with the
Reorganization.
o The projected financial impact to AIM and its affiliates of
the Reorganization.
o Analysis of the accounting and performance survivor.
AIM proposed the Reorganization as part of an effort to consolidate
AIM's growth fund offerings within the variable insurance marketplace, and an
agreement reached and effected in 2005 to terminate AIM's relationship with your
Fund's former sub-adviser, H.S. Dent Advisors, Inc. In considering the
Reorganization, the Board noted that the funds have similar investment
objectives and invest in similar types of securities. In addition, Buying Fund's
performance track record is better than your Fund's and the expenses of the
combined fund are expected to be lower than those of your Fund.
The Board noted that the funds both attract investors looking for a
mid- to large-cap investment program. The Board also noted that since September
16, 2005, Buying Fund and your Fund have been managed using the same discipline
by the same lead portfolio manager and portfolio management team. The Board
noted that because Buying Fund and your Fund have similar investment objectives
and similar investment strategies, there is significant portfolio overlap
between the funds. As of April 30, 2006, approximately 87% of your Fund's total
net assets were invested in securities Buying Fund also owns.
The Board determined that it was appropriate for Buying Fund to be the
surviving fund in the Reorganization. The portfolio composition, investment
objectives and strategies of the combined fund will be those of Buying Fund. The
expense structure of Buying Fund will also apply to the combined fund. Although
the portfolio management team of the combined fund is similar to the team that
has managed your Fund since its inception in 1999, the anticipated utilization
of Buying Fund's long-term investment style is a greater indicator that the
combined fund will more closely resemble Buying Fund than your Fund in the
future. Consequently, the Board determined that Buying Fund's performance track
record more accurately reflects the results of the investment process that the
combined fund will utilize after the Reorganization. Finally, the Board
considered the relative sizes of the two funds and the larger asset base of
Buying Fund. As of April 30, 2006, Buying Fund had net assets of approximately
$1.7 billion, compared to net assets for your Fund of approximately $59 million.
The Board considered the performance of Buying Fund in relation to the
performance of your Fund, noting that Buying Fund has provided better returns to
its shareholders than your Fund. As of April 30, 2006, the relative performance
of Series I shares of your Fund and Buying Fund (without variable product
charges) was as follows:
AVERAGE ANNUAL TOTAL RETURNS
One Five Three Ten Since Inception
Year Years Years Years Inception Date
------------ ------------ ------------ ------------ ------------ ------------
Your Fund 23.14% 0.00% 15.96% N/A -6.71% 12/29/99
Buying Fund 24.47% 1.41% 15.20% 5.40% 9.29% 05/05/93
The performance information in "Comparison of Performance" supports the
Board's determination that Buying Fund's performance has been better than that
of your Fund. See "Comparison of Performance."
10
The Board also considered the operating expenses the funds incur. As a
percentage of average daily net assets, after giving effect to contractual fee
waivers and expense limitations, the total annual operating expenses of Buying
Fund both before and after giving pro forma effect to the Reorganization are
lower than the total annual operating expenses of your Fund.
AIM reported to the Board that, as of May 1, 2006, the total annual
operating expense ratios of your Fund, after giving effect to current fee
waivers, were 1.01% and 1.26% for Series I and Series II shares, respectively.
Based upon historical data at a specified date and related projected data, on a
pro forma basis, as of May 1, 2006, the total annual operating expense ratios of
Buying Fund, after giving effect to current fee waivers, are expected to be
approximately 0.89% and 1.14% for Series I and Series II shares,
respectively--0.12% lower than those of your Fund. In the absence of fee
waivers, AIM reported to the Board that, as of May 1, 2006, the total annual
operating expense ratios of your Fund were 1.31% and 1.56% for Series I and
Series II shares, respectively. Based upon historical data at a specified date
and related projected data, on a pro forma basis, as of May 1, 2006, the total
annual operating expense ratios of Buying Fund, in the absence of fee waivers,
are expected to be approximately 0.89% and 1.14% for Series I and Series II
shares, respectively--0.42% lower than those of your Fund. The pro forma total
annual operating expenses the Board considered differ from the pro forma fee and
expense table contained in "Comparison of Fees and Expenses" because the
information the Board considered is as of a more recent date than that which is
contained in "Comparison of Fees and Expenses".
The total expenses to be incurred in connection with the Reorganization
are expected to be approximately $100,000. Your Fund's expenses incurred in
connection with the Reorganization are expected to be approximately $70,000. The
Board noted AIM's proposal that AIM bear 100% of your Fund's costs in connection
with the Reorganization. Buying Fund's expenses to be incurred in connection
with the Reorganization are expected to be approximately $30,000. Buying Fund
will bear its costs and expenses incurred in connection with the Reorganization.
To determine which party would bear the expenses to be incurred in
connection with the Reorganization, AIM estimated the amount of mailing,
printing, solicitation, and legal and accounting fees to be incurred by both
Buying Fund and your Fund. AIM then performed a qualitative analysis that took
into account, among other things, the expected benefits to be enjoyed by your
Fund's shareholders through reduced expenses on a pro forma basis, the amount of
time estimated for your Fund's shareholders to recoup expenses incurred in the
Reorganization in light of such expected benefits, the effect incurring such
expenses would have on the net asset value of your Fund, whether there was a
financial impact to AIM's profit and loss (positive or negative) and the
relative performance of your Fund and Buying Fund.
Finally, the Board considered that the AIM non-variable insurance or
"retail" fund (AIM Dent Demographic Trends Fund) after which your Fund was
patterned was reorganized into another AIM retail fund in 2005. The factors
supporting that reorganization were generally similar to the factors described
above.
Based on the foregoing and the information presented at the two Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommended the
approval of the Plan by the shareholders of your Fund at the Special Meeting.
OTHER TERMS
If any amendment is made to the Plan following the mailing of this
Proxy Statement/Prospectus and prior to the Closing which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, if an amendment is made which would
not have a material adverse effect on shareholders, the Plan may be amended
without shareholder approval by mutual agreement of the parties.
The obligations of Trust pursuant to the Plan are subject to various
conditions, including the following mutual conditions:
o the assets of your Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross
assets held by your Fund immediately prior to the
Reorganization;
11
o Trust's Registration Statement on Form N-14 under the
Securities Act of 1933 (the "1933 Act") shall have been filed
with the SEC and such Registration Statement shall have become
effective, and no stop-order suspending the effectiveness of
the Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or
threatened by the SEC (and not withdrawn or terminated);
o the shareholders of your Fund shall have approved the Plan;
and
o Trust shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the
transactions contemplated by the Plan will not result in the
recognition of gain or loss for Federal income tax purposes
for your Fund, Buying Fund or their shareholders.
The Board may waive without shareholder approval any default or any
failure to satisfy any of the above conditions as long as such a waiver will not
have a material adverse effect on the benefits intended under the Plan for the
shareholders of your Fund. The Plan may be terminated and the Reorganization may
be abandoned at any time if the shareholders of your Fund do not approve the
Plan or if the Closing does not occur on or before December 31, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
o the Reorganization will qualify as a "reorganization" within
the meaning of Section 368(a) of the Code;
o no gain or loss will be recognized by your Fund upon the
transfer of its assets to Buying Fund solely in exchange for
shares of Buying Fund and Buying Fund's assumption of the
liabilities of your Fund or on the distribution of those
shares to your Fund's shareholders;
o no gain or loss will be recognized by Buying Fund on its
receipt of assets of your Fund in exchange for shares of
Buying Fund issued directly to your Fund's shareholders;
o no gain or loss will be recognized by any shareholder of your
Fund upon the exchange of shares of your Fund for shares of
Buying Fund;
o the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's
tax basis of the shares of your Fund surrendered in exchange
therefor;
o the holding period of the shares of Buying Fund to be received
by a shareholder of your Fund will include the period for
which such shareholder held the shares of your Fund exchanged
therefor, provided that such shares of your Fund are capital
assets in the hands of such shareholder as of the Closing; and
o Buying Fund will thereafter succeed to and take into account
any capital loss carryover and certain other tax attributes of
your Fund, subject to all relevant conditions and limitations
on the use of such tax benefits.
Trust has not requested and will not request an advance ruling from the
IRS as to the Federal tax consequences of the Reorganization. As a condition to
Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a favorable opinion
to Trust as to the foregoing Federal income tax consequences of the
Reorganization, which opinion will be conditioned upon, among other things, the
accuracy, as of the Effective Time, of certain representations of Trust upon
which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering its opinion.
The
12
conclusions reached in that opinion could be jeopardized if the representations
of Trust are incorrect in any material respect. A copy of the opinion will be
filed with the Securities and Exchange Commission, and will be available for
public inspection. See "Information Filed with the Securities and Exchange
Commission."
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
Your Fund and Buying Fund are each separate series of shares of
beneficial interest of Trust. Since both funds are part of the same legal
entity, there are no material differences in the rights of shareholders.
CAPITALIZATION
The following table sets forth, as of June 30, 2006, (i) the
capitalization of each class of shares of your Fund; (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Plan.
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
SERIES I SHARES SERIES I SHARES ADJUSTMENTS SERIES I SHARES
--------------- --------------- -------------- ---------------
Net Assets ................... $ 54,138,479 $1,187,305,517 --(1) $1,241,443,996
Shares Outstanding ........... 8,971,089 48,288,234 (6,771,184)(2) 50,488,139
Net Asset Value Per Share .... $ 6.03 $ 24.59 $ 24.59
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
SERIES II SHARES SERIES II SHARES ADJUSTMENTS SERIES II SHARES
---------------- ---------------- -------------- ----------------
Net Assets ................... $ 2,117,958 $ 391,782,283 --(1) $ 393,900,241
Shares Outstanding ........... 354,547 16,115,027 (267,478)(2) 16,202,096
Net Asset Value Per Share .... $ 5.97 $ 24.31 $ 24.31
(1) AIM will bear 100% of Your Fund's Reorganization expenses, therefore Net
Assets have not been adjusted for any expenses expected to be incurred in
connection with the Reorganization.
(2) Shares Outstanding have been adjusted for the accumulated change in the
number of shares of your Fund's shareholder accounts based on the relative value
of your Fund's and Buying Fund's Net Asset Value Per Share assuming the
Reorganization would have taken place on June 30, 2006.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the
Reorganization will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT
BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the
following topics, please refer to the following sections of the Buying Fund
Prospectuses, which have been made a part of this Proxy Statement/
13
Prospectus by reference and which is attached to this Proxy Statement/Prospectus
as Appendix II: (i) see "Performance Information" for more information about the
performance of Buying Fund; (ii) see "Fund Management" for more information
about the management of Buying Fund; (iii) see "Other Information" for more
information about Buying Fund's policy with respect to dividends and
distributions; and (iv) see "Other Information" for more information about the
pricing, purchase, redemption and repurchase of shares of Buying Fund, tax
consequences to shareholders of various transactions in shares of Buying Fund,
distribution arrangements and the multiple class structure of Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectuses,
which have been made a part of this Proxy Statement/Prospectus by reference: (i)
see "Performance Information" for more information about the performance of your
Fund; (ii) see "Fund Management" and "Portfolio Managers" for more information
about the management of your Fund; (iii) see "Pricing of Shares" for more
information about the pricing of shares of your Fund; (iv) see "Taxes" for more
information about tax consequences to shareholders of various transactions in
shares of your Fund; and (v) see "Dividends" and "Capital Gains Distributions"
for more information about your Fund's policy with respect to dividends and
distributions.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semiannual reports
which Trust has filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Trust's registration statement containing the Selling Fund Prospectuses and
related Statement of Additional Information and the Buying Fund Prospectuses and
related Statement of Additional Information is Registration No. 811-07452. Such
Selling Fund Prospectuses and Buying Fund Prospectuses are incorporated herein
by reference.
Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports
and other information with the SEC. Reports, proxy material, registration
statements and other information filed by Trust (including the Registration
Statement of Trust relating to Buying Fund on Form N-14 of which this Proxy
Statement/Prospectus is a part) may be inspected without charge and copied at
the public reference facilities maintained by the SEC at Room 1580, 100 F
Street, NE, Washington, DC 20549, and at the following regional office of the
SEC: 1801 California Street, Suite 4800, Denver, Colorado 80202. Copies of such
material may also be obtained from the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549, at the prescribed rates. The SEC
maintains a website at www.sec.gov that contains information regarding Trust and
other registrants that file electronically with the SEC.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
GENERAL INFORMATION
As discussed above, shares of the Fund are sold to and held by separate
accounts of various insurance companies to fund variable annuity or variable
life insurance contracts offered by the insurance companies. The separate
accounts invest in shares of the Fund in accordance with instructions from
variable annuity or variable life contract owners. Except as otherwise might be
provided by applicable law, the separate accounts provide pass-through voting to
contract owners, and you, as a contract owner, have the right to instruct the
insurance company that issued your contract, on behalf of the separate account,
on how to vote shares of the Fund held by the separate account under your
contract. If an insurance company does not receive voting instructions from all
of its contract owners, it will vote all of the shares held in its name, or in
its separate account's name, in the same proportion as the shares of the Fund
for which it has received instructions from contract owners (i.e., echo voting).
Any shares of the Fund held directly by an insurance company will also be voted
in the same proportion as the shares of the Fund for which it has received
instructions from contract owners.
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed
proxy card because the Board is soliciting your proxy to vote at the Special
Meeting and at any adjournments of the Special Meeting. This Proxy
14
Statement/Prospectus gives you information about the business to be conducted at
the Special Meeting. However, you do not need to attend the Special Meeting to
vote your shares. Instead, you may simply complete, sign and return the enclosed
proxy card or vote by telephone or through a website established for that
purpose.
Trust intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about September __, 2006 to all shareholders entitled to vote. Shareholders of
record of your Fund as of the close of business on August 24, 2006 (the "Record
Date") are entitled to vote at the Special Meeting. The number of shares
outstanding of each class of shares of your Fund on the Record Date can be found
at Exhibit B. Each share is entitled to one vote for each full share held, and a
fractional vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 31, 2006, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we
will provide you with a ballot prior to the vote. However, you must bring a
letter from your insurance company indicating that you are the beneficial owner
of the shares on the Record Date and authorizing you to vote. Please call Trust
at (800) 952-3502 if you plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in
time to vote at the Special Meeting, your "proxy" (the individual named on your
proxy card) will vote your shares as you have directed. If you sign your proxy
card but do not make specific choices, your proxy will vote your shares FOR the
proposal to approve the Plan, as recommended by the Board, and in accordance
with management's recommendation on other matters.
Your proxy will have the authority to vote and act on your behalf at
any adjournment of the Special Meeting.
If you have given voting instructions you may revoke them only through
and in accordance with the procedures of the applicable life insurance company
prior to the date of the Special Meeting. In addition, although merely attending
the Special Meeting will not revoke your proxy, if you are present at the
Special Meeting you may withdraw your proxy and vote in person. Shareholders may
also transact any other business not currently contemplated that may properly
come before the Special Meeting in the discretion of the proxies or their
substitutes.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Abstentions will count as shares present at the Special Meeting for
purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is
present but sufficient votes to approve the Plan are not received, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the votes cast at the Special Meeting in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote FOR the Reorganization in favor of such an adjournment
and will vote those proxies required to be voted AGAINST the Reorganization
against such adjournment. A shareholder vote may be taken on
15
the Reorganization prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE THE PLAN
If a quorum is present, approval of the Plan requires the affirmative
vote of a majority of shares cast by the shareholders of your Fund at the
Special Meeting. Abstentions are counted as present but are not considered votes
cast at the Special Meeting.
PROXY SOLICITATION
Trust will solicit proxies for the Special Meetings. Trust expects to
solicit proxies principally by mail, but Trust may also solicit proxies by
telephone, facsimile or personal interview. Trust's officers will not receive
any additional or special compensation for any such solicitation. AIM will bear
100% of your Fund's costs and expenses incurred in connection with the
reorganization.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who,
as of August 24, 2006, to the knowledge of Trust owned 5% or more of any class
of the outstanding shares of your Fund can be found at Exhibit C.
A list of the name, address and percent ownership of each person who,
as of August 24, 2006, to the knowledge of Trust owned 5% or more of any class
of the outstanding shares of Buying Fund can be found at Exhibit D.
SECURITY OWNERSHIP OF MANAGEMENT AND TRUSTEES
Information regarding the ownership of each class of your Fund's shares
and Buying Fund's shares by trustees and current executive officers of Trust can
be found in Exhibits C and D, respectively.
16
EXHIBIT A
CLASSES OF SHARES OF YOUR FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
------------------------------ ----------------------------------------------
Series I Series I
Series II Series II
A-1
EXHIBIT B
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of August 24, 2006, there were the following number of shares
outstanding of each class of Your Fund:
AIM V.I. DEMOGRAPHIC TRENDS FUND
- --------------------------------
Series I Shares:.............................................................
Series II Shares:............................................................
B-1
EXHIBIT C
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of August 24, 2006, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of Your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Your Fund is presumed
to "control" Your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
AIM V.I. DEMOGRAPHIC TRENDS FUND
SERIES I SHARES SERIES II SHARES SERIES I SHARES SERIES II SHARES
----------------- ----------------- ----------------- -----------------
NAME AND ADDRESS OF NUMBER OF SHARES NUMBER OF SHARES PERCENTAGE OWNED PERCENTAGE OWNED
PRINCIPAL HOLDER OWNED OF RECORD OWNED OF RECORD OF RECORD OF RECORD
- ------------------- ----------------- ----------------- ----------------- -----------------
- ----------
* Trust has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
SECURITY OWNERSHIP OF MANAGEMENT AND TRUSTEES
To the best of the knowledge of Trust, the ownership of shares of your
Fund by executive officers and trustees of Trust as a group constituted less
than 1% of the outstanding shares of each class of your Fund as of August 24,
2006.
C-1
EXHIBIT D
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of August 24, 2006, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
AIM V.I. CAPITAL APPRECIATION FUND
SERIES I SHARES SERIES II SHARES SERIES I SHARES SERIES II SHARES
---------------- ---------------- ---------------- ----------------
NAME AND ADDRESS OF NUMBER OF SHARES NUMBER OF SHARES PERCENTAGE OWNED PERCENTAGE OWNED
PRINCIPAL HOLDER OWNED OF RECORD OWNED OF RECORD OF RECORD OF RECORD
- ------------------- ---------------- ---------------- ---------------- ----------------
- ----------
* Trust has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
SECURITY OWNERSHIP OF MANAGEMENT AND TRUSTEES
To the best of the knowledge of Trust, the ownership of shares of
Buying Fund by executive officers and trustees of Trust as a group constituted
less than 1% of the outstanding shares of each class of Buying Fund as of August
24, 2006.
D-1
APPENDIX I
PLAN OF REORGANIZATION
FOR
AIM V.I. DEMOGRAPHIC TRENDS FUND,
A SEPARATE PORTFOLIO OF
AIM VARIABLE INSURANCE FUNDS
_________________, 2006
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.............................................................................................1
SECTION 1.1. Definitions..............................................................................1
ARTICLE 2 TRANSFER OF ASSETS......................................................................................5
SECTION 2.1. Reorganization of Selling Fund...........................................................5
SECTION 2.2. Computation of Net Asset Value...........................................................5
SECTION 2.3. Valuation Date...........................................................................5
SECTION 2.4. Delivery.................................................................................5
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares..............................6
SECTION 2.6. Issuance of Buying Fund Shares...........................................................6
SECTION 2.7. Investment Securities....................................................................6
SECTION 2.8. Liabilities..............................................................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLING FUND..........................................................7
SECTION 3.1. Registration and Regulation of Selling Fund..............................................7
SECTION 3.2. Selling Fund Financial Statements........................................................7
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities......................................7
SECTION 3.4. Selling Fund Shares; Business Operations.................................................7
SECTION 3.5. Accountants..............................................................................8
SECTION 3.6. Binding Obligation.......................................................................9
SECTION 3.7. No Breaches or Defaults..................................................................9
SECTION 3.8. Permits..................................................................................9
SECTION 3.9. No Actions, Suits or Proceedings.........................................................9
SECTION 3.10. Contracts..............................................................................10
SECTION 3.11. Properties and Assets..................................................................10
SECTION 3.12. Taxes..................................................................................10
SECTION 3.13. Benefit and Employment Obligations.....................................................11
SECTION 3.14. Voting Requirements....................................................................11
SECTION 3.15. State Takeover Statutes................................................................11
SECTION 3.16. Books and Records......................................................................11
SECTION 3.17. Prospectus and Statement of Additional Information.....................................11
SECTION 3.18. No Distribution........................................................................11
SECTION 3.19. Liabilities of Selling Fund............................................................11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYING FUND..........................................................12
SECTION 4.1. Registration and Regulation of Buying Fund..............................................12
SECTION 4.2. Buying Fund Financial Statements........................................................12
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities.....................................12
SECTION 4.4. Registration of Buying Fund Shares......................................................12
SECTION 4.5. Accountants.............................................................................13
SECTION 4.6. Binding Obligation......................................................................13
SECTION 4.7. No Breaches or Defaults.................................................................13
SECTION 4.8. Permits.................................................................................14
SECTION 4.9. No Actions, Suits or Proceedings........................................................14
i
SECTION 4.10. Taxes...................................................................................14
SECTION 4.11. Representations Concerning the Reorganization...........................................15
SECTION 4.12. Prospectus and Statement of Additional Information......................................15
ARTICLE 4A CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND........................................................16
SECTION 4A.1 No Governmental Actions.................................................................16
SECTION 4A.2 No Brokers..............................................................................16
SECTION 4A.3 Value of Shares.........................................................................16
SECTION 4A.4 Intercompany Indebtedness; Consideration................................................16
SECTION 4A.5 Authorizations or Consents..............................................................16
SECTION 4A.6 No Bankruptcy Proceedings...............................................................17
ARTICLE 5 COVENANTS..............................................................................................17
SECTION 5.1. Conduct of Business.....................................................................17
SECTION 5.2. Expenses................................................................................17
SECTION 5.3. Further Assurances......................................................................17
SECTION 5.4. Consents, Approvals and Filings.........................................................17
SECTION 5.5. Submission of Plan to Shareholders......................................................18
ARTICLE 6 FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION.....................................................18
SECTION 6.1. Further Conditions Precedent with respect to Both Funds.................................18
ARTICLE 7 TERMINATION OF PLAN....................................................................................20
SECTION 7.1. Termination.............................................................................20
SECTION 7.2. Survival After Termination..............................................................20
ARTICLE 8 MISCELLANEOUS..........................................................................................20
SECTION 8.1. Survival of Representations, Warranties and Covenants...................................20
SECTION 8.2. Governing Law...........................................................................21
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment.......................................21
SECTION 8.4. Obligations of Trust....................................................................21
SECTION 8.5. Amendments..............................................................................21
SECTION 8.6. Entire Plan; Exhibits and Schedules.....................................................21
SECTION 8.7. Successors and Assigns; Assignment......................................................21
EXHIBIT A Excluded Liabilities of Selling Fund
SCHEDULE 2.1 Classes of Shares of Selling Fund and Corresponding Classes of Shares of
Buying Fund
SCHEDULE 3.3 Certain Contingent Liabilities of Selling Fund
SCHEDULE 4.3 Certain Contingent Liabilities of Buying Fund
SCHEDULE 4.4(a) Classes of Shares of Buying Fund
SCHEDULE 6.1(k) Tax Opinions
ii
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION, dated as of ___________, 2006 (this "Plan"), is
adopted by AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"),
acting on behalf of AIM V.I. Demographic Trends Fund ("Selling Fund"), and AIM
V.I. Capital Appreciation Fund ("Buying Fund"), each a separate series of Trust.
WITNESSETH
WHEREAS, Trust is a management investment company registered with the
SEC (as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund and Buying Fund, for sale to insurance
company separate accounts to fund variable annuity and variable life contracts;
and
WHEREAS, Investment Adviser (as defined below) provides investment
advisory services to the Trust; and
WHEREAS, the Trust desires to provide for the reorganization of Selling
Fund through the transfer of all of its assets to Buying Fund in exchange for
the assumption by Buying Fund of all of the Liabilities (as defined below) of
Selling Fund and the issuance by Trust of shares of Buying Fund in the manner
set forth in this Plan; and
WHEREAS, the Investment Adviser (as defined below) serves as the
investment advisor to both Buying Fund and Selling Fund; and
WHEREAS, this Plan is intended to be and is adopted by Trust as a Plan
of Reorganization within the meaning of the regulations under Section 368(a) of
the Code (as defined below); and
WHEREAS, Trust is duly organized, validly existing and in good standing
under Applicable Law (as defined below), with all requisite power and authority
to adopt this Plan and perform its obligations hereunder.
NOW, THEREFORE, Trust hereby adopts the following:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Plan, the following terms
shall have the respective meanings set forth in this Section 1.1 (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended,
and all rules and regulations of the SEC adopted pursuant thereto.
1
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Applicable Law" means the applicable laws of the state of Delaware and
shall include the Delaware Statutory Trust Act.
"Benefit Plan" means any material "employee benefit plan" (as defined
in Section 3(3) of ERISA) and any material bonus, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, retirement, profit sharing, welfare plans or other plan,
arrangement or understanding maintained or contributed to by Trust on behalf of
Selling Fund, or otherwise providing benefits to any current or former employee,
officer or director/trustee of Trust.
"Buying Fund" means AIM V.I. Capital Appreciation Fund, a separate
series of Trust.
"Buying Fund Auditors" means PricewaterhouseCoopers LLP.
"Buying Fund Financial Statements" means the audited financial
statements of Buying Fund for the fiscal year ended December 31, 2005, and the
Buying Fund Semiannual Report to Shareholders dated June 30, 2006.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Plan.
"Closing" means the transfer of the assets of Selling Fund to Buying
Fund, the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Plan.
"Closing Date" means November 6, 2006, or such other date as the
parties may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all
rules and regulations adopted pursuant thereto.
"Corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of each Fund.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations adopted pursuant thereto.
2
"Governing Documents" means the organic documents which govern the
business and operations of Trust and shall include, as applicable, Amended and
Restated Agreement and Declaration of Trust, Amended and Restated Bylaws and
Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means A I M Advisors, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in
the condition (financial or otherwise), properties, assets or prospects of an
entity having an adverse monetary effect in an amount equal to or greater than
$50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.8 of this Plan.
"Person" means an individual or a corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Plan" means this Plan of Reorganization, together with all exhibits
and schedules attached hereto and all amendments hereto and thereof.
"Registration Statement" means the registration statement on Form N-1A
of Trust, as amended, 1940 Act Registration No. 811-07452.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Trust of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Plan, and the
termination of Selling Fund's status as a designated series of shares of Trust.
"Required Shareholder Vote" means, if a quorum is present, the
affirmative vote of a majority of the shares cast at the Shareholders Meeting.
3
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Selling Fund" means AIM V.I. Demographic Trends Fund, a separate
series of Trust.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial
statements of Selling Fund for the fiscal year ended December 31, 2005 and the
Selling Fund Semiannual Report to Shareholders dated June 30, 2006.
"Selling Fund Shareholders" means the holders of record of the
outstanding shares of each class of Selling Fund as of the close of regular
trading on the NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of
Selling Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling
Fund convened in accordance with Applicable Law and the Governing Documents of
Trust to consider and vote upon the approval of this Plan.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2006, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Trust" means AIM Variable Insurance Funds, a Delaware statutory trust.
"Trust Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Trustee Benefit Plans" means the Deferred Compensation Agreement for
the Directors/Trustees of the AIM Funds, the AIM Funds Retirement Plan for
Eligible Directors/Trustees, the Deferred Fee Agreement, the INVESCO Funds
Retirement Plan for Independent Directors and the Deferred Retirement Plan
Account Agreement.
4
"Valuation Date" shall have the meaning set forth in Section 2.2 of
this Plan.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Custodian for the account of
Buying Fund in exchange for the assumption by Buying Fund of all of the
Liabilities of Selling Fund and delivery by Trust directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund
Shares, and the value of the assets and the amount of the Liabilities of Selling
Fund, shall, in each case, be determined as of the close of regular trading on
the NYSE on the business day next preceding the Closing Date (the "Valuation
Date").
(b) The net asset value per share of each class of Buying Fund
Shares shall be computed in accordance with the policies and procedures of
Buying Fund as described in the Registration Statement.
(c) The value of the assets and the amount of the Liabilities of
Selling Fund to be transferred to Buying Fund pursuant to this Plan shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of
value regarding the assets and Liabilities of Selling Fund and the net asset
value per share of each class of Buying Fund Shares to be issued pursuant to
this Plan shall be made by Trust.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Plan have been consummated), to be distributed to Selling Fund Shareholders
under this Plan.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing
Date, Trust shall instruct Custodian to transfer all assets held by Selling Fund
to the account of Buying Fund
5
maintained at Custodian. Such assets shall be delivered by Trust to Custodian on
the Closing Date. The assets so delivered shall be duly endorsed in proper form
for transfer in such condition as to constitute a good delivery thereof, in
accordance with the custom of brokers, and shall be accompanied by all necessary
state stock transfer stamps, if any, or a check for the appropriate purchase
price thereof. Cash held by Selling Fund shall be delivered on the Closing Date
and shall be in the form of currency or wire transfer in Federal funds, payable
to the order of the account of Buying Fund at Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make
delivery in the manner contemplated by Section 2.4(a) of securities held by
Selling Fund for the reason that any of such securities purchased prior to the
Closing Date have not yet been delivered to Selling Fund or its broker, then
Trust shall waive the delivery requirements of Section 2.4(a) with respect to
said undelivered securities if Selling Fund has delivered to Custodian by or on
the Closing Date, and with respect to said undelivered securities, executed
copies of an agreement of assignment and escrow and due bills executed on behalf
of said broker or brokers, together with such other documents as may be required
by Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing, the status of Selling Fund as a
designated series of Trust shall be terminated and Trust shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Governing Documents and all issued and outstanding shares of Selling
Fund shall thereupon be canceled on the books of Trust.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date in accordance with Sections 2.1 and 2.2. Trust shall provide instructions
to the transfer agent of Trust with respect to the shares of each class of
Buying Fund to be issued to Selling Fund Shareholders. Trust shall record on its
books the ownership of the shares of each class of Buying Fund by Selling Fund
Shareholders and shall forward a confirmation of such ownership to Selling Fund
Shareholders. No redemption or repurchase of such shares credited to former
Selling Fund Shareholders in respect of Selling Fund Shares represented by
unsurrendered share certificates shall be permitted until such certificates have
been surrendered to Trust for cancellation, or if such certificates are lost or
misplaced, until lost certificate affidavits have been executed and delivered to
Trust.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Trust shall prepare a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Such records shall be prepared in accordance with the
requirements for specific identification tax lot accounting and clearly reflect
the bases used for determination of gain and loss realized on the sale of any
security transferred to Buying Fund hereunder. Such records shall be made
available by Trust prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or Buying Fund Auditors upon reasonable request.
6
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best
efforts to discharge all of its known liabilities, so far as may be possible,
prior to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLING FUND
Trust, on behalf of Selling Fund, represents and warrants as follows:
SECTION 3.1. Registration and Regulation of Selling Fund. All Selling
Fund shares which have been or are being offered for sale have been duly
registered under the Securities Act and have been duly registered, qualified or
are exempt from registration or qualification under the securities laws of each
state or other jurisdiction in which such shares have been or are being offered
for sale, and no action has been taken by Trust to revoke or rescind any such
registration or qualification. Selling Fund is in compliance in all material
respects with all applicable laws, rules and regulations, including, without
limitation, the Investment Company Act, the Securities Act, the Exchange Act and
all applicable state securities laws. Selling Fund is in compliance in all
material respects with the investment policies and restrictions applicable to it
set forth in the Registration Statement. The value of the net assets of Selling
Fund is determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Selling Fund and all purchases and redemptions of Selling Fund Shares have been
effected at the net asset value per share calculated in such manner.
SECTION 3.2. Selling Fund Financial Statements. The books of account
and related records of Selling Fund fairly reflect in reasonable detail its
assets, liabilities and transactions in accordance with generally accepted
accounting principles applied on a consistent basis. The Selling Fund Financial
Statements present fairly in all material respects the financial position of
Selling Fund as of the dates indicated and the results of operations and changes
in net assets for the periods then ended in accordance with generally accepted
accounting principles applied on a consistent basis for the periods then ended.
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Selling Fund Financial Statements, no material adverse change
has occurred in the financial condition, results of operations, business, assets
or liabilities of Selling Fund or the status of Selling Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Selling Fund or occurring in the ordinary course of
business of Selling Fund. Except as set forth on Schedule 3.3, there are no
contingent liabilities of Selling Fund not disclosed in the Selling Fund
Financial Statements and no contingent liabilities of Selling Fund have arisen
since the date of the Selling Fund Financial Statements.
SECTION 3.4. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
7
(b) During the five-year period ending on the date of the
Reorganization, neither Selling Fund nor any person related to Selling Fund (as
defined in Section 1.368-1(e)(3) of the Treasury Regulations without regard to
Section 1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired shares of Selling
Fund for consideration other than shares of Selling Fund, except for shares
redeemed in the ordinary course of Selling Fund's business as an open-end
investment company as required by the Investment Company Act, or (ii) made
distributions with respect to Selling Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and 4982 of
the Code for qualification as a regulated investment company and avoidance of
excise tax liability and (b) additional distributions, to the extent such
additional distributions do not exceed 50 percent of the value (without giving
effect to such distributions) of the proprietary interest in Selling Fund on the
Effective Date. For purposes of this representation, the redemption of shares of
Selling Fund by ING Insurance Co of America ("ING") and its affiliated insurance
companies on September 23, 2005 (for Series II shares of Selling Fund) and May
1, 2006 (for Series I shares of Selling Fund), pursuant to an Application for an
Order of Approval Pursuant to Section 26(c) of the Investment Company Act and an
Order of Exemption Pursuant to Section 17(b) of the Investment Company Act from
Section 17(a) of the Investment Company Act shall be considered to have been
effected in the ordinary course of Selling Fund's business as an open-end
investment company.
(c) At the time of its Reorganization, Selling Fund shall not
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any Person could acquire Selling Fund Shares, except
for the right of investors to acquire Selling Fund Shares at net asset value in
the normal course of its business as a series of an open-end management
investment company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the
Closing Date, Selling Fund will have conducted its historic business within the
meaning of Section 1.368-1(d)(2) of the Treasury Regulations in a substantially
unchanged manner. In anticipation of its Reorganization, Selling Fund will not
dispose of assets that, in the aggregate, will result in less than fifty percent
(50%) of its historic business assets (within the meaning of Section
1.368-1(d)(3) of the Treasury Regulations) being transferred to Buying Fund. As
of the Closing Date, at least 33-1/3% of Selling Fund's portfolio assets will
meet the investment objectives, strategies, policies, risks and restrictions of
Buying Fund. Selling Fund did not alter its portfolio in anticipation of the
Reorganization to meet the 33-1/3% threshold.
(e) Except for the Senior Officer Trust is required to employ
pursuant to the Assurance of Discontinuance entered into by the Investment
Adviser with the Attorney General of the State of New York on or about October
7, 2004, Trust does not have, and has not had during the six (6) months prior to
the date of this Plan, any employees, and shall not hire any employees from and
after the date of this Plan through the Closing Date.
SECTION 3.5. Accountants. Selling Fund Auditors, which have reported
upon the Selling Fund Financial Statements for the fiscal year ending December
31, 2005, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
8
SECTION 3.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Selling Fund and, assuming this Plan has been
duly approved by the shareholders of Selling Fund, constitutes the legal, valid
and binding obligation of Trust enforceable against Trust in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.7. No Breaches or Defaults. The adoption and delivery of this
Plan by Trust on behalf of Selling Fund and performance by Trust of its
obligations hereunder has been duly authorized by all necessary trust action on
the part of Trust, other than approval by the shareholders of Selling Fund, and
(i) do not, and on the Closing Date will not, result in any violation of the
Governing Documents of Trust and (ii) do not, and on the Closing Date will not,
result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Trust is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Trust or any property of Selling Fund.
SECTION 3.8. Permits. Except for the absence of, or default under,
Permits (as defined below) that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, Trust has in full
force and effect all approvals, consents, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights of Governmental Authorities
(collectively, "Permits") necessary for it to conduct its business as presently
conducted as it relates to Selling Fund. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust affecting any property, asset, interest or
right of Selling Fund, that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect with respect to Selling Fund.
There are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Selling Fund affecting in any significant respect the conduct of
such business. Trust is not, and has not been, to the knowledge of Trust, the
target of any investigation by the SEC or any state securities administrator
with respect to its conduct of the business of Selling Fund, other than as has
been disclosed to Trust's Board of Trustees.
9
SECTION 3.10. Contracts. Trust is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Trust there has not occurred any event that, with the lapse of time
or the giving of notice or both, would constitute such a default.
SECTION 3.11. Properties and Assets. Selling Fund has good and
marketable title to all properties and assets reflected in the Selling Fund
Financial Statements as owned by it, free and clear of all Liens, except as
described in the Selling Fund Financial Statements.
SECTION 3.12. Taxes.
(a) Selling Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Selling Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will have satisfied the
requirements of Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing Date. Selling Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M of the
Code did not apply to it. In order to (i) ensure continued qualification of
Selling Fund for treatment as a "regulated investment company" for tax purposes
and (ii) eliminate any tax liability of Selling Fund arising by reason of
undistributed investment company taxable income or net capital gain, Trust will
declare on or prior to the Valuation Date to the shareholders of Selling Fund a
dividend or dividends that, together with all previous such dividends, shall
have the effect of distributing (A) all of Selling Fund's investment company
taxable income (determined without regard to any deductions for dividends paid)
for the taxable year ended December 31, 2005 and for the short taxable year
beginning on January 1, 2006 and ending on the Closing Date and (B) all of
Selling Fund's net capital gain recognized in its taxable year ended December
31, 2005 and in such short taxable year (after reduction for any capital loss
carryover).
(b) Selling Fund has timely filed all Returns required to be
filed by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Selling Fund Financial Statements for all Taxes in respect of
all periods ended on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Selling Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Selling
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
10
(c) Selling Fund is aware of no information that would indicate
that (i) Selling Fund has any shareholder that is not a segregated asset account
within the meaning of Section 1.817-5(f)(2)(i)(A) of the Treasury Regulations,
or any entity referred to in (and holding its shares in compliance with the
terms of) Section 1.817-5(f)(3)(i), (ii) or (iii) of the Treasury Regulations;
or (ii) any public investor is participating in Selling Fund through such a
segregated asset account other than through the purchase of variable contract
within the meaning of Section 1.817-5(f)(2)(i)(B) of the Treasury Regulations.
Selling Fund satisfies, and at all times during its existence has satisfied, the
percentage diversification tests contained in Section 1.817-5(b)(1)(i) and (ii)
of the Treasury Regulations.
SECTION 3.13. Benefit and Employment Obligations. Except for any
obligations under the Trustee Benefit Plans, Selling Fund has no obligation to
provide any post-retirement or post-employment benefit to any Person, including
but not limited to, under any Benefit Plan, and has no obligation to provide
unfunded deferred compensation or other unfunded or self-funded benefits to any
Person.
SECTION 3.14. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Plan.
SECTION 3.15. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Plan or any
of the transactions contemplated by this Plan.
SECTION 3.16. Books and Records. The books and records of Trust
relating to Selling Fund, reflecting, among other things, the purchase and sale
of Selling Fund Shares, the number of issued and outstanding shares owned by
each Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.17. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.18. No Distribution. Buying Fund Shares are not being
acquired for the purpose of any distribution thereof, other than in accordance
with the terms of this Plan.
SECTION 3.19. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of Liabilities, if
any, to which such transferred assets will be subject.
11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYING FUND
Trust, on behalf of Buying Fund, represents and warrants as follows:
SECTION 4.1. Registration and Regulation of Buying Fund. Buying Fund is
in compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Buying Fund is in compliance in all material respects with the applicable
investment policies and restrictions set forth in the Registration Statement.
The value of the net assets of Buying Fund is determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act and the policies of Buying Fund and all purchases and
redemptions of Buying Fund Shares have been effected at the net asset value per
share calculated in such manner.
SECTION 4.2. Buying Fund Financial Statements. The books of account and
related records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements present fairly in all material respects the financial position of
Buying Fund as of the date(s) indicated and the results of operations and
changes in net assets for the period(s) then ended in accordance with generally
accepted accounting principles applied on a consistent basis for the period(s)
then ended.
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Buying Fund Financial Statements, no material adverse change has
occurred in the financial condition, results of operations, business, assets or
liabilities of Buying Fund or the status of Buying Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Trust. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.3, no contingent liabilities of Buying Fund have
arisen since the date of the Buying Fund Financial Statements which are required
to be disclosed in accordance with generally accepted accounting principles.
SECTION 4.4. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are
set forth on Schedule 4.4(a). Under its Governing Documents, Trust is authorized
to issue an unlimited number of shares of each such class.
(b) Buying Fund Shares to be issued pursuant to Section 2.6 shall
on the Closing Date be duly registered under the Securities Act by a
Registration Statement on Form N-14 of Trust then in effect.
12
(c) Buying Fund Shares to be issued pursuant to Section 2.6 are
duly authorized and on the Closing Date will be validly issued and fully paid
and non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of the Registration Statement on Form
N-14, shall be furnished to the shareholders of Selling Fund entitled to vote at
the Shareholders Meeting in accordance with normal market practice for such
transactions. The Combined Proxy Statement/Prospectus and related Statement of
Additional Information of Buying Fund, when they become effective, shall conform
in all material respects to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading.
(e) The shares of Buying Fund which have been or are being
offered for sale (other than the Buying Fund Shares to be issued in connection
with the Reorganization) have been duly registered under the Securities Act by
the Registration Statement and have been duly registered, qualified or are
exempt from registration or qualification under the securities laws of each
state or other jurisdiction in which such shares have been or are being offered
for sale, and no action has been taken by Trust to revoke or rescind any such
registration or qualification.
SECTION 4.5. Accountants. Buying Fund Auditors, which have reported
upon the Buying Fund Financial Statements for the fiscal year ending December
31, 2005, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 4.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Buying Fund and, assuming this Plan has been
duly authorized and delivered by Trust on behalf of Selling Fund, constitutes
the legal, valid and binding obligation of Trust, enforceable against Trust in
accordance with its terms from and with respect to the revenues and assets of
Buying Fund, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to or affecting creditors'
rights generally, or by general equity principles (whether applied in a court of
law or a court of equity and including limitations on the availability of
specific performance or other equitable remedies).
SECTION 4.7. No Breaches or Defaults. The execution and delivery of
this Plan by Trust on behalf of Buying Fund and performance by Trust of its
obligations hereunder have been duly authorized by all necessary trust action on
the part of Trust and (i) do not, and on the Closing Date will not, result in
any violation of the Governing Documents and (ii) do not, and on the Closing
Date will not, result in a breach of any of the terms or provisions of, or
constitute (with or without the giving of notice or the lapse of time or both) a
default under, or give rise to a
13
right of termination, cancellation or acceleration of any obligation or to the
loss of a material benefit under, or result in the creation or imposition of any
Lien upon any property or assets of Buying Fund (except for such breaches or
defaults or Liens that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect) under (A) any indenture, mortgage
or loan agreement or any other material agreement or instrument to which Trust
is a party or by which it may be bound and which relates to the assets of Buying
Fund or to which any properties of Buying Fund may be subject; (B) any Permit;
or (C) any existing applicable law, rule, regulation, judgment, order or decree
of any Governmental Authority having jurisdiction over Trust or any property of
Buying Fund.
SECTION 4.8. Permits. Except for the absence of, or default under,
Permits that would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, Trust has in full force and effect all
Permits necessary for it to conduct its business as presently conducted as it
relates to Buying Fund. To the knowledge of Trust there are no proceedings
relating to the suspension, revocation or modification of any Permit, except for
such that would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
SECTION 4.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust, affecting any property, asset, interest or
right of Buying Fund, that could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect with respect to Buying Fund. There
are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Buying Fund affecting in any significant respect the conduct of such
business. Trust is not, and has not been, to the knowledge of Trust, the target
of any investigation by the SEC or any state securities administrator with
respect to its conduct of the business of Buying Fund, other than as has been
disclosed to Trust's Board of Trustees.
SECTION 4.10. Taxes.
(a) Buying Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Buying Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will satisfy the requirements of
Part I of Subchapter M of the Code to maintain such qualification for its
current taxable year. Buying Fund has no earnings or profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not apply
to it.
(b) Buying Fund has timely filed all Returns required to be filed
by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Buying Fund Financial Statements for all Taxes in respect of
all periods ending on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Buying Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the
14
aggregate, to have a Material Adverse Effect. No waivers of the time to assess
any such Taxes are outstanding nor are any written requests for such waivers
pending and no Return of Buying Fund is currently being or has been audited with
respect to income taxes or other Taxes by any Federal, state, local or foreign
Tax authority.
(c) Buying Fund is aware of no information that would indicate
that (i) Buying Fund has, any shareholder that is not a segregated asset account
within the meaning of Section 1.817-5(f)(2)(i)(A) of the Treasury Regulations,
or any entity referred to in (and holding its shares in compliance with the
terms of) Section 1.817-5(f)(3)(i), (ii) or (iii) of the Treasury Regulations;
or (ii) any public investor is participating in Buying Fund through such a
segregated asset account other than through the purchase of a variable contract
within the meaning of Section 1.817-5(f)(2)(i)(B) of the Treasury Regulations.
Buying Fund satisfies, and at all times during its existence has satisfied, the
percentage diversification tests contained in Section 1.817-5(b)(1)(i) and (ii)
of Treasury Regulations.
SECTION 4.11. Representations Concerning the Reorganization.
(a) There is no plan or intention by Trust or any person related
to Trust to acquire or redeem any of the Buying Fund Shares issues in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
(b) Buying Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Selling Fund acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code.
(c) Following the Reorganization, Buying Fund will continue an
"historic business" of Selling Fund or use a significant portion of Selling
Fund's "historic business assets" in a business. For purposes of this
representation, the terms "historic business" and "historic business assets"
shall have the meanings ascribed to them in Section 1.368-1(d) of the Treasury
Regulations.
(d) Prior to or in the Reorganization, neither Buying Fund nor
any person related to Buying Fund (for purposes of this paragraph as defined in
Section 1.368-1(e)(3) of the Treasury Regulations) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
shares of Selling Fund with consideration other than shares of Buying Fund.
SECTION 4.12. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a
15
material fact required to be stated therein or necessary to make the statements
therein not misleading.
ARTICLE 4A
CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND
Trust's obligations to implement this Plan on each Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Trust may waive:
SECTION 4A.1 No Governmental Actions. There is no pending action, suit
or proceeding, nor, to the knowledge of Trust, has any litigation been overtly
threatened in writing or, if probable of assertion, orally, against Trust before
any Governmental Authority which questions the validity or legality of this Plan
or of the transactions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
SECTION 4A.2 No Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Trust in connection with this Plan or the transactions
contemplated hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection therewith based on any agreement, arrangement or understanding with
Trust or any action taken by it.
SECTION 4A.3 Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal, as of the Effective Time, to the
fair market value of the shares of each corresponding class of Selling Fund to
be constructively surrendered in exchange therefor. The fair market value of the
assets of Buying Fund will exceed the amount of its liabilities immediately
after the exchange.
SECTION 4A.4 Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between the Funds that was issued or acquired, or will
be settled, at a discount. No consideration other than Buying Fund Shares (and
Buying Fund's assumption of Selling Fund's Liabilities, including for this
purpose any liabilities to which the assets of Selling Fund are subject) will be
given in exchange for the assets of Selling Fund acquired by Buying Fund in
connection with the Reorganization. The fair market value of the assets of
Selling Fund transferred to Buying Fund in the Reorganization will equal or
exceed the sum of the Liabilities assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets are subject.
SECTION 4A.5 Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and any that must be
made after the Closing Date to comply with Section 2.4 of this Plan, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Trust in
connection with the due adoption by Trust of this Plan and the consummation by
Trust of the transactions contemplated hereby.
16
SECTION 4A.6 No Bankruptcy Proceedings. Trust is not, with respect to
either Fund, under the jurisdiction of a court in a proceeding under Title 11 of
the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Plan up to and including the Closing
Date (or, if earlier, the date upon which this Plan is terminated pursuant to
Article 7), Trust shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects.
(b) From the date of this Plan up to and including the Closing
Date (or, if earlier, the date upon which this Plan is terminated pursuant to
Article 7), Trust shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects.
SECTION 5.2. Expenses. Buying Fund shall bear all of its costs and
expenses incurred in connection with this Plan and the Reorganization without
any reimbursement therefor. Prior to the submission of the Plan to the Boards of
Trustees of Trust for approval, the Investment Adviser, in the ordinary course
of its business as a registered investment advisor operating under the Advisors
Act, agreed to bear 100% of the costs and expenses of Selling Fund incurred in
connection with this Plan and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by Selling Fund
shall not be reimbursed or paid for by the Investment Advisor or any other
Person unless those expenses are solely and directly related to the
Reorganization. Neither Selling Fund nor Buying Fund (nor any Person related to
Selling Fund or Buying Fund) will pay or assume any expenses of the Selling Fund
Shareholders (including, but not limited to, any expenses of Selling Fund
Shareholders that are solely and directly related to the Reorganization).
SECTION 5.3. Further Assurances. Each of the parties hereto shall
execute such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.4. Consents, Approvals and Filings. Trust shall make all
necessary filings, as soon as reasonably practicable, including, without
limitation, those required under the
17
Securities Act, the Exchange Act, the Investment Company Act and the Advisers
Act, in order to facilitate prompt consummation of the Reorganization and the
other transactions contemplated by this Plan. In addition, Trust shall use its
reasonable best efforts (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Trust shall use reasonable efforts to provide such information and
communications to Governmental Authorities as such Governmental Authorities may
request.
SECTION 5.5. Submission of Plan to Shareholders. Trust shall take all
action necessary in accordance with applicable law and its Governing Documents
to convene the Shareholders Meeting. Trust shall, through its Board of Trustees,
recommend to the shareholders of Selling Fund approval of this Plan. Trust shall
use its reasonable best efforts to hold a Shareholders Meeting as soon as
practicable after the date hereof.
ARTICLE 6
FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Further Conditions Precedent with respect to Both Funds.
The obligation of Trust to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by Trust.
(a) The representations and warranties of Trust on behalf of
Selling Fund and Buying Fund set forth in this Plan shall be true and correct in
all material respects as of the date of this Plan and as of the Closing Date
with the same effect as though all such representations and warranties had been
made as of the Closing Date.
(b) Trust shall have complied with and satisfied in all material
respects all agreements and conditions relating to Selling Fund and Buying Fund
set forth herein to be performed or satisfied at or prior to the Closing Date.
(c) There shall be delivered at the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of Trust, in such
individual's capacity as an officer of Trust and not as an individual, to the
effect that the conditions specified in Sections 6.1(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary (in such capacity) of Trust certifying as to
the accuracy and completeness of the attached Governing Documents of Trust, and
resolutions, consents and authorizations of or regarding Trust with respect to
the execution and delivery of this Plan and the transactions contemplated
hereby.
(d) The dividend or dividends described in the last sentence of
Section 3.12(a) shall have been declared.
18
(e) To the extent applicable, the Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by the
Investment Adviser pursuant to voluntary and contractual fee waiver or expense
limitation commitments between the Investment Adviser and Selling Fund.
(f) All filings required to be made prior to the Closing Date
with, and all consents, approvals, permits and authorizations required to be
obtained on or prior to the Closing Date from, Governmental Authorities in
connection with the execution and delivery of this Plan and the consummation of
the transactions contemplated herein by Trust shall have been made or obtained,
as the case may be; provided, however, that such consents, approvals, permits
and authorizations may be subject to conditions that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(g) This Plan, the Reorganization of Selling Fund and related matters shall have
been approved and adopted at the Shareholders Meeting by the shareholders of
Selling Fund on the record date by the Required Shareholder Vote.
(h) The assets of Selling Fund to be acquired by Buying Fund
shall constitute at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.1(h),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Plan and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Plan shall be included as assets of Selling Fund
held immediately prior to the Reorganization.
(i) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(j) The Registration Statement on Form N-14 filed by Trust with
respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and shall include an undertaking therein to file the opinion
referenced in Section 6.1(k) as a post-effective amendment to such Registration
Statement after the Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(k) Trust shall have received on or before the Closing Date an
opinion of Trust Counsel in form and substance reasonably acceptable to Trust,
as to the matters set forth on Schedule 6.1(k). In rendering such opinion, Trust
Counsel may request and rely upon
19
representations contained in certificates of officers of Trust and others, and
the officers of Trust shall use their best efforts to make available such
truthful certificates.
(l) Each of Buying Fund and Selling Fund will have satisfied the
investment diversification requirements of Section 817(h) of the Code for all
taxable quarters since their inceptions, respectively, including the last short
taxable period of Selling Fund ending on the Closing Date, and the taxable
quarter of Buying Fund that immediately precedes the Closing Date.
ARTICLE 7
TERMINATION OF PLAN
SECTION 7.1. Termination. This Plan may be terminated by Trust on or
prior to the Closing Date as follows:
(a) if circumstances develop that, in its judgment, make
proceeding with the Reorganization inadvisable for either Fund;
(b) if the Closing Date shall not be on or before the Termination
Date;
(c) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been obtained
as contemplated by Section 5.5; or
(d) if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or other
action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Plan is terminated in
accordance with Section 7.1 hereof and the Reorganization of Selling Fund is not
consummated, this Plan shall become void and of no further force and effect with
respect to the Reorganization and Selling Fund, except for the provisions of
Section 5.2.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Plan, and the covenants in this Plan that
are required to be performed at or prior to the Closing Date, shall terminate
upon the consummation of the transactions contemplated hereunder. The covenants
in this Plan that are required to be performed in whole or in part subsequent to
the Closing Date shall survive the consummation of the transactions contemplated
hereunder for a period of one (1) year following the Closing Date.
20
SECTION 8.2. Governing Law. This Plan shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Plan shall inure to the benefit of and be binding upon the parties hereto and
the respective successors and assigns of the parties and such Persons. Nothing
in this Plan is intended or shall be construed to confer upon any entity or
Person other than the parties hereto and their respective successors and
permitted assigns any right, remedy or claim under or by reason of this Plan or
any part hereof. Without the prior written consent of the parties hereto, this
Plan may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Trust. Trust hereby acknowledges and agrees
that each of Buying Fund and Selling Fund is a separate investment portfolio of
Trust, that Trust is executing this Plan on behalf of each Buying Fund and
Selling Fund, and that any amounts payable by Trust under or in connection with
this Plan shall be payable solely from the revenues and assets of Buying Fund or
Selling Fund, as applicable. Trust further acknowledges and agrees that this
Plan has been executed by a duly authorized officer of Trust in his or her
capacity as an officer of Trust intending to bind Trust as provided herein, and
that no officer, trustee or shareholder of Trust shall be personally liable for
the liabilities or obligation of Trust incurred hereunder. Finally, Trust
acknowledges and agrees that the liabilities and obligations of Selling Fund
pursuant to this Plan shall be enforceable against the assets of Buying Fund or
Selling Fund, as applicable, only and not against the assets of Trust generally
or assets belonging to any other series of Trust.
SECTION 8.5. Amendments. This Plan may not be amended, altered or
modified except with the approval of Trust's Board of Trustees.
SECTION 8.6. Entire Plan; Exhibits and Schedules. This Plan, including
the Exhibits, Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 8.7. Successors and Assigns; Assignment. This Plan shall be
binding upon and inure to the benefit of Trust, on behalf of Selling Fund, and
Trust, on behalf of Buying Fund, and their respective successors and permitted
assigns.
21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
CLASSES OF SHARES OF SELLING FUND AND CORRESPONDING CLASSES OF
SHARES OF BUYING FUND
Corresponding Classes of
Classes of Shares of Selling Fund Shares of Buying Fund
--------------------------------- ------------------------
AIM V.I. Demographic Trends AIM V.I. Capital Appreciation
Fund Fund
Series I Shares Series I Shares
Series II Shares Series II Shares
SCHEDULE 3.3
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 4.3
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.4(a)
CLASSES OF SHARES OF BUYING FUND
Classes of Shares of Buying Fund
- --------------------------------
Series I Shares
Series II Shares
SCHEDULE 6.1(k)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in
exchange solely for Buying Fund Shares distributed directly to Selling Fund
Shareholders and Buying Fund's assumption of the Liabilities, as provided in the
Plan, will constitute a "reorganization" within the meaning of Section 368(a) of
the Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the
Code, no gain or loss will be recognized by Selling Fund on the transfer of its
assets to Buying Fund solely in exchange for Buying Fund Shares and Buying
Fund's assumption of the Liabilities or on the distribution of Buying Fund
Shares to Selling Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or loss will
be recognized by Buying Fund upon the receipt of assets of Selling Fund in
exchange for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by Selling Fund Shareholders on the receipt of Buying Fund
Shares in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying
Fund of the assets of Selling Fund will be the same as the basis of such assets
in the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding
period with respect to the assets of Selling Fund transferred to Buying Fund in
the Reorganization will include the holding period for such assets in the hands
of Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
(x) In accordance with Sections 72 and 7702(a) of the Code, a
policyholder of a variable annuity contract or variable life insurance contract
that is based on a segregated asset account (within the meaning of Section
817(h) of the Code) that holds shares of the Selling Fund will not be required
to receive or accrue income or gain by reason of the exchange of Selling Fund
Shares for Buying Fund Shares in the Reorganization.
APPENDIX II
AIM V.I. CAPITAL APPRECIATION FUND
PROSPECTUS
MAY 1, 2006
Series I shares
Shares of the fund are currently offered only to insurance company separate
accounts funding variable annuity contracts and variable life insurance
policies. AIM V.I. Capital Appreciation Fund seeks to provide growth of capital.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Series I class shares
(Series I shares) of the fund. Please read it before investing and keep it for
future reference.
As with all other mutual fund securities, the Securities and Exchange Commission
has not approved or disapproved these securities or determined whether the
information in this prospectus is adequate or accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fees and Expenses of the Fund 4
Expense Example 4
HYPOTHETICAL INVESTMENT AND EXPENSE
INFORMATION 5
- ------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS 5
- ------------------------------------------------------
FUND MANAGEMENT 6
- ------------------------------------------------------
The Advisor 6
Advisor Compensation 6
Portfolio Manager(s) 6
OTHER INFORMATION 7
- ------------------------------------------------------
Purchase and Redemption of Shares 7
Excessive Short-Term Trading Activity
Disclosures 7
Trade Activity Monitoring 7
Fair Value Pricing 8
Risks 8
Pricing of Shares 8
Taxes 9
Dividends and Distributions 9
Share Classes 9
Payments to Insurance Companies 9
FINANCIAL HIGHLIGHTS 11
- ------------------------------------------------------
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional
Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design, Invierta con DISCIPLINA, Invest with DISCIPLINE, The AIM College Savings
Plan, AIM Solo 401(k), AIM Investments and Design and Your goals. Our solutions
are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM
Private Asset Management, AIM Private Asset Management and Design, AIM Stylized
and/or Design, AIM Alternative Assets and Design and myaim.com are service marks
of A I M Management Group Inc. AIM Trimark is a registered service mark of A I M
Management Group Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
Shares of the fund are used as investment vehicles for variable annuity
contracts and variable life insurance policies (variable products) issued by
certain insurance companies. You cannot purchase shares of the fund directly. As
an owner of a variable product (variable product owner) that offers the fund as
an investment option, however, you may allocate your variable product values to
a separate account of the insurance company that invests in shares of the fund.
Your variable product is offered through its own prospectus, which contains
information about your variable product, including how to purchase the variable
product and how to allocate variable product values to the fund.
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is growth of capital. The investment objective
of the fund may be changed by the Board of Trustees (the Board) without
shareholder approval.
The fund seeks to meet its objective by investing principally in common
stocks of companies the portfolio managers believe are likely to benefit from
new or innovative products, services or processes as well as those that have
experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of these factors materially changes. The fund may
also invest up to 25% of its total assets in foreign securities. Any percentage
limitations with respect to assets of the fund are applied at the time of
purchase.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective. For cash management purposes, the fund may
also hold a portion of its assets in cash or cash equivalents, including shares
of affiliated money market funds.
A larger position in cash or cash equivalents could also detract from the
achievement of the fund's objective, but could also reduce the fund's exposure
in the event of a market downturn.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. This is
especially true with respect to common stocks of smaller companies, whose prices
may go up and down more than common stocks of larger, more-established
companies. Also, since common stocks of smaller companies may not be traded as
often as common stocks of larger, more-established companies, it may be
difficult or impossible for the fund to sell securities at a desirable price.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign
companies located in developing countries more than those in countries with
mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devaluated their currencies
against the U.S. dollar, thereby causing the value of investments in companies
located in those countries to decline. Transaction costs are often higher in
developing countries and there may be delays in settlement procedures.
To the extent the fund holds cash or cash equivalents for risk management,
the fund may not achieve its investment objective.
If the seller of a repurchase agreement in which the fund invests defaults
on its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
There is no guarantee that the investment techniques and risk analyses used
by the fund's portfolio managers will produce the desired results.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
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AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance. All performance shown assumes the
reinvestment of dividends and capital gains. The bar chart shown does not
reflect charges assessed in connection with your variable product; if it did,
the performance shown would be lower.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Series I
shares from year to year.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1996................................................................... 17.58%
1997................................................................... 13.50%
1998................................................................... 19.30%
1999................................................................... 44.61%
2000................................................................... -10.91%
2001................................................................... -23.28%
2002................................................................... -24.35%
2003................................................................... 29.52%
2004................................................................... 6.62%
2005................................................................... 8.83%
</Table>
During the periods shown in the bar chart, the highest quarterly return was
35.78% (quarter ended December 31, 1999) and the lowest quarterly return was
- -23.09% (quarter ended September 30, 2001).
2
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AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to those of an
unmanaged broad-based securities market index, style-specific index and
peer-group index. The fund is not managed to track the performance of any
particular index, including the indices shown below, and consequently, the
performance of the fund may deviate significantly from the performance of the
indices shown below. A fund's past performance is not necessarily an indication
of its future performance. The performance table shown below does not reflect
charges assessed in connection with your variable product; if it did, the
performance shown would be lower.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
(for the periods ended INCEPTION
December 31, 2005) 1 YEAR 5 YEARS 10 YEARS DATE
- -------------------------------------------------------------------------------
AIM V.I. Capital
Appreciation Fund 8.83% (2.70)% 5.99% 05/05/93
Standard & Poor's 500
Index(1,2) 4.91% 0.54% 9.07% --
Russell 1000--Registered
Trademark-- Growth
Index(2,3) 5.26% (3.58)% 6.73% --
Lipper Multi-Cap Growth
Fund Index(2,4) 9.13% (2.90)% 7.23% --
- -------------------------------------------------------------------------------
</Table>
(1) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. The fund has also included the Russell
1000--Registered Trademark-- Growth Index, which the fund believes more
closely reflects the performance of the securities in which the fund
invests. In addition, the Lipper Multi-Cap Growth Fund Index (which may or
may not include the fund) is included for comparison to a peer-group.
(2) The indices may not reflect payment of fees, expenses or taxes.
(3) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those Russell 1000--Registered Trademark-- Index companies
with higher price-to-book ratios and higher forecasted growth values. The
Russell 1000--Registered Trademark-- Index is comprised of 1000 of the
largest capitalized U.S. domiciled companies whose common stock is traded in
the United States. This index makes up the largest 1000 stocks of the
Russell 3000--Registered Trademark-- universe.
(4) The Lipper Multi-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Multi-Cap Growth category. These
funds, by portfolio practice, invest in a variety of market capitalization
ranges without concentrating 75% of their equity assets in any one market
capitalization range over an extended period of time. Multi-Cap funds
typically have between 25% and 75% of their assets invested in companies
with market capitalizations (on a three-year weighted basis) above 300% of
the dollar-weighted median market capitalization of the middle 1,000
securities of the S&P SuperComposite 1500 Index. Multi-Cap Growth funds
typically have an above-average price-to-earnings ratio, price-to-book
ratio, and three year sales-per-share growth value, compared to the S&P 500
index. The S&P SuperComposite 1500 Index is a market cap weighted index made
up of 1500 liquid securities of companies with market capitalizations of
$300 million and above, and represents the small-, mid-, and large-cap
markets.
3
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AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that are incurred, directly
or indirectly, when a variable product owner buys, holds, or redeems interest in
an insurance company separate account that invests in the Series I shares of the
fund but does not represent the effect of any fees or other expenses assessed in
connection with your variable product, and if it did, expenses would be higher.
<Table>
<Caption>
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
(fees paid directly from
your investment) SERIES I SHARES
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) N/A
Maximum Deferred Sales Charge (Load) N/A
- --------------------------------------------------------------------------------
</Table>
"N/A" in the above table means "not applicable."
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES (SERIES I SHARES)(1,2)
- ---------------------------------------------------------------------------------
(expenses that are deducted
from Series I share assets) SERIES I SHARES
- ---------------------------------------------------------------------------------
Management Fees 0.61%
Other Expenses 0.29
Total Annual Fund Operating Expenses(3) 0.90
- ---------------------------------------------------------------------------------
</Table>
(1) Except as otherwise noted, figures shown in the table are for the year ended
December 31, 2005 and are expressed as a percentage of the fund's average
daily net assets. There is no guarantee that actual expenses will be the
same as those shown in the table.
(2) As a result of a reorganization of another fund into AIM V.I. Capital
Appreciation Fund, which will occur on or about May 1, 2006, the fund's
Total Annual Fund Operating Expenses have been restated to reflect such
reorganization.
(3) The fund's advisor has contractually agreed to waive advisory fees and/or
reimburse expenses of Series I shares to the extent necessary to limit Total
Annual Fund Operating Expenses (excluding certain items discussed below) of
Series I shares to 1.30% of average daily net assets. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total
Annual Fund Operating Expenses to exceed the number reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items; (v) expenses related to a merger or reorganization, as
approved by the fund's Board of Trustees; and (vi) expenses that the fund
has incurred but did not actually pay because of an expense offset
arrangement. Currently, the expense offset arrangements from which the fund
may benefit are in the form of credits that the fund receives from banks
where the fund or its transfer agent has deposit accounts in which it holds
uninvested cash. Those credits are used to pay certain expenses incurred by
the fund. The expense limitation agreement is in effect through April 30,
2007.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Series I shares of the fund with the cost of investing in other mutual funds.
This example does not represent the effect of any fees or other expenses
assessed in connection with your variable product, and if it did, expenses would
be higher.
The example assumes that you invest $10,000 in the fund's Series I shares
for the time periods indicated. The example also assumes that your investment
has a 5% return each year and that the fund's operating expenses remain the same
and includes the effect of any contractual fee waivers and/or expense
reimbursements. To the extent fees are waived and/or expenses are reimbursed
voluntarily, your expenses will be lower. Although your actual returns and costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
SERIES I SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund $92 $287 $498 $1,108
- --------------------------------------------------------------------------------
</Table>
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AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The settlement agreement between A I M Advisors, Inc. and certain of its
affiliates (collectively, AIM Affiliates) and the New York Attorney General
requires A I M Advisors, Inc. and certain of its affiliates to provide certain
hypothetical information regarding investment and expense information. The chart
below is intended to reflect the annual and cumulative impact of the fund's
expenses, including investment advisory fees and other fund costs, on the fund's
return over a 10-year period. The example reflects the following:
- You invest $10,000 in the fund and hold it for the entire 10 year period;
- Your investment has a 5% return before expenses each year; and
- The fund's current annual expense ratio includes any applicable contractual
fee waiver or expense reimbursement for the period committed.
There is no assurance that the annual expense ratio will be the expense ratio
for the fund for any of the years shown. To the extent that A I M Advisors, Inc.
and certain of its affiliates make any fee waivers and/or expense reimbursements
pursuant to a voluntary arrangement, your actual expenses may be less. The chart
does not take into account any fees or other expenses assessed in connection
with your variable product; if it did, the expenses shown would be higher, while
the ending balance shown would be lower. This is only a hypothetical
presentation made to illustrate what expenses and returns would be under the
above scenarios, your actual returns and expenses are likely to differ (higher
or lower) from those shown below.
<Table>
<Caption>
SERIES I YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- --------------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 0.90% 0.90% 0.90% 0.90% 0.90%
Cumulative Return Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63%
Cumulative Return After
Expenses 4.10% 8.37% 12.81% 17.44% 22.25%
End of Year Balance $10,410.00 $10,836.81 $11,281.12 $11,743.65 $12,225.13
Estimated Annual Expenses $ 91.85 $ 95.61 $ 99.53 $ 103.61 $ 107.86
- --------------------------------------------------------------------------------------------------
<Caption>
SERIES I YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
Annual Expense Ratio(1) 0.90% 0.90% 0.90% 0.90% 0.90%
Cumulative Return Before
Expenses 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative Return After
Expenses 27.26% 32.48% 37.91% 43.57% 49.45%
End of Year Balance $12,726.37 $13,248.15 $13,791.32 $14,356.76 $14,945.39
Estimated Annual Expenses $ 112.28 $ 116.89 $ 121.68 $ 126.67 $ 131.86
- --------------------------------------------------------------------------------------------------
</Table>
(1) Your actual expenses may be higher or lower than those shown above.
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund's portfolio holdings are disclosed on a regular basis in its
semi-annual and annual reports to shareholders, and on Form N-Q, which is filed
with the Securities and Exchange Commission within 60 days of the fund's first
and third quarter-ends. Due to the fact that you cannot purchase shares of the
fund directly, these documents have not been made available on our website.
However, these documents are available on the SEC's website at
http://www.sec.gov. In addition, the fund's portfolio holdings as of each
calendar quarter end are made available to insurance companies issuing variable
products that invest in the fund.
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's Statement
of Additional Information.
5
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AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and is responsible for its day-to-day management. The advisor is located
at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor
supervises all aspects of the fund's operations and provides investment advisory
services to the fund, including obtaining and evaluating economic, statistical
and financial information to formulate and implement investment programs for the
fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 200 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds), AIM and A I M Distributors, Inc. (ADI) (the
distributor of the retail AIM funds) reached final settlements with certain
regulators, including the SEC, the New York Attorney General and the Colorado
Attorney General, to resolve civil enforcement actions and/or investigations
related to market timing and related activity in the AIM funds, including those
formerly advised by IFG. As part of the settlements, a $325 million fair fund
($110 million of which is civil penalties) has been created to compensate
shareholders harmed by market timing and related activity in funds formerly
advised by IFG. Additionally, AIM and ADI created a $50 million fair fund ($30
million of which is civil penalties) to compensate shareholders harmed by market
timing and related activity in funds advised by AIM, which was done pursuant to
the terms of the settlements. These two fair funds may increase as a result of
contributions from third parties who reach final settlements with the SEC or
other regulators to resolve allegations of market timing and/or late trading
that also may have harmed applicable AIM funds. These two fair funds will be
distributed in accordance with a methodology to be determined by AIM's
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM funds and acceptable to the staff of the SEC.
Civil lawsuits, including a regulatory proceeding and purported class action
and shareholder derivative suits, have been filed against certain of the AIM
funds, IFG, AIM, ADI and/or related entities and individuals, depending on the
lawsuit, alleging among other things: (i) that the defendants permitted improper
market timing and related activity in the funds; (ii) that certain funds
inadequately employed fair value pricing; (iii) that the defendants charged
excessive advisory and/or distribution fees and failed to pass on to
shareholders the perceived savings generated by economies of scale and that the
defendants adopted unlawful distribution plans; and (iv) that the defendants
improperly used the assets of the funds to pay brokers to aggressively promote
the sale of the funds over other mutual funds and that the defendants concealed
such payments from investors by disguising them as brokerage commissions.
Additional civil lawsuits related to the above or other matters may be filed
by regulators or private litigants against the AIM funds, IFG, AIM, ADI and/or
related entities and individuals in the future. You can find more detailed
information concerning all of the above matters, including the parties to the
civil lawsuits and summaries of the various allegations and remedies sought in
such lawsuits, in the fund's Statement of Additional Information.
As a result of the matters discussed above, investors in the AIM funds might
react by redeeming their investments. This might require the funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the funds.
ADVISOR COMPENSATION
During the fund's fiscal year ended December 31, 2005, the advisor received
compensation of 0.61% of average daily net assets.
A discussion regarding the basis for the Board approving the investment
advisory agreement of the fund is available in the fund's annual report to
shareholders for the twelve-month period ended December 31, 2005.
PORTFOLIO MANAGERS
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
- - Lanny H. Sachnowitz (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 2005 and has been associated with the advisor
and/or its affiliates since 1987. As the lead manager, Mr. Sachnowitz
generally has final authority over all aspects of the fund's investment
portfolio, including but not limited to, purchases and sales of individual
securities, portfolio construction techniques, portfolio risk assessment, and
the management of daily cash flows in accordance with portfolio holdings. The
degree to which Mr. Sachnowitz may perform these functions, and the nature of
these functions, may change from time to time.
- - Kirk L. Anderson, Portfolio Manager, who has been responsible for the fund
since 2005 and has been associated with the advisor and/or its affiliates
since 1994.
- - James G. Birdsall, Portfolio Manager, who has been responsible for the fund
since 2005 and has been associated with the advisor since 1995.
- - Robert J. Lloyd, Portfolio Manager, who has been responsible for the fund
since 2003 and has been associated with the advisor and/or its affiliates
since 2000. From 1997 to 2000, he was employed by American Electric Power.
They are assisted by the advisor's Large/Multi-Cap Growth Team, which is
comprised of portfolio managers, research analysts and other investment
professionals. Team members provide research support
6
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
and make securities recommendations with respect to the fund's portfolio, but do
not have day-to-day management responsibilities with respect to the fund's
portfolio. Members of the team may change from time to time. More information on
these portfolio managers and the team, including biographies of other members of
the team, may be found on the advisor's website http://www.aiminvestments.com.
The website is not part of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a description
of their compensation structure, and information regarding other accounts they
manage.
OTHER INFORMATION
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
The fund ordinarily effects orders to purchase and redeem shares at the fund's
next computed net asset value after it receives an order. Insurance companies
participating in the fund serve as the fund's designee for receiving orders of
separate accounts that invest in the fund. The fund may postpone the right of
redemption only under unusual circumstances, as allowed by the SEC, such as when
the NYSE restricts or suspends trading.
Although the fund generally intends to pay redemption proceeds solely in
cash, the fund reserves the right to determine, in its sole discretion, whether
to satisfy redemption requests by making payment in securities or other property
(known as a redemption in kind).
Shares of the fund are offered in connection with mixed and shared funding,
i.e., to separate accounts of affiliated and unaffiliated insurance companies
funding variable products. The fund currently offers shares only to insurance
company separate accounts. In the future, the fund may offer them to pension and
retirement plans that qualify for special federal income tax treatment. The fund
and AIM have applied for regulatory relief to enable the fund's shares to be
sold to and held by one or more fund of funds (open-end management investment
companies or series thereof that offer their shares exclusively to insurance
companies, their separate accounts and/or qualified plans). The fund plans to
offer its shares to fund of funds following receipt of the requested regulatory
relief. Due to differences in tax treatment and other considerations, the
interests of fund shareholders, including variable product owners and plan
participants investing in the fund (whether directly or indirectly through fund
of funds), may conflict.
Mixed and shared funding may present certain conflicts of interest. For
example, violation of the federal tax laws by one insurance company separate
account investing directly or indirectly in a fund could cause variable products
funded through another insurance company separate account to lose their
tax-deferred status, unless remedial actions were taken. The Board will monitor
for the existence of any material conflicts and determine what action, if any,
should be taken. A fund's net asset value could decrease if it had to sell
investment securities to pay redemption proceeds to a separate account (or plan)
withdrawing because of a conflict.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
The fund's investment programs are designed to serve long-term investors and are
not designed to accommodate excessive short-term trading activity in violation
of our policies described below. Excessive short-term trading activity in the
fund's shares (i.e., purchases of fund shares followed shortly thereafter by
redemptions of such shares, or vice versa) may hurt the long-term performance of
the fund by requiring it to maintain an excessive amount of cash or to liquidate
portfolio holdings at a disadvantageous time, thus interfering with the
efficient management of the fund by causing it to incur increased brokerage and
administrative costs. Where excessive short-term trading activity seeks to take
advantage of arbitrage opportunities from stale prices for portfolio securities,
the value of fund shares held by long-term investors may be diluted.
The Board has adopted policies and procedures designed to discourage
excessive short-term trading of fund shares. The fund may alter its policies and
procedures at any time without giving prior notice to fund shareholders, if the
advisor believes the change would be in the best interests of long-term
investors.
Pursuant to the fund's policies and procedures, AIM and its affiliates
(collectively the AIM Affiliates) currently use the following tools designed to
discourage excessive short-term trading in the fund:
(1) trade activity monitoring; and
(2) the use of fair value pricing consistent with procedures approved by the
Board.
Each of these tools is described in more detail below.
In addition, restrictions designed to discourage or curtail excessive
short-term trading activity may be imposed by the insurance companies and/or
their separate accounts that invest in the fund on behalf of variable product
owners. Variable product owners should refer to the applicable contract and
related prospectus for more details.
TRADE ACTIVITY MONITORING
To detect excessive short-term trading activities, the AIM Affiliates will
monitor, on a daily basis, selected aggregate purchase, or redemption trade
orders placed by insurance companies and/or their separate accounts. The AIM
Affiliates will seek to work with insurance companies to discourage variable
product owners from engaging in abusive trading practices. However, the ability
of the AIM Affiliates to monitor trades that are placed by variable product
owners is severely if not completely limited due to the fact that the insurance
companies
7
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
trade with the funds through omnibus accounts, and maintain the exclusive
relationship with, and are responsible for maintaining the account records of,
their variable product owners. There may also be legal and technological
limitations on the ability of insurance companies to impose restrictions on the
trading practices of their variable product owners. As a result, there can be no
guarantee that the AIM Affiliates will be able to detect or deter market timing
by variable product owners.
If, as a result of this monitoring, the AIM Affiliates believe that a
variable product owner has engaged in excessive short-term trading (regardless
of whether or not the insurance company's own trading restrictions are
exceeded), the AIM Affiliates will seek to act in a manner that they believe is
consistent with the best interests of long-term investors, which may include
taking steps such as (i) asking the insurance company to take action to stop
such activities, or (ii) refusing to process future purchases related to such
activities in the insurance company's account with the funds. AIM Affiliates
will use reasonable efforts to apply the fund's policies uniformly given the
potential limitations described above.
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair value
determined in good faith using procedures approved by the Board of the fund.
Fair value pricing may reduce the ability of frequent traders to take advantage
of arbitrage opportunities resulting from potentially "stale" prices of
portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
See "Pricing of Shares--Determination of Net Asset Value" for more
information.
RISKS
There is the risk that the fund's policies and procedures will prove ineffective
in whole or in part to detect or prevent excessive short-term trading. Although
these policies and procedures, including the tools described above, are designed
to discourage excessive short-term trading, they do not eliminate the
possibility that excessive short-term trading activity in the fund will occur.
Moreover, each of these tools involves judgments that are inherently subjective.
The AIM Affiliates seek to make these judgments to the best of their abilities
in a manner that they believe is consistent with the best interests of long-term
investors. However, there can be no assurance that the AIM Affiliates will be
able to gain access to any or all of the information necessary to detect or
prevent excessive short-term trading by a variable product owner. While the AIM
Affiliates and the funds may seek to take actions with the assistance of the
insurance companies that invest in the fund, there is the risk that neither the
AIM Affiliates nor the fund will be successful in their efforts to minimize or
eliminate such activity.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of the fund's shares is the fund's net asset value per share. The fund
values portfolio securities for which market quotations are readily available at
market value. The fund values all other securities and assets for which market
quotations are not readily available at their fair value in good faith using
procedures approved by the Board of the fund. Securities and other assets quoted
in foreign currencies are valued in U.S. dollars based on the prevailing
exchange rates on that day.
Even when market quotations are available, they may be stale or they may be
unreliable because the security is not traded frequently, trading on the
security ceased before the close of the trading market or issuer specific events
occurred after the security ceased trading or because of the passage of time
between the close of the market on which the security trades and the close of
the NYSE and when the fund calculates its net asset value. Issuer specific
events may cause the last market quotation to be unreliable. Such events may
include a merger or insolvency, events which affect a geographical area or an
industry segment, such as political events or natural disasters, or market
events, such as a significant movement in the U.S. market. Where market
quotations are not readily available, including where the advisor determines
that the closing price of the security is unreliable, the advisor will value the
security at fair value in good faith using procedures approved by the Board.
Fair value pricing may reduce the ability of frequent traders to take advantage
of arbitrage opportunities resulting from potentially "stale" prices of
portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of all
appropriate factors, including indications of fair value available from pricing
services. A fair value price is an estimated price and may vary from the prices
used by other mutual funds to calculate their net asset values.
The advisor may use indications of fair value from pricing services approved
by the Board. In other circumstances, the advisor valuation committee may fair
value securities in good faith using procedures approved by the Board. As a
means of evaluating its fair value process, the advisor routinely compares
closing market prices, the next day's opening prices for the security in its
primary market if available, and indications of fair value from other sources.
Fair value pricing methods and pricing services can change from time to time as
approved by the Board.
Specific types of securities are valued as follows:
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If market
quotations are not available or are unreliable, the advisor will value the
security at fair value in good faith using procedures approved by the Board.
Foreign Securities: If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will
8
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
be valued at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE events occur that are
significant and may make the closing price unreliable, the fund may fair value
the security. If an issuer specific event has occurred that the advisor
determines, in its judgment, is likely to have affected the closing price of a
foreign security, it will price the security at fair value. The advisor also
relies on a screening process from a pricing vendor to indicate the degree of
certainty, based on historical data, that the closing price in the principal
market where a foreign security trades is not the current market value as of the
close of the NYSE. For foreign securities where the advisor believes, at the
approved degree of certainty, that the price is not reflective of current market
value, the advisor will use the indication of fair value from the pricing
service to determine the fair value of the security. The pricing vendor, pricing
methodology or degree of certainty may change from time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares is
determined only on business days of the fund, the value of the portfolio
securities of a fund that invests in foreign securities may change on days when
you will not be able to purchase or redeem shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds and convertible securities, including high yield or junk bonds, are valued
on the basis of prices provided by independent pricing services. Prices provided
by the pricing services 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,
dividend rate, maturity and other market data. Prices received from pricing
services are fair value prices. In addition, if the price provided by the
pricing service is unreliable, the advisor valuation committee may fair value
the security using procedures approved by the Board.
Short-term Securities: The fund's short-term investments are valued at
amortized cost when the security has 60 days or less to maturity.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent the fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
The fund discloses portfolio holdings at different times to insurance
companies issuing variable products that invest in the fund, and in annual and
semi-annual shareholder reports. Refer to such reports to determine the types of
securities in which a fund has invested. You may also refer to the Statement of
Additional Information to determine what types of securities in which the fund
may invest. You may obtain copies of these reports or of the Statement of
Additional Information from the insurance company that issued your variable
product, or from the advisor as described on the back cover of this prospectus.
The fund determines the net asset value of its shares on each day the NYSE
is open for business, as of the close of the customary trading session, or
earlier NYSE closing time that day.
TAXES
The amount, timing and character of distributions to the separate account may be
affected by special tax rules applicable to certain investments purchased by the
fund. Variable product owners should refer to the prospectus for their variable
products for information regarding the tax consequences of owning such variable
products and should consult their tax advisors before investing.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually to separate
accounts of insurance companies issuing the variable products. The fund expects
that its distributions will consist primarily of capital gains.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually to separate accounts of insurance companies issuing the variable
products.
At the election of insurance companies issuing the variable products,
dividends and distributions are automatically reinvested at net asset value in
shares of the fund.
SHARE CLASSES
The fund has two classes of shares, Series I shares and Series II shares. Each
class is identical except that Series II shares has a distribution or "Rule
12b-1 Plan" that is described in the prospectus relating to the Series II
shares.
PAYMENTS TO INSURANCE COMPANIES
ADI, the distributor of the fund, or one or more of its corporate affiliates,
may make cash revenue sharing payments to the insurance company that issued your
variable product or its affiliates in connection with promotion of the fund and
certain other marketing support services. ADI makes these payments from its own
resources.
ADI makes revenue sharing payments as incentives to certain insurance
companies to promote the sale and retention of shares of the fund. The benefits
ADI receives when it makes these payments may include, among other things,
adding the fund to the list of underlying investment options in the insurance
company's variable products, and access (in some cases on a preferential basis
over other competitors) to individual members of an insurance company's sales
force or to an insurance company's management. Revenue sharing payments are
sometimes referred to as "shelf space" payments because the payments compensate
the insurance company for including the fund in its variable products (on its
"sales shelf"). ADI compensates insurance companies differently depending
typically on
9
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
the level and/or type of considerations provided by the insurance companies. The
revenue sharing payments ADI makes may be calculated on sales of shares of the
fund (Sales-Based Payments), in which case the total amount of such payments
shall not exceed 0.25% of the public offering price of all shares sold to the
insurance company during the particular period. Such payments also may be
calculated on the average daily net assets of the fund attributable to that
particular insurance company (Asset-Based Payments), in which case the total
amount of such cash payments shall not exceed 0.25% per annum of those assets
during a defined period. Sales-Based Payments primarily create incentives to
make sales of shares of the fund and Asset-Based Payments primarily create
incentives to retain assets of the fund in insurance company separate accounts.
ADI is motivated to make the payments described above in order to promote
the sale of fund shares and the retention of those investments by clients of
insurance companies. To the extent insurance companies sell more shares of the
fund or retain shares of the fund in their variable product owners' accounts,
ADI may directly or indirectly benefit from the incremental management and other
fees paid to ADI or its affiliates by the fund with respect to those assets.
In addition to the payments listed above, the advisor may also reimburse
insurance companies for certain administrative services provided to variable
product owners. Under a Master Administrative Services Agreement, between the
fund and the advisor, the advisor is entitled to receive from the fund
reimbursement of its costs or such reasonable compensation as may be approved by
the Board. Under this arrangement, the advisor provides, or assures that
insurance companies issuing variable products will provide, certain variable
product owner-related services. These services, include, but are not limited to,
facilitation of variable product owners' purchase and redemption requests;
distribution to existing variable product owners of copies of fund prospectuses,
proxy materials, periodic fund reports, and other materials; maintenance of
variable product owners' records; and fund services and communications.
Currently, these administrative service payments made by the fund to the advisor
are subject to an annual limit of 0.25% of the average net assets invested in
the fund by each insurance company. Any amounts paid by the advisor to an
insurance company in excess of 0.25% of the average net assets invested in the
fund are paid by the advisor out of its own financial resources, and not out of
the fund's assets. Insurance companies may earn profits on these payments for
these services, since the amount of the payments may exceed the cost of
providing the service.
You can find further details in the Statement of Additional Information
about these payments and the services provided by insurance companies. In
certain cases these payments could be significant to the insurance company. Your
insurance company may charge you additional fees or commissions, on your
variable product other than those disclosed in this prospectus. You can ask your
insurance company about any payments it receives from AIM, ADI, or the fund, as
well as about fees and/or commissions it charges.
10
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance of the fund's Series I shares. Certain information
reflects financial results for a single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The table shows the financial highlights for a share of the fund outstanding
during each of the fiscal years indicated.
The information for the fiscal year ended 2005 has been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. PricewaterhouseCoopers LLP was appointed by the Audit Committee of the
Board as the fund's new independent registered public accounting firm. Such
appointment was ratified and approved by the independent trustees of the Board.
Information prior to fiscal year 2005 was audited by other independent
registered public accountants.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- ----------
Net asset value, beginning of period $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.97 1.39 4.89 (5.24) (7.17)
==========================================================================================================================
Total from investment operations 2.00 1.41 4.85 (5.29) (7.22)
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (1.90)
==========================================================================================================================
Total distributions (0.02) -- -- -- (1.90)
==========================================================================================================================
Net asset value, end of period $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 8.79% 6.62% 29.52% (24.35)% (23.28)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $822,899 $886,990 $938,820 $763,038 $1,160,236
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 0.89%(d) 0.91% 0.85% 0.85% 0.85%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.11%(d) 0.09%(a) (0.23)% (0.27)% (0.22)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 97% 74% 61% 67% 65%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend received
of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment (loss) to
average net assets excluding the special dividend are $(0.04) and (0.17)%,
respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $828,851,813.
11
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of the
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. The fund also files
its complete schedule of portfolio holdings with the SEC for the 1st and 3rd
quarters of each fiscal year on Form N-Q.
If you wish to obtain free copies of the fund's current SAI or annual or
semiannual reports, please contact the insurance company that issued your
variable product, or you may contact us at
<Table>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 410-4246
Because you cannot purchase shares of the fund
directly, these documents have not been made
available on our website.
The fund's most recent portfolio holdings, as filed
on Form N-Q, have also been made available to
insurance companies issuing variable products that
invest in the fund.
</Table>
You can also review and obtain copies of the fund's SAI, financial reports, the
fund's Forms N-Q and other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplication fee, by sending a letter to
the SEC's Public Reference Room, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
- -------------------------------------------------
AIM V.I. Capital Appreciation Fund Series I
SEC 1940 Act file number: 811-0452
- -------------------------------------------------
AIMinvestments.com VICAP-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM V.I. CAPITAL APPRECIATION FUND
PROSPECTUS
MAY 1, 2006
Series II shares
Shares of the fund are currently offered only to insurance company separate
accounts funding variable annuity contracts and variable life insurance
policies. AIM V.I. Capital Appreciation Fund seeks to provide growth of capital.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Series II class shares
(Series II shares) of the fund. Please read it before investing and keep it for
future reference.
As with all other mutual fund securities, the Securities and Exchange Commission
has not approved or disapproved these securities or determined whether the
information in this prospectus is adequate or accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fees and Expenses of the Fund 4
Expense Example 4
HYPOTHETICAL INVESTMENT AND EXPENSE
INFORMATION 5
- ------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS 5
- ------------------------------------------------------
FUND MANAGEMENT 6
- ------------------------------------------------------
The Advisor 6
Advisor Compensation 6
Portfolio Manager(s) 6
OTHER INFORMATION 8
- ------------------------------------------------------
Purchase and Redemption of Shares 8
Excessive Short-Term Trading Activity
Disclosures 8
Trade Activity Monitoring 8
Fair Value Pricing 9
Risks 9
Pricing of Shares 9
Taxes 10
Dividends and Distributions 10
Share Classes 10
Distribution Plan 10
Payment to Insurance Companies 10
FINANCIAL HIGHLIGHTS 12
- ------------------------------------------------------
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional
Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design, Invierta con DISCIPLINA, Invest with DISCIPLINE, The AIM College Savings
Plan, AIM Solo 401(k), AIM Investments and Design and Your goals. Our solutions.
are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM
Private Asset Management, AIM Private Asset Management and Design, AIM Stylized
and/or Design, AIM Alternative Assets and Design and myaim.com are service marks
of A I M Management Group Inc. AIM Trimark is a registered service mark of A I M
Management Group Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
Shares of the fund are used as investment vehicles for variable annuity
contracts and variable life insurance policies (variable products) issued by
certain insurance companies. You cannot purchase shares of the fund directly. As
an owner of a variable product (variable product owner) that offers the fund as
an investment option, however, you may allocate your variable product values to
a separate account of the insurance company that invests in shares of the fund.
Your variable product is offered through its own prospectus, which contains
information about your variable product, including how to purchase the variable
product and how to allocate variable product values to the fund.
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is growth of capital. The investment objective
of the fund may be changed by the Board of Trustees (the Board) without
shareholder approval.
The fund seeks to meet its objective by investing principally in common
stocks of companies the portfolio managers believe are likely to benefit from
new or innovative products, services or processes as well as those that have
experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of these factors materially changes. The fund may
also invest up to 25% of its total assets in foreign securities. Any percentage
limitations with respect to assets of the fund are applied at the time of
purchase.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective. For cash management purposes, the fund may
also hold a portion of its assets in cash or cash equivalents, including shares
of affiliated money market funds.
A larger position in cash or cash equivalents could also detract from the
achievement of the fund's objective but could also reduce the fund's exposure in
the event of a market downturn.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. This is
especially true with respect to common stocks of smaller companies, whose prices
may go up and down more than common stocks of larger, more-established
companies. Also, since common stocks of smaller companies may not be traded as
often as common stocks of larger, more-established companies, it may be
difficult or impossible for the fund to sell securities at a desirable price.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign
companies located in developing countries more than those in countries with
mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devaluated their currencies
against the U.S. dollar, thereby causing the value of investments in companies
located in those countries to decline. Transaction costs are often higher in
developing countries and there may be delays in settlement procedures.
To the extent the fund holds cash or cash equivalents for risk management,
the fund may not achieve its investment objective.
If the seller of a repurchase agreement in which the fund invests defaults
on its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
There is no guarantee that the investment techniques and risk analyses used
by the fund's portfolio managers will produce the desired results.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance. All performance shown assumes the
reinvestment of dividends and capital gains. The bar chart shown does not
reflect charges assessed in connection with your variable product; if it did,
the performance shown would be lower.
Performance shown for periods prior to the inception date of the Series II
shares are since the inception date of the Series I shares, adjusted to reflect
the impact that the Rule 12b-1 plan of Series I shares would have had if the
Series II shares had then existed. Series I shares are not offered by this
prospectus. The Series I and Series II shares invest in the same portfolio of
securities and will have substantially similar performance, except to the extent
that the expenses borne by each share class differ. Series II shares have higher
expenses (and therefore lower performance) resulting from its Rule 12b-1 plan,
which provides for a maximum fee equal to an annual rate of 0.25% (expressed as
a percentage of average daily net assets of the fund). All performance shown
assumes the reinvestment of dividends and capital gains.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's shares
from year to year.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- --------
1996*................................................................. 17.29%
1997*................................................................. 13.22%
1998*................................................................. 19.01%
1999*................................................................. 44.26%
2000*................................................................. -11.13%
2001*................................................................. -23.47%
2002.................................................................. -24.52%
2003.................................................................. 29.18%
2004.................................................................. 6.33%
2005.................................................................. 8.58%
</Table>
* The returns shown for these periods are the blended returns of the historical
performance of the fund's Series II shares since their inception and the
restated historical performance of the fund's Series I shares (for periods
prior to inception of the Series II shares) adjusted to reflect the Rule 12b-1
fees applicable to the Series II shares. The inception date of the fund's
Series II shares is August 21, 2001.
During the periods shown in the bar chart, the highest quarterly return was
35.69% (quarter ended December 31, 1999) and the lowest quarterly return was
- -23.11% (quarter ended September 30, 2001).
2
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to those of an
unmanaged broad-based securities market index, style-specific index and
peer-group index. The fund is not managed to track the performance of any
particular index, including the indices shown below, and consequently, the
performance of the fund may deviate significantly from the performance of the
indices shown below. A fund's past performance is not necessarily an indication
of its future performance. The performance table shown below does not reflect
charges assessed in connection with your variable product; if it did, the
performance shown would be lower.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
SERIES I
SHARES
(for the periods ended INCEPTION
December 31, 2005) 1 YEAR 5 YEARS 10 YEARS DATE
- -------------------------------------------------------------------------------
AIM V.I. Capital Appreciation
Fund 8.58% (2.94)% 5.73% 05/05/93(1)
Standard & Poor's 500
Index(2,3) 4.91% 0.54% 9.07% --
Russell 1000--Registered
Trademark-- Growth
Index(3,4) 5.26% (3.58)% 6.73% --
Lipper Multi-Cap Growth Fund
Index(3,5) 9.13% (2.90)% 7.23% --
- -------------------------------------------------------------------------------
</Table>
(1) The returns shown for these periods are the blended returns of the
historical performance of the fund's Series II shares since their inception
and the restated historical performance of the fund's Series I shares (for
periods prior to inception of the Series II shares) adjusted to reflect the
Rule 12b-1 fees applicable to the Series II shares. The inception date shown
in the table is that of the fund's Series I shares. The inception date of
the fund's Series II shares is August 21, 2001.
(2) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. The fund has also included the Russell
1000--Registered Trademark-- Growth Index, which the fund believes more
closely reflects the performance of the securities in which the fund
invests. In addition, the Lipper Multi-Cap Growth Fund Index (which may or
may not include the fund) is included for comparison to a peer-group.
(3) The indices may not reflect payment of fees, expenses or taxes.
(4) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those Russell 1000--Registered Trademark-- Index companies
with higher price-to-book ratios and higher forecasted growth values. The
Russell 1000--Registered Trademark-- Index is comprised of 1000 of the
largest capitalized U.S. domiciled companies whose common stock is traded in
the United States. This index makes up the largest 1000 stocks of the
Russell 3000--Registered Trademark-- universe.
(5) The Lipper Multi-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Multi-Cap Growth category. These
funds, by portfolio practice, invest in a variety of market capitalization
ranges without concentrating 75% of their equity assets in any one market
capitalization range over an extended period of time. Multi-Cap funds
typically have between 25% and 75% of their assets invested in companies
with market capitalizations (on a three-year weighted basis) above 300% of
the dollar-weighted median market capitalization of the middle 1,000
securities of the S&P SuperComposite 1500 Index. Multi-Cap Growth funds
typically have an above-average price-to-earnings ratio, price-to-book
ratio, and three year sales-per-share growth value, compared to the S&P 500
index. The S&P SuperComposite 1500 Index is a market cap weighted index made
up of 1500 liquid securities of companies with market capitalizations of
$300 million and above, and represents the small-, mid-, and large-cap
markets.
3
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that are incurred, directly
or indirectly, when a variable product owner buys, holds, or redeems interest in
an insurance company separate account that invests in the Series II shares of
the fund but does not represent the effect of any fees or other expenses
assessed in connection with your variable product, and if it did, expenses would
be higher.
<Table>
<Caption>
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
(fees paid directly from
your investment) SERIES II SHARES
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) N/A
Maximum Deferred
Sales Charge (Load) N/A
- --------------------------------------------------------------------------------
</Table>
"N/A" in the above table means "not applicable."
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES (SERIES II SHARES)(1,2)
- --------------------------------------------------------------------------------
(expenses that are deducted
from Series II share assets) SERIES II SHARES
- --------------------------------------------------------------------------------
Management Fees 0.61%
Distribution and/or Service (12b-1) Fees 0.25
Other Expenses 0.29
Total Annual Fund
Operating Expenses(3) 1.15
- --------------------------------------------------------------------------------
</Table>
(1) Except as otherwise noted, figures shown in the table are for the year ended
December 31, 2005 and are expressed as a percentage of the fund's average
daily net assets. There is no guarantee that actual expenses will be the
same as those shown in the table.
(2) As a result of a reorganization of another fund into AIM V.I. Capital
Appreciation Fund, which will occur on or about May 1, 2006, the fund's
Total Annual Fund Operating Expenses have been restated to reflect such
reorganization.
(3) The fund's advisor has contractually agreed to waive advisory fees and/or
reimburse expenses of Series II shares to the extent necessary to limit
Total Annual Fund Operating Expenses (excluding certain items discussed
below) of Series II shares to 1.45% of average daily net assets. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the Total Annual Fund Operating Expenses to exceed the number reflected
above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items; (v) expenses related to a merger or reorganization, as
approved by the fund's Board of Trustees; and (vi) expenses that the fund
has incurred but did not actually pay because of an expense offset
arrangement. Currently, the expense offset arrangements from which the fund
may benefit are in the form of credits that the fund receives from banks
where the fund or its transfer agent has deposit accounts in which it holds
uninvested cash. Those credits are used to pay certain expenses incurred by
the fund. The expense limitation agreement is in effect through April 30,
2007.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Series II shares of the fund with investing in other mutual funds. This example
does not represent the effect of any fees or other expenses assessed in
connection with your variable product, and if it did, expenses would be higher.
The example assumes that you invest $10,000 in the fund's Series II shares
for the time periods indicated. The example also assumes that your investment
has a 5% return each year and that the fund's operating expenses remain the same
and includes the effect of any contractual fee waivers and/or expense
reimbursements. To the extent fees are waived and/or expenses are reimbursed
voluntarily, your expenses will be lower. Although your actual returns and costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
SERIES II SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund $117 $365 $633 $1,398
- --------------------------------------------------------------------------------
</Table>
4
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The settlement agreement between A I M Advisors, Inc. and certain of its
affiliates (collectively, AIM Affiliates) and the New York Attorney General
requires A I M Advisors, Inc. and certain of its affiliates to provide certain
hypothetical information regarding investment and expense information. The chart
below is intended to reflect the annual and cumulative impact of the fund's
expenses, including investment advisory fees and other fund costs, on the fund's
return over a 10-year period. The example reflects the following:
- You invest $10,000 in the fund and hold it for the entire 10 year period;
- Your investment has a 5% return before expenses each year; and
- The fund's current annual expense ratio includes any applicable
contractual fee waiver or expense reimbursement for the period committed.
There is no assurance that the annual expense ratio will be the expense ratio
for the fund for any of the years shown. To the extent that A I M Advisors, Inc.
and certain of its affiliates make any fee waivers and/or expense reimbursements
pursuant to a voluntary arrangement, your actual expenses may be less. The chart
does not take into account any fees or other expenses assessed in connection
with your variable product; if it did, the expenses shown would be higher, while
the ending balance shown would be lower. This is only a hypothetical
presentation made to illustrate what expenses and returns would be under the
above scenarios, your actual returns and expenses are likely to differ (higher
or lower) from those shown below.
<Table>
<Caption>
SERIES II YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- --------------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 1.15% 1.15% 1.15% 1.15% 1.15%
Cumulative Return Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63%
Cumulative Return After
Expenses 3.85% 7.85% 12.00% 16.31% 20.79%
End of Year Balance $10,385.00 $10,784.82 $11,200.04 $11,631.24 $12,079.04
Estimated Annual Expenses $ 117.21 $ 121.73 $ 126.41 $ 131.28 $ 136.33
- --------------------------------------------------------------------------------------------------
<Caption>
SERIES II YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- --------------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 1.15% 1.15% 1.15% 1.15% 1.15%
Cumulative Return Before
Expenses 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative Return After
Expenses 25.44% 30.27% 35.29% 40.49% 45.90%
End of Year Balance $12,544.09 $13,027.03 $13,528.57 $14,049.42 $14,590.33
Estimated Annual Expenses $ 141.58 $ 147.03 $ 152.69 $ 158.57 $ 164.68
- --------------------------------------------------------------------------------------------------
</Table>
(1) Your actual expenses may be higher or lower than those shown above.
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund's portfolio holdings are disclosed on a regular basis in its
semi-annual and annual reports to shareholders, and on Form N-Q, which is filed
with the Securities and Exchange Commission within 60 days of the fund's first
and third quarter-ends. Due to the fact that you cannot purchase shares of the
fund directly, these documents have not been made available on our website.
However, these documents are available on the SEC's website at
http://www.sec.gov. In addition, the fund's portfolio holdings as of each
calendar quarter end are made available to insurance companies issuing variable
products that invest in the fund.
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's Statement
of Additional Information.
5
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and is responsible for its day-to-day management. The advisor is located
at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor
supervises all aspects of the fund's operations and provides investment advisory
services to the fund, including obtaining and evaluating economic, statistical
and financial information to formulate and implement investment programs for the
fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 200 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds), AIM and A I M Distributors, Inc. (ADI) (the
distributor of the retail AIM funds) reached final settlements with certain
regulators, including the SEC, the New York Attorney General and the Colorado
Attorney General, to resolve civil enforcement actions and/or investigations
related to market timing and related activity in the AIM funds, including those
formerly advised by IFG. As part of the settlements, a $325 million fair fund
($110 million of which is civil penalties) has been created to compensate
shareholders harmed by market timing and related activity in funds formerly
advised by IFG. Additionally, AIM and ADI created a $50 million fair fund ($30
million of which is civil penalties) to compensate shareholders harmed by market
timing and related activity in funds advised by AIM, which was done pursuant to
the terms of the settlements. These two fair funds may increase as a result of
contributions from third parties who reach final settlements with the SEC or
other regulators to resolve allegations of market timing and/or late trading
that also may have harmed applicable AIM funds. These two fair funds will be
distributed in accordance with a methodology to be determined by AIM's
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM funds and acceptable to the staff of the SEC.
Civil lawsuits, including a regulatory proceeding and purported class action
and shareholder derivative suits, have been filed against certain of the AIM
funds, IFG, AIM, ADI and/or related entities and individuals, depending on the
lawsuit, alleging among other things: (i) that the defendants permitted improper
market timing and related activity in the funds; (ii) that certain funds
inadequately employed fair value pricing; (iii) that the defendants charged
excessive advisory and/or distribution fees and failed to pass on to
shareholders the perceived savings generated by economies of scale and that the
defendants adopted unlawful distribution plans; and (iv) that the defendants
improperly used the assets of the funds to pay brokers to aggressively promote
the sale of the funds over other mutual funds and that the defendants concealed
such payments from investors by disguising them as brokerage commissions.
Additional civil lawsuits related to the above or other matters may be filed
by regulators or private litigants against the AIM funds, IFG, AIM, ADI and/or
related entities and individuals in the future. You can find more detailed
information concerning all of the above matters, including the parties to the
civil lawsuits and summaries of the various allegations and remedies sought in
such lawsuits, in the fund's Statement of Additional Information.
As a result of the matters discussed above, investors in the AIM funds might
react by redeeming their investments. This might require the funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the funds.
ADVISOR COMPENSATION
During the fund's last fiscal year ended December 31, 2005, the advisor received
compensation of 0.61% of average daily net assets.
A discussion regarding the basis for the Board approving the investment
advisory agreement of the fund is available in the fund's annual report to
shareholders for the twelve-month period ended December 31, 2005.
PORTFOLIO MANAGERS(S)
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
- - Lanny H. Sachnowitz (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 2005 and has been associated with the advisor
and/or its affiliates since 1987. As the lead manager, Mr. Sachnowitz
generally has final authority over all aspects of the fund's investment
portfolio, including but not limited to, purchases and sales of individual
securities, portfolio construction techniques, portfolio risk assessment, and
the management of daily cash flows in accordance with portfolio holdings. The
degree to which Mr. Sachnowitz may perform these functions, and the nature of
these functions, may change from time to time.
- - Kirk L. Anderson, Portfolio Manager, who has been responsible for the fund
since 2005 and has been associated with the advisor and/or its affiliates
since 1994.
- - James G. Birdsall, Portfolio Manager, who has been responsible for the fund
since 2005 and has been associated with the advisor since 1995.
- - Robert J. Lloyd, Portfolio Manager, who has been responsible for the fund
since 2003 and has been associated with the advisor and/or its affiliates
since 2000. From 1997 to 2000, he was employed by American Electric Power.
6
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
They are assisted by the advisor's Large/Multi-Cap Growth Team, which is
comprised of portfolio managers, research analysts and other investment
professionals. Team members provide research support and make securities
recommendations with respect to the fund's portfolio, but do not have day-to-day
management responsibilities with respect to the fund's portfolio. Members of the
team may change from time to time. More information on these portfolio managers
and the team, including biographies of other members of the team, may be found
on the advisor's website http://www.aiminvestments.com. The website is not part
of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a description
of their compensation structure, and information regarding other accounts they
manage.
7
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
The fund ordinarily effects orders to purchase and redeem shares at the fund's
next computed net asset value after it receives an order. Insurance companies
participating in the fund serve as the fund's designee for receiving orders of
separate accounts that invest in the fund. The fund may postpone the right of
redemption only under unusual circumstances, as allowed by the SEC, such as when
the NYSE restricts or suspends trading.
Although the fund generally intends to pay redemption proceeds solely in
cash, the fund reserves the right to determine, in its sole discretion, whether
to satisfy redemption requests by making payment in securities or other property
(known as a redemption in kind).
Shares of the fund are offered in connection with mixed and shared funding,
i.e., to separate accounts of affiliated and unaffiliated insurance companies
funding variable products. The fund currently offers shares only to insurance
company separate accounts. In the future, the fund may offer them to pension and
retirement plans that qualify for special federal income tax treatment. The fund
and AIM have applied for regulatory relief to enable the fund's shares to be
sold to and held by one or more fund of funds (open-end management investment
companies or series thereof that offer their shares exclusively to insurance
companies, their separate accounts and/or qualified plans). The fund plans to
offer its shares to fund of funds following receipt of the requested regulatory
relief. Due to differences in tax treatment and other considerations, the
interests of fund shareholders, including variable product owners and plan
participants investing in the fund (whether directly or indirectly through fund
of funds), may conflict.
Mixed and shared funding may present certain conflicts of interest. For
example, violation of the federal tax laws by one insurance company separate
account investing directly or indirectly in a fund could cause variable products
funded through another insurance company separate account to lose their
tax-deferred status, unless remedial actions were taken. The Board will monitor
for the existence of any material conflicts and determine what action, if any,
should be taken. A fund's net asset value could decrease if it had to sell
investment securities to pay redemption proceeds to a separate account (or plan)
withdrawing because of a conflict.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
The fund's investment programs are designed to serve long-term investors and are
not designed to accommodate excessive short-term trading activity in violation
of our policies described below. Excessive short-term trading activity in the
fund's shares (i.e., purchases of fund shares followed shortly thereafter by
redemptions of such shares, or vice versa) may hurt the long-term performance of
the fund by requiring it to maintain an excessive amount of cash or to liquidate
portfolio holdings at a disadvantageous time, thus interfering with the
efficient management of the fund by causing it to incur increased brokerage and
administrative costs. Where excessive short-term trading activity seeks to take
advantage of arbitrage opportunities from stale prices for portfolio securities,
the value of fund shares held by long-term investors may be diluted.
The Board has adopted policies and procedures designed to discourage
excessive short-term trading of fund shares. The fund may alter its policies and
procedures at any time without giving prior notice to fund shareholders, if the
advisor believes the change would be in the best interests of long-term
investors.
Pursuant to the fund's policies and procedures, AIM and its affiliates
(collectively the AIM Affiliates) currently use the following tools designed to
discourage excessive short-term trading in the fund:
(1) trade activity monitoring; and
(2) the use of fair value pricing consistent with procedures approved by the
Board.
Each of these tools is described in more detail below.
In addition, restrictions designed to discourage or curtail excessive
short-term trading activity may be imposed by the insurance companies and/or
their separate accounts that invest in the fund on behalf of variable product
owners. Variable product owners should refer to the applicable contract and
related prospectus for more details.
TRADE ACTIVITY MONITORING
To detect excessive short-term trading activities, the AIM Affiliates will
monitor, on a daily basis, selected aggregate purchase, or redemption trade
orders placed by insurance companies and/or their separate accounts. The AIM
Affiliates will seek to work with insurance companies to discourage variable
product owners from engaging in abusive trading practices. However, the ability
of the AIM Affiliates to monitor trades that are placed by variable product
owners is severely if not completely limited due to the fact that the insurance
companies trade with the funds through omnibus accounts, and maintain the
exclusive relationship with, and are responsible for maintaining the account
records of, their variable product owners. There may also be legal and
technological limitations on the ability of insurance companies to impose
restrictions on the trading practices of their variable product owners. As a
result, there can be no guarantee that the AIM Affiliates will be able to detect
or deter market timing by variable product owners.
If, as a result of this monitoring, the AIM Affiliates believe that a
variable product owner has engaged in excessive short-term trading (regardless
of whether or not the insurance company's own trading restrictions are
exceeded), the AIM Affiliates will seek to act in a manner that they believe is
consistent with the best interests of long-term investors, which may include
taking steps such as (i) asking the insurance company to take action to stop
such activities, or (ii) refusing to process future purchases related to such
activities in the insurance company's account with the funds. AIM Affiliates
will use reasonable efforts to apply the fund's policies uniformly given the
potential limitations described above.
8
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair value
determined in good faith using procedures approved by the Board of the fund.
Fair value pricing may reduce the ability of frequent traders to take advantage
of arbitrage opportunities resulting from potentially "stale" prices of
portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
See "Pricing of Shares--Determination of Net Asset Value" for more
information.
RISKS
There is the risk that the fund's policies and procedures will prove ineffective
in whole or in part to detect or prevent excessive short-term trading. Although
these policies and procedures, including the tools described above, are designed
to discourage excessive short-term trading, they do not eliminate the
possibility that excessive short-term trading activity in the fund will occur.
Moreover, each of these tools involves judgments that are inherently subjective.
The AIM Affiliates seek to make these judgments to the best of their abilities
in a manner that they believe is consistent with the best interests of long-term
investors. However, there can be no assurance that the AIM Affiliates will be
able to gain access to any or all of the information necessary to detect or
prevent excessive short-term trading by a variable product owner. While the AIM
Affiliates and the funds may seek to take actions with the assistance of the
insurance companies that invest in the fund, there is the risk that neither the
AIM Affiliates nor the fund will be successful in their efforts to minimize or
eliminate such activity.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of the fund's shares is the fund's net asset value per share. The fund
values portfolio securities for which market quotations are readily available at
market value. The fund values all other securities and assets for which market
quotations are not readily available at their fair value in good faith using
procedures approved by the Board of the fund. Securities and other assets quoted
in foreign currencies are valued in U.S. dollars based on the prevailing
exchange rates on that day.
Even when market quotations are available, they may be stale or they may be
unreliable because the security is not traded frequently, trading on the
security ceased before the close of the trading market or issuer specific events
occurred after the security ceased trading or because of the passage of time
between the close of the market on which the security trades and the close of
the NYSE and when the fund calculates its net asset value. Issuer specific
events may cause the last market quotation to be unreliable. Such events may
include a merger or insolvency, events which affect a geographical area or an
industry segment, such as political events or natural disasters, or market
events, such as a significant movement in the U.S. market. Where market
quotations are not readily available, including where the advisor determines
that the closing price of the security is unreliable, the advisor will value the
security at fair value in good faith using procedures approved by the Board.
Fair value pricing may reduce the ability of frequent traders to take advantage
of arbitrage opportunities resulting from potentially "stale" prices of
portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of all
appropriate factors, including indications of fair value available from pricing
services. A fair value price is an estimated price and may vary from the prices
used by other mutual funds to calculate their net asset values.
The advisor may use indications of fair value from pricing services approved
by the Board. In other circumstances, the advisor valuation committee may fair
value securities in good faith using procedures approved by the Board. As a
means of evaluating its fair value process, the advisor routinely compares
closing market prices, the next day's opening prices for the security in its
primary market if available, and indications of fair value from other sources.
Fair value pricing methods and pricing services can change from time to time as
approved by the Board of Trustees.
Specific types of securities are valued as follows:
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If market
quotations are not available or are unreliable, the advisor will value the
security at fair value in good faith using procedures approved by the Board.
Foreign Securities: If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at the
market quotations. Because trading hours for certain foreign securities end
before the close of the NYSE, closing market quotations may become unreliable.
If between the time trading ends on a particular security and the close of the
customary trading session on the NYSE events occur that are significant and may
make the closing price unreliable, the fund may fair value the security. If an
issuer specific event has occurred that the advisor determines, in its judgment,
is likely to have affected the closing price of a foreign security, it will
price the security at fair value. The advisor also relies on a screening process
from a pricing vendor to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign security
trades is not the current market value as of the close of the NYSE. For foreign
securities where the advisor believes, at the approved degree of certainty, that
the price is not reflective of current market value, the advisor will use the
indication of fair value from the pricing service to determine the fair value of
the security. The pricing vendor, pricing methodology or degree of certainty may
change from time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares is
determined only on business days of the fund,
9
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
the value of the portfolio securities of a fund that invests in foreign
securities may change on days when you will not be able to purchase or redeem
shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds and convertible securities, including high yield or junk bonds, are valued
on the basis of prices provided by independent pricing services. Prices provided
by the pricing services 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,
dividend rate, maturity and other market data. Prices received from pricing
services are fair value prices. In addition, if the price provided by the
pricing service is unreliable, the advisor valuation committee may fair value
the security using procedures approved by the Board.
Short-term Securities: The fund's short-term investments are valued at
amortized cost when the security has 60 days or less to maturity.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent the fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
The fund discloses portfolio holdings at different times to insurance
companies issuing variable products that invest in the fund, and in annual and
semi-annual shareholder reports. Refer to such reports to determine the types of
securities in which a fund has invested. You may also refer to the Statement of
Additional Information to determine what types of securities in which the fund
may invest. You may obtain copies of these reports or of the Statement of
Additional Information from the insurance company that issued your variable
product, or from the advisor as described on the back cover of this prospectus.
The fund determines the net asset value of its shares on each day the NYSE
is open for business, as of the close of the customary trading session, or
earlier NYSE closing time that day.
TAXES
The amount, timing and character of distributions to the separate account may be
affected by special tax rules applicable to certain investments purchased by the
fund. Variable product owners should refer to the prospectus for their variable
products for information regarding the tax consequences of owning such variable
products and should consult their tax advisors before investing.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually to separate
accounts of insurance companies issuing the variable products. The fund expects
that its distributions will consist primarily of capital gains.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually to separate accounts of insurance companies issuing the variable
products.
At the election of insurance companies issuing the variable products,
dividends and distributions are automatically reinvested at net asset value in
shares of the fund.
SHARE CLASSES
The fund has two classes of shares, Series I shares and Series II shares. Each
class is identical except that Series II shares has a distribution or "Rule
12b-1 Plan" which is described in this prospectus.
DISTRIBUTION PLAN
The fund has adopted a distribution or "Rule 12b-1" plan for its Series II
shares. The plan allows the fund to pay distribution fees to life insurance
companies and others to promote the sale and distribution of Series II shares.
The plan provides for a maximum fee equal to an annual rate of 0.25% (expressed
as a percentage of average daily net assets of the fund). Because the fund pays
these fees out of its assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of charges.
PAYMENTS TO INSURANCE COMPANIES
The insurance company that issued your variable product, or one of its
affiliates may receive all the Rule 12b-1 distribution fees discussed above. In
addition to those payments, ADI, the distributor of the fund, or one or more of
its corporate affiliates, may make additional cash revenue sharing payments to
the insurance company or an affiliate in connection with promotion of the fund
and certain other marketing support services. ADI makes these payments from its
own resources.
ADI makes revenue sharing payments as incentives to certain insurance
companies to promote the sale and retention of shares of the fund. The benefits
ADI receives when it makes these payments may include, among other things,
adding the fund to the list of underlying investment options in the insurance
company's variable products, and access (in some cases on a preferential basis
over other competitors) to individual members of an insurance company's sales
force or to an insurance company's management. Revenue sharing payments are
sometimes referred to as "shelf space" payments because the payments compensate
the insurance company for including the fund in its variable products (on its
"sales shelf"). ADI compensates insurance companies differently depending
typically on the level and/or type of considerations provided by the insurance
companies. The revenue sharing payments ADI makes may be calculated on sales of
shares of the fund (Sales-Based Payments), in which case the total amount of
such payments shall not exceed 0.25% of the public offering price of all shares
sold to the insurance company during the particular period. Such payments also
may be
10
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
calculated on the average daily net assets of the fund attributable to that
particular insurance company (Asset-Based Payments), in which case the total
amount of such cash payments shall not exceed 0.25% per annum of those assets
during a defined period. Sales-Based Payments primarily create incentives to
make sales of shares of the fund and Asset-Based Payments primarily create
incentives to retain assets of the fund in insurance company separate accounts.
ADI is motivated to make the payments described above in order to promote
the sale of fund shares and the retention of those investments by clients of
insurance companies. To the extent insurance companies sell more shares of the
fund or retain shares of the fund in their variable product owners' accounts,
ADI may directly or indirectly benefit from the incremental management and other
fees paid to ADI or its affiliates by the fund with respect to those assets.
In addition to the payments listed above, the advisor may also reimburse
insurance companies for certain administrative services provided to variable
product owners. Under a Master Administrative Services Agreement, between the
fund and the advisor, the advisor is entitled to receive from the fund
reimbursement of its costs or such reasonable compensation as may be approved by
the Board of the fund. Under this arrangement, the advisor provides, or assures
that insurance companies issuing variable products will provide, certain
variable product owner-related services. These services, include, but are not
limited to, facilitation of variable product owners' purchase and redemption
requests; distribution to existing variable product owners of copies of fund
prospectuses, proxy materials, periodic fund reports, and other materials;
maintenance of variable product owners' records; and fund services and
communications. Currently, these administrative service payments made by the
fund to the advisor are subject to an annual limit of 0.25% of the average net
assets invested in the fund by each insurance company. Any amounts paid by the
advisor to an insurance company in excess of 0.25% of the average net assets
invested in the fund are paid by the advisor out of its own financial resources,
and not out of the fund's assets. Insurance companies may earn profits on these
payments for these services, since the amount of the payments may exceed the
cost of providing the service.
You can find further details in the Statement of Additional Information
about these payments and the services provided by insurance companies. In
certain cases these payments could be significant to the insurance company. Your
insurance company may charge you additional fees or commissions, on your
variable product other than those disclosed in this prospectus. You can ask your
insurance company about any payments it receives from AIM, ADI, or the fund, as
well as about fees and/or commissions it charges.
11
----------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
----------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance of the fund's Series II shares. Certain information
reflects financial results for a single Series II share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The table shows the financial highlights for a share of the fund outstanding
during each of the fiscal year (or period) indicated.
The information for the fiscal year ended 2005 has been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. PricewaterhouseCoopers LLP was appointed by the Audit Committee of the
Board as the fund's new independent registered public accounting firm. Such
appointment was ratified and approved by the independent trustees of the Board.
Information prior to fiscal year 2005 was audited by other independent
registered public accountants.
<Table>
<Caption>
SERIES II
---------------------------------------------------------------------------
AUGUST 21, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.50 $ 21.16 $ 16.38 $ 21.70 $ 23.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.96 1.36 4.87 (5.23) 0.45
=================================================================================================================================
Total from investment operations 1.93 1.34 4.78 (5.32) 0.41
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 8.58% 6.33% 29.18% (24.52)% 1.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $339,190 $ 136,982 $70,466 $23,893 $ 3,527
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.14%(d) 1.16% 1.10% 1.10% 1.09%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.14)%(d) (0.16)%(a) (0.48)% (0.52)% (0.46)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 97% 74% 61% 67% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend received
of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment (loss) to
average net assets excluding the special dividend are $(0.08) and (0.42)%,
respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized and do not reflect charges
assessed in connection with a variable product, which if included would
reduce total returns.
(d) Ratios are based on average daily net assets of $224,842,465.
(e) Annualized.
12
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of the
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. The fund also files
its complete schedule of portfolio holdings with the SEC for the 1st and 3rd
quarters of each fiscal year on Form N-Q.
If you wish to obtain free copies of the fund's current SAI or annual or
semiannual reports, please contact the insurance company that issued your
variable product, or you may contact us at
<Table>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 410-4246
Because you cannot purchase shares of the fund
directly, these documents have not been made
available on our website.
The fund's most recent portfolio holdings, as filed
on Form N-Q, have also been made available to
insurance companies issuing variable products that
invest in the fund.
</Table>
You can also review and obtain copies of the fund's SAI, financial reports, the
fund's Forms N-Q and other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplication fee, by sending a letter to
the SEC's Public Reference Room, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
- ----------------------------------------
AIM V.I. Capital Appreciation Fund Series II
SEC 1940 Act file number: 811-07452
- ----------------------------------------
AIMinvestments.com VICAP-PRO-2
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
APPENDIX III
AIM V.I. CAPITAL APPRECIATION FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE pany's earnings drivers. Our team meets
with company management to evaluate
proprietary products and the quality of
======================================================================================== management. We also analyze trends and
the competitive landscape. We believe
PERFORMANCE SUMMARY stocks that pass our quantitative and
=========================================== fundamental screens are more likely to
For the six months ended June 30, 2006, outperform.
AIM V.I. Capital Appreciation Fund had FUND VS. INDEXES
negative returns but outperformed the We construct the portfolio using a
Fund's style-specific index, the Russell CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06, bottom-up strategy, which focuses on
1000 Growth Index, by a narrow margin. EXCLUDING VARIABLE PRODUCT ISSUER stocks rather than on industries or
CHARGES. sectors. While there are no formal
The Fund underperformed the broad IF VARIABLE PRODUCT ISSUER CHARGES WERE sector guidelines or constraints,
market as represented by the S&P 500 INCLUDED, RETURNS WOULD BE LOWER. internal controls and proprietary
Index largely due to an overweight software help us monitor risk levels and
position and stock selection in the Series I Shares -0.36% sector concentration.
health care sector. An overweight
position versus the benchmark in the Series II Shares -0.49 Our sell process is designed to avoid
information technology sector, the high risk situations we believe may lead
weakest-performing sector in the broad Standard & Poor's Composite Index to underperformance, including:
market during the period, also detracted of 500 Stocks (S&P 500 Index)
from performance. However, exposure to (Broad Market Index) 2.71 o Deteriorating business prospects.
mid- and small-cap holdings, which
generally outperformed large-cap stocks Russell 1000 Growth Index o Extended valuation.
during the reporting period, some-what (Style-Specific Index) -0.93
offset the Fund's relative o Slowing earnings growth.
underperformance. Both the S&P 500 Index Lipper Multi-Cap Growth Fund Index
and the (Peer Group Index) 0.13 o A weakened balance sheet.
SOURCE: LIPPER INC. MARKET CONDITIONS AND YOUR FUND
===========================================
After posting strong performance during
Russell 1000 Growth Index consist the first four months of 2006, domestic
primarily of large-cap stocks. equities retreated over the last two
months of the reporting period largely
Your Fund's long-term performance due to fears that inflation might lead
appears on page 4. the U.S. Federal Reserve Board to
continue raising interest rates, which
======================================================================================== could challenge continued economic
expansion. During the reporting period,
HOW WE INVEST Our quantitative model ranks small- and mid-cap stocks generally
companies based on factors we have found outperformed large caps. Positive
We believe a growth investment strategy to be highly correlated with performance was broad among S&P 500
is an essential component of a outperformance in the growth universe, sectors with energy, telecommunication
diversified portfolio. Our investment including earnings, quality, valuation services, industrials and materials
process combines quantitative and and risk assessment. delivering the highest returns.
fundamental analysis to find companies
exhibiting long-term, sustainable Stocks ranked highest by our In this environment, the Fund
earnings and cash flow growth that is quantitative model are the focus of our outperformed the Russell 1000 Growth
not yet reflected in investor research. Our fundamental analysis seeks Index by a narrow
expectations or equity valuations. to determine a com-
======================================== ======================================== ===========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.3% 1. Cisco Systems, Inc. 2.6%
Information Technology 25.7% 2. Communications Equipment 7.0 2. Amdocs Ltd. 2.3
Industrials 17.4 3. Semiconductors 6.1 3. Google Inc.--Class A 2.1
Health Care 15.6 4. Investment Banking & Brokerage 5.3 4. QUALCOMM Inc. 1.9
Consumer Discretionary 13.9 5. Aerospace & Defense 4.6 5. Analog Devices, Inc. 1.8
Financials 11.2 6. Goldman Sachs Group, Inc. (The) 1.8
Energy 6.0 TOTAL NET ASSETS $1.6 BILLION 7. Roche Holding A.G. Switzerland) 1.8
TOTAL NUMBER OF HOLDINGS* 111
Materials 4.1 8. JPMorgan Chase & Co. 1.8
Consumer Staples 3.9 9. Boeing Co. (The) 1.6
Telecommunication Services 0.6 10. Burlington Northern Santa Fe Corp. 1.6
Money Market Funds
Plus Other Assets Less Liabilities 1.6
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
AIM V.I. CAPITAL APPRECIATION FUND
margin. The Fund outperformed the ment supplier Alcon. An overweight LANNY H. SACHNOWITZ,
benchmark by the widest margin in the position in health care providers versus [SACHNOWITZ senior portfolio manager,
industrials, energy, consumer the style-specific benchmark also PHOTO] is lead manager of AIM V.I.
discretionary and materials sectors but detracted from performance, and holdings Capital Appreciation Fund.
underperformed in the health care and CIGNA, AETNA and UNITEDHEALTH GROUP He joined AIM in 1987 as a
consumer staples sectors. negatively affected Fund returns. While money market trader and research analyst.
we sold Alcon, Cigna and UnitedHealth Mr. Sachnowitz earned a B.S. in finance
The industrials sector benefited from Group, we continued to own Aetna at from the University of Southern California
a broad-based rally during the first the close of the reporting period. and an M.B.A. from the University of
quarter of 2006. Electrical equipment Houston.
holdings that performed well for the Several notable detractors from Fund
Fund included ABB LTD. and ROCKWELL performance in the information KIRK L. ANDERSON, portfolio
AUTOMATION. The Fund no longer owned technology sector included YAHOO!, APPLE [ANDERSON manager, is manager of AIM
Rockwell Automation stock at the end of COMPUTER and EBAY. While these companies PHOTO] V.I. Capital Appreciation
the reporting period. Aerospace and reported quarterly earnings generally in Fund. He joined AIM in 1994.
defense holdings BOEING and GENERAL line with expectations, they did not Mr. Anderson earned a B.A. in
DYNAMICS also performed well. Machinery deliver the earnings upside many political science from Texas A&M
holdings that contributed to Fund investors have come to expect. We owned University and an M.S. in finance from the
performance included CATERPILLAR and Apple Computer and eBay at the close of University of Houston.
KOMATSU. We sold the Caterpillar holding the reporting period, but we sold Yahoo!
during the reporting period. Railroad JAMES G. BIRDSALL, portfolio
holding BURLINGTON NORTHERN SANTA FE was During the reporting period, our [BIRDSALL manager, is manager of AIM
another key contributor as the company investment process led us to reduce PHOTO] V.I. Capital Appreciation
continued to exceed expectations due to exposure to the health care, energy and Fund. He joined AIM
strong demand growth and pricing gains. materials sectors. Proceeds from these Investments in 1995. Mr.
sales were invested primarily in Birdsall earned a B.B.A. with
Outperformance in the energy sector industrials and information technology a concentration in finance from Stephen F.
was driven largely by the Fund's stocks that we believed possessed Austin State University. He also earned an
overweight position relative to the attractive fundamentals and higher M.B.A. with a concentration in finance and
style-specific benchmark, as energy was upside to earnings estimates. international business from the University
one of the top-performing sectors in the of St. Thomas.
broad market. Several holdings made key IN CLOSING
contributions, including OCCIDENTAL ROBERT J. LLOYD, Chartered
PETROLEUM, VALERO ENERGY and BAKER During the reporting period, we [LLOYD Financial Analyst, portfolio
HUGHES. considered the fundamentals of growth PHOTO] manager, is manager of AIM
stocks to be generally attractive. As a V.I. Capital Appreciation
Solid stock selection in the consumer group, growth companies boasted healthy Fund. He joined AIM in 2000.
discretionary sector resulted in cash flows, strong balance sheets and He served eight years in the U.S. Navy as
positive returns for the reporting positive earnings growth. Additionally, a Naval Flight Officer flying the S-3B
period, while the benchmark index posted growth stocks were generally Viking. Mr. Lloyd earned a B.B.A. from the
negative returns in that sector. Many attractively priced relative to other University of Notre Dame and an M.B.A.
consumer-related stocks struggled during stocks with less attractive from the University of Chicago.
the reporting period due to concerns fundamentals. While growth stocks have
that higher interest rates would crimp generally lagged the broad market in Assisted by the Large/Multi-Cap Growth
consumer spending and slow the economy. recent years, investors have started to Team
Despite these concerns, we were able to recognize and reward these
find some stocks that held up, including characteristics. As always, we thank you
specialty retail holdings OFFICE DEPOT, for your continued investment in AIM [RIGHT ARROW GRAPHIC]
ANN TAYLOR STORES and BEST BUY. Each of V.I. Capital Appreciation Fund.
these stocks made key contributions to FOR A DISCUSSION OF THE RISKS OF
performance. THE VIEWS AND OPINIONS EXPRESSED IN INVESTING IN YOUR FUND, INDEXES USED IN
MANAGEMENT'S DISCUSSION OF FUND THIS REPORT AND YOUR FUND'S LONG-TERM
In the materials sector, solid stock PERFORMANCE ARE THOSE OF A I M ADVISORS, PERFORMANCE, PLEASE TURN TO PAGE 4.
selection in the metals and mining INC. THESE VIEWS AND OPINIONS ARE
industry contributed positively to Fund SUBJECT TO CHANGE AT ANY TIME BASED ON
performance. Holdings that performed FACTORS SUCH AS MARKET AND ECONOMIC
well included copper producer PHELPS CONDITIONS. THESE VIEWS AND OPINIONS MAY
DODGE and iron ore and coal producer BHP NOT BE RELIED UPON AS INVESTMENT ADVICE
BILLITON. Both stocks benefited from OR RECOMMENDATIONS, OR AS AN OFFER FOR A
high commodity prices during much of the PARTICULAR SECURITY. THE INFORMATION IS
reporting period. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
The fund underperformed its SECURITY OR THE FUND. STATEMENTS OF FACT
style-specific benchmark by the widest ARE FROM SOURCES CONSIDERED RELIABLE,
margin in the health care sector, due BUT A I M ADVISORS, INC. MAKES NO
primarily to weak performance by a REPRESENTATION OR WARRANTY AS TO THEIR
number of the Fund's health care COMPLETENESS OR ACCURACY. ALTHOUGH
equipment and supplies holdings, HISTORICAL PERFORMANCE IS NO GUARANTEE
including equip- OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY
APPENDIX IV
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.03 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.09) 1.97 1.39 4.89 (5.24) (7.17)
=================================================================================================================================
Total from investment operations (0.08) 2.00 1.41 4.85 (5.29) (7.22)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- (0.02) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (1.90)
=================================================================================================================================
Total distributions -- (0.02) -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 24.59 $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.32)% 8.79% 6.62% 29.52% (24.35)% (23.28)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,187,261 $822,899 $886,990 $938,820 $763,038 $1,160,236
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.90%(d) 0.89% 0.91% 0.85% 0.85% 0.85%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.10%(d) 0.11% 0.09%(a) (0.23)% (0.27)% (0.22)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 66% 97% 74% 61% 67% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and (0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$970,173,600.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------------------------
AUGUST 21, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70 $ 23.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.10) 1.96 1.36 4.87 (5.23) 0.45
=================================================================================================================================
Total from investment operations (0.12) 1.93 1.34 4.78 (5.32) 0.41
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 24.31 $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.49)% 8.58% 6.33% 29.18% (24.52)% 1.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $391,976 $339,190 $136,982 $70,466 $23,893 $ 3,527
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.15%(d) 1.14% 1.16% 1.10% 1.10% 1.09%(e)
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.15)%(d) (0.14)% (0.16)%(a) (0.48)% (0.52)% (0.46)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 66% 97% 74% 61% 67% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.08) and (0.42)%, respectively.
(a) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$373,502,489.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CAPITAL APPRECIATION FUND
A PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 410-4246
AIM V.I. DEMOGRAPHIC TRENDS FUND
A PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 410-4246
STATEMENT OF ADDITIONAL INFORMATION
(October 31, 2006 Special Meeting of Shareholders of AIM V.I. Demographic Trends
Fund)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
September ___, 2006 for use in connection with the Special Meeting of
Shareholders of AIM V.I. Demographic Trends Fund to be held on October 31, 2006.
Copies of the Combined Proxy Statement and Prospectus may be obtained at no
charge by writing A I M Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 or by calling 1 800-410-4246. Unless otherwise
indicated, capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Combined Proxy Statement and Prospectus.
A Statement of Additional Information dated May 1, 2006, as
supplemented August 1, 2006 (the "Statement of Additional Information") for AIM
Variable Insurance Funds (the "Trust"), has been filed with the Securities and
Exchange Commission and is attached hereto as Appendix I which is incorporated
herein by this reference.
The date of this Statement of Additional Information is September ___,
2006.
TABLE OF CONTENTS
THE TRUST..........................................................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS...............................................S-3
TRUSTEES AND OFFICERS OF THE TRUST.................................................S-3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................S-3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION......S-3
PORTFOLIO TRANSACTIONS.............................................................S-3
DESCRIPTION OF SHARES..............................................................S-3
DETERMINATION OF NET ASSET VALUE...................................................S-3
TAXES..............................................................................S-4
PERFORMANCE DATA...................................................................S-4
FINANCIAL INFORMATION..............................................................S-4
Appendix I - Statement of Additional Information of the Trust
Appendix II - Unaudited semiannual financial statements of AIM V.I. Capital
Appreciation Fund and AIM V.I. Demographic Trends Fund
S-2
THE TRUST
This Statement of Additional Information relates to AIM Variable
Insurance Funds (the "Trust") and its investment portfolio, AIM V.I. Capital
Appreciation Fund (the "Fund"). The Trust is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund is a separate series of shares of beneficial
interest of the Trust. For additional information about the Trust, see heading
"General Information About the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and non-fundamental investment
policies of the Fund adopted by the Trust's Board of Trustees, see heading
"Description of the Funds and Their Investments and Risks" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of
each of the Trust's trustees and executive officers identifying those who are
interested persons of the Trust as well as stating their aggregate remuneration,
see heading "Management of the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Fund, the principal
holders of shares of the Fund and the ownership by officers and trustees of the
Fund, see heading "Control Persons and Principal Holders of Securities" in the
Trust's Statement of Additional Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related
services agreements and plans of distribution, see headings "Investment Advisory
and Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading
"Brokerage Allocation and Other Practices" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the
characteristics of the Trust's shares of beneficial interest, see heading
"General Information About the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
S-3
TAXES
For a discussion of any tax information relating to ownership of the
Trust's shares, see heading "Dividends, Distributions and Tax Matters" in the
Trust's Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the
Trust, see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of AIM V.I. Capital Appreciation Fund,
and the report thereon by PricewaterhouseCoopers LLP, are set forth under the
heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The unaudited semiannual financial statements of AIM V.I. Capital
Appreciation Fund are attached hereto as Appendix II.
The audited financial statements of AIM V.I. Demographic Trends Fund,
and the report thereon by PricewaterhouseCoopers LLP, are set forth under the
heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The unaudited semiannual financial statements of AIM V.I. Demographic
Trends Fund are attached hereto as Appendix II.
S-4
APPENDIX I
AIM VARIABLE INSURANCE FUNDS
AIM V.I. BASIC BALANCED FUND
AIM V.I. BASIC VALUE FUND
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. CORE EQUITY FUND
AIM V.I. DEMOGRAPHIC TRENDS FUND
AIM V.I. DIVERSIFIED DIVIDEND FUND
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. DYNAMICS FUND
AIM V.I. FINANCIAL SERVICES FUND
AIM V.I. GLOBAL EQUITY FUND
AIM V.I. GLOBAL HEALTH CARE FUND
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GLOBAL REAL ESTATE FUND
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL CORE EQUITY FUND
AIM V.I. INTERNATIONAL GROWTH FUND
AIM V.I. LARGE CAP GROWTH FUND
AIM V.I. MID CAP CORE EQUITY FUND
AIM V.I. MONEY MARKET FUND
AIM V.I. SMALL CAP EQUITY FUND
AIM V.I. SMALL CAP GROWTH FUND
AIM V.I. TECHNOLOGY FUND
AIM V.I. UTILITIES FUND
(SERIES I AND SERIES II SHARES)
Supplement dated August 1, 2006
to the Statement of Additional Information dated May 1, 2006
The following (1) replaces in its entirety, the information relating to Robert
H. Graham, under the heading "TRUSTEES AND OFFICERS - INTERESTED PERSONS" and
(2) is added with respect to Philip A. Taylor, under the heading "TRUSTEES AND
OFFICERS - OTHER OFFICERS" in Appendix C in the Statement of Additional
Information:
TRUSTEE
AND/OR
"NAME, YEAR OF BIRTH AND POSITION(S) OFFICER OTHER TRUSTEESHIP(S)
HELD WITH THE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------ ------- --------------------------------------------------- --------------------
INTERESTED PERSONS
Robert H. Graham(1)- 1946 1993 Director and Chairman, A I M Management Group Inc. None"
Trustee and Vice Chair (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC; Chairman, AMVESCAP PLC
- AIM Division (parent of AIM and a global
investment management firm); and Trustee and Vice
Chair of The AIM Family of Funds(R)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund Management
Company (registered broker dealer); Chief Executive
Officer, AMVESCAP PLC - Managed Products; and
President and Principal Executive Officer of The
AIM Family of Funds(R)
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
1
"OTHER OFFICERS
Philip A. Taylor(2) - 1954 President 2006 Director, Chief Executive Officer and President, None"
and Principal Executive Officer A I M Management Group Inc., AIM Mutual Fund Dealer
Inc., AIM Funds Management Inc. and 1371 Preferred
Inc.; Director and President, A I M Advisors, Inc.,
INVESCO Funds Group, Inc. and AIM GP Canada Inc.;
Director, A I M Capital Management, Inc. and A I M
Distributors, Inc.; Director and Chairman, AIM
Investment Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.; Director, President
and Chairman, AVZ Callco Inc., AMVESCAP Inc. and
AIM Canada Holdings Inc.; Director and Chief
Executive Officer, AIM Trimark Global Fund Inc. and
AIM Trimark Canada Fund Inc.; and President and
Principal Executive Officer of The AIM Family of
Funds(R)
Formerly: Chairman, AIM Canada Holdings, Inc.;
Executive Vice President and Chief Operations
Officer, AIM Funds Management Inc.; President, AIM
Trimark Global Fund Inc. and AIM Trimark Canada
Fund Inc.; and Director, Trimark Trust
- ----------
(2) Mr. Taylor was elected as President and Principal Executive Officer of the
Trust on August 1, 2006.
2
STATEMENT OF
ADDITIONAL INFORMATION
AIM VARIABLE INSURANCE FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
----------
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO EACH PORTFOLIO OF AIM
VARIABLE INSURANCE FUNDS LISTED BELOW. THIS STATEMENT OF ADDITIONAL INFORMATION
IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES
FOR THE FUNDS LISTED BELOW. EACH FUND'S FINANCIAL STATEMENTS ARE INCORPORATED
INTO THIS STATEMENT OF ADDITIONAL INFORMATION BY REFERENCE TO SUCH FUND'S MOST
RECENT ANNUAL REPORT TO SHAREHOLDERS. YOU MAY OBTAIN, WITHOUT CHARGE, A COPY OF
ANY PROSPECTUS AND/OR ANNUAL REPORT FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED
DEALER OR BY WRITING TO:
A I M DISTRIBUTORS, INC.
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
OR BY CALLING (800) 410-4246
----------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 2006 RELATES TO THE
FOLLOWING PROSPECTUSES FOR THE SERIES I AND SERIES II SHARES OF EACH OF THE
FOLLOWING FUNDS:
FUND DATED
---- -----
AIM V.I. BASIC BALANCED FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. BASIC VALUE FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. BLUE CHIP FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. CAPITAL APPRECIATION FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. CAPITAL DEVELOPMENT FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. CORE EQUITY FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. DEMOGRAPHIC TRENDS FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. DIVERSIFIED DIVIDEND FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. DIVERSIFIED INCOME FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. DYNAMICS FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. FINANCIAL SERVICES FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. GLOBAL EQUITY FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. GLOBAL HEALTH CARE FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. GOVERNMENT SECURITIES FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. HIGH YIELD FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. INTERNATIONAL CORE EQUITY FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. INTERNATIONAL GROWTH FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. LARGE CAP GROWTH FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. LEISURE FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. MID CAP CORE EQUITY FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. MONEY MARKET FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. REAL ESTATE FUND* - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. SMALL CAP EQUITY FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. SMALL COMPANY GROWTH FUND* - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. TECHNOLOGY FUND - SERIES I 05/01/06
SERIES II 05/01/06
AIM V.I. UTILITIES FUND - SERIES I 05/01/06
SERIES II 05/01/06
* The Board of Trustees of AIM Variable Insurance Funds, on behalf of AIM
V.I. Real Estate Fund and AIM V.I. Small Company Growth Fund, has approved
changing the Fund's names to "AIM V.I. Global Real Estate Fund" and "AIM
V.I. Small Cap Growth Fund," respectively, effective July 3, 2006.
AIM VARIABLE INSURANCE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION ABOUT THE TRUST....................................... 1
Fund History........................................................... 1
Shares of Beneficial Interest.......................................... 2
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS.................. 3
Classification......................................................... 3
Investment Strategies and Risks........................................ 3
Equity Investments.................................................. 13
Foreign Investments................................................. 13
Debt Investments for Equity Funds................................... 15
Debt Investments for Fixed Income Funds and Money Market Fund....... 16
Other Investments................................................... 20
Investment Techniques............................................... 22
Derivatives......................................................... 27
Additional Securities or Investment Techniques...................... 34
Diversification Requirements - AIM V.I. Money Market Fund.............. 34
Fund Policies for the V.I. Funds....................................... 35
Temporary Defensive Positions (for V.I. Funds)...................... 37
Fund Policies for the VIF Funds........................................ 37
Temporary Defensive Positions (for VIF Funds)....................... 39
Portfolio Turnover..................................................... 39
Policies and Procedures for Disclosure of Fund Holdings................ 40
General Disclosures................................................. 40
Selective Disclosures............................................... 41
MANAGEMENT OF THE TRUST................................................... 43
Board of Trustees...................................................... 43
Management Information................................................. 43
Trustee Ownership of Fund Shares....................................... 46
Compensation........................................................... 55
Retirement Plan For Trustees........................................ 55
Deferred Compensation Agreements.................................... 55
Codes of Ethics........................................................ 56
Proxy Voting Policies.................................................. 56
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... 56
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 56
Investment Advisor..................................................... 56
Investment Sub-Advisors................................................ 62
Portfolio Managers..................................................... 63
Securities Lending Arrangements........................................ 63
Service Agreements..................................................... 63
Other Service Providers................................................ 64
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................. 65
Brokerage Transactions................................................. 65
Commissions............................................................ 65
Broker Selection....................................................... 66
Directed Brokerage (Research Services)................................. 69
Regular Brokers........................................................ 69
Allocation of Portfolio Transactions................................... 69
i
Allocation of Equity Initial Public Offering ("IPO") Transactions...... 69
PURCHASE AND REDEMPTION OF SHARES......................................... 69
Calculation of Net Asset Value......................................... 70
Redemption In Kind..................................................... 72
Payments to Participating Insurance Companies and/or their Affiliates.. 72
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................................. 73
Dividends and Distributions............................................ 73
Tax Matters............................................................ 74
DISTRIBUTION OF SECURITIES................................................ 77
Distribution Plan...................................................... 77
Distributor............................................................ 78
FINANCIAL STATEMENTS...................................................... 78
PENDING LITIGATION........................................................ 78
APPENDICES:
RATINGS OF DEBT SECURITIES................................................. A-1
EXAMPLES OF PERSONS TO WHOM AIM PROVIDES NON-PUBLIC PORTFOLIO HOLDINGS ON
AN ONGOING BASIS........................................................... B-1
TRUSTEES AND OFFICERS...................................................... C-1
TRUSTEE COMPENSATION TABLE................................................. D-1
PROXY POLICIES AND PROCEDURES.............................................. E-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................ F-1
MANAGEMENT FEES............................................................ G-1
PORTFOLIO MANAGERS......................................................... H-1
ADMINISTRATIVE SERVICES FEES............................................... I-1
BROKERAGE COMMISSIONS...................................................... J-1
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF SECURITIES OF
REGULAR BROKERS OR DEALERS................................................. K-1
CERTAIN FINANCIAL INSTITUTIONS THAT RECEIVE ONE OR MORE TYPES OF PAYMENTS.. L-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTIONS PLAN.... M-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS.............. N-1
PENDING LITIGATION......................................................... O-1
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Variable Insurance Funds (the "Trust") is a Delaware statutory trust
which is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end series management investment company. The Trust
currently consists of twenty-six separate portfolios: AIM V.I. Basic Balanced
Fund (formerly known as AIM V.I. Balanced Fund), AIM V.I. Basic Value Fund, AIM
V.I. Blue Chip Fund, AIM V.I. Capital Appreciation Fund, AIM V.I. Capital
Development Fund, AIM V.I. Core Equity Fund, AIM V.I. Demographic Trends Fund
(formerly known as AIM V.I. Dent Demographic Trends Fund), AIM V.I. Diversified
Dividend Fund, AIM V.I. Diversified Income Fund, AIM V.I. Global Equity Fund,
AIM V.I. Government Securities Fund, AIM V.I. High Yield Fund, AIM V.I.
International Core Equity Fund, AIM V.I. International Growth Fund, AIM V.I.
Large Cap Growth Fund, AIM V.I. Mid Cap Core Equity Fund, AIM V.I. Money Market
Fund, AIM V.I. Real Estate Fund (formerly known as INVESCO VIF - Real Estate
Opportunity Fund), and AIM V.I. Small Cap Equity Fund (collectively, the " V.I.
Funds"), and AIM V.I. Dynamics Fund (formerly known as INVESCO VIF - Dynamics
Fund), AIM V.I. Financial Services Fund (formerly known as INVESCO VIF -
Financial Services Fund), AIM V.I. Global Health Care Fund (formerly known as
AIM V.I. Health Sciences Fund and INVESCO VIF - Health Sciences Fund), AIM V.I.
Leisure Fund (formerly known as INVESCO VIF - Leisure Fund), AIM V.I. Small
Company Growth Fund (formerly known as INVESCO VIF - Small Company Growth Fund),
AIM V.I. Technology Fund (formerly known as INVESCO VIF - Technology Fund), and
AIM V.I. Utilities Fund (formerly known as INVESCO VIF - Utilities Fund)
(collectively, the " VIF Funds"). This Statement of Additional Information
relates to the V.I. Funds and the VIF Funds (each a "Fund," and collectively,
the "Funds"). Under the Amended and Restated Agreement and Declaration of Trust,
dated September 14, 2005, as amended (the "Trust Agreement"), the Board of
Trustees of the Trust (the "Board") is authorized to create new series of shares
without the necessity of a vote of shareholders of the Trust.
The Trust was originally organized on January 22, 1993 as a Maryland
corporation. On October 15, 1999, the following Funds acquired all the assets
and assumed all the liabilities of the series portfolios of G.T. Global Variable
Investment Trust and G.T. Global Variable Investment Series: AIM V.I. Global
Growth and Income Fund, AIM V.I. Capital Appreciation Fund, AIM V.I.
International Equity Fund, AIM V.I. Diversified Income Fund, AIM V.I. Government
Securities Fund and AIM V.I. Money Market Fund. The Trust reorganized as a
Delaware business trust on May 1, 2000. All of the V.I. Funds, except AIM V.I.
Basic Value Fund, AIM V.I. Large Cap Growth Fund, AIM V.I. Mid Cap Core Equity
Fund, AIM V.I. Real Estate Fund, AIM V.I. International Core Equity Fund, AIM
V.I. Diversified Dividend Fund and AIM V.I. Global Equity Fund and AIM V.I.
Small Cap Equity Fund, were included in the reorganization. All historical
financial and other information contained in this Statement of Additional
Information for periods prior to May 1, 2000 relating to these Funds (or a class
thereof) is that of the predecessor funds (or the corresponding class thereof).
AIM V.I. Basic Value Fund and AIM V.I. Mid Cap Core Equity Fund commenced
operations as a series of the Trust on September 10, 2001. AIM V.I. Large Cap
Growth Fund and AIM V.I. Small Cap Equity Fund commenced operations as series of
the Trust on September 1, 2003. AIM V.I. International Core Equity Fund, AIM
V.I. Diversified Dividend Fund and AIM V.I. Global Equity Fund commenced
operations as series of the Trust on May 1, 2006. AIM V.I. Core Equity Fund was
known as AIM V.I. Growth and Income Fund, AIM V.I. International Growth Fund was
known as AIM V.I. International Equity Fund, AIM V.I. Mid Cap Core Equity Fund
was known as AIM V.I. Mid Cap Equity Fund. Prior to April 30, 2004, AIM V.I.
Real Estate Fund and the VIF Funds were portfolios of INVESCO Variable
Investment Funds, Inc., a Maryland corporation. Pursuant to an agreement and
plan of reorganization, AIM V.I. Real Estate Fund and the VIF Funds became
portfolios of the Trust. All historical financial and other information
contained in this Statement of Additional Information for the periods prior to
April 30, 2004, relating to AIM V.I. Real Estate Fund and the VIF Funds (or a
class thereof) is that of its predecessor fund (or its corresponding class
thereof).
1
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net
asset value at the option of the shareholder or at the option of the Trust in
certain circumstances.
The Trust allocates moneys and other property it receives from the issue or
sale of shares of each of its series of shares, and all income, earnings and
profits from such issuance and sales, subject only to the rights of creditors,
to the appropriate Fund. These assets constitute the underlying assets of each
Fund, are segregated on the Trust's books of account, and are charged with the
expenses of such Fund and its respective classes. The Trust allocates any
general expenses of the Trust not readily identifiable as belonging to a
particular Fund by or under the direction of the Board, primarily on the basis
of relative net assets, or other relevant factors.
Each Fund offers Series I and Series II shares. Each share of each Fund
represents an equal proportionate interest in that Fund with each other share
and is entitled to such dividends and distributions out of the income belonging
to such Fund as are declared by the Board. Each Fund offers two separate classes
of shares: Series I shares and Series II shares. Each such class represents
interests in the same portfolio of investments. Differing expenses will result
in differing net asset values and dividends and distributions. Upon any
liquidation of the Trust, shareholders of each class are entitled to share pro
rata in the net assets belonging to the applicable Fund allocable to such class
available for distribution after satisfaction of outstanding liabilities of the
Fund allocable to such class.
The Trust is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of a Fund or Series will be held from
time to time to consider matters requiring a vote of such shareholders in
accordance with the requirements of the 1940 Act, state law or the provisions of
the Trust Agreement. It is not expected that shareholder meetings will be held
annually.
The Trust understands that insurance company separate accounts owning
shares of the Funds will vote their shares in accordance with the instructions
received from owners of variable annuity contracts and variable life insurance
policies ("Contract Owners"), annuitants and beneficiaries. Fund shares held by
a 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 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.
Each share of a Fund has generally the same voting, dividend, liquidation
and other rights, however, each class of shares of a Fund is subject to
different class-specific expenses. Only shareholders of a specific class may
vote on matters relating to that class' distribution plan.
Except as specifically noted above, shareholders of each Fund are entitled
to one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the shares of a Fund. However,
on matters affecting an individual Fund or class of shares, a separate vote of
shareholders of that Fund or class is required. Shareholders of a Fund or class
are not entitled to vote on any matter which does not affect that Fund or class
but that requires a separate vote of another Fund or class. An example of a
matter that would be voted on separately by shareholders of each Fund is the
approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. There are no conversion rights. Shares do
not have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
2
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any Trustee or officer; however, a
trustee or officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer 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 or her office with the Trust
("Disabling Conduct"). The Trust Agreement provides for indemnification by the
Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct. The Trust
Agreement also authorizes the purchase of liability insurance on behalf of
trustees and officers. The Trust's Bylaws provide for the advancement of
payments to current and former trustees, officers and employees or agents of the
Trust, or anyone serving at their request, in connection with the preparation
and presentation of a defense to any claim, action, suit or proceeding, expenses
for which such person would be entitled to indemnification; provided that any
advancement of payments would be reimbursed if it is ultimately determined that
such person is not entitled to indemnification for such expenses.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates and share certificates
are not issued.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the Funds
are "diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The tables on the following pages identify various securities and
investment techniques used by AIM in managing the Funds. The tables have been
marked to indicate those securities and investment techniques that AIM may use
to manage a Fund. A Fund might not use all of these techniques at any one time.
A Fund's transactions in a particular security or use of a particular technique
is subject to limitations imposed by a Fund's investment objective, policies and
restrictions described in that Fund's Prospectus and/or this Statement of
Additional Information, as well as federal securities laws. The V.I. Funds'
investment objectives, policies, strategies and practices are non-fundamental
unless otherwise indicated. The VIF Funds' investment objectives are fundamental
and their policies, strategies and practices are non-fundamental unless
otherwise indicated. A more detailed description of the securities and
investment techniques, as well as the risks associated with those securities and
investment techniques that the Funds utilize, follows the table. The
descriptions of the securities and investment techniques in this section
supplement the discussion of principal investment strategies contained in each
Fund's Prospectus; where a particular type of security or investment technique
is not discussed in a Fund's Prospectus, that security or investment technique
is not a principal investment strategy.
3
The Board reserves the right to change any of these non-fundamental
investment policies, strategies or practices without shareholder approval.
However, shareholders will be notified before any material change in the
investment policies becomes effective.
4
V.I. FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
---------------------------------------------------------
EQUITY FUNDS
---------------------------------------------------------
V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY BASIC BLUE CAP CAP CORE DEMO DIV GLB INT'L
INVESTMENT VALUE CHIP APPR DEV EQUITY TRNDS DIV EQU GRW
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND FUND
----- ---- ---- ---- ------ ----- ---- ---- -----
EQUITY INVESTMENTS
Common Stock X X X X X X X X X
Preferred Stock X X X X X X X X X
Convertible X X X X X X X X X
Securities
Alternative X X X X X X X X X
Entity
Securities
FOREIGN INVESTMENTS
Foreign X X X X X X X X X
Securities
Foreign X X
Government
Obligations
Foreign X X X X X X X X X
Exchange
Transactions
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government X X
Obligations
Mortgage-Backed X
and
Asset-Backed
Securities
Collateralized X
Mortgage
Obligations
Investment X X X X X X X X
Grade
Corporate
Debt
Liquid Assets X X X X X X X X
Junk X
Bonds
DEBT INVESTMENTS FOR FIXED INCOME FUNDS AND MONEY MARKET FUND
U.S. Government
Obligations
Rule 2a-7
Requirements
Foreign Bank
Obligations
FUND
-----------------------------------------------------------
FIXED INCOME FUNDS AND
EQUITY FUNDS MONEY MARKET FUND
-------------------------- -------------------------------
V.I.
V.I. MID
LRG CAP V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY CAP CORE REAL SML BASIC DIV GOVT HIGH MONEY
INVESTMENT GRW EQUITY EST CAP BAL INCM SEC YIELD MKT
TECHNIQUE FUND FUND FUND EQUITY FUND FUND FUND FUND FUND
---- ------ ---- ------ ----- ---- ---- ----- -----
EQUITY INVESTMENTS
Common Stock X X X X X X
Preferred Stock X X X X X X X
Convertible X X X X X X X
Securities
Alternative X X X X X X X
Entity
Securities
FOREIGN INVESTMENTS
Foreign X X X X X X X X X
Securities
Foreign X X X X X X X
Government
Obligations
Foreign X X X X X X X X
Exchange
Transactions
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government X X X
Obligations
Mortgage-Backed X
and
Asset-Backed
Securities
Collateralized X
Mortgage
Obligations
Investment X X X X
Grade
Corporate
Debt
Liquid Assets X X X X
Junk X
Bonds
DEBT INVESTMENTS FOR FIXED INCOME FUNDS AND MONEY MARKET FUND
U.S. Government X X X X X
Obligations
Rule 2a-7 X X X X X
Requirements
Foreign Bank X X X X
Obligations
5
V.I. FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
---------------------------------------------------------
EQUITY FUNDS
---------------------------------------------------------
V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY BASIC BLUE CAP CAP CORE DEMO DIV GLB INT'L
INVESTMENT VALUE CHIP APPR DEV EQUITY TRNDS DIV EQU GRW
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND FUND
----- ---- ---- ---- ------ ----- ---- ---- -----
Mortgage-Backed
and
Asset-Backed
Securities
Collateralized
Mortgage
Obligations
Bank Instruments
Commercial
Instruments
Participation
Interests
Municipal Lease
Obligations
Investment
Grade
Corporate
Debt
Obligations
Junk Bonds
OTHER INVESTMENTS
REITs X X X X X X X X X
Other X X X X X X X X X
Investment
Companies
Defaulted
Securities
Municipal
Forward
Contracts
Variable or
Floating Rate
Instruments
Indexed
Securities
Zero-Coupon and
Pay-in-Kind
Securities
Synthetic
Municipal
Instruments
FUND
-----------------------------------------------------------
FIXED INCOME FUNDS AND
EQUITY FUNDS MONEY MARKET FUND
-------------------------- -------------------------------
V.I.
V.I. MID
LRG CAP V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY CAP CORE REAL SML BASIC DIV GOVT HIGH MONEY
INVESTMENT GRW EQUITY EST CAP BAL INCM SEC YIELD MKT
TECHNIQUE FUND FUND FUND EQUITY FUND FUND FUND FUND FUND
---- ------ ---- ------ ----- ---- ---- ----- -----
Mortgage-Backed X X X X
and
Asset-Backed
Securities
Collateralized X X
Mortgage
Obligations
Bank Instruments X X X
Commercial X X X X
Instruments
Participation X
Interests
Municipal Lease X X X X
Obligations
Investment X X X X
Grade
Corporate
Debt
Obligations
Junk Bonds X X
OTHER INVESTMENTS
REITs X X X X X X X X X
Other X X X X X X X X X
Investment
Companies
Defaulted X X
Securities
Municipal
Forward
Contracts
Variable or X X X X X
Floating Rate
Instruments
Indexed
Securities
Zero-Coupon and X X X X
Pay-in-Kind
Securities
Synthetic
Municipal
Instruments
6
V.I. FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
---------------------------------------------------------
EQUITY FUNDS
---------------------------------------------------------
V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY BASIC BLUE CAP CAP CORE DEMO DIV GLB INT'L
INVESTMENT VALUE CHIP APPR DEV EQUITY TRNDS DIV EQU GRW
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND FUND
----- ---- ---- ---- ------ ----- ---- ---- -----
INVESTMENT TECHNIQUES
Delayed X X X X X X X X X
Delivery
Transactions
When-Issued X X X X X X X X X
Securities
Short Sales X X X X X X X X X
Margin
Transactions
Interest Rate, X X X X X X X X X
Index and
Currency
Exchange Rate
Swaps
Credit Default
Swaps
Interfund Loans X X X X X X X X X
Borrowing X X X X X X X X X
Lending X X X X X X X X X
Portfolio
Securities
Repurchase X X X X X X X X X
Agreements
Reverse X X X X X X X X X
Repurchase
Agreements
Dollar Rolls X
Illiquid X X X X X X X X X
Securities
Rule 144A X X X X X X X X X
Securities
Unseasoned X X X X X X X X X
Securities
Portfolio
Transactions
Standby
Commitments
FUND
-----------------------------------------------------------
FIXED INCOME FUNDS AND
EQUITY FUNDS MONEY MARKET FUND
-------------------------- -------------------------------
V.I.
V.I. MID
LRG CAP V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY CAP CORE REAL SML BASIC DIV GOVT HIGH MONEY
INVESTMENT GRW EQUITY EST CAP BAL INCM SEC YIELD MKT
TECHNIQUE FUND FUND FUND EQUITY FUND FUND FUND FUND FUND
---- ------ ---- ------ ----- ---- ---- ----- -----
Delayed X X X X X X X X X
Delivery
Transactions
When-Issued X X X X X X X X X
Securities
Short Sales X X X X X X X X
Margin
Transactions
Interest Rate, X X X X X X X
Index and
Currency
Exchange Rate
Swaps
Credit Default X X X
Swaps
Interfund Loans X X X X X X X X X
Borrowing X X X X X X X X X
Lending X X X X X X X X X
Portfolio
Securities
Repurchase X X X X X X X X X
Agreements
Reverse X X X X X X X X X
Repurchase
Agreements
Dollar Rolls X X X
Illiquid X X X X X X X X X
Securities
Rule 144A X X X X X X X X X
Securities
Unseasoned X X X X X X X X
Securities
Portfolio
Transactions
Standby
Commitments
7
V.I. FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
---------------------------------------------------------
EQUITY FUNDS
---------------------------------------------------------
V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY BASIC BLUE CAP CAP CORE DEMO DIV GLB INT'L
INVESTMENT VALUE CHIP APPR DEV EQUITY TRNDS DIV EQU GRW
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ---------- ----- ---- ---- ---- ------ ----- ---- ---- -----
DERIVATIVES
Equity-Linked X X X X X X X X X
Derivatives
Bundled
Securities
Put Options X X X X X X X X X
Call Options X X X X X X X X X
Straddles X X X X X X X X X
Warrants X X X X X X X X X
Futures X X X X X X X X X
Contracts and
Options on
Futures
Contracts
Forward X X X X X X X X X
Currency
Contracts
Cover X X X X X X X X X
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
Taxable
Municipal
Securities
Investments in X X X X X X X X X
Entities with
Relationships
with Funds/
Advisors
Master Limited X
Partnerships
FUND
-----------------------------------------------------------
FIXED INCOME FUNDS AND
EQUITY FUNDS MONEY MARKET FUND
-------------------------- -------------------------------
V.I.
V.I. MID
LRG CAP V.I. V.I. V.I. V.I. V.I. V.I. V.I.
SECURITY CAP CORE REAL SML BASIC DIV GOVT HIGH MONEY
INVESTMENT GRW EQUITY EST CAP BAL INCM SEC YIELD MKT
TECHNIQUE FUND FUND FUND EQUITY FUND FUND FUND FUND FUND
- ---------- ---- ------ ---- ------ ----- ---- ---- ----- -----
DERIVATIVES
Equity-Linked X X X X X
Derivatives
Bundled X X X
Securities
Put Options X X X X X X X X
Call Options X X X X X X X X
Straddles X X X X X X X X
Warrants X X X X X X X
Futures X X X X X X X X
Contracts and
Options on
Futures
Contracts
Forward X X X X X X X
Currency
Contracts
Cover X X X X X X X X
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
Taxable X X X X
Municipal
Securities
Investments in X X X X X X X X X
Entities with
Relationships
with Funds/
Advisors
Master Limited
Partnerships
8
VIF FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
------------------------------------------------------------------------------------------
EQUITY FUNDS
------------------------------------------------------------------------------------------
V.I. V.I.
V.I. GLOBAL V.I. SMALL
SECURITY V.I. FINANCIAL HEALTH INTERNATIONAL V.I. COMPANY V.I. V.I.
INVESTMENT DYNAMICS SERVICES CARE CORE EQUITY LEISURE GROWTH TECHNOLOGY UTILITIES
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND
- ---------- -------- --------- ------ ------------- ------- ------- ---------- ---------
EQUITY INVESTMENTS
Common Stock X X X X X X X X
Preferred Stock X X X X X X X X
Convertible X X X X X X X X
Securities
Alternative X X X X X X X X
Entity
Securities
FOREIGN INVESTMENTS
Foreign X X X X X X X X
Securities
Foreign X X X X X X X X
Government
Obligations
Foreign Exchange X X X X X X X X
Transactions
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government X X X X X X X X
Obligations
Mortgage-Backed X X X X X X X X
and
Asset-Backed
Securities
Collateralized
Mortgage
Obligations
9
VIF FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
------------------------------------------------------------------------------------------
EQUITY FUNDS
------------------------------------------------------------------------------------------
V.I. V.I.
V.I. GLOBAL V.I. SMALL
SECURITY V.I. FINANCIAL HEALTH INTERNATIONAL V.I. COMPANY V.I. V.I.
INVESTMENT DYNAMICS SERVICES CARE CORE EQUITY LEISURE GROWTH TECHNOLOGY UTILITIES
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND
- ---------- -------- --------- ------ ------------- ------- ------- ---------- ---------
Investment Grade
Corporate Debt X X X X X X X X
Liquid Assets X X X X X X X X
Junk Bonds X
OTHER INVESTMENTS
REITs X X X X X X X X
Other Investment X X X X X X X X
Companies
Defaulted
Securities
Municipal
Forward
Contracts
Variable or
Floating Rate
Instruments
Indexed
Securities
Zero-Coupon and X X X X X X X X
Pay-in-Kind
Securities
Synthetic
Municipal
Instruments
10
VIF FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
------------------------------------------------------------------------------------------
EQUITY FUNDS
------------------------------------------------------------------------------------------
V.I. V.I.
V.I. GLOBAL V.I. SMALL
SECURITY V.I. FINANCIAL HEALTH INTERNATIONAL V.I. COMPANY V.I. V.I.
INVESTMENT DYNAMICS SERVICES CARE CORE EQUITY LEISURE GROWTH TECHNOLOGY UTILITIES
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND
- ---------- -------- --------- ------ ------------- ------- ------- ---------- ---------
INVESTMENT TECHNIQUES
Delayed Delivery X X X X X X X X
Transactions
When-Issued X X X X X X X X
Securities
Short Sales X X X X X X X X
Martin
Transactions
Interest Rate, X X X X X X X X
Index and
Currency
Exchange
Rate Swaps
Credit Default
Swaps
Interfund Loans X X X X X X X X
Borrowing X X X X X X X X
Lending Portfolio X X X X X X X X
Securities
Repurchase X X X X X X X X
Agreements
Reverse X X X X X X X X
Repurchase
Agreements
Dollar Rolls
Illiquid X X X X X X X X
Securities
11
VIF FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
------------------------------------------------------------------------------------------
EQUITY FUNDS
------------------------------------------------------------------------------------------
V.I. V.I.
V.I. GLOBAL V.I. SMALL
SECURITY V.I. FINANCIAL HEALTH INTERNATIONAL V.I. COMPANY V.I. V.I.
INVESTMENT DYNAMICS SERVICES CARE CORE EQUITY LEISURE GROWTH TECHNOLOGY UTILITIES
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND
- ---------- -------- --------- ------ ------------- ------- ------- ---------- ---------
Rule 144A
Securities X X X X X X X X
Unseasoned X X X X X X X X
Securities
DERIVATIVES
Equity-Linked X X X X X X X X
Derivatives
Call Options X X X X X X X X
Straddles X X X X X X X X
Warrants X X X X X X X X
Futures X X X X X X X X
Contracts and
Options on
Futures
Contracts
Forward Currency X X X X X X X X
Contracts
Cover X X X X X X X X
12
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise cash
for business purposes and represents a residual interest in the issuing company.
A Fund participates in the success or failure of any company in which it holds
stock. The prices of equity securities change in response to many factors
including the historical and prospective earnings of the issuer, the value of
its assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
notes, preferred stocks and other securities that may be converted into a
prescribed amount of common stock or other equity securities at a specified
price and time. The holder of convertible securities is entitled to receive
interest paid or accrued on debt, or dividends paid or accrued on preferred
stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the yield of
similar nonconvertible securities, the financial strength of the issuer and the
seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund. AIM V.I. Blue Chip Fund does not intend
to invest more than 10% of its total assets in convertible securities. AIM V.I.
International Growth Fund may invest up to 20% of its total assets in securities
exchangeable for or convertible into marketable equity securities of foreign
issues.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities issued
by entities outside the United States. The term "foreign securities" includes
securities in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), or other securities representing underlying
securities of foreign issuers. Depositary Receipts are typically issued by a
bank or trust company and evidence ownership of underlying securities issued by
foreign corporations.
Each Fund may invest in foreign securities as described in the Prospectus.
Investments by a Fund in foreign securities, whether denominated in U.S. dollars
or foreign currencies, may entail all of the 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 Funds' foreign investments will be affected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and increases when the value of
the U.S. dollar falls against such currency.
13
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be 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
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the Securities
and Exchange Commission ("SEC") and 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, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major United
States markets. As a result, the securities of some foreign companies may be
less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (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.
On January 1, 1999, certain members of the European Economic and Monetary
Union ("EMU"), established a common European currency known as the "euro" and
each member's local currency became a denomination of the euro. Each
participating country (currently, Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) has
replaced its local currency with the euro effective July 1, 2002.
Risks of Developing Countries. Each Fund (excluding AIM V.I. Money Market
Fund) may invest up to 5%, except that AIM V.I. Demographic Trends Fund and AIM
V.I. Technology Fund may invest up to 10%, and AIM V.I. International Core
Equity Fund, AIM V.I. International Growth Fund, AIM V.I. Global Equity Fund and
AIM V.I. Global Health Care Fund may invest up to 20% of their respective total
assets in securities of companies located in developing countries. Developing
countries are those countries which are not included in the MSCI World Index.
The Funds consider various factors when determining whether a company is in a
developing country, including whether (1) it is organized under the laws of a
developing country; (2) it has a principal office in a developing country; (3)
it derives 50% or more of its total revenues from business in a developing
country; or (4) its securities are traded principally on a stock exchange, or in
an over-the-counter market, in a developing country. Investments in developing
countries present risks greater than, and in addition to, those presented by
investments in foreign issuers in general. A number of developing countries
restrict, to varying degrees, foreign investment in stocks. Repatriation of
investment income, capital, and the proceeds of sales by foreign investors may
require governmental registration and/or approval in some developing countries.
A number of the currencies of developing countries have experienced significant
declines against the U.S. dollar in recent years, and devaluation may occur
subsequent to investments in these currencies by a Fund. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries. Many of the developing securities markets are relatively small or
less diverse, have low trading volumes, suffer periods of relative illiquidity,
and are characterized by significant price volatility. There is a risk in
developing countries that a future economic or political crisis could lead to
price controls, forced mergers of companies, expropriation or confiscatory
taxation, seizure, nationalization, or creation of government monopolies, any of
which may have a detrimental effect on a Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions,
14
agencies or instrumentalities, that issue them. These securities involve the
risks discussed above with respect to foreign securities. Additionally, the
issuer of the debt or the governmental authorities that control repayment of the
debt may be unwilling or unable to pay interest or repay principal when due.
Political or economic changes or the balance of trade may affect a country's
willingness or ability to service its debt obligations. Periods of economic
uncertainty may result in the volatility of market prices of sovereign debt
obligations, especially debt obligations issued by the governments of developing
countries. Foreign government obligations of developing countries, and some
structures of emerging market debt securities, both of which are generally below
investment grade, are sometimes referred to as "Brady Bonds," though, there are
other types of foreign government obligations meeting this definition that are
not Brady Bonds.
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include direct
purchases of futures contracts with respect to foreign currency, and contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) at a price set at the time of the contract. Such contractual
commitments may be forward contracts entered into directly with another party or
exchange traded futures contracts.
Each Fund (except AIM V.I. Money Market Fund) has authority to deal in
foreign exchange between currencies of the different countries in which it will
invest as a hedge against possible variations in the foreign exchange rates
between those currencies. A Fund may commit the same percentage of its assets to
foreign exchange hedges as it can invest in foreign securities.
The Funds may utilize either specific transactions ("transaction hedging")
or portfolio positions ("position hedging") to hedge foreign currency exposure
through foreign exchange transactions. Transaction hedging is the purchase or
sale of foreign currency with respect to specific receivables or payables of a
Fund accruing in connection with the purchase or sale of its portfolio
securities, the sale and redemption of shares of the Fund, or the payment of
dividends and distributions by the Fund. Position hedging is the purchase or
sale of foreign currency with respect to portfolio security positions (or
underlying portfolio security positions, such as in an ADR) denominated or
quoted in a foreign currency. Additionally, foreign exchange transactions may
involve some of the risks of investments in foreign securities.
Debt Investments for Equity Funds
U.S. GOVERNMENT OBLIGATIONS. See "Debt Investments for Fixed Income Funds
and Money Market Fund - U.S. Government Obligations."
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. See "Debt Investments for
Fixed Income Funds and Money Market Fund - Mortgage Backed and Asset-Backed
Securities."
COLLATERALIZED MORTGAGE OBLIGATIONS. See "Debt Investments for Fixed Income
Funds and Money Market Fund - Collateralized Mortgage Obligations."
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund may invest in U.S.
dollar-denominated debt obligations issued or guaranteed by U.S. corporations or
U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers
and debt obligations of foreign issuers denominated in foreign currencies. Such
debt obligations include, among others, bonds, notes, debentures and variable
rate demand notes. In choosing corporate debt securities on behalf of a Fund,
its investment adviser may consider (i) general economic and financial
conditions; (ii) the specific issuer's (a) business and management, (b) cash
flow, (c) earnings coverage of interest and dividends, (d) ability to operate
under adverse economic conditions, (e) fair market value of assets, and (f) in
the case of foreign issuers, unique political, economic or social conditions
applicable to such issuer's country; and, (iii) other considerations deemed
appropriate.
LIQUID ASSETS. Cash equivalents include money market instruments (such as
certificates of deposit, time deposits, banker's acceptances from U.S. or
foreign banks, and repurchase agreements),
15
shares of affiliated money market funds or high-quality debt obligations (such
as U.S. Government obligations, commercial paper, master notes and other
short-term corporate instruments and municipal obligations).
JUNK BONDS. Junk bonds are lower-rated or non-rated debt securities. Junk
bonds are considered speculative with respect to their capacity to pay interest
and repay principal in accordance with the terms of the obligation. While
generally providing greater income and opportunity for gain, non-investment
grade debt securities are subject to greater risks than higher-rated securities.
Companies that issue junk bonds are often highly leveraged, and may not
have more traditional methods of financing available to them. During an economic
downturn or recession, highly leveraged issuers of high yield securities may
experience financial stress, and may not have sufficient revenues to meet their
interest payment obligations. Economic downturns tend to disrupt the market for
junk bonds, lowering their values, and increasing their price volatility. The
risk of issuer default is higher with respect to junk bonds because such issues
are generally unsecured and are often subordinated to other creditors of the
issuer.
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. The lower the rating of a junk bond,
the more speculative its characteristics.
To the extent that a Fund has the ability to invest in junk bonds, a Fund
may have difficulty selling certain junk bonds because they may have a thin
trading market. The lack of a liquid secondary market may have an adverse effect
on the market price and each Fund's ability to dispose of particular issues and
may also make it more difficult for each Fund to obtain accurate market
quotations of valuing these assets. In the event a Fund experiences an
unexpected level of net redemptions, the Fund could be forced to sell its junk
bonds at an unfavorable price. 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.
Descriptions of debt securities ratings are found in Appendix A.
Debt Investments for Fixed Income Funds and Money Market Fund
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the former Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. The U.S. Government may choose not to provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so, in which case if the issuer were to default, the Funds
holding securities of such issuer might not be able to recover their investments
from the U.S. Government.
RULE 2A-7 REQUIREMENTS. Money market instruments in which the Fund will
invest will be "Eligible Securities" as defined in Rule 2a-7 under the 1940 Act,
as such Rule may be amended from time to time. An Eligible Security is generally
a rated security with a remaining maturity of 397 calendar days or less that has
been rated by the Requisite NRSROs (as defined below) in one of the two highest
short-term rating categories, or a security issued by an issuer that has
received a rating by the Requisite
16
NRSROs in one of the two highest short-term rating categories with respect to a
class of debt obligations (or any debt obligation within that class). Eligible
Securities may also include unrated securities determined by AIM (under the
supervision of and pursuant to guidelines established by the Board) to be of
comparable quality to such rated securities. If an unrated security is subject
to a guarantee, to be an Eligible Security, the guarantee generally must have
received a rating from an NRSRO in one of the two highest short-term rating
categories or be issued by a guarantor that has received a rating from an NRSRO
in one of the two highest short-term rating categories with respect to a class
of debt obligations (or any debt obligation within that class). The term
"Requisite NRSRO" means (a) any two nationally recognized statistical rating
organizations (NRSROs) that have issued a rating with respect to a security or
class of debt obligations of an issuer, or (b) if only one NRSRO has issued a
rating with respect to such security or issuer at the time a Fund acquires the
security, that NRSRO.
AIM V.I. Money Market Fund will attempt to maintain a constant net asset
value per share of $1.00 and, to this end, values its assets by the amortized
cost method and rounds the per share net asset value of its shares in compliance
with applicable rules and regulations. Accordingly, the Fund invests only in
securities having remaining maturities of 397 days or less and maintains a
dollar weighted average portfolio maturity of 90 days or less. The maturity of a
security held by the Fund is determined in compliance with applicable rules and
regulations. Certain securities bearing interest at rates that are adjusted
prior to the stated maturity of the instrument or that are subject to redemption
or repurchase agreements are deemed to have maturities shorter than their stated
maturities.
FOREIGN BANK OBLIGATIONS. To the extent that a Fund has the ability to
invest in foreign Bank Obligations, the Fund 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. AIM V.I. Money Market Fund
will limit its aggregate investments in foreign bank obligations, including
Eurodollar obligations and Yankee dollar obligations, to 50% of its total assets
at the time of purchase, provided that there is no limitation upon the Fund's
investments in (a) Eurodollar obligations, if the domestic parent of the foreign
branch issuing the obligation is unconditionally liable in the event that the
foreign branch for any reason fails to pay on the Eurodollar obligation; and (b)
Yankee dollar obligations, if the U.S. branch of the foreign bank is subject to
the same regulation as U.S. banks. Eurodollar, Yankee dollar and other foreign
bank obligations include time deposits, which are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
For a discussion of the risks pertaining to investments in foreign securities,
see "Risk Factors" in this Statement of Additional Information.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities are
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, or issued by nongovernment entities.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various government agencies such as GNMA and government-related
organizations such as FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings
and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities they issue. Mortgage-related securities issued by GNMA
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest. That
guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a
corporation wholly owned by the U.S. Government within the Department of Housing
and Urban Development. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and
are guaranteed as to payment of principal and interest by FNMA itself and backed
by a line of credit with the U.S. Treasury. FNMA is a government-sponsored
entity wholly owned by public stockholders. Mortgage-related securities issued
by FHLMC include FHLMC Mortgage
17
Participation Certificates (also known as "Freddie Macs") guaranteed as to
payment of principal and interest by FHLMC itself and backed by a line of credit
with the U.S. Treasury. FHLMC is a government-sponsored entity wholly owned by
public stockholders.
Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements. Regular payments received
in respect of such securities include both interest and principal. Asset-backed
securities typically have no U.S. Government backing. Additionally, the ability
of an issuer of asset-backed securities to enforce its security interest in the
underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at a
premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-backed or other asset-backed security may decline
when interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages and loans underlying the securities
are prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.
When interest rates are rising, though, the rate of prepayment tends to
decrease, thereby lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-backed or other
asset-backed security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). AIM V.I. Basic Balanced Fund,
AIM V.I. Diversified Income Fund, AIM V.I. Global Equity Fund and AIM V.I. Real
Estate Fund may invest in CMOs. The Funds can also invest in mortgage-backed
bonds and asset-backed securities. A CMO is a hybrid between a mortgage-backed
bond and a mortgage pass-through security. Similar to a bond, interest and
prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of its
agencies or instrumentalities will be considered U.S. government securities by
the Funds, while other CMOs, even if collateralized by U.S. government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.
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FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC
Participation Certificates, payments of principal and interest on the CMOs are
made semiannually, as opposed to monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a Fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold.
Credit risk reflects the risk that a Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
BANK INSTRUMENTS. Each Fund may invest in certificates of deposits, time
deposits, and bankers' acceptances from U.S. or foreign banks. A bankers'
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank. A certificate of deposit is 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. A time deposit
is 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.
COMMERCIAL INSTRUMENTS. Each Fund may invest in commercial instruments,
including commercial paper, master notes and other short-term corporate
instruments, that are denominated in U.S. dollars. Commercial paper consists of
short-term promissory notes issued by corporations.
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Commercial paper may be traded in the secondary market after its issuance.
Master notes are demand notes that permit the investment of fluctuating amounts
of money at varying rates of interest pursuant to arrangements with issuers who
meet the quality criteria of the Fund. The interest rate on a master note may
fluctuate based upon changes in specified interest rates or be reset
periodically according to a prescribed formula or may be a set rate. Although
there is no secondary market in master demand notes, if such notes have a demand
feature, the payee may demand payment of the principal amount of the note upon
relatively short notice. 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 applicable
quality criteria. The interest rate on a variable rate master demand note is
periodically redetermined according to a prescribed formula. All variable rate
master demand notes acquired by AIM V.I. Money Market Fund will be payable
within a prescribed notice period not to exceed seven days.
PARTICIPATION INTERESTS. AIM V.I. Money Market Fund may purchase
participations in corporate loans. Participation interests generally will be
acquired from a commercial bank or other financial institution (a "Lender") or
from other holders of a participation interest (a "Participant"). The purchase
of a participation interest either from a Lender or a Participant will not
result in any direct contractual relationship with the borrowing company (the
"Borrower"). Instead, the Fund will be required to rely on the Lender or the
Participant that sold the participation interest both for the enforcement of the
Fund's rights against the Borrower and for the receipt and processing of
payments due to the Fund under the loans. The Fund is thus subject to the credit
risk of both the Borrower and a Participant. Participation interests are
generally subject to restrictions on resale. The Fund considers participation
interests to be illiquid and therefore subject to the Fund's percentage
limitation for investments in illiquid securities.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations may take the form
of a lease, an installment purchase or a conditional sales contract. Municipal
lease obligations are issued by state and local governments and authorities to
acquire land, equipment and facilities such as state and municipal vehicles,
telecommunications and computer equipment, and other capital assets. Interest
payments on qualifying municipal leases for exempt from federal income taxes.
Consistent with its investment objective, a Fund may purchase these obligations
directly, or they may purchase participation interests in such obligations.
Municipal leases are generally subject to greater risks than general obligation
or revenue bonds. State laws set forth requirements that states or
municipalities must meet in order to issue municipal obligations, and such
obligations may contain a covenant by the issuer to budget for, appropriate, and
make payments due under the obligation. However, certain municipal lease
obligations may contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying capital asset, it may be difficult to dispose of
such assets in the event of non-appropriation or other default. All direct
investments by the Fund in municipal lease obligations shall be deemed illiquid
and shall be valued according to the Fund's Procedures for Valuing Securities
current at the time of such valuation.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. See "Debt Investments for
Equity Funds - Investment Grade Corporate Debt."
JUNK BONDS. See "Debt Investments for Equity Funds - Junk Bonds."
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell equity
or debt securities to investors and use the proceeds to invest in real estate or
interests therein. A REIT may focus on particular projects, such as apartment
complexes, or geographic regions, such as the southeastern United States, or
both.
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To the extent consistent with its investment objective, each Fund (except
AIM V.I. Real Estate Fund) may invest up to 15% of its total assets in equity
and/or debt securities issued by REITs. AIM V.I. Real Estate Fund may invest all
of its total assets in equity and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected by
any changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to maintain an
exemption from the 1940 Act. Changes in interest rates may also affect the value
of debt securities held by a Fund. By investing in REITs indirectly through a
Fund, a shareholder will bear not only his/her proportionate share of the
expenses of the Fund, but also, indirectly, similar expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares of
another investment company, including Affiliated Money Market Funds (defined
below), the Fund will indirectly bear its proportionate share of the advisory
fees and other operating expenses of such investment company. The Funds have
obtained an exemptive order from the SEC allowing them to invest in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the investing Fund.
The following restrictions apply to investments in other investment
companies other than Affiliated Money Market Funds: (i) a Fund may not purchase
more than 3% of the total outstanding voting stock of another investment
company; (ii) a Fund may not invest more than 5% of its total assets in
securities issued by another investment company; and (iii) a Fund may not invest
more than 10% of its total assets in securities issued by other investment
companies.
DEFAULTED SECURITIES. AIM V.I. High Yield Fund and AIM V.I. Diversified
Income Fund may invest in defaulted securities. In order to enforce its rights
in defaulted securities, the Fund may be required to participate in various
legal proceedings or take possession of and manage assets securing the issuer's
obligations on the defaulted securities. This could increase a Fund's operating
expenses and adversely affect its net asset value. Any investments by a Fund in
defaulted securities will also be considered illiquid securities subject to the
limitations described herein, unless AIM determines that such defaulted
securities are liquid under guidelines adopted by the Board.
VARIABLE OR FLOATING RATE INSTRUMENTS. The Funds may invest in Municipal
Securities which have variable or floating interest rates which are readjusted
on set dates (such as the last day of the month or calendar quarter) in the case
of variable rates or whenever a specified interest rate change occurs in the
case of a floating rate instrument. Variable or floating interest rates
generally reduce changes in the market price of Municipal Securities from their
original purchase price because, upon readjustment, such rates approximate
market rates. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for variable or floating rate
Municipal Securities than for fixed rate obligations. Many Municipal Securities
with variable or floating interest rates purchased by a Fund are subject to
payment of principal and accrued interest (usually within seven days) on the
Fund's demand. The terms of such demand instruments require payment of principal
and accrued interest by the issuer, a guarantor, and/or a liquidity provider.
All variable or floating rate instruments will
21
meet the applicable quality standards of a Fund. AIM will monitor the pricing,
quality and liquidity of the variable or floating rate Municipal Securities held
by the Funds.
To the extent a Fund has the ability to invest in Variable or Floating Rate
Instruments, the Fund may invest in inverse floating rate obligations or
residual interest bonds, or other obligations or certificates related to such
securities which have similar features. These types of obligations generally
have floating or variable interest rates that move in the opposite direction of
short-term interest rates, and generally increase or decrease in value in
response to changes in short-term interest rates at a rate which is a multiple
(typically two) of the rate at which long-term fixed rate tax-exempt securities
increase or decrease in response to such changes. As a result, such obligations
have the effect of providing investment leverage and may be more volatile than
long-term fixed rate tax-exempt securities.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. To the extent consistent with its
investment objective, each Fund may invest in zero-coupon or pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon securities are sold at a deep discount to their
face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because zero-coupon and pay-in-kind securities do not pay
current cash income, the price of these securities can be volatile when interest
rates fluctuate. While these securities do not pay current cash income, federal
tax law requires the holders of zero-coupon and pay-in-kind securities to
include in income each year the portion of the original issue discount (or
deemed discount) and other non-cash income on such securities accrued during
that year. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code") and to avoid certain
excise taxes, the Fund may be required to distribute a portion of such discount
and income, and may be required to dispose of other portfolio securities, which
could occur during periods of adverse market prices, in order to generate
sufficient cash to meet these distribution requirements.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also referred
to as forward commitments, involve commitments by a Fund to dealers or issuers
to acquire or sell securities at a specified future date beyond the customary
settlement for such securities. These commitments may fix the payment price and
interest rate to be received or paid on the investment. A Fund may purchase
securities on a delayed delivery basis to the extent it can anticipate having
available cash on settlement date. Delayed delivery transactions will not be
used as a speculative or leverage technique.
Investment in securities on a delayed delivery basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must engage in portfolio transactions in order to honor a delayed
delivery commitment. Until the settlement date, a Fund will segregate liquid
assets of a dollar value sufficient at all times to make payment for the delayed
delivery transactions. Such segregated liquid assets will be marked-to-market
daily, and the amount segregated will be increased if necessary to maintain
adequate coverage of the delayed delivery commitments. No additional delayed
delivery agreements or when-issued commitments (as described below) will be made
by a Fund if, as a result, more than 25% of the Fund's total assets would become
so committed.
The delayed delivery securities, which will not begin to accrue interest or
dividends until the settlement date, will be recorded as an asset of a Fund and
will be subject to the risk of market fluctuation. The purchase price of the
delayed delivery securities is a liability of a Fund until settlement. Absent
extraordinary circumstances, a Fund will not sell or otherwise transfer the
delayed delivery basis securities prior to settlement.
AIM V.I. Government Securities Fund may enter into buy/sell back
transactions (a form of delayed delivery agreement). In a buy/sell back
transaction, the Fund enters a trade to sell securities at one price and
simultaneously enters a trade to buy the same securities at another price for
settlement at a future date.
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WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that 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. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in a
Fund's portfolio are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and, if applicable, changes in
the level of interest rates. Therefore, if 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
liquid assets, by 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 Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must engage in portfolio transactions in order to honor a when-issued
commitment. A Fund will employ techniques designed to reduce such risks. If a
Fund purchases a when-issued security, the Fund will segregate liquid assets in
an amount equal to the when-issued commitment. If the market value of such
segregated assets declines, additional liquid assets will be segregated on a
daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed delivery
agreements (as described above) or when-issued commitments will be made by a
Fund if, as a result, more than 25% of the Fund's total assets would become so
committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Fund will make a
short sale, as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security, or when the Fund
does not want to sell the security it owns, because it wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
future losses in a Fund's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount a Fund
owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium. In determining the
number of shares to be sold short against a Fund's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered. A
Fund may also make short sales to generate additional income from the investment
of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that 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 in an amount
to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
to the securities sold short or securities convertible into or exchangeable for
such securities. A Fund may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
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INTEREST RATE, INDEX AND CURRENCY EXCHANGE RATE SWAPS. To the extent that a
Fund has the ability to enter into Swap Agreements, a Fund has the ability to
enter into interest rate, index and currency exchange rate swap agreements for
purposes of attempting to obtain a particular desired return at a lower cost to
the Fund than if it had invested directly in an instrument that yielded that
desired return. Swap agreements are two-party contracts entered into primarily
by institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular index. Commonly used swap
agreements include interest rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; interest rate floors, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by a Fund would calculate
the obligations of the parties to the agreement on a "net basis." Consequently,
a Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). Obligations under a swap agreement will be accrued daily (offset
against amounts owing to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by segregating liquid assets, to avoid
any potential leveraging of the Fund. A Fund will not enter into a swap
agreement with any single party if the net amount owned to or to be received
under existing contracts with that party would exceed 5% of the Fund's total
assets. For a discussion of the tax considerations relating to swap agreements,
see "Dividends, Distributions and Tax Matters - Swap Agreements."
CREDIT DEFAULT SWAPS. AIM V.I. Basic Balanced Fund, AIM V.I. Diversified
Dividend Fund and AIM V.I. High Yield Fund may enter into Credit Default Swaps
("CDS"). A CDS is an agreement between two parties pursuant to which one party
agrees to make one or more payments to the other, while the other party would
assume the risk of a referenced debt obligation in the event of default. CDS may
be direct ("unfunded swaps") or indirect in the form of a structured note
("funded swaps"). Unfunded and funded credit default swaps may be on a single
security or packaged as a basket of CDS. The Fund may buy a CDS ("buy credit
protection") in which it pays a fixed payment over the life of the swap in
exchange for a counterparty taking on the risk of default of a referenced debt
obligation ("Reference Entity"). Alternatively, the Fund may sell a CDS ("sell
protection") in which it will receive a fixed payment in exchange for taking on
the credit risk of the Reference Entity. An investment in a CDS may cause the
portfolio performance to be more or less volatile.
CDS agreements are typically individually negotiated and structured. CDS
agreements may be entered into for investment or hedging purposes. The Fund may
enter into CDS to create direct or synthetic long or short exposure to domestic
or foreign corporate debt securities or sovereign debt securities.
As a buyer of a CDS, the Fund would pay a fixed spread over the life of the
agreement to the seller of the CDS. If an event of default occurs, the fixed
payment stream would cease, the Fund would deliver defaulted bonds to the seller
and the seller would pay the full notional value, or the "par value," of the
reference obligation to the Fund. The Fund may already own the reference bonds
or may purchase a deliverable bond in the market. Alternatively, the two
counterparties may agree to cash settlement. If no event of default occurs, the
Fund pays the fixed stream of cash flows to the seller, and no other exchange
occurs.
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As a seller of CDS, the Fund would receive a fixed payment stream. If an
event of default occurs, the fixed payment stream stops, the Fund would pay the
buyer par, and, in return, the Fund would receive deliverable bonds.
Alternatively, if cash settlement is elected, the Fund would pay the buyer par
less the market value of the referenced bonds. If no event of default occurs,
the Fund receives the cash flow payment over the life of the agreement. Risks of
CDS include the risk that a counterparty may default on amounts owed to the
Fund, basis risk (risk that the price of a derivative used to hedge or reflect
an underlying bond behaves differently than the price of that bond), liquidity
risk and market risk.
Credit Derivatives may create covered or uncovered exposure to the Funds.
The Fund generally will employ a strategy of setting aside liquid assets to
cover any potential obligation. This strategy would be employed to avoid
multiplying a Fund's economic exposure and would limit risks of leveraging. For
example, the Fund may sell protection on a Reference Entity bearing the risk of
delivering par to the counterparty. The Fund would set aside liquid assets,
marked to the market daily, to cover this potential obligation.
CDS agreements are generally governed by a single master agreement for each
counterparty, and the agreements allow for netting of counterparties'
obligations on specific transactions. The Fund's obligation or rights will be
the net amount owed to or by the counterparty. A Fund's current obligations
under a swap agreement will be accrued daily (on a net basis), and the Fund will
maintain liquid assets in an amount equal to amounts owed to a swap counterparty
less the value of any collateral posted. The Fund will not enter into a swap
agreement with any single counterparty if the net amount owed or to be received
under existing contracts with that counterparty would exceed 5% of the Fund's
net assets determined on the date the CDS is entered into.
CDS Options. The Fund may additionally enter into CDS option transactions
which grant the holder the right, but not the obligation, to enter into a credit
default swap at a specified future date and under specified terms in exchange
for a purchase price ("premium"). The writer of the option bears the risk of any
unfavorable move in the value of the CDS relative to the market value on the
exercise date, while the purchaser may allow the option to expire unexercised.
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its net
assets to other funds advised by AIM (the "AIM Funds") and each Fund may borrow
from other AIM Funds to the extent permitted under such Fund's investment
restrictions. During temporary or emergency periods, the percentage of a Fund's
net assets that may be loaned to other AIM Funds may be increased as permitted
by the SEC. If any interfund borrowings are outstanding, a Fund cannot make any
additional investments. If a Fund has borrowed from other AIM Funds and has
aggregate borrowings from all sources that exceed 10% of such Fund's total
assets, such Fund will secure all of its loans from other AIM Funds. The ability
of a Fund to lend its securities to other AIM Funds is subject to certain other
terms and conditions.
BORROWING. Each Fund may borrow money to a limited extent for temporary or
emergency purposes. If there are unusually heavy redemptions because of changes
in interest rates or for any other reason, a Fund may have to sell a portion of
its investment portfolio at a time when it may be disadvantageous to do so.
Selling fund securities under these circumstances may result in a lower net
asset value per share or decreased dividend income, or both. The Trust believes
that, in the event of abnormally heavy redemption requests, a Fund's borrowing
ability would help to mitigate any such effects and could make the forced sale
of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities
(principally to broker-dealers) where such loans are callable at any time and
are continuously secured by segregated collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash, letters of credit, or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Each Fund may lend portfolio securities to
the extent of one-third of its total assets.
A Fund will not have the right to vote securities while they are being
lent, but it can call a loan in anticipation of an important vote. The Fund
would receive income in lieu of dividends on loaned
25
securities and would, at the same time, earn interest on the loan collateral or
on the investment of any cash collateral. Lending securities entails a risk of
loss to the Fund if and to the extent that the market value of the loaned
securities increases and the collateral is not increased accordingly, or in the
event of a default by the borrower. The Fund could also experience delays and
costs in gaining access to the collateral.
Any cash received as collateral for loaned securities will be invested, in
accordance with a Fund's investment guidelines, in short-term money market
instruments or Affiliated Money Market Funds. For purposes of determining
whether a Fund is complying with its investment policies, strategies and
restrictions, the Fund will consider the loaned securities as assets of the
Fund, but will not consider any collateral received as a Fund asset.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a
Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during a Fund's
holding period. A 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. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in the
value of the underlying security and loss of income. The securities underlying a
repurchase agreement will be marked-to-market every business day so that the
value of such securities is at least equal to the investment value of the
repurchase agreement, including any accrued interest thereon.
The Funds may invest their cash balances in joint accounts with other AIM
Funds for the purpose of investing in repurchase agreements with maturities not
to exceed 60 days, and in certain other money market instruments with remaining
maturities not to exceed 90 days. Repurchase agreements are considered loans by
a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are agreements
that involve the sale of securities held by a Fund to financial institutions
such as banks and broker-dealers, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. A Fund may employ
reverse repurchase agreements (i) for temporary emergency purposes, such as to
meet unanticipated net redemptions so as to avoid liquidating other portfolio
securities during unfavorable market conditions; (ii) to cover short-term cash
requirements resulting from the timing of trade settlements; or (iii) to take
advantage of market situations where the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. At the time it enters into a reverse repurchase
agreement, a Fund will segregate liquid assets having a dollar value equal to
the repurchase price, and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of securities to be purchased
by the Fund may decline below the price at which it is obligated to repurchase
the securities, or that the other party may default on its obligation, so that
the Fund is delayed or prevented from completing the transaction. Reverse
repurchase agreements are considered borrowings by a Fund under the 1940 Act.
DOLLAR ROLLS. A dollar roll involves the sale by a Fund of a mortgage
security to a financial institution such as a broker-dealer or a bank, with an
agreement to repurchase a substantially similar (i.e., same type, coupon and
maturity) security at an agreed upon price and date. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but will
generally 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
26
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. At the time the Fund enters into a dollar roll, it will
segregate liquid assets having a dollar value equal to the repurchase price, and
will monitor the account to ensure that such equivalent value is maintained. The
Fund typically enters into dollar roll transactions on mortgage securities to
enhance the Fund's return either on an income or total return basis or to manage
prepayment risk. Dollar rolls are considered borrowings by a Fund under the 1940
Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at
which they are valued. Illiquid securities may include securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A under the 1933 Act, and
thus may or may not constitute illiquid securities.
Each Fund, except AIM V.I. Money Market Fund, may invest up to 15% of its
net assets in securities that are illiquid. AIM V.I. Money Market Fund may
invest up to 10% of its net assets in securities that are illiquid. Limitations
on the resale of restricted securities may have an adverse effect on their
marketability, which may prevent a Fund from disposing of them promptly at
reasonable prices. A Fund may have to bear the expense of registering such
securities for resale, and the risk of substantial delays in effecting such
registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under 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 Board, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Funds' restriction on investment 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). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review a Fund's holdings of illiquid securities to determine what, if any,
action is required to assure that such Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
Derivatives
To the extent a Fund has the ability to invest in Derivatives, the Fund may
invest in forward currency contracts, futures contracts, options on securities,
options on indices, options on currencies, and options on futures contracts to
attempt to hedge against the overall level of investment and currency risk
27
normally associated with the Fund's investments. The Fund may also invest in
equity-linked derivative products designed to replicate the composition and
performance of particular indices. AIM V.I. Diversified Income Fund and AIM V.I.
High Yield Fund may also invest in fixed-rate certificates ("TRAINS") that
represent fractional undivided interests in the assets of a Targeted Return
Index Securities Trust. These instruments are often referred to as
"derivatives," which may be defined as financial instruments whose performance
is derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities).
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular securities index. Equity-Linked Derivatives are exchange traded. The
performance results of Equity-Linked Derivatives will not replicate exactly the
performance of the pertinent index due to transaction and other expenses,
including fees to service providers, borne by the Equity-Linked Derivatives.
Examples of such products include S&P Depositary Receipts ("SPDRs"), World
Equity Benchmark Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones
Industrial Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed
Securities ("OPALS"). Investments in Equity-Linked Derivatives involve the same
risks associated with a direct investment in the types of securities included in
the indices such products are designed to track. There can be no assurance that
the trading price of the Equity-Linked Derivatives will equal the underlying
value of the basket of securities purchased to replicate a particular index or
that such basket will replicate the index. Investments in Equity-Linked
Derivatives may constitute investments in other investment companies, and
therefore, a Fund may be subject to the same investment restrictions with
Equity-Linked Derivatives as with other investment companies. See "Other
Investment Companies."
BUNDLED SECURITIES. In lieu of investing directly in securities appropriate
for AIM V.I. Diversified Income Fund and AIM V.I. High Yield Fund, the Funds may
from time to time invest in trust certificates (such as TRAINS) or similar
instruments representing a fractional undivided interest in an underlying pool
of such appropriate securities. The Funds will be permitted at any time to
exchange such certificates for the underlying securities evidenced by such
certificates. To that extent, such certificates are generally subject to the
same risks as the underlying securities. The Funds will examine the
characteristics of the underlying securities for compliance with most investment
criteria but will determine liquidity with reference to the certificates
themselves. To the extent that such certificates involve interest rate swaps or
other derivative devices, a Fund may invest in such certificates if the Fund is
permitted to engage in interest rate swaps or other such derivative devices.
PUT AND CALL OPTIONS. A call option gives the purchaser the right to buy
the underlying security, futures contract or foreign currency at the stated
exercise price at any time prior to the expiration of the option (or on a
specified date if the option is a European style option), regardless of the
market price or exchange rate of the security, futures contract or foreign
currency, as the case may be at the time of exercise. If the purchaser exercises
the call option, the writer of a call option is obligated to sell the underlying
security, futures contract or foreign currency. A put option gives the purchaser
the right to sell the underlying security, contract or foreign currency at the
stated exercise price at any time prior to the expiration date of the option (or
on a specified date if the option is a European style option), regardless of the
market price or exchange rate of the security, futures contract or foreign
currency, as the case may be at the time of exercise. If the purchaser exercises
the put option, the writer of a put option is obligated to buy the underlying
security, contract or foreign currency. The premium paid to the writer is
consideration for undertaking the obligations under the option contract. Until
an option expires or is offset, the option is said to be "open." When an option
expires or is offset, the option is said to be "closed."
A Fund will not write (sell) options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at
the time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, a Fund's use of
options may require that Fund to set aside assets to reduce the risks associated
with using those options. This process is described in more detail below in the
section "Cover."
28
Writing Options. Each Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, futures contract, or foreign currency
alone. A Fund may only write a call option on a security if it owns an equal
amount of such security 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 subject to the call option. In return for the
premium received for writing a call option, the Fund foregoes the opportunity
for profit from a price increase in the underlying security, futures contract,
or foreign currency above the exercise price so long as the option remains open,
but retains the risk of loss should the price of the underling security, futures
contract, or foreign currency decline.
A Fund may write a put option without owning the underlying security if it
covers the option as described below in the section "Cover." A Fund may only
write a put option on a security as part of an investment strategy, and not for
speculative purposes. In return for the premium received for writing a put
option, the Fund assumes the risk that the price of the underlying security,
futures contract, or foreign currency will decline below the exercise price, in
which case the put would be exercised and the Fund would suffer a loss.
If a call option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If the call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset to the extent of the premium received. A Fund would write a
put option at an exercise price that, reduced by the premium received on the
option, reflects the lowest price it is willing to receive for the underlying
security, contract or currency. The obligation imposed upon the writer of an
option is terminated upon the expiration of the option, or such earlier time at
which a Fund effects a closing purchase transaction by purchasing an option (put
or call as the case may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, futures contract or currency from being called or to permit the sale
of the underlying security, contract or currency. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security, futures contract or currency with either a different
exercise price or expiration date, or both.
Purchasing Options. Each Fund may purchase a call option for the purpose of
acquiring the underlying security, futures contract or currency for its
portfolio. The Fund is not required to own the underlying security in order to
purchase a call option, and may only cover this transaction with cash, liquid
assets and/or short-term debt securities. Utilized in this fashion, the purchase
of call options would enable a Fund to acquire the security, futures contract or
currency at the exercise price of the call option plus the premium paid. So long
as it holds such a call option, rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected decline in the
market price of the underlying security, futures contract or currency. If the
market price does not exceed the exercise price, the Fund could purchase the
security on the open market and could allow the call option to expire, incurring
a loss only to the extent of the premium paid for the option. Each of the Funds
may also purchase call options on underlying securities, futures contracts or
currencies against which it has written other call options. For example, where a
Fund has written a call option on an underlying security, rather than entering a
closing transaction of the written option, it may purchase a call option with a
different exercise strike and/or expiration date that would eliminate some or
all of the risk associated with the written call. Used in combinations, these
strategies are commonly referred to as "call spreads."
A Fund may only purchase a put option on an underlying security, futures
contract or currency ("protective put") owned by the Fund in order to protect
against an anticipated decline in the value of the security, futures contract or
currency. Such hedge protection is provided only during the life of the put
option. The premium paid for the put option and any transaction costs would
reduce any profit realized
29
when the security, futures contract or currency is delivered upon the exercise
of the put option. Conversely, if the underlying security, futures contract or
currency does not decline in value, the option may expire worthless and the
premium paid for the protective put would be lost. A Fund may also purchase put
options on underlying securities, futures contracts or currencies against which
it has written other put options. For example, where a Fund has written a put
option on an underlying security, rather than entering a closing transaction of
the written option, it may purchase a put option with a different exercise price
and/or expiration date that would eliminate some or all of the risk associated
with the written put. Used in combinations, these strategies are commonly
referred to as "put spreads." Likewise, a Fund may write call options on
underlying securities, futures contracts or currencies against which it has
purchased protective put options. This strategy is commonly referred to as a
"collar."
Over-The-Counter Options. Options may be either listed on an exchange or
traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options (i.e., the market value) as illiquid securities. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are similar
in many respects to options on securities, except that an index option gives the
holder the right to receive, upon exercise, cash instead of securities, if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash is equal to the difference between the
closing price of the index and the exercise price of the call or put times a
specified multiple (the "multiplier"), which determines the total dollar value
for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if a Fund writes
index options it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover."
STRADDLES. Each Fund, for hedging purposes, may write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Fund's overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
30
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.
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 the warrant, the current market value
of the underlying security, the life of the warrant and various other investment
factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract is a
two party agreement to buy or sell a specified amount of a specified security or
currency (or delivery of a cash settlement price, in the case of an index
future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only; that
is, Futures Contracts will be sold to protect against a decline in the price of
securities or currencies that the Fund owns, or Futures Contracts will be
purchased to protect the Fund against an increase in the price of securities or
currencies it has committed to purchase or expects to purchase. A Fund's hedging
may include sales of Futures Contracts as an offset against the effect of
expected increases in interest rates, and decreases in currency exchange rates
and stock prices, and purchases of Futures Contracts as an offset against the
effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded (either
domestically or internationally) on futures exchanges and are standardized as to
maturity date and underlying financial instrument. Futures exchanges and trading
thereon in the United States are regulated under the Commodity Exchange Act and
by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges
and trading thereon are not regulated by the CFTC and are not subject to the
same regulatory controls. For a further discussion of the risks associated with
investments in foreign securities, see "Foreign Investments" in this Statement
of Additional Information.
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund is not able to enter into an offsetting transaction, it will continue
to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that must
be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
31
Subsequent payments, called "variation margin," from and to the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar to
options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and on
Certain Options on Currencies. To the extent that a Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an obligation,
usually arranged with a commercial bank or other currency dealer, to purchase or
sell a currency against another currency at a future date and price as agreed
upon by the parties. A Fund either may accept or make delivery of the currency
at the maturity of the forward currency contract. A Fund may also, if its contra
party agrees prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Forward currency contracts are
traded over-the-counter, and not on organized commodities or securities
exchanges. As a result, it may be more difficult to value such contracts, and it
may be difficult to enter into closing transactions.
Each Fund may engage in forward currency transactions in anticipation of,
or to protect itself against, fluctuations in exchange rates. A Fund may enter
into forward currency contracts with respect to a specific purchase or sale of a
security, or with respect to its portfolio positions generally. When a Fund
purchases a security denominated in a foreign currency for settlement in the
near future, it may immediately purchase in the forward market the currency
needed to pay for and settle the purchase. By entering into a forward currency
contract with respect to the specific purchase or sale of a security denominated
in a foreign currency, the Fund can secure an exchange rate between the trade
and settlement dates for that purchase or sale transaction. This practice is
sometimes referred to as "transaction hedging." Position hedging is the purchase
or sale of foreign currency with respect to portfolio security positions
denominated or quoted in a foreign currency.
32
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities a Fund owns or intends to acquire, but it
does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the value of
the hedged currencies, they also limit any potential gain that might result
should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts and
options (other than options purchased by a Fund) expose a Fund to an obligation
to another party. A Fund will not enter into any such transactions unless, in
addition to complying with all the restrictions noted in the disclosure above,
it owns either (1) an offsetting ("covered") position in securities, currencies,
or other options, forward contracts or futures contracts or (2) cash, liquid
assets and/or short-term debt securities with a value sufficient at all times to
cover its potential obligations not covered as provided in (1) above. Each Fund
will comply with SEC guidelines regarding cover for these instruments and, if
the guidelines so require, set aside cash or liquid securities. To the extent
that a futures contract, forward contract or option is deemed to be illiquid,
the assets used to "cover" the Fund's obligation will also be treated as
illiquid for purposes of determining the Fund's maximum allowable investment in
illiquid securities.
Even though options purchased by the Funds do not expose the Funds to an
obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, a Fund will treat the market
value of the option (i.e., the amount at risk to the Fund) as illiquid, but will
not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the corresponding
forward contract, futures contract or option is open, unless they are replaced
with other appropriate assets. If a large portion of a Fund's assets is used for
cover or otherwise set aside, it could affect portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the
Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability to
correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
the price movements of an instrument (such as an option contract) and the price
movements of the investments being hedged. For example, if a "protective put" is
used to hedge a potential decline in a security and the security does decline in
price, the put option's increased value may not completely offset the loss in
the underlying security. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as changing
interest rates, market liquidity, and speculative or other pressures on the
markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
33
(4) There is no assurance that a liquid secondary market will exist for any
particular option, futures contract or option thereon or forward contract at any
particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair a Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions. For
example, if a Fund determines that the cost of hedging will exceed the potential
benefit to the Fund, the Fund will not enter into such transaction.
Additional Securities or Investment Techniques
TAXABLE MUNICIPAL SECURITIES. Taxable municipal securities are debt
securities issued by or on behalf of states and their political subdivisions,
the District of Columbia, and possessions of the United States, the interest on
which is not exempt from federal income tax.
INVESTMENTS IN ENTITIES WITH RELATIONSHIPS WITH THE FUNDS/ADVISORS. The
Funds may invest in securities issued, sponsored or guaranteed by the following
types of entities or their affiliates: (i) entities that sell shares of the AIM
Funds; (ii) entities that rate or rank the AIM Funds; (iii) exchanges on which
the AIM Funds buy or sell securities; and (iv) entities that provide services to
the AIM Funds (e.g., custodian banks). The Funds will decide whether to invest
in or sell securities issued by these entities based on the merits of the
specific investment opportunity.
MASTER LIMITED PARTNERSHIPS ("MLPS"). AIM V.I. Diversified Dividend Fund
may invest in MLPs. MLPs are securities through which the operating results of
businesses are passed on to unitholders of MLPs. Operating earnings flow
directly to the unitholders in the form of cash distributions. Although the
characteristics of MLPs closely resemble a traditional limited partnership, a
major difference is that MLPs may trade on a public exchange or in the
over-the-counter market. The ability to trade on a public exchange or in the
over-the-counter market provides a certain amount of liquidity not found in many
limited partnership investments.
DIVERSIFICATION REQUIREMENTS - AIM V.I. MONEY MARKET FUND
As a money market fund, AIM V.I. Money Market Fund is subject to the
diversification requirements of Rule 2a-7 under the 1940 Act. This Rule sets
forth two different diversification requirements: one applicable to the issuer
of securities (provided that such securities are not subject to a demand feature
or a guarantee), and one applicable to securities with demand features or
guarantees.
The issuer diversification requirement provides that the Fund may not
invest in the securities of any issuer if, as a result, more than 5% of its
total assets would be invested in securities issued by such issuer. If the
securities are subject to a demand feature or guarantee, however, they are not
subject to this requirement. Moreover, for purposes of this requirement, the
issuer of a security is not always the nominal issuer. Instead, in certain
circumstances, the underlying obligor of a security is deemed to be the issuer
of the security. Such circumstances arise for example when another political
subdivision agrees to be ultimately responsible for payments of principal of an
interest on a security or when the assets and revenues of a non-governmental
user of the facility financed with the securities secures repayment of such
securities.
The diversification requirement applicable to securities subject to a
demand feature or guarantee provides that, with respect to 75% of its total
assets, the Fund may not invest more than 10% of its total
34
assets in securities issued by or subject to demand features or guarantees from
the same entity. A demand feature permits the Fund to sell a security at
approximately its amortized cost value plus accrued interest at specified
intervals upon no more than 30 days' notice. A guarantee includes a letter of
credit, bond insurance and an unconditional demand feature (provided the demand
feature is not provided by the issuer of the security).
FUND POLICIES FOR THE V.I. FUNDS
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following fundamental
investment restrictions, except AIM V.I. Real Estate Fund is not subject to
restriction (4). Fundamental restrictions may be changed only by a vote of the
lesser of (i) 67% or more of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares.
Consistent with applicable law and unless otherwise provided, all percentage
limitations apply at the time of purchase.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions;
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions;
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the Securities
Act of 1933;
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the same industry. This restriction does not limit the
Fund's investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (ii) tax-exempt obligations
issued by governments or political subdivisions of governments, or (iii) for AIM
V.I. Money Market Fund, bank instruments. In complying with this restriction,
the Fund will not consider a bank-issued guaranty or financial guaranty
insurance as a separate security;
AIM V.I. Real Estate Fund will concentrate (as such term may be defined or
interpreted by the 1940 Act Laws, Interpretations and Exemptions) its
investments in the securities of domestic and foreign real estate and real
estate-related companies.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or in investing in securities that are secured by real estate or interests
therein;
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities;
35
(7) The Fund may not make personal loans or loans of its assets to persons
who control or are under common control with the Fund, except to the extent
permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction
does not prevent the Fund from, among other things, purchasing debt obligations,
entering into repurchase agreements, loaning its assets to broker-dealers or
institutional investors, or investing in loans, including assignments and
participation interests; and
(8) The Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as that Fund.
The investment restrictions set forth above provide the Funds with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though each of the Funds have this flexibility, the Board has
adopted non-fundamental restrictions for the Funds relating to certain of these
restrictions which AIM and the sub-advisors of AIM V.I. International Core
Equity Fund and AIM V.I. Real Estate Fund must follow in managing the Funds. Any
changes to these non-fundamental restrictions, which are set forth below,
require the approval of the Board.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to all of the Funds, except AIM V.I. Real Estate Fund is not
subject to restriction (3). They may be changed for any Fund without approval of
that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets (and
for AIM V.I. Money Market Fund, with respect to 100% of its total assets),
purchase the securities of any issuer (other than securities issued or
guaranteed by the U. S. Government or any of its agencies or instrumentalities),
if, as a result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, except as permitted by Rule 2a-7 under the
1940 Act, or (ii) the Fund would hold more than 10% of the outstanding voting
securities of that issuer. The Fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the 1940 Act and (ii)
invest its assets in securities of other money market funds and lend money to
other investment companies or their series portfolios that have AIM as an
investment advisor, subject to the terms and conditions of any exemptive orders
issued by the SEC.
(2) In complying with the fundamental restriction regarding borrowing money
and issuing senior securities, the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker/dealers or an AIM Fund. The Fund may not borrow for leveraging, but may
borrow for temporary or emergency purposes, in anticipation of or in response to
adverse market conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowing from banks exceeds 5% of the
Fund's total assets or when any borrowings from an AIM Fund are outstanding.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to
an AIM Fund, on such terms and conditions as the SEC may require in an exemptive
order.
(5) Notwithstanding the fundamental restriction with regard to investing
all assets in an open-end fund, the Fund may not invest all of its assets in the
securities of a single open-end management investment company with the same
fundamental investment objectives, policies and restrictions as the Fund.
(6) Notwithstanding the fundamental restriction with regard to engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities,
36
the Fund currently may not invest in any security (including futures contracts
or options thereon) that is secured by physical commodities.
For purposes of AIM V.I. Real Estate Fund's fundamental restriction
regarding industry concentration, real estate and real estate-related companies
shall consist of companies (i) that at least 50% of its assets, gross income or
net profits are attributable to ownership, construction, management, or sale of
residential, commercial or industrial real estate, including listed equity REITs
and other real estate operating companies that own property, or that make
short-term construction and development mortgage loans or which invest in
long-term mortgages or mortgage pools, or (ii) companies whose products and
services are related to the real estate industry, such as manufacturers and
distributors of building supplies and financial institutions which issue or
service mortgages.
Temporary Defensive Positions (for V.I. Funds)
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, each
Fund may temporarily hold all or a portion of their assets in cash, cash
equivalents or high-quality debt instruments. Each of the Funds may also invest
up to 25% of its total assets in Affiliated Money Market Funds for these
purposes.
FUND POLICIES FOR THE VIF FUNDS
INVESTMENT RESTRICTIONS. The investment restrictions set forth below have
been adopted by each respective Fund and, unless identified as non-fundamental
policies, may not be changed without the affirmative vote of a majority of the
outstanding voting securities of that Fund. As provided in the 1940 Act, a "vote
of a majority of the outstanding voting securities of the Fund" means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the Fund or (2) 67% or more of the shares present at a meeting, if more than 50%
of the outstanding shares are represented at the meeting in person or by proxy.
Except with respect to borrowing, changes in values of a particular Fund's
assets will not cause a violation of the following investment restrictions so
log as percentage restrictions are observed by such Fund at the time it
purchases any security.
(1) The Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities or municipal securities) if, as a result,
more than 25% of the Fund's total assets would be invested in the
securities of companies whose principal business activities are in the same
industry, except that (i) AIM V.I. Financial Services Fund may invest more
than 25% of the value of its total assets in one or more industries
relating to financial services; (ii) AIM V.I. Global Health Care Fund may
invest more than 25% of the value of its total assets in one or more
industries relating to health care; (iii) AIM V.I. Leisure Fund may invest
more than 25% of the value of its total assets in one or more industries
relating to leisure; (iv) AIM V.I. Technology Fund may invest more than 25%
of the value of its total assets in the one or more industries relating to
technology; and (v) AIM V.I. Utilities Fund may invest more than 25% of the
value of its total assets in one or more industries relating to the
utilities industry;
(2) The Fund may not with respect to 75% of the Fund's total assets,
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or securities of other investment companies) if, as a
result, (i) more than 5% of the Fund's total assets would be invested in
the securities of that issuer, or (ii) the Fund would hold more than 10% of
the outstanding voting securities of that issuer;
(3) The Fund may not underwrite securities of other issuers, except insofar
as it may be deemed to be an underwriter under the 1933 Act in connection
with the disposition of the Fund's portfolio securities;
37
(4) The Fund may not borrow money, except that the Fund may borrow money in
an amount not exceeding 33a% of its total assets (including the amount
borrowed) less liabilities (other than borrowings);
(5) The Fund may not issue securities, except as permitted under the 1940
Act;
(6) The Fund may not lend any security or make any loan if, as a result,
more than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to the purchase of debt securities or to
repurchase agreements;
(7) The Fund may not purchase or sell physical commodities; however, this
policy shall not prevent the Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts, swaps, caps,
floors, collars, and other financial instruments; or
(8) The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real estate
business).
(9) The Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company managed by the Advisor or an
affiliate or a successor thereof, with substantially the same fundamental
investment objective, policies and limitations as the Fund.
In addition, each Fund has the following non-fundamental policies, which
may be changed without shareholder approval:
A. The Fund may not sell securities short (unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold
short) or purchase securities on margin, except that (i) this policy does
not prevent the Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts, swaps, caps,
floors, collars, and other financial instruments, (ii) the Fund may obtain
such short-term credits as are necessary for the clearance of transactions,
and (iii) the Fund may make margin payments in connection with futures
contracts, options, forward contracts, swaps, cap, floors, collars, and
other financial instruments.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by the Advisor or an affiliate or a
successor thereof for temporary or emergency purposes (not for leveraging
or investing) or by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (4)).
C. The Fund does not currently intend to purchase any security if, as a
result, more than 15% if its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
D. The Fund may invest in securities issued by other investment companies
to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act.
E. With respect to fundamental limitation (1), domestic and foreign banking
will be considered to be different industries.
38
In addition, with respect to a Fund that may invest in municipal
obligations, the following non-fundamental policy applies, which may be changed
without shareholder approval:
Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision agency,
instrumentality and authority thereof, and each multi-state agency of which
a state is a member is a separate "issuer." When the assets and revenues of
an agency, authority, instrumentality or other political subdivision are
separate from the government creating the subdivision and the security is
backed only by assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an
Industrial Development Bond or Private Activity bond, if that bond is
backed only by the assets and revenues of the non-governmental user, then
that non-governmental user would be deemed to be the sole issuer. However,
if the creating government or another entity guarantees a security, then to
the extent that the value of all securities issued or guaranteed by that
government or entity and owned by a Fund exceeds 10% of the Fund's total
assets, the guarantee would be considered a separate security and would be
treated as issued by that government or entity, With respect to a Fund that
is not a money market fund, securities issued or guaranteed by a bank or
subject to financial guaranty insurance are not subject to the limitations
set forth in the preceding sentence.
Temporary Defensive Positions (for VIF Funds)
When securities markets or economic conditions are unfavorable to
unsettled, the Advisor and/or Sub-Advisor, where applicable, might try to
protect the assets of the Fund by investing in securities that are highly
liquid, such as high-quality money market instruments like short-term U.S.
government obligations, commercial paper, or repurchase agreements, even though
that is not the normal investment strategy of the Fund. We have the right to
invest up to 100% of the Fund's assets in these securities, although we are
unlikely to do so.
PORTFOLIO TURNOVER
The portfolio turnover rate for the AIM V.I. Basic Balanced Fund decreased
significantly from the fiscal year ended December 31, 2003 to the fiscal year
ended December 31, 2004. AIM V.I. Basic Balanced Fund underwent a portfolio
management change in December of 2003. As part of this change the fund's equity
portfolio went from being managed in a growth-at-a-reasonable-price style to
being managed in an intrinsic value style. Specifically, the new portfolio
management team looked for companies whose estimated intrinsic value represents
at least 50% upside from current market prices. When the new management team
initiated their investment style in December of 2003, they exited those
securities that did not meet this criteria and replaced them with those
securities that did, creating above-average turnover for the year 2003. The
reduced turnover in 2004 is indicative of normal levels.
The portfolio turnover rate for the AIM V.I. Government Securities Fund
decreased significantly from the fiscal year ended December 31, 2003 to the
fiscal year ended December 31, 2004. Substantially higher bond market volatility
necessitated trading more actively during 2003 than in 2004. The Fund
experienced an increase in turnover for the fiscal year ended December 31, 2005.
Positive net flows explain part of the increase in trading. With the market
trapped in a range, portfolio management also made a concerted effort to take
advantage of that situation by trading Treasuries more actively.
The portfolio turnover rate for the AIM V.I. Large Cap Growth Fund
increased significantly from the fiscal year ended December 31, 2003 to the
fiscal year ended December 31, 2004. The turnover was in response to the
transition from the lower-quality rally of 2003 to the more fundamental-driven
market of 2004. Our rigorous sell discipline gave us information that led us out
of several key names in favor of other stocks with more attractive risk/reward
profiles.
The portfolio turnover rate for the AIM V.I. Real Estate Fund decreased
significantly from the fiscal year ended December 31, 2003 to the fiscal year
ended December 31, 2004. This variation can be
39
attributed to the realignment of the Fund's portfolio to fit the investment
process of the current management team that assumed management of the Fund in
April, 2004.
The portfolio turnover rate for the AIM V.I. Small Cap Equity Fund
increased significantly from the fiscal year ended December 31, 2003 to the
fiscal year ended December 31, 2004. This variation can be attributed to the
realignment of the Fund's portfolio to fit the investment process of the current
management team that assumed management of the Fund in September of 2004. The
Fund experienced a reduction in turnover for the fiscal year ended December 31,
2005. The reduction in turnover is consistent with the lower turnover strategy
used by the Fund's management team.
The portfolio turnover rate for the AIM V.I. Dynamics Fund decreased
significantly from the fiscal year ended December 31, 2003 to the fiscal year
ended December 31, 2004. A new management team led by Paul Rasplicka took over
July 16, 2004. Turnover increased in 2004 over 2003 as this new management team
transitioned the portfolio to holdings consistent with their investment
philosophy and discipline.
The portfolio turnover rage for AIM V.I. Global Health Care Fund increased
significantly from the fiscal year ended December 31, 2003 to the fiscal year
ended December 31, 2004. This variation can be attributed to the realignment of
the Fund's portfolio to fit the investment process of the current management
team that assumed management of the Fund in October or 2004. The Fund
experienced a reduction in turnover for the fiscal year ended December 31, 2005.
The portfolio managers were satisfied with the positioning of the portfolio and
therefore, made fewer changes.
The turnover rate for AIM V.I. Small Company Growth Fund increased
significantly from the fiscal year ended December 31, 2003 to the fiscal year
ended December 31, 2004. This variation can be attributed to the realignment of
the Fund's portfolio to fit the investment process of the current management
team that assumed management of the Fund in October of 2004.
The portfolio turnover rate for AIM V.I. High Yield Fund decreased
significantly from the fiscal year ended December 31, 2004 to the fiscal year
ended December 31, 2005. There was lower volatility in the high yield market;
therefore the portfolio was traded less than the previous year.
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND HOLDINGS
The Board has adopted policies and procedures with respect to the
disclosure of the Funds' portfolio holdings (the "Holdings Disclosure Policy").
Non-public holdings information may not be disclosed except in compliance with
the Holdings Disclosure Policy.
General Disclosures
The Holdings Disclosure Policy permits AIM to publicly release certain
portfolio holdings information of the Funds from time to time. The Funds sell
their shares to life insurance companies and their separate accounts to fund
interests in variable annuity and variable life insurance policies issued by
such companies, but not directly to the public. Accordingly, the Policy
authorizes AIM to disclose, pursuant to the following table, the Funds'
portfolio holdings information on a non-selective basis to all insurance
companies whose variable annuity and variable life insurance separate accounts
invest in the Funds and with which the Funds have entered into participation
agreements ("Insurance Companies") and AIM has entered into a nondisclosure
agreement:
DISCLOSURE DATE AVAILABLE/LAG
- ---------- ---------------------------------------
Month-end top ten holdings Available 10 days after month-end
(Holdings as of June 30 available July
10)
Calendar quarter end complete holdings Available 25 days after calendar
quarter-end (Holdings as of June 30
available July 25)
40
Fiscal quarter-end complete holdings Available 55 days after fiscal
quarter-end (Holdings as of June 30
available August 24)
Selective Disclosures
SELECTIVE DISCLOSURE - TO INSURANCE COMPANIES. The Policy permits AIM to
disclose Fund Portfolio Holdings Information to Insurance Companies, upon
request/on a selective basis, up to five days prior to the scheduled release
dates of such information to allow the Insurance Companies to post the
information on their websites at approximately the same time that AIM posts the
same information. The Policy incorporates the Board's determination that
selectively disclosing portfolio holdings information to facilitate an Insurance
Company's dissemination of the information on its website is a legitimate
business purpose of the Funds. Insurance Companies that wish to receive such
portfolio holdings information in advance must sign a non-disclosure agreement
requiring them to maintain the confidentiality of the information until the
later of five business days or the scheduled release dates and to refrain from
using that information to execute transactions in securities. AIM does not post
the portfolio holdings of the Funds to its website. Not all insurance companies
that receive Fund portfolio holdings information provide such information on
their websites. To obtain information about Fund portfolio holdings, please
contact the life insurance company that issued your variable annuity or variable
life insurance policy.
SELECTIVE DISCLOSURE OF PORTFOLIO HOLDINGS PURSUANT TO NON-DISCLOSURE
AGREEMENT. Employees of AIM and its affiliates may disclose non-public full
portfolio holdings on a selective basis only if the Internal Compliance Controls
Committee (the "ICCC") of A I M Management Group Inc. ("AIM Management")
approves the parties to whom disclosure of non-public full portfolio holdings
will be made. The ICCC must determine that the proposed selective disclosure
will be made for legitimate business purposes of the applicable Fund and address
any perceived conflicts of interest between shareholders of such Fund and AIM or
its affiliates as part of granting its approval.
The Board exercises continuing oversight of the disclosure of Fund
portfolio holdings by (1) overseeing the implementation and enforcement of the
Holdings Disclosure Policy and the AIM Funds Code of Ethics by the Chief
Compliance Officer (or her designee) of AIM and the AIM Funds and (2)
considering reports and recommendations by the Chief Compliance Officer
concerning any material compliance matters (as defined in Rule 38a-1 under the
1940 Act and Rule 206(4)-7 under the Investment Advisers Act of 1940, as
amended) that may arise in connection with the Holdings Disclosure Policy.
Pursuant to the Holdings Disclosure Policy, the Board reviews the types of
situations in which AIM provides selective disclosure and approves situations
involving perceived conflicts of interest between shareholders of the applicable
Fund and AIM or its affiliates brought to the Board's attention by AIM.
AIM discloses non-public full portfolio holdings information to the
following persons in connection with the day-to-day operations and management of
the AIM Funds:
- Attorneys and accountants;
- Securities lending agents;
- Lenders to the AIM Funds;
- Rating and rankings agencies;
- Persons assisting in the voting of proxies;
- AIM Funds' custodians;
- The AIM Funds' transfer agent(s) (in the event of a redemption in
kind);
- Pricing services, market makers, or other persons who provide systems
or software support in connection with AIM Funds' operations (to
determine the price of securities held by an AIM Fund);
- Financial printers;
- Brokers identified by the AIM Funds' portfolio management team who
provide execution and research services to the team; and
- Analysts hired to perform research and analysis to the AIM Funds'
portfolio management team.
41
In many cases, AIM will disclose current portfolio holdings on a daily
basis to these persons. In these situations, AIM has entered into non-disclosure
agreements which provide that the recipient of the portfolio holdings will
maintain the confidentiality of such portfolio holdings and will not trade on
such information ("Non-Disclosure Agreements"). Please refer to Appendix B for a
list of examples of persons to whom AIM provides non-public portfolio holdings
on an ongoing basis.
AIM will also disclose non-public portfolio holdings information if such
disclosure is required by applicable laws, rules or regulations, or by
regulatory authorities having jurisdiction over AIM and its affiliates or the
Funds.
The Holdings Disclosure Policy provides that AIM will not request, receive
or accept any compensation (including compensation in the form of the
maintenance of assets in any Fund or other mutual fund or account managed by AIM
or one of its affiliates) for the selective disclosure of portfolio holdings
information.
DISCLOSURE OF CERTAIN PORTFOLIO HOLDINGS AND RELATED INFORMATION WITHOUT
NON-DISCLOSURE AGREEMENT. AIM and its affiliates that provide services to the
Funds, and the Funds' subadvisors, if applicable, and each of their employees
may receive or have access to portfolio holdings as part of the day-to-day
operations of the Funds.
From time to time, employees of AIM and its affiliates may express their
views orally or in writing on one or more of the Funds' portfolio securities or
may state that a Fund has recently purchased or sold, or continues to own, one
or more securities. The securities subject to these views and statements may be
ones that were purchased or sold since a Fund's most recent quarter-end and
therefore may not be reflected on the list of the Fund's most recent quarter-end
portfolio holdings. Such views and statements may be made to various persons,
including members of the press, brokers and other financial intermediaries that
sell shares of the Funds. The nature and content of the views and statements
provided to each of these persons may differ.
From time to time, employees of AIM and its affiliates also may provide
oral or written information ("portfolio commentary") about a Fund, including,
but not limited to, how the Fund's investments are divided among various
sectors, industries, countries, investment styles and capitalization sizes, and
among stocks, bonds, currencies and cash, security types, bond maturities, bond
coupons and bond credit quality ratings. This portfolio commentary may also
include information on how these various weightings and factors contributed to
Fund performance. AIM may also provide oral or written information ("statistical
information") about various financial characteristics of a Fund or its
underlying portfolio securities including, but not limited to, alpha, beta,
R-squared, coefficient of determination, duration, maturity, information ratio,
sharpe ratio, earnings growth, payout ratio, price/book value, projected
earnings growth, return on equity, standard deviation, tracking error, weighted
average quality, market capitalization, percent debt to equity, price to cash
flow, dividend yield or growth, default rate, portfolio turnover, and risk and
style characteristics. This portfolio commentary and statistical information
about a Fund may be based on the Fund's portfolio as of the most recent
quarter-end or the end of some other interim period, such as month-end. The
portfolio commentary and statistical information may be provided to various
persons, including those described in the preceding paragraph. The nature and
content of the information provided to each of these persons may differ.
DISCLOSURE OF PORTFOLIO HOLDINGS BY TRADERS. Additionally, employees of AIM
and its affiliates may disclose one or more of the portfolio securities of a
Fund when purchasing and selling securities through broker-dealers, requesting
bids on securities, obtaining price quotations on securities, or in connection
with litigation involving the Funds' portfolio securities. AIM does not enter
into formal Non-Disclosure Agreements in connection with these situations;
however, the Funds would not continue to conduct business with a person who AIM
believed was misusing the disclosed information.
42
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The business and affairs of the Trust are managed by or under the direction
of the Board. The Board approves all significant agreements between the Trust,
on behalf of one or more of the Funds, and persons or companies furnishing
services to the Funds. The day-to-day operations of each Fund are delegated to
the officers of the Trust and to AIM, subject always to the objective(s),
restrictions and policies of the applicable Fund and to general oversight by the
Board.
Certain trustees and officers of the Trust are affiliated with AIM and AIM
Management, the parent corporation of AIM. All of the Trust's executive officers
hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations during
the last five years and certain other information concerning them are set forth
in Appendix C.
The standing committees of the Board are the Audit Committee, the
Compliance Committee, the Governance Committee, the Investments Committee, the
Valuation Committee and the Special Market Timing Litigation Committee.
The members of the Audit Committee are James T. Bunch, Lewis F. Pennock,
Dr. Larry Soll, Dr. Prema Mathai-Davis, Raymond Stickel, Jr. (Chair) and Ruth H.
Quigley (Vice Chair). The Audit Committee's primary purposes are to: (i) assist
the Board in oversight of the independent registered public accountant's
qualifications, independence and performance; (ii) appoint independent
registered public accountants for the Funds; (iii) to the extent required by
Section 10A(h) and (i) of the Exchange Act, to pre-approve all permissible
non-audit services that are provided to Funds by their independent registered
public accountants; (iv) pre-approve, in accordance with Rule 2-01(c)(7)(ii) of
Regulation S-X, certain non-audit services provided by the Funds' independent
registered public accountants to the Funds' investment adviser and certain other
affiliated entities; (v) to oversee the financial reporting process for the
Funds; (vi) the extent required by Regulation 14A under the Exchange Act, to
prepare an audit committee report for inclusion in any proxy statement issued by
a Fund; (vii) assist the Board's oversight of the performance of the Funds'
internal audit function to the extent an internal audit function exists; (viii)
assist the Board's oversight of the integrity of the Funds' financial
statements; and (ix) assist the Board's oversight of the Funds' compliance with
legal and regulatory requirements. During the fiscal year ended December 31,
2005, the Audit Committee held seven meetings.
The members of the Compliance Committee are Frank S. Bayley, Bruce L.
Crockett (Chair), Albert R. Dowden (Vice Chair) and Mr. Stickel. The Compliance
Committee is responsible for: (i) recommending to the Board and the independent
trustees the appointment, compensation and removal of the Funds' Chief
Compliance Officer; (ii) recommending to the independent trustees the
appointment, compensation and removal of the Funds' Senior Officer appointed
pursuant to the terms of the Assurances of Discontinuance entered into by the
New York Attorney General, AIM and INVESCO Funds Group, Inc. ("IFG"); (iii)
recommending to the independent trustees the appointment and removal of AIM's
independent Compliance Consultant (the "Compliance Consultant") and reviewing
the report prepared by the Compliance Consultant upon its compliance review of
AIM (the "Report") and any objections made by AIM with respect to the Report;
(iv) reviewing any report prepared by a third party who is not an interested
person of AIM, upon the conclusion by such third party of a compliance review of
AIM; (v) reviewing all reports on compliance matters from the Funds' Chief
Compliance Officer, (vi) reviewing all recommendations made by the Senior
Officer regarding AIM's compliance procedures, (vii) reviewing all reports from
the Senior Officer of any violations of state and federal securities laws, the
Colorado Consumer Protection Act, or breaches of AIM's fiduciary duties to Fund
shareholders and of AIM's Code of Ethics; (viii) overseeing all of the
compliance policies and procedures of the Funds and their service providers
adopted pursuant to Rule 38a-1 of the 1940 Act; (ix) from time to time,
reviewing certain matters
43
related to redemption fee waivers and recommending to the Board whether or not
to approve such matters; (x) receiving and reviewing quarterly reports on the
activities of AIM's Internal Compliance Controls Committee; (xi) reviewing all
reports made by AIM's Chief Compliance Officer; (xii) reviewing and recommending
to the independent trustees whether to approve procedures to investigate matters
brought to the attention of AIM's ombudsman; (xiii) risk management oversight
with respect to the Funds and, in connection therewith, receiving and overseeing
risk management reports from AMVESCAP PLC that are applicable to the Funds or
their service providers; and (xiv) overseeing potential conflicts of interest
that are reported to the Compliance Committee by AIM, the Chief Compliance
Officer, the Senior Officer and/or the Compliance Consultant. During the fiscal
year ended December 31, 2005, the Compliance Committee held seven meetings.
The members of the Governance Committee are Messrs. Bob R. Baker, Bayley,
Crockett, Dowden (Chair) and Jack M. Fields (Vice Chair). The Governance
Committee is responsible for: (i) nominating persons who will qualify as
independent trustees for (a) election as trustees in connection with meetings of
shareholders of the Funds that are called to vote on the election of trustees,
(b) appointment by the Board as trustees in connection with filling vacancies
that arise in between meetings of shareholders; (ii) reviewing the size of the
Board, and recommending to the Board whether the size of the Board shall be
increased or decreased; (iii) nominating the Chair of the Board; (iv) monitoring
the composition of the Board and each committee of the Board, and monitoring the
qualifications of all trustees; (v) recommending persons to serve as members of
each committee of the Board (other than the Compliance Committee), as well as
persons who shall serve as the chair and vice chair of each such committee; (vi)
reviewing and recommending the amount of compensation payable to the independent
trustees; (vii) overseeing the selection of independent legal counsel to the
independent trustees; (viii) reviewing and approving the compensation paid to
independent legal counsel and other advisers, if any, to the Audit Committee of
the Board; (ix) reviewing and approving the compensation paid to counsel and
other advisers, if any, to the Audit Committee of the Board; and (x) reviewing
as they deem appropriate administrative and/or logistical matters pertaining to
the operations of the Board.
The Governance Committee will consider nominees recommended by a
shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Governance Committee or the Board, as applicable, shall make the
final determination of persons to be nominated. During the fiscal year ended
December 31, 2005, the Governance Committee held seven meetings.
Notice procedures set forth in the Trust's bylaws require that any
shareholder of a Fund desiring to nominate a trustee for election at a
shareholder meeting must submit to the Trust's Secretary the nomination in
writing not later than the close of business on the later of the 90th day prior
to such shareholder meeting or the tenth day following the day on which public
announcement is made of the shareholder meeting and not earlier than the close
of business on the 120th day prior to the shareholder meeting.
The members of the Investments Committee are Messrs. Baker (Vice Chair),
Bayley (Chair), Bunch, Crockett, Dowden, Fields, Carl Frischling, Robert H.
Graham, Pennock, Soll, Stickel, Mark H. Williamson and Dr. Mathai-Davis (Vice
Chair) and Miss Quigley (Vice Chair). The Investments Committee's primary
purposes are to: (i) assist the Board in its oversight of the investment
management services provided by AIM as well as any sub-advisers; and (ii) review
and approve all proposed advisory, sub-advisory and distribution arrangements
for the Funds, as well to review and approve the continuance of all such
existing arrangements. During the fiscal year ended December 31, 2005, the
Investments Committee held seven meetings.
The Investments Committee has established three Sub-Committees. The
Sub-Committees are responsible for: (i) reviewing the performance, fees and
expenses of the Funds that have been assigned to a particular Sub-Committee (for
each Sub-Committee, the "Designated Funds"), unless the Investments Committee
takes such action directly; (ii) reviewing with the applicable portfolio
managers from time to time the investment objective(s), policies, strategies and
limitations of the Designated Funds;
44
(iii) evaluating the investment advisory, sub-advisory and distribution
arrangements in effect or proposed for the Designated Funds, unless the
Investments Committee takes such action directly; (iv) being familiar with the
registration statements and periodic shareholder reports applicable to their
Designated Funds; and (v) such other investment-related matters as the
Investments Committee may delegate to the Sub-Committee from time to time.
The members of the Valuation Committee are Messrs. Bunch, Pennock (Vice
Chair), Soll, Williamson and Miss Quigley (Vice Chair). The Valuation Committee
is responsible for: (i) developing a sufficient knowledge of the valuation
process and of AIM's Procedures for Valuing Securities (Pricing Procedures) (the
"Pricing Procedures") in order to carry out their responsibilities; (ii)
periodically reviewing information provided by AIM or other advisors regarding
industry developments in connection with valuation and pricing, and making
recommendations to the Board with respect to the Pricing Procedures based upon
such review; (iii) reviewing the reports described in the Pricing Procedures and
other information from AIM regarding fair value determinations made pursuant to
the Pricing Procedures by AIM's internal valuation committee, and reporting to
and making recommendations to the Board in connection with such reports; (iv)
receiving the reports of AIM' internal valuation committee requesting approval
of any changes to pricing vendors or pricing methodologies as required by the
Pricing Procedures, receiving the annual report of AIM evaluating the pricing
vendors, and approving changes to pricing vendors and pricing methodologies as
provided in the Pricing Procedures and recommending the pricing vendors for
approval by the Board annually; (v) upon request of AIM, assisting AIM's
internal valuation committee and/or the Board in resolving particular fair
valuation issues; (vi) receiving any reports of concerns by AIM's internal
valuation committee regarding actual or potential conflicts of interest by
investment personnel or others that could color their input or recommendations
regarding pricing issues, and receiving information from AIM disclosing
differences between valuation and pricing procedures used for the Funds and
private funds, if any, advised by AIM for which AIM Fund Administration has
exclusive accounting responsibility, and the reasons for such differences; and
(vii) in each of the foregoing areas, making regular reports to the Board.
During the fiscal year ended December 31, 2005, the Valuation Committee held
three meetings.
The members of the Special Market Timing Litigation Committee are Messrs.
Bayley, Bunch (Chair), Crockett and Dowden (Vice Chair). The Special Market
Timing Litigation Committee is responsible: (i) for receiving reports from time
to time from management, counsel for management, counsel for the AIM Funds and
special counsel for the independent trustees, as applicable, related to (a) the
civil lawsuits, including purported class action and shareholder derivative
suits, that have been filed against the AIM Funds concerning alleged excessive
short term trading in shares of the AIM Funds ("market timing") and (b) the
civil enforcement actions and investigations related to market timing activity
in the AIM Funds that were settled with certain regulators, including without
limitation the SEC, the New York Attorney General and the Colorado Attorney
General, and for recommending to the independent trustees what actions, if any,
should be taken by the AIM Funds in light of all such reports; (ii) for
overseeing the investigation(s) on behalf of the independent trustees by special
counsel for the independent trustees and the independent trustees' financial
expert of market timing activity in the AIM Funds, and for recommending to the
independent trustees what actions, if any, should be taken by the AIM Funds in
light of the results of such investigation(s); (iii) for (a) reviewing the
methodology developed by AIM's Independent Distribution Consultant (the
"Distribution Consultation") for the monies ordered to be paid under the
settlement order with the SEC, and making recommendations to the independent
trustees as to the acceptability of such methodology and (b) recommending to the
independent trustees whether to consent to any firm with which the Distribution
Consultant is affiliated entering into any employment, consultant,
attorney-client, auditing or other professional relationship with AIM, or any of
its present or former affiliates, directors, officers, employees or agents
acting in their capacity as such for the period of the Distribution Consultant's
engagement and for a period of two years after the engagement; and (iv) for
taking reasonable steps to ensure that any AIM Fund which the Special Market
Timing Litigation Committee determines was harmed by improper market timing
activity receives what the Special Market Timing Litigation Committee deems to
be full restitution. During the fiscal year ended December 31, 2005, the Special
Market Timing Litigation Committee held three meetings.
45
TRUSTEE OWNERSHIP OF FUND SHARES
The dollar range of equity securities beneficially owned by each trustee
(i) in the Funds and (ii) on an aggregate basis, in all registered investment
companies overseen by the trustees in the AIM Funds Complex is set forth in
Appendix C.
Approval of Investment Advisory Agreement
The Board oversees the management of each Fund and, as required by law,
determines whether to approve each Fund's advisory agreement with AIM. Based
upon the recommendation of the Investments Committee of the Board, which is
comprised solely of independent trustees, at a meeting held on February 1, 2006,
the Board, including all of the independent trustees, approved the initial
advisory agreement (the "Advisory Agreement") between each Fund and AIM for an
initial period ending June 30, 2007.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on February 1, 2006
and as part of the Board's ongoing oversight of each Fund. In their
deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors.
The discussion below serves as a summary of the material factors and the
conclusions with respect thereto that formed the basis for the Board's approval
of each Fund's Advisory Agreement. After consideration of all of the factors
below and based on its informed business judgment, the Board determined that
each Fund's Advisory Agreement is in the best interests of that Fund and its
shareholders and that the compensation to AIM under each Fund's Advisory
Agreement is fair and reasonable and would have been obtained through arm's
length negotiations.
AIM V.I. DIVERSIFIED DIVIDEND FUND
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was
appropriate.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
reviewed the qualifications of AIM's investment personnel and considered
such issues as AIM's portfolio and product review process, various back
office support functions provided by AIM and AIM's equity and fixed income
trading operations. Based on the review of these and other factors, the
Board concluded that the quality of services to be provided by AIM was
appropriate.
- - The performance of the Fund relative to comparable funds. Not applicable
because this is a new Fund.
- - The performance of the Fund relative to indices. Not applicable because
this is a new Fund.
- - Meeting with the Fund's portfolio managers and investment personnel. The
Board intends to meet periodically with the Fund's portfolio managers
and/or other investment personnel to ensure that such individuals are
competent and able to carry out their responsibilities under the Advisory
Agreement.
- - Overall performance of AIM. Not applicable because this is a new Fund.
However, the Board considered the overall performance of AIM in providing
investment advisory and portfolio
46
administrative services to other mutual funds advised by AIM and concluded
that such performance was satisfactory.
- - Fees relative to those clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board effective contractual advisory fee rates at a
common asset level and noted that this rate (i) was lower than the median
advisory fee rate for seven mutual funds advised by AIM with investment
strategies comparable to those of the Fund; (ii) was lower than the median
advisory fee rate for four variable insurance funds advised by AIM and
offered to insurance company separate accounts with investment strategies
comparable to those of the Fund; (iii) was higher than the sub-advisory fee
rate for one unaffiliated mutual fund for which an affiliate of AIM serves
as sub-advisor with investment strategies comparable to those of the Fund;
and (iv) was higher than the advisory fee rate for one separately managed
wrap account managed by an AIM affiliate with investment strategies
comparable to those of the Fund. The Board noted that AIM has agreed to
limit the Fund's total annual operating expenses, as discussed below. Based
on this review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level and noted that the Fund's rate was above the median rate of the
funds advised by other advisors with investment strategies comparable to
those of the Fund that the Board reviewed. The Board noted that AIM has
agreed to limit the Fund's total annual operating expenses, as discussed
below. The Board also considered the fact that AIM set the proposed
advisory fees for the Fund based upon the median effective management fee
rate (comprised of advisory fees plus, in some cases, administrative fees)
at various asset levels of competitor mutual funds with investment
strategies comparable to those of the Fund. In addition, the Board noted
that the proposed advisory fees for the Fund are equal to the uniform fee
schedule that applies to other mutual funds advised by AIM with investment
strategies comparable to those of the Fund, which uniform fee schedule
includes breakpoints and is based on net asset levels. Based on this
review, the Board concluded that the advisory fee rate for the Fund under
the Advisory Agreement was fair and reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through April 30, 2007 in an amount necessary to limit total annual
operating expenses to a specified percentage of average daily net assets
for each class of the Fund. The Board considered the contractual nature of
this fee waiver/expense limitation and noted that it remains in effect
until April 30, 2007. The Board considered the effect these fee
waivers/expense limitations would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the Fund
were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it contains
seven breakpoints. The Board reviewed the level of the Fund's advisory
fees, and noted that such fees, as a percentage of the Fund's net assets,
would decrease as net assets increase because the Advisory Agreement
includes breakpoints. The Board noted that, because this is a new Fund and
the way in which the advisory fee breakpoints have been structured, the
Fund has yet to benefit from the breakpoints. The Board concluded that the
Fund's fee levels under the Advisory Agreement therefore would reflect
economies of scale at higher asset levels and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements (collectively, "cash balances") of the Fund may be
invested in money market funds advised by AIM pursuant to the terms of an
SEC exemptive order. The Board found that the Fund may realize certain
benefits
47
upon investing cash balances in AIM advised money market funds, including a
higher net return, increased liquidity, increased diversification or
decreased transaction costs. The Board also found that the Fund will not
receive reduced services if it invests its cash balances in such money
market funds. The Board noted that, to the extent the Fund invests in
affiliated money market funds, AIM has voluntarily agreed to waive a
portion of the advisory fees it receives from the Fund attributable to such
investment. The Board further determined that the proposed securities
lending program and related procedures with respect to the lending Fund is
in the best interests of the lending Fund and its respective shareholders.
The Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of the
lending Fund and its respective shareholders.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research is used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
approve the Advisory Agreement for the Fund, the Board also considered the
current relationship between AIM and the Trust, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates for the Trust, such
as administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services.
- - Other factors and current trends. In determining whether to approve the
Advisory Agreement for the Fund, the Board considered the fact that AIM,
along with others in the mutual fund industry, is subject to regulatory
inquiries and litigation related to a wide range of issues. The Board also
considered the governance and compliance reforms being undertaken by AIM
and its affiliates, including maintaining an internal controls committee
and retaining an independent compliance consultant, and the fact that AIM
has undertaken to cause the Fund to operate in accordance with certain
governance policies and practices. The Board concluded that these actions
indicated a good faith effort on the part of AIM to adhere to the highest
ethical standards, and determined that the current regulatory and
litigation environment to which AIM is subject should not prevent the Board
from approving the Advisory Agreement for the Fund.
48
AIM V.I. GLOBAL EQUITY FUND
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was
appropriate.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
reviewed the qualifications of AIM's investment personnel and considered
such issues as AIM's portfolio and product review process, various back
office support functions provided by AIM and AIM's equity and fixed income
trading operations. Based on the review of these and other factors, the
Board concluded that the quality of services to be provided by AIM was
appropriate.
- - The performance of the Fund relative to comparable funds. Not applicable
because this is a new Fund.
- - The performance of the Fund relative to indices. Not applicable because
this is a new Fund.
- - Meeting with the Fund's portfolio managers and investment personnel. The
Board intends to meet periodically with the Fund's portfolio managers
and/or other investment personnel to ensure that such individuals are
competent and able to carry out their responsibilities under the Advisory
Agreement.
- - Overall performance of AIM. Not applicable because this is a new Fund.
However, the Board considered the overall performance of AIM in providing
investment advisory and portfolio administrative services to other mutual
funds advised by AIM and concluded that such performance was satisfactory.
- - Fees relative to those clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board effective contractual advisory fee rates at a
common asset level and noted that this rate was lower than the advisory fee
rates for one mutual fund advised by AIM with investment strategies
comparable to those of the Fund. The Board noted that AIM has agreed to
limit the Fund's total annual operating expenses, as discussed below. Based
on this review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level and noted that the Fund's rate was below the median rate of the
funds advised by other advisors with investment strategies comparable to
those of the Fund that the Board reviewed. The Board noted that AIM has
agreed to limit the Fund's total annual operating expenses, as discussed
below. The Board also considered the fact that AIM set the proposed
advisory fees for the Fund based upon the median effective management fee
rate (comprised of advisory fees plus, in some cases, administrative fees)
at various asset levels of competitor mutual funds with investment
strategies comparable to those of the Fund. In addition, the Board noted
that the proposed advisory fees for the Fund are equal to the uniform fee
schedule that applies to other mutual funds advised by AIM with investment
strategies comparable to those of the Fund, which uniform fee schedule
includes breakpoints and is based on net asset levels. Based on this
review, the Board concluded that the advisory fee rate for the Fund under
the Advisory Agreement was fair and reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through April 30, 2007 in an amount necessary to
49
limit total annual operating expenses to a specified percentage of average
daily net assets for each class of the Fund. The Board considered the
contractual nature of this fee waiver/expense limitation and noted that it
remains in effect until April 30, 2007. The Board considered the effect
these fee waivers/expense limitations would have on the Fund's estimated
expenses and concluded that the levels of fee waivers/expense limitations
for the Fund were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it contains
seven breakpoints. The Board reviewed the level of the Fund's advisory
fees, and noted that such fees, as a percentage of the Fund's net assets,
would decrease as net assets increase because the Advisory Agreement
includes breakpoints. The Board noted that, because this is a new Fund and
the way in which the advisory fee breakpoints have been structured, the
Fund has yet to benefit from the breakpoints. The Board concluded that the
Fund's fee levels under the Advisory Agreement therefore would reflect
economies of scale at higher asset levels and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements (collectively, "cash balances") of the Fund may be
invested in money market funds advised by AIM pursuant to the terms of an
SEC exemptive order. The Board found that the Fund may realize certain
benefits upon investing cash balances in AIM advised money market funds,
including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests in affiliated money market funds, AIM has voluntarily agreed to
waive a portion of the advisory fees it receives from the Fund attributable
to such investment. The Board further determined that the proposed
securities lending program and related procedures with respect to the
lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research is used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
approve the Advisory Agreement for the Fund, the Board also considered the
current relationship between AIM and the Trust, as well as the Board's
knowledge of AIM's operations, and concluded that it
50
was beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates for the Trust, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM and
its affiliates to provide those services. Based on the review of these and
other factors, the Board concluded that AIM and its affiliates were
qualified to provide non-investment advisory services to the Fund,
including administrative, transfer agency and distribution services.
- - Other factors and current trends. In determining whether to approve the
Advisory Agreement for the Fund, the Board considered the fact that AIM,
along with others in the mutual fund industry, is subject to regulatory
inquiries and litigation related to a wide range of issues. The Board also
considered the governance and compliance reforms being undertaken by AIM
and its affiliates, including maintaining an internal controls committee
and retaining an independent compliance consultant, and the fact that AIM
has undertaken to cause the Fund to operate in accordance with certain
governance policies and practices. The Board concluded that these actions
indicated a good faith effort on the part of AIM to adhere to the highest
ethical standards, and determined that the current regulatory and
litigation environment to which AIM is subject should not prevent the Board
from approving the Advisory Agreement for the Fund.
AIM V.I. INTERNATIONAL CORE EQUITY FUND
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was
appropriate.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
reviewed the qualifications of AIM's investment personnel and considered
such issues as AIM's portfolio and product review process, various back
office support functions provided by AIM and AIM's equity and fixed income
trading operations. Based on the review of these and other factors, the
Board concluded that the quality of services to be provided by AIM was
appropriate.
- - The performance of the Fund relative to comparable funds. Not applicable
because this is a new Fund.
- - The performance of the Fund relative to indices. Not applicable because
this is a new Fund.
- - Meeting with the Fund's portfolio managers and investment personnel. The
Board intends to meet periodically with the Fund's portfolio managers
and/or other investment personnel to ensure that such individuals are
competent and able to carry out their responsibilities under the Advisory
Agreement.
- - Overall performance of AIM. Not applicable because this is a new Fund.
However, the Board considered the overall performance of AIM in providing
investment advisory and portfolio administrative services to other mutual
funds advised by AIM and concluded that such performance was satisfactory.
- - Fees relative to those clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board effective contractual advisory fee rates at a
common asset level and noted that this rate was higher than the advisory
fee rates for one mutual fund advised by AIM with investment strategies
comparable to those of
51
the Fund. The Board noted that AIM has agreed to limit the Fund's total
annual operating expenses, as discussed below. Based on this review, the
Board concluded that the advisory fee rate for the Fund under the Advisory
Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level and noted that the Fund's rate was above the median rate of the
funds advised by other advisors with investment strategies comparable to
those of the Fund that the Board reviewed. The Board noted that AIM has
agreed to limit the Fund's total annual operating expenses, as discussed
below. The Board also considered the fact that AIM set the proposed
advisory fees for the Fund based upon the median effective management fee
rate (comprised of advisory fees plus, in some cases, administrative fees)
at various asset levels of competitor mutual funds with investment
strategies comparable to those of the Fund. In addition, the Board noted
that the proposed advisory fees for the Fund are equal to the uniform fee
schedule that applies to other mutual funds advised by AIM with investment
strategies comparable to those of the Fund, which uniform fee schedule
includes breakpoints and is based on net asset levels. Based on this
review, the Board concluded that the advisory fee rate for the Fund under
the Advisory Agreement was fair and reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through April 30, 2007 in an amount necessary to limit total annual
operating expenses to a specified percentage of average daily net assets
for each class of the Fund. The Board considered the contractual nature of
this fee waiver/expense limitation and noted that it remains in effect
until April 30, 2007. The Board considered the effect these fee
waivers/expense limitations would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the Fund
were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it contains
seven breakpoints. The Board reviewed the level of the Fund's advisory
fees, and noted that such fees, as a percentage of the Fund's net assets,
would decrease as net assets increase because the Advisory Agreement
includes breakpoints. The Board noted that, because this is a new Fund and
the way in which the advisory fee breakpoints have been structured, the
Fund has yet to benefit from the breakpoints. The Board concluded that the
Fund's fee levels under the Advisory Agreement therefore would reflect
economies of scale at higher asset levels and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
- - Investments in affiliates money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements (collectively, "cash balances") of the Fund may be
invested in money market funds advised by AIM pursuant to the terms of an
SEC exemptive order. The Board found that the Fund may realize certain
benefits upon investing cash balances in AIM advised money market funds,
including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests in affiliated money market funds, AIM has voluntarily agreed to
waive a portion of the advisory fees it receives from the Fund attributable
to such investment. The Board further determined that the proposed
securities lending program and related procedures with respect to the
lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
52
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research is used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
approve the Advisory Agreement for the Fund, the Board also considered the
current relationship between AIM and the Trust, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates for the Trust, such
as administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services.
- - Other factors and current trends. In determining whether to approve the
Advisory Agreement for the Fund, the Board considered the fact that AIM,
along with others in the mutual fund industry, is subject to regulatory
inquiries and litigation related to a wide range of issues. The Board also
considered the governance and compliance reforms being undertaken by AIM
and its affiliates, including maintaining an internal controls committee
and retaining an independent compliance consultant, and the fact that AIM
has undertaken to cause the Fund to operate in accordance with certain
governance policies and practices. The Board concluded that these actions
indicated a good faith effort on the part of AIM to adhere to the highest
ethical standards, and determined that the current regulatory and
litigation environment to which AIM is subject should not prevent the Board
from approving the Advisory Agreement for the Fund.
Approval of Sub-Advisory Agreement
The Board oversees the management of the AIM V.I. International Core Equity
Fund and, as required by law, determines whether to approve the Fund's
sub-advisory agreement. Based upon the recommendation of the Investments
Committee of the Board, which is comprised solely of independent trustees, at a
meeting held on February 1, 2006, the Board, including all of the independent
trustees, approved the sub-advisory agreement (the "Sub-Advisory Agreement")
between INVESCO Global Asset Management (N.A.), Inc. (the "Sub-Advisor") and AIM
with respect to the Fund for an initial period ending April 30, 2007.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Sub-Advisory Agreement at the meeting on February 1,
2006 and as part of the Board's ongoing
53
oversight of the Fund. In their deliberations, the Board and the independent
trustees did not identify any particular factor that was controlling, and each
trustee attributed different weights to the various factors.
The discussion below serves as a discussion of the material factors and the
conclusions with respect thereto that formed the basis for the Board's approval
of the Sub-Advisory Agreement. After consideration of all of the factors below
and based on its informed business judgment, the Board determined that the
Sub-Advisory Agreement is in the best interests of the Fund and its
shareholders.
- - The nature and extent of the advisory services to be provided by the
Sub-Advisor. The Board reviewed the services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement. Based on such review, the
Board concluded that the range of services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement was appropriate.
- - The quality of services to be provided by the Sub-Advisor. The Board
reviewed the credentials and experience of the officers and employees of
the Sub-Advisor who will provide investment advisory services to the Fund.
Based on the review of these and other factors, the Board concluded that
the quality of services to be provided by the Sub-Advisor was appropriate.
- - The performance of the Fund relative to comparable funds. Not applicable
because this is a new Fund.
- - The performance of the Fund relative to indices. Not applicable because
this is a new Fund.
- - Meetings with the Fund's portfolio managers and investment personnel. The
Board intends to meet periodically with the Fund's portfolio managers
and/or other investment personnel to ensure that such individuals are
competent and able to carry out their responsibilities under the
Sub-Advisory Agreement.
- - Overall performance of the Sub-Advisor. Not applicable because this is a
new Fund. However, the Board considered the overall performance of the
Sub-Advisor in providing investment advisory services to another mutual
fund advised by AIM and concluded that such performance was satisfactory.
- - Advisory fees, expense limitations and fee waivers, and breakpoints and
economies of scale. The Board reviewed the sub-advisory fee rate for the
Fund under the Sub-Advisory Agreement. The Board compared effective
contractual fee rates at a common asset level and noted that this rate was
higher than the advisory fee rate for one institutional/separately managed
account advised by the Sub-Advisor with investment strategies comparable to
those of the Fund. The Board noted that AIM has agreed to limit the Fund's
total annual operating expenses, as discussed below. The Board also
considered the services to be provided by the Sub-Advisor pursuant to the
Sub-Advisory Agreement and the services to be provided by AIM pursuant to
the Advisory Agreement, as well as the allocation of fees between AIM and
the Sub-Advisor pursuant to the Sub-Advisory Agreement. The Board noted
that the sub-advisory fees have no direct effect on the Fund or its
shareholders, as they are paid by AIM to the Sub-Advisor, and that AIM and
the Sub-Advisor are affiliates. Based on this review, the Board concluded
that the sub-advisory fee rate under the Sub-Advisory Agreement was fair
and reasonable.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
54
- - The Sub-Advisor's financial soundness in light of the Fund's needs. The
Board considered whether the Sub-Advisor is financially sound and has the
resources necessary to perform its obligations under the Sub-Advisory
Agreement, and concluded that the Sub-Advisor has the financial resources
necessary to fulfill its obligations under the Sub-Advisory Agreement.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her
services according to a fee schedule which recognizes the fact that such trustee
also serves as a director or trustee of other AIM Funds. Each such trustee
receives a fee, allocated among the AIM Funds for which he or she serves as a
director or trustee, which consists of an annual retainer component and a
meeting fee component. The Chair of the Board and Chairs and Vice Chairs of
certain committees receive additional compensation for their services.
Information regarding compensation paid or accrued for each trustee of the
Trust who is not affiliated with AIM during the year ended December 31, 2005 is
found in Appendix D.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the Trust
who are not affiliated with AIM.
The trustees have also adopted a retirement policy that permits each
non-AIM-affiliated trustee to serve until December 31 of the year in which the
trustee turns 72. A majority of the trustees may extend from time to time the
retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated trustee
of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has at
least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. Effective January 1, 2006, for retirement
after December 31, 2005, the retirement benefits will equal 75% of the trustee's
annual retainer paid to or accrued by any Covered Fund with respect to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The amount of the annual retirement
benefit does not include additional compensation paid for Board meeting fees or
compensation paid to the Chair of the Board and the Chairs and Vice Chairs of
certain Board committees, whether such amounts are paid directly to the Trustee
or deferred. The annual retirement benefit is payable in quarterly installments
for a number of years equal to the lesser of (i) sixteen years or (ii) the
number of such trustee's credited years of service. If a trustee dies prior to
receiving the full amount of retirement benefits, the remaining payments will be
made to the deceased trustee's designated beneficiary for the same length of
time that the trustee would have received the payments based on his or her
service. A trustee must have attained the age of 65 (60 in the event of death or
disability) to receive any retirement benefit. A trustee may make an irrevocable
election to commence payment of retirement benefits is upon retirement from the
Board before age 72; in such a case, the annual retirement benefit is subject to
a reduction for early payment.
Deferred Compensation Agreements
Messrs. Crockett, Dunn, Fields, Frischling and Drs. Mathai-Davis and Soll
(for purposes of this paragraph only, the "Deferring Trustees") have each
executed a Deferred Compensation Agreement (collectively, the "Compensation
Agreements"). Pursuant to the Compensation Agreements, the Deferring Trustees
have the option to elect to defer receipt of up to 100% of their compensation
payable by the Trust, and such amounts are placed into a deferral account and
deemed to be invested in one or more AIM Funds selected by the Deferring
Trustees. Distributions from the Deferring Trustees' deferral accounts will be
paid in cash, generally in equal quarterly installments over a period of up to
ten (10) years (depending on the Compensation Agreement) beginning on the date
selected under the Compensation Agreement. If a Deferring Trustee dies prior to
the distribution of amounts in his or her
55
deferral account, the balance of the deferral account will be distributed to his
or her designated beneficiary. The Compensation Agreements are not funded and ,
with respect to the payments of amounts held in the deferral accounts, the
Deferring Trustees have the status of unsecured creditors of the Trust and of
each other AIM Fund from which they are deferring compensation.
CODES OF ETHICS
AIM, the Trust, A I M Distributors, Inc. ("AIM Distributors"), INVESCO
Global Asset Management (N.A.), Inc. and INVESCO Institutional (N.A.), Inc. have
each adopted a Code of Ethics governing, as applicable, personal trading
activities of all trustees, officers of the Trust, persons who, in connection
with their regular functions, play a role in the recommendation of any purchase
or sale of a security by any of the Funds or obtain information pertaining to
such purchase or sale, and certain other employees. The Codes of Ethics are
intended to prohibit conflicts of interest with the Trust that may arise from
personal trading, including personal trading in most of the funds within The AIM
Family of Funds registered trademark ("affiliated funds"). Personal trading,
including personal trading involving securities that may be purchased or held by
a Fund and in affiliated funds, is permitted by persons covered under the
relevant Codes subject to certain restrictions; however those persons are
generally required to pre-clear all security transactions with the Compliance
Officer or her designee and to report all transactions on a regular basis.
PROXY VOTING POLICIES
The Board has delegated responsibility for decisions regarding proxy voting
for securities held by each Fund (except AIM V.I. Real Estate Fund and AIM V.I.
International Core Equity Fund) to the Fund's investment advisor. The Board has
delegated responsibility for decisions regarding proxy voting for securities
held by AIM V.I. Real Estate Fund and AIM V.I. International Core Equity Fund to
the Funds' respective investment sub-advisors. The investment advisor or
sub-advisor will vote such proxies in accordance with its proxy policies and
procedures, which have been reviewed by the Board, and which are found in
Appendix E.
Any material changes to the proxy policies and procedures will be submitted
to the Board for approval. The Board will be supplied with a summary quarterly
report of each Fund's proxy voting record.
Information regarding how the Funds voted proxies related to its portfolio
securities during the 12 months ended June 30, 2005 is available, without
charge, at our Website, http://www.aiminvestments.com. This information is also
available at the SEC Website, http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
certain beneficial or record owners of such Fund and by trustees and officers as
a group is found in Appendix F. A shareholder who owns beneficially 25% or more
of the outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along with
its subsidiaries, manages or advises over 200 investment portfolios encompassing
a broad range of investment objectives. AIM is a direct, wholly owned subsidiary
of AIM Management, a holding company that has been engaged in the financial
services business since 1976. AIM Management is an indirect, wholly owned
subsidiary of AMVESCAP. AMVESCAP and its subsidiaries are an independent global
56
investment management group. Certain of the directors and officers of AIM are
also executive officers of the Trust and their affiliations are shown under
"Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds' operations
and provides investment advisory services to the Funds. AIM obtains and
evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds. The Investment Advisory Agreement
provides that, in fulfilling its responsibilities, AIM may engage the services
of other investment managers with respect to one or more of the Funds.
AIM is also responsible for furnishing to the Funds, at AIM's expense, the
services of persons believed to be competent to perform all supervisory and
administrative services required by the Funds, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of each Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Advisory Agreement provides that the Fund will pay or cause to be paid
all expenses of the Fund not assumed by AIM, 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 trustees and
shareholder meetings, the cost of preparing and distributing reports and notices
to shareholders, the fees and other expenses incurred by the Trust on behalf of
each Fund in connection with membership in investment company organizations, and
the cost of printing copies of prospectuses and statements of additional
information distributed to the Funds' shareholders.
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
Pursuant to the Advisory Agreement with the Trust, AIM receives a monthly
fee from each Fund calculated at the annual rates indicated in the second column
below, based on the average daily net assets of each Fund during the year.
Effective January 1, 2005, the advisor has contractually agreed to waive
advisory fees to the extent necessary so that the advisory fees payable by each
Fund do not exceed the maximum advisory fee rate set forth in the third column
below. The maximum advisory fee rates are effective through the Committed Until
Date set forth in the fourth column.
MAXIMUM
ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE RATE COMMITTED
FUND NAME PER ADVISORY AGREEMENT AFTER JANUARY 1, 2005 UNTIL DATE
--------- ---------------------- ------------------------- ----------
AIM V.I. Basic Balanced Fund 0.75% of the first $150 million 0.62% of the first $150 million 12/31/2009
0.50% of the excess over $150 million 0.50% of the next $4.85 billion
0.475% of the next $5 billion
0.45% of the excess over $10 billion
AIM V.I. Basic Value Fund 0.725% of the first $500 million 0.695% of the first $250 million 12/31/2009
0.70% of the next $500 million 0.67% of the next $250 million
0.675% of the next $500 million 0.645% of the next $500 million
0.65% of the excess over $1.5 billion 0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
57
MAXIMUM
ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE RATE COMMITTED
FUND NAME PER ADVISORY AGREEMENT AFTER JANUARY 1, 2005 UNTIL DATE
--------- ---------------------- ------------------------- ----------
AIM V.I. Blue Chip Fund 0.75% of the first $350 million 0.695% of the first $250 million 12/31/2009
0.625% of the excess over $350 million 0.67% of the next $250 million
0.645% of the next $500 million
0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
AIM V.I. Capital Appreciation Fund 0.65% of the first $250 million 0.695% of the first $250 million 06/30/2006
0.60% of the excess over $250 million 0.67% of the next $250 million
0.645% of the next $500 million
0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
AIM V.I. Capital Development Fund 0.75% of the first $350 million 0.745% of the first $250 million 06/30/2006
0.625% of the excess over $350 million 0.73% of the next $250 million
0.715% of the next $500 million
0.70% of the next $1.5 billion
0.685% of the next $2.5 billion
0.67% of the next $2.5 billion
0.655% of the next $2.5 billion
0.64% of the excess over $10 billion
AIM V.I. Core Equity Fund 0.65% of the first $250 million 0.695% of the first $250 million 06/30/2006
0.60% of the excess over $250 million 0.67% of the next $250 million
0.645% of the next $500 million
0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
AIM V.I. Demographic Trends Fund 0.77% of the first $2 billion 0.695% of the first $250 million 12/31/2009
0.72% of the excess over $2 billion 0.67% of the next $250 million
0.645% of the next $500 million
0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
AIM V.I. Dynamics Fund 0.75% of average daily net assets 0.745% of the first $250 million 06/30/2006
0.73% of the next $250 million
0.715% of the next $500 million
0.70% of the next $1.5 billion
0.685% of the next $2.5 billion
0.67% of the next $2.5 billion
0.655% of the next $2.5 billion
0.64% of the excess over $10 billion
58
MAXIMUM
ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE RATE COMMITTED
FUND NAME PER ADVISORY AGREEMENT AFTER JANUARY 1, 2005 UNTIL DATE
--------- ---------------------- ------------------------- ----------
AIM V.I. Diversified Dividend Fund 0.695% of the first $250 million N/A N/A
0.67% of the next $250 million
0.645% of the next $500 million
0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
AIM V.I. Diversified Income Fund 0.60% of the first $250 million N/A N/A
0.55% of the excess over $250 million
AIM V.I. Financial Services Fund 0.75% of average daily net assets 0.75% of the first $250 million 06/30/2006
0.74% of the next $250 million
0.73% of the next $500 million
0.72% of the next $1.5 billion
0.71% of the next $2.5 billion
0.70% of the next $2.5 billion
0.69% of the next $2.5 billion
0.68% of the excess over$10 billion
AIM V.I. Global Equity Fund 0.80% of the first $250 million N/A N/A
0.78% of the next $250 million
0.76% of the next $500 million
0.74% of the next $1.5 billion
0.72% of the next $2.5 billion
0.70% of the next $2.5 billion
0.68% of the next $2.5 billion
0.66% of the excess over $10 billion
AIM V.I. Global Health Care Fund 0.75% of average daily net assets 0.75% of the first $250 million 06/30/2006
0.74% of the next $250 million
0.73% of the next $500 million
0.72% of the next $1.5 billion
0.71% of the next $2.5 billion
0.70% of the next $2.5 billion
0.69% of the next $2.5 billion
0.68% of the excess over $10 billion
AIM V.I. Government Securities Fund 0.50% of the first $250 million N/A N/A
0.45% of the excess over $250 million
AIM V.I. High Yield Fund 0.625% of the first $200 million N/A N/A
0.55% of the next $300 million
0.50% of the next $500 million
0.45% of the excess over $1 billion
AIM V.I. International Core Equity 0.935% of the first $250 million N/A N/A
Fund 0.91% of the next $250 million
0.885% f the next $500 million
0.86% of the next $1.5 billion
0.835% of the next $2.5 billion
0.81% of the next $2.5 billion
0.785% of the next $2.5 billion
0.76% of the excess over $10 billion
59
MAXIMUM
ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE RATE COMMITTED
FUND NAME PER ADVISORY AGREEMENT AFTER JANUARY 1, 2005 UNTIL DATE
--------- ---------------------- ------------------------- ----------
AIM V.I. International Growth Fund 0.75% of the first $250 million The current advisory fee schedule 06/30/2006
0.70% of the excess over $250 million is lower than the uniform fee
schedule at all asset levels.
AIM V.I. Large Cap Growth Fund 0.75% of the first $1 billion 0.695% of the first $250 million 06/30/2006
0.70% of the next $1 billion 0.67% of the next $250 million
0.625% of the excess over $2 billion 0.645% of the next $500 million
0.62% of the next $1.5 billion
0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of the excess over $10 billion
AIM V.I. Leisure Fund 0.75% of average daily net assets 0.75% of the first $250 million 06/30/2006
0.74% of the next $250 million
0.73% of the next $500 million
0.72% of the next $1.5 billion
0.71% of the next $2.5 billion
0.70% of the next $2.5 billion
0.69% of the next $2.5 billion
0.68% of the excess over $10 billion
AIM V.I. Mid Cap Core Equity Fund 0.725% of the first $500 million The current advisory fee schedule 06/30/2006
0.70% of the next $500 million is lower than the uniform fee
0.675% of the next $500 million schedule at all asset levels.
0.65% of the excess over $1.5 billion
AIM V.I. Money Market Fund 0.40% of the first $250 million N/A N/A
0.35% of the excess over $250 million
AIM V.I. Real Estate Fund 0.90% of average daily net assets 0.75% of the first $250 million 06/30/2006
0.74% of the next $250 million
0.73% of the next $500 million
0.72% of the next $1.5 billion
0.71% of the next $2.5 billion
0.70% of the next $2.5 billion
0.69% of the next $2.5 billion
0.68% of the excess over $10 billion
AIM V.I. Small Cap Equity Fund 0.85% of average daily net assets 0.745% of the first $250 million 06/30/2006
0.73% of the next $250 million
0.715% of the next $500 million
0.70% of the next $1.5 billion
0.685% of the next $2.5 billion
0.67% of the next $2.5 billion
0.655% of the next $2.5 billion
0.64% of the excess over $10 billion
AIM V.I. Small Company Growth Fund 0.75% of average daily net assets 0.745% of the first $250 million 06/30/2006
0.73% of the next $250 million
0.715% of the next $500 million
0.70% of the next $1.5 billion
0.685% of the next $2.5 billion
0.67% of the next $2.5 billion
0.655% of the next $2.5 billion
0.64% of the excess over $10 billion
60
MAXIMUM
ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE RATE COMMITTED
FUND NAME PER ADVISORY AGREEMENT AFTER JANUARY 1, 2005 UNTIL DATE
--------- ---------------------- ------------------------- ----------
AIM V.I. Technology Fund 0.75% of average daily net assets 0.75% of the first $250 million 06/30/2006
0.74% of the next $250 million
0.73% of the next $500 million
0.72% of the next $1.5 billion
0.71% of the next $2.5 billion
0.70% of the next $2.5 billion
0.69% of the next $2.5 billion
0.68% of the excess over $10 billion
AIM V.I. Utilities Fund 0.60% of average daily net assets The current advisory fee schedule is 06/30/2006
lower than the uniform fee schedule
at all asset levels.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus
may not be terminated or amended to the Funds' detriment during the period
stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable to
each Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of each Fund's
investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board. See "Description of the Funds and
Their Investments and Risks - Investment Strategies and Risks - Other
Investments - Other Investment Companies."
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses through April 30, 2007, to the extent necessary to limit Total Annual
Fund Operating Expenses (excluding: (i) interest; (ii) taxes; (iii) dividend
expense on short sales; (iv) extraordinary items; (v) expenses related to a
merger or reorganizations as approved by each Fund's Board of Trustees; and (vi)
expenses that each Fund has incurred but did not actually pay because of an
expense offset arrangement) for the following Funds' shares as follows:
EXPENSE
FUND LIMITATION
---- ----------
AIM V.I. Basic Balanced Fund - Series I 0.91%
Series II 1.16%
AIM V.I. Basic Value Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Blue Chip Fund - Series I 1.01%
Series II 1.26%
AIM V.I. Capital Appreciation Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Capital Development Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Core Equity Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Demographic Trends Fund - Series I 1.01%
Series II 1.26%
AIM V.I. Diversified Income Fund - Series I 0.75%
Series II 1.00%
AIM V.I. Dynamics Fund - Series I 1.30%
Series II 1.45%
61
EXPENSE
FUND LIMITATION
---- ----------
AIM V.I. Financial Services Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Global Health Care Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Government Securities Fund - Series I 0.73%
Series II 0.98%
AIM V.I. High Yield Fund - Series I 0.95%
Series II 1.20%
AIM V.I. International Growth Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Large Cap Growth Fund - Series I 1.01%
Series II 1.26%
AIM V.I. Leisure Fund - Series I 1.01%
Series II 1.26%
AIM V.I. Mid Cap Core Equity Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Money Market Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Real Estate Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Small Cap Equity Fund - Series I 1.15%
Series II 1.40%
AIM V.I. Small Company Growth Fund - Series I 1.20%
Series II 1.45%
AIM V.I. Technology Fund - Series I 1.30%
Series II 1.45%
AIM V.I. Utilities Fund - Series I 0.93%
Series II 1.18%
Such contractual fee waivers or reductions are set forth in the Fee Table
to each Fund's Prospectus and may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM and the Fund.
INVESTMENT SUB-ADVISORS
AIM has entered into a Sub-Advisory contract with INVESCO Global Asset
Management (N.A.), Inc. ("IGAM") (a "Sub-Advisor") to provide investment
sub-advisory services to AIM V.I. International Core Equity Fund, and has
entered into a Sub-Advisory contract with INVESCO Institutional (N.A.), Inc.
("INVESCO Institutional") (a "Sub-Advisor") to provide investment sub-advisory
services to AIM V.I. Real Estate Fund.
Both IGAM and INVESCO Institutional are registered as an investment advisor
under the Investment Advisers Act of 1940, as amended (the "Advisers Act").
INVESCO Institutional is responsible for AIM V.I. Real Estate Fund's day to day
management, including the Fund's investment decisions and the execution of
securities transactions, with respect to the Fund. IGAM provides investment
supervisory services on both discretionary and non-discretionary bases to
pension and profit sharing plans, endowments and educational institutions,
investment companies, insurance companies, and individuals and personal holding
companies. IGAM and INVESCO Institutional are affiliates of AIM.
For the services to be rendered by IGAM under its Master Sub-Advisory
Contract, the Advisor will pay to the Sub-Advisor a fee which will be computed
daily and paid as of the last day of each month on the basis of the Fund's daily
net asset value, using for each daily calculation the most recently determined
net asset value of the Fund. On an annual basis, the subadvisory fee is equal to
40% of the Advisor's compensation on the sub-advised assets per year.
62
For the services to be rendered by INVESCO Institutional under its
Sub-Advisory Contract with respect to AIM V.I. Real Estate Fund, AIM will pay a
sub-advisory fee computed daily and paid monthly, at the rate of 40% of AIM's
compensation on the sub-advised assets per year, on or before the last day of
the next succeeding calendar month.
Prior to April 30, 2004, INVESCO served as investment advisor to the VIF
Funds. During the periods indicated in Appendix G, the VIF Funds paid AIM
(INVESCO prior to April 30, 2004) advisory fees in the dollar amounts shown. If
applicable, the advisory fees were offset by credits in the amounts shown below,
so that the Funds' fees were not in excess of the expense limitations shown,
which have been voluntarily agreed to by the Trust and AIM (INVESCO prior to
April 30, 2004).
The management fees payable by each Fund, the amounts waived by AIM and the
net fees paid by each Fund for the last three fiscal years ended December 31 are
found in Appendix G.
Prior to April 30, 2004, INVESCO served as investment advisor to the
predecessor to the AIM V.I. Real Estate Fund. During periods outlined in
Appendix G, AIM V.I. Real Estate Fund paid INVESCO advisory fees in the dollar
amounts shown. If applicable, the advisory fees were offset by credits in the
amounts shown in Appendix G, so that the AIM V.I. Real Estate Fund's fees were
not in excess of the expense limitations shown, which have been voluntarily
agreed to by the Trust and INVESCO.
PORTFOLIO MANAGERS
Appendix H contains the following information regarding the portfolio
managers identified in each Fund's prospectus:
- The dollar range of the manager's investments in each Fund.
- A description of the manager's compensation structure.
- Information regarding other accounts managed by the manager and
potential conflicts of interest that might arise from the
management of multiple accounts.
SECURITIES LENDING ARRANGEMENTS
If a Fund engages in securities lending, AIM will provide the Fund
investment advisory services and related administrative services. The Advisory
Agreement describes the administrative services to be rendered by AIM if a Fund
engages in securities lending activities, as well as the compensation AIM may
receive for such administrative services. Services to be provided include: (a)
overseeing participation in the securities lending program to ensure compliance
with all applicable regulatory and investment guidelines; (b) assisting the
securities lending agent or principal (the agent) in determining which specific
securities are available for loan; (c) monitoring the agent to ensure that
securities loans are effected in accordance with AIM's instructions and with
procedures adopted by the Board; (d) preparing appropriate periodic reports for,
and seeking appropriate approvals from, the Board with respect to securities
lending activities; (e) responding to agent inquiries; and (f) performing such
other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into a
Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to each Fund
63
which are not required to be performed by AIM under the Advisory Agreement. The
Administrative Services Agreement provides that it will remain in effect and
continue from year to year only if such continuance is specifically approved at
least annually by the Board, including the independent trustees, by votes cast
in person at a meeting called for such purpose. Under the Administrative
Services Agreement, AIM is entitled to receive from the Funds reimbursement of
its costs or such reasonable compensation as may be approved by the Board.
Currently, AIM is reimbursed for the services of the Trust's principal financial
officer and her staff, and any expenses related to fund accounting services. In
addition, AIM contracts with Participating Insurance Companies to provide
certain services related to operations of the Trust. These services may include,
among other things: the printing of prospectuses, financial reports and proxy
statements and the delivery of the same to existing Contract owners; the
maintenance of master accounts; the facilitation of purchases and redemptions
requested by Contract owners; and the servicing of Contract owner accounts.
Each Participating Insurance Company negotiates the fees to be paid for the
provision of these services. The cost of providing the services and the overall
package of services provided may vary from one Participating Insurance Company
to another. AIM does not make an independent assessment of the cost of providing
such services.
Effective May 1, 1998, the Funds agreed to reimburse AIM for its costs in
paying the Participating Insurance Companies that provide these services,
currently subject to an annual limit of 0.25% of the average net assets invested
in each Fund by each Participating Insurance Company. Any amounts paid by AIM to
a Participating Insurance Company in excess of 0.25% of the average net assets
invested in each Fund are paid by AIM out of its own financial resources.
AIM is entitled to reimbursement by a VIF Fund for any fees waived pursuant
to expense limitation commitments between AIM and the VIF Funds if such
reimbursement does not cause the Fund to exceed the current expense limitations
and the reimbursement is made within three years after AIM incurred the expense.
INVESCO served as the VIF Funds' administrative services agent until April
30, 2004. Administrative services fees paid to AIM by each Fund for the last
three fiscal years ended December 31 are found in Appendix I.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. AIM Investment Services, Inc. ("AIS"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046, a wholly owned subsidiary of AIM, is the
Trust's transfer agent.
The Transfer Agency and Service Agreement (the "TA Agreement") between the
Trust and AIS provides that AIS will perform certain shareholder services for
the Funds. The TA Agreement provides that AIS will receive a per trade fee plus
out-of-pocket expenses to process orders for purchases, and redemptions of
shares; prepare and transmit payments for dividends and distributions declared
by the Funds; and maintain shareholder accounts.
CUSTODIANS. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Funds (except AIM V.I. Money Market Fund). The Bank of New York, 2
Hanson Place, Brooklyn, New York 11217-1431, is custodian of all securities and
cash of AIM V.I. Money Market Fund.
The Custodians are authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Funds to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities depositories in a
country. The Custodian is responsible for monitoring eligible foreign securities
depositories.
64
Under their contract with the Trust, the Custodians maintains the portfolio
securities of the Funds, administers the purchases and sales of portfolio
securities, collects interest and dividends and other distributions made on the
securities held in the portfolios of the Funds and performs other ministerial
duties. These services do not include any supervisory function over management
or provide any protection against any possible depreciation of assets.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. The Funds' independent
registered public accounting firm is responsible for auditing the financial
statements of the Funds. The Audit Committee of the Board has appointed
PricewaterhouseCoopers LLP, 1201 Louisiana, Suite 2900, Houston, Texas 77002, as
the independent registered public accounting firm to audit the financial
statements of the Funds. Such appointment was ratified and approved by the
Board.
COUNSEL TO THE TRUST. Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, Pennsylvania 19103-7599, has advised the Trust on certain
federal securities law matters. Jorden Burt LLP, Washington, D.C., Special
Insurance Counsel, has advised the Trust on certain variable annuity and
variable life insurance matters.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Each Sub-Advisor has adopted compliance procedures that cover, among other
items, brokerage allocation and other trading practices. Unless specifically
noted, each Sub-Advisor's procedures do not materially differ from AIM's
procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisor(s) makes decisions to buy and sell securities for
each Fund, selects broker-dealers (each, a "Broker"), effects the Funds'
investment portfolio transactions, allocates brokerage fees in such transactions
and, where applicable, negotiates commissions and spreads on transactions. AIM's
primary consideration in effecting a security transaction is to obtain best
execution, which AIM defines as prompt and efficient execution of the
transaction at the best obtainable price with payment of commissions, mark-ups
or mark-downs which are reasonable in relation to the value of the brokerage
services provided by the Broker. While AIM seeks reasonably competitive
commission rates, the Funds may not pay the lowest commission or spread
available. See "Broker Selection" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected on a principal basis at net prices without commissions, but which
include compensation to the Broker in the form of a mark up or mark down, or on
an agency basis, which involves the payment of negotiated brokerage commissions
to the Broker, including electronic communication networks. Purchases of
underwritten issues include a commission or concession paid by the issuer (not
the Funds) to the underwriter. Purchases of money market instruments may be made
directly from issuers without the payment of commissions.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. Although in recent years many overseas stock markets
have adopted a system of negotiated rates, a number of markets maintain an
established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last three
fiscal years ended December 31 are found in Appendix J.
COMMISSIONS
During the last three fiscal years ended December 31, none of the Funds
paid brokerage commissions to Brokers affiliated with the Funds, AIM, AIM
Distributors, or any affiliates of such entities.
65
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, a Fund may purchase
or sell a security from or to certain other AIM Funds or other accounts (and may
invest in the Affiliated Money Market Funds) provided the Funds follow
procedures adopted by the Boards of the various AIM Funds, including the Trust.
These inter-fund transactions do not generate brokerage commissions but may
result in custodial fees or taxes or other related expenses.
BROKER SELECTION
AIM's primary consideration in selecting Brokers to execute portfolio
transactions for a Fund is to obtain best execution. In selecting a Broker to
execute a portfolio transaction in equity securities for a Fund, AIM considers
the full range and quality of a Broker's services, including the value of
research and/or brokerage services provided, execution capability, commission
rate, willingness to commit capital, anonymity and responsiveness. AIM's primary
consideration when selecting a Broker to execute a portfolio transaction in
fixed income securities for a Fund is the Broker's ability to deliver or sell
the relevant fixed income securities; however, AIM will also consider the
various factors listed above. In each case, the determinative factor is not the
lowest commission or spread available but whether the transaction represents the
best qualitative execution for the Fund. AIM will not select Brokers based upon
their promotion or sale of Fund shares.
In choosing Brokers to execute portfolio transactions for the Funds, AIM
may select Brokers that provide brokerage and/or research services ("Soft Dollar
Products") to the Funds and/or the other accounts over which AIM and its
affiliates have investment discretion. Section 28(e) of the Securities Exchange
Act of 1934, as amended, provides that AIM, under certain circumstances,
lawfully may cause an account to pay a higher commission than the lowest
available. Under Section 28(e)(1), 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 [AIM's] overall responsibilities with respect to the accounts as
to which [it] exercises investment discretion." The services provided by the
Broker also must lawfully and appropriately assist AIM in the performance of its
investment decision-making responsibilities. Accordingly, a Fund may pay a
Broker higher commissions than those available from another Broker in
recognition of such Broker's provision of Soft Dollar Products to AIM.
AIM faces a potential conflict of interest when it uses client trades to
obtain Soft Dollar Products. This conflict exists because AIM is able to use the
Soft Dollar Products to manage client accounts without paying cash for the Soft
Dollar Products, which reduces AIM's expenses to the extent that AIM would have
purchased such products had they not been provided by Brokers. Section 28(e)
permits AIM to use Soft Dollar Products for the benefit of any account it
manages. Certain AIM-managed accounts may generate soft dollars used to purchase
Soft Dollar Products that ultimately benefit other AIM-managed accounts,
effectively cross subsidizing the other AIM-managed accounts that benefit
directly from the product. AIM may not use all of the Soft Dollar Products
provided by Brokers through which a Fund effects securities transactions in
connection with managing such Fund.
AIM and certain of its affiliates presently engage in the following
instances of cross-subsidization:
1. Fixed income funds normally do not generate soft dollar commissions to
pay for Soft Dollar Products. Therefore, soft dollar commissions used
to pay for Soft Dollar Products which are used to manage the fixed
income AIM Funds are generated entirely by equity AIM Funds and other
equity client accounts managed by AIM or A I M Capital, Inc. ("AIM
Capital"), a subsidiary of AIM. In other words, the fixed income AIM
Funds are cross-subsidized by the equity AIM Funds, in that the fixed
income AIM Funds receive the benefit of Soft Dollar Products services
for which they do not pay.
2. The investment models used to manage many of the AIM Funds are also
used to manage other accounts of AIM and/or AIM Capital. The Soft
Dollar Products obtained through the use
66
of soft dollar commissions generated by the transactions of the AIM
Funds and/or other accounts managed by AIM and/or AIM Capital are used
to maintain the investment models relied upon by both of these
advisory affiliates.
This type of cross-subsidization occurs in both directions. For
example, soft dollar commissions generated by transactions of the AIM
Funds and/or other accounts managed by AIM are used for Soft Dollar
Products which may benefit those AIM Funds and/or accounts as well as
accounts managed by AIM Capital. Additionally, soft dollar commissions
generated by transactions of accounts managed by AIM Capital are used
for Soft Dollar Products which may benefit those accounts as well as
accounts managed by AIM. In certain circumstances, AIM Capital
accounts may indicate that their transactions should not be used to
generate soft dollar commissions but may still receive the benefits of
Soft Dollar Products received by AIM or AIM Capital.
3. Some of the common investment models used to manage various Funds and
other accounts of AIM and/or AIM Capital are also used to manage
accounts of AIM Private Asset Management, Inc. ("APAM"), another AIM
subsidiary. The Soft Dollar Products obtained through the use of soft
dollar commissions generated by the transactions of the Funds and/or
other accounts managed by AIM and/or AIM Capital are used to maintain
the investment models relied upon by AIM, AIM Capital and APAM. This
cross-subsidization occurs in only one direction. Most of APAM's
accounts do not generate soft dollar commissions which can be used to
purchase Soft Dollar Products. The soft dollar commissions generated
by transactions of the Funds and/or other accounts managed by AIM
and/or AIM Capital are used for Soft Dollar Products which may benefit
the accounts managed by AIM, AIM Capital and APAM; however, APAM does
not provide any soft dollar research benefit to the Funds and/or other
accounts managed by AIM or AIM Capital.
AIM and AIM Capital attempt to reduce or eliminate the potential conflicts
of interest concerning the use of Soft Dollar Products by directing client
trades for Soft Dollar Products only if AIM and AIM Capital conclude that the
Broker supplying the product is capable of providing best execution.
Certain Soft Dollar Products may be available directly from a vendor on a
hard dollar basis; other Soft Dollar Products are available only through Brokers
in exchange for soft dollars. AIM uses soft dollars to purchase two types of
Soft Dollar Products:
- proprietary research created by the Broker executing the trade, and
- other products created by third parties that are supplied to AIM
through the Broker executing the trade.
Proprietary research consists primarily of traditional research reports,
recommendations and similar materials produced by the in house research staffs
of broker-dealer firms. This research includes evaluations and recommendations
of specific companies or industry groups, as well as analyses of general
economic and market conditions and trends, market data, contacts and other
related information and assistance. AIM periodically rates the quality of
proprietary research produced by various Brokers. Based on the evaluation of the
quality of information that AIM receives from each Broker, AIM develops an
estimate of each Broker's share of AIM clients' commission dollars. AIM attempts
to direct trades to the firms to meet these estimates.
AIM also uses soft dollars to acquire products from third parties that are
supplied to AIM through Brokers executing the trades or other Brokers who "step
in" to a transaction and receive a portion of the brokerage commission for the
trade. AIM may from time to time instruct the executing Broker to allocate or
"step out" a portion of a transaction to another Broker. The Broker to which AIM
has "stepped out" would then settle and complete the designated portion of the
transaction, and the executing Broker would settle and complete the remaining
portion of the transaction that has not been "stepped out." Each Broker may
receive a commission or brokerage fee with respect to that portion of the
transaction that it settles and completes.
67
Soft Dollar Products received from Brokers supplement AIM's own research
(and the research of certain of its affiliates), and may include the following
types of products and services:
- Database Services - comprehensive databases containing current and/or
historical information on companies and industries and indices.
Examples include historical securities prices, earnings estimates and
financial data. These services may include software tools that allow
the user to search the database or to prepare value-added analyses
related to the investment process (such as forecasts and models used
in the portfolio management process).
- Quotation/Trading/News Systems - products that provide real time
market data information, such as pricing of individual securities and
information on current trading, as well as a variety of news services.
- Economic Data/Forecasting Tools - various macro economic forecasting
tools, such as economic data or currency and political forecasts for
various countries or regions.
- Quantitative/Technical Analysis - software tools that assist in
quantitative and technical analysis of investment data.
- Fundamental/Industry Analysis - industry specific fundamental
investment research.
- Fixed Income Security Analysis - data and analytical tools that
pertain specifically to fixed income securities. These tools assist in
creating financial models, such as cash flow projections and interest
rate sensitivity analyses, which are relevant to fixed income
securities.
- Other Specialized Tools - other specialized products, such as
consulting analyses, access to industry experts, and distinct
investment expertise such as forensic accounting or custom built
investment-analysis software.
If AIM determines that any service or product has a mixed use (i.e., it
also serves functions that do not assist the investment decision-making or
trading process), AIM will allocate the costs of such service or product
accordingly in its reasonable discretion. AIM will allocate brokerage
commissions to Brokers only for the portion of the service or product that AIM
determines assists it in the investment decision-making or trading process and
will pay for the remaining value of the product or service in cash.
Outside research assistance is useful to AIM since the Brokers used by AIM
tend to provide more in-depth analysis of a broader universe of securities and
other matters than AIM's staff follows. In addition, such services provide AIM
with a diverse perspective on financial markets. Some Brokers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any Broker in the execution of transactions in portfolio securities. In
some cases, Soft Dollar Products are available only from the Broker providing
them. In other cases, Soft Dollar Products may be obtainable from alternative
sources in return for cash payments. AIM believes that because Broker research
supplements rather than replaces AIM's research, the receipt of such research
tends to improve the quality of AIM's investment advice. The advisory fee paid
by the Funds is not reduced because AIM receives such services. To the extent
the Funds' portfolio transactions are used to obtain Soft Dollar Products, the
brokerage commissions obtained by the Funds might exceed those that might
otherwise have been paid.
AIM may determine target levels of brokerage business with various Brokers
on behalf of its clients (including the Funds) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the Broker; and (2) the research services
68
provided by the Broker. Portfolio transactions may be effected through Brokers
that recommend the Funds to their clients, or that act as agent in the purchase
of a Fund's shares for their clients, provided that AIM believes such Brokers
provide best execution and such transactions are executed in compliance with
AIM's policy against using directed brokerage to compensate Brokers for
promoting or selling AIM Fund shares. AIM will not enter into a binding
commitment with Brokers to place trades with such Brokers involving brokerage
commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during the
last fiscal year ended December 31, 2005 are found in Appendix K.
REGULAR BROKERS
Information concerning the Funds' acquisition of securities of their
regular Brokers during the last fiscal year ended December 31, 2005 is found in
Appendix K.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous AIM Funds and other accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more other accounts. However, the
position of each account in the same security and the length of time that each
account may hold its investment in the same security may vary. The timing and
amount of purchase 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 the Fund(s) and one or more other accounts, and is considered at or about the
same time, AIM will allocate transactions in such securities among the Fund(s)
and these accounts on a pro rata basis based on order size or in such other
manner believed by AIM to be fair and equitable. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
ALLOCATION OF EQUITY INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become
interested in participating in equity IPOs. Purchases of equity IPOs by one AIM
Fund or other account may also be considered for purchase by one or more other
AIM Funds or accounts. AIM shall combine indications of interest for equity IPOs
for all AIM Funds and accounts participating in purchase transactions for that
IPO. When the full amount of all IPO orders for such AIM Funds and accounts
cannot be filled completely, AIM shall allocate such transactions in accordance
with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that seeks
to participate in a particular equity IPO by reviewing a number of factors,
including market capitalization/liquidity suitability and sector/style
suitability of the investment with the AIM Fund's or account's investment
objective, policies, strategies and current holdings. AIM will allocate equity
securities issued in IPOs to eligible AIM Funds and accounts on a pro rata basis
based on order size.
INVESCO allocates equity IPOs on a pro rata basis based on account size or
in such other manner believed by INVESCO to be fair and equitable.
PURCHASE AND REDEMPTION OF SHARES
The Trust offers the shares of the Funds, on a continuous basis, to both
registered and unregistered separate accounts of affiliated and unaffiliated
Participating Insurance Companies to fund variable annuity contracts (the
"Contracts") and variable life insurance policies ("Policies"). Each
69
separate account contains divisions, each of which corresponds to a Fund in the
Trust. Net purchase payments under the Contracts are placed in one or more of
the divisions of the relevant separate account and the assets of each division
are invested in the shares of the Fund which corresponds to that division. Each
separate account purchases and redeems shares of these Funds for its divisions
at net asset value without sales or redemption charges. Currently several
insurance company separate accounts invest in the Funds.
The Trust, in the future, may offer the shares of its Funds to certain
pension and retirement plans ("Plans") qualified under the Internal Revenue
Code. The relationships of Plans and Plan participants to the Fund would be
subject, in part, to the provisions of the individual plans and applicable law.
Accordingly, such relationships could be different from those described in this
Prospectus for separate accounts and owners of Contracts and Policies, in such
areas, for example, as tax matters and voting privileges.
The Board monitors for possible conflicts among separate accounts (and will
do so for plans) buying shares of the Funds. Conflicts could develop for a
variety of reasons. For example, violation of the federal tax laws by one
separate account investing in a fund could cause the contracts or policies
funded through another separate account to lose their tax-deferred status,
unless remedial actions were taken. For example, differences in treatment under
tax and other laws or the failure by a separate account to comply with such laws
could cause a conflict. To eliminate a conflict, the Board may require a
separate account or Plan to withdraw its participation in a Fund. A Fund's net
asset value could decrease if it had to sell investment securities to pay
redemptions proceeds to a separate account (or plan) withdrawing because of a
conflict.
CALCULATION OF NET ASSET VALUE
For AIM V.I. Money Market Fund: The net asset value per share of the Fund
is determined daily as of 12:00 noon and the close of the customary trading
session of the NYSE (generally 4:00 p.m. Eastern time) on each business day of
the Fund. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern
time) on a particular day, the net asset value of the Fund is determined as of
the close of the NYSE on such day. Net asset value per share is determined by
dividing the value of the Fund's securities, cash and other assets (including
interest accrued but not collected) attributable to a particular class, less all
of its liabilities (including accrued expenses and dividends payable)
attributable to that class, by the number of shares outstanding of that class
and rounding the resulting per share net asset value to the nearest one cent.
Determination of the net asset value per share is made in accordance with
generally accepted accounting principles.
The Fund uses the amortized cost method to determine its net asset value.
Under the amortized cost method, each investment is valued at its cost and
thereafter any discount or premium is amortized on a constant basis to maturity.
While this method provides certainty of valuation, it may result in periods in
which the amortized cost value of the Fund's investments is higher or lower than
the price that would be received if the investments were sold. During periods of
declining interest rates, use by the Fund of the amortized cost method of
valuing its portfolio may result in a lower value than the market value of the
portfolio, which could be an advantage to new investors relative to existing
shareholders. The converse would apply in a period of rising interest rates.
The Fund may use the amortized cost method to determine its net asset value
so long as the Fund does not (a) purchase any instrument with a remaining
maturity greater than 397 days (for these purposes, repurchase agreements shall
not be deemed to involve the purchase by the Fund of the securities pledged as
collateral in connection with such agreements) or (b) maintain a dollar-weighted
average portfolio maturity in excess of 90 days, and otherwise complies with the
terms of rules adopted by the SEC.
The Board has established procedures designed to stabilize the Fund's net
asset value per share at $1.00, to the extent reasonably possible. Such
procedures include review of portfolio holdings by the trustees at such
intervals as they may deem appropriate. The reviews are used to determine
whether net
70
asset value, calculated by using available market quotations, deviates from
$1.00 per share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to investors or existing shareholders. In the
event the trustees determine that a material deviation exists, they intend to
take such corrective action as they deem necessary and appropriate. Such actions
may include selling portfolio securities prior to maturity in order to realize
capital gains or losses or to shorten average portfolio maturity, withholding
dividends, redeeming shares in kind, or establishing a net asset value per share
by using available market quotations, in which case the net asset value could
possibly be more or less than $1.00 per share. AIM V.I. Money Market 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.
Under the amortized cost method, each investment is valued at its cost and
thereafter any discount or premium is amortized on a constant basis to maturity.
While this method provides certainty of valuation, it may result in periods in
which the amortized cost value of the Fund's investments is higher or lower than
the price that would be received if the investments were sold.
For All Other Funds: Each Fund determines its net asset value per share
once daily as of the close of the customary trading session of the NYSE
(generally 4:00 p.m. Eastern time) on each business day of the Fund. In the
event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a
particular day, each Fund determines its net asset value per share as of the
close of the NYSE on such day. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes after
the close of the customary trading session of the NYSE. Futures contracts are
valued at the final settlement price set by an exchange on which they are
principally traded. Listed options are valued at the mean between the last bid
and the ask prices from the exchange on which they are principally traded.
Options not listed on an exchange are valued by an independent source at the
mean between the last bid and ask prices. The Funds determine net asset value
per share by dividing the value of a Fund's securities, cash and other assets
(including interest accrued but not collected) attributable to a particular
class, less all its liabilities (including accrued expenses and dividends
payable) attributable to that class, by the total number of shares outstanding
of that class. Determination of a Fund's net asset value per share is made in
accordance with generally accepted accounting principles. The net asset value
for shareholder transactions may be different than the net asset value reported
in the Fund's financial statement due to adjustments required by generally
accepted accounting principles made to the net assets of the Fund at period end.
Each equity security (excluding convertible bonds) held by a Fund is valued
at its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the closing
bid price on that day. Each equity security traded in the over-the-counter
market (but not including securities reported on the NASDAQ National Market
System) is valued on the basis of prices furnished by independent pricing
vendors or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") or absent a NOCP,
at the closing bid price on that day. Debt securities (including convertible
bonds) are fair valued using an evaluated quote on the basis of prices provided
by an independent pricing vendor. Evaluated quotes provided by the pricing
vendor 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, dividend rate, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case of
debt obligations, the mean between the last bid and ask prices. Securities for
which market quotations are not available, including situations where market
quotations are unreliable, are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in accordance with
procedures approved by the Board. Short-term investments are valued at amortized
cost when the security has 60 days or less to maturity.
71
Generally, trading in corporate bonds, U.S. Government securities and money
market instruments is substantially completed each day at various times prior to
the close of the customary trading session of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined at such times. Occasionally, events affecting the values of such
securities may occur between the times at which such values are determined and
the close of the customary trading session of the NYSE. If AIM believes a
development/event has actually caused a closing price to no longer reflect
current market value, the closing price may be adjusted to reflect the fair
value of the affected security as of the close of the NYSE as determined in good
faith using procedures approved by the Board.
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Trading in certain foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of
each Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE. If an issuer specific event has occurred
that AIM determines, in its judgment, is likely to have affected the closing
price of a foreign security, it will price the security at fair value. Issuer
specific events may include a merger or insolvency, events which affect a
geographical area or an industry segment, such as political events or natural
disasters, or market events, such as a significant movement in the U.S. market.
AIM also relies on a screening process from a pricing vendor to indicate the
degree of certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current market value
as of the close of the NYSE. For foreign securities where AIM believes, at the
approved degree of certainty, that the price is not reflective of current market
value, AIM will use the indication of fair value from the pricing vendor to
determine the fair value of the security. The pricing vendor, pricing
methodology or degree of certainty may change from time to time. Multiple
factors may be considered by the independent pricing vendor in determining
adjustments to reflect fair value and may include information relating to sector
indices, ADRs, domestic and foreign index futures, and exchange-traded funds.
Fund securities primarily traded in foreign markets may be traded in such
markets on days that are not business days of the Fund. Because the net asset
value per share of each Fund is determined only on business days of the Fund,
the value of the portfolio securities of a Fund that invests in foreign
securities may be significantly affected on days when an investor cannot
exchange or redeem shares of the Fund.
REDEMPTION IN KIND
Although the Funds, except AIM V.I. Money Market Fund, generally intend to
pay redemption proceeds solely in cash, the Funds reserve the right to
determine, in their sole discretion, whether to satisfy redemption requests by
making payment in securities or other property (known as a redemption in kind).
For instance, a Fund may make a redemption in kind if a cash redemption would
disrupt its operations or performance. Securities that will be delivered as
payment in redemptions in kind will be valued using the same methodologies that
the Fund typically utilizes in valuing such securities. Shareholders receiving
such securities are likely to incur transaction and brokerage costs on their
subsequent sales of such securities, and the securities may increase or decrease
in value until the shareholder sells them. The Trust, on behalf of the Funds,
has made an election under Rule 18f-1 under the 1940 Act (a "Rule 18f-1
Election"), and therefore, the Trust, on behalf of the Fund, is obligated to
redeem for cash all shares presented to such Fund for redemption by any one
shareholder in an amount up to the lesser of $250,000 or 1% of that Fund's net
assets in any 90-day period. The Rule 18f-1 Election is irrevocable while Rule
18f-1 under the 1940 Act is in effect unless the SEC by order permits withdrawal
of such Rule 18f-1 Election.
PAYMENTS TO PARTICIPATING INSURANCE COMPANIES AND/OR THEIR AFFILIATES
AIM or AIM Distributors may, from time to time, at their expense out of
their own financial resources, make cash payments to Participating Insurance
Companies and/or their affiliates, as an
72
incentive to promote the Funds and/or to retain Participating Insurance
Companies' assets in the Funds. Such cash payments may be calculated on the
average daily net assets of the applicable Fund(s) attributable to that
particular Participating Insurance Company ("Asset-Based Payments"), in which
case the total amount of such cash payments shall not exceed 0.25% per annum of
those assets during a defined period. AIM or AIM Distributors may also make
other cash payments to Participating Insurance Companies and/or their affiliates
in addition to or in lieu of Asset-Based Payments, in the form of: payment for
travel expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives of those dealer firms and their families
to places within or outside the United States; meeting fees; entertainment;
transaction processing and transmission charges; advertising or other
promotional expenses; or other expenses as determined in AIM's or AIM
Distributors' discretion. In certain cases these other payments could be
significant to the Participating Insurance Companies and/or their affiliates.
Generally, commitments to make such payments are terminable upon notice to the
Participating Insurance Company and/or their affiliates. However, AIM and AIM
Distributors have entered into unique agreements with Ameriprise Financial
Services, Inc. ("Ameriprise"), in respect of its affiliated Participating
Insurance Companies, where the payment obligation of AIM or AIM Distributors can
only be terminated on the occurrence of certain specified events. For example,
in the event that a Participating Insurance Company affiliated with Ameriprise
obtains an SEC order to substitute out such Participating Insurance Company
assets in the Funds or such Participating Insurance Company's assets in the
Funds falls below a pre-determined level, payments by AIM or AIM Distributors to
Ameriprise can then be terminated. Any payments described above will not change
the price paid by Participating Insurance Companies for the purchase of the
applicable Fund's shares or the amount that any particular Fund will receive as
proceeds from such sales. AIM or AIM Distributors determines the cash payments
described above in its discretion in response to requests from Participating
Insurance Companies, based on factors it deems relevant. Participating Insurance
Companies may not use sales of the Funds' shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any state.
A list of certain entities that received payments as described in this
Statement of Additional Information during the 2005 calendar year is attached as
Appendix L. Certain arrangements are still being negotiated, and there is a
possibility that payments will be made retroactively to entities not listed
below. Accordingly, please contact your Participating Insurance Company to
determine whether they currently may be receiving such payments and to obtain
further information regarding any such payments.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of each Fund to declare and distribute dividends
representing substantially all net investment income as follows:
DIVIDENDS DIVIDENDS
DECLARED PAID
--------- ---------
AIM V.I. Basic Balanced Fund.............. annually annually
AIM V.I. Basic Value Fund................. annually annually
AIM V.I. Blue Chip Fund................... annually annually
AIM V.I. Capital Appreciation Fund........ annually annually
AIM V.I. Capital Development Fund......... annually annually
AIM V.I. Core Equity Fund................. annually annually
AIM V.I. Demographic Trends Fund.......... annually annually
AIM V.I. Diversified Dividend Fund........ annually annually
AIM V.I. Diversified Income Fund.......... annually annually
AIM V.I. Dynamics Fund.................... annually annually
AIM V.I. Financial Services Fund.......... annually annually
AIM V.I. Global Equity Fund............... annually annually
AIM V.I. Global Health Care Fund.......... annually annually
AIM V.I. Government Securities Fund....... annually annually
AIM V.I. High Yield Fund.................. annually annually
73
AIM V.I. International Core Equity Fund... annually annually
AIM V.I. International Growth Fund........ annually annually
AIM V.I. Large Cap Growth Fund............ annually annually
AIM V.I. Leisure Fund..................... annually annually
AIM V.I. Mid Cap Core Equity Fund......... annually annually
AIM V.I. Money Market Fund................ daily monthly
AIM V.I. Real Estate Fund................. annually annually
AIM V.I. Small Cap Equity Fund............ annually annually
AIM V.I. Small Company Growth Fund........ annually annually
AIM V.I. Technology Fund.................. annually annually
AIM V.I. Utilities Fund................... annually annually
It is also each Fund's intention to distribute annually substantially all
of its net investment income and realized net capital gains. In determining the
amount of capital gains, if any, available for distribution, capital gains will
be offset against available net capital losses, if any, carried forward from
previous fiscal periods.
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.
AIM V.I. Money Market Fund declares net investment income dividends daily
and pays net investment income dividends monthly and declares and pays annually
any capital gain distributions. The Fund does not expect to realize any
long-term capital gains and losses. The Fund may distribute net realized
short-term gain, if any, more frequently.
It is each Fund's intention to distribute substantially all of its net
investment income and realized net capital gain to separate accounts of
participating life insurance companies. At the election of participating life
insurance companies, dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date.
Should the Trust incur or anticipate any unusual expense, loss or
depreciation, which would adversely affect the net asset value per share of AIM
V.I. Money Market Fund or the net income per share of a class of the Fund for a
particular period, the Board would at that time consider whether to adhere to
the present dividend policy described above or to revise it in light of then
prevailing circumstances. For example, if the net asset value per share of AIM
V.I. Money Market Fund was reduced, or was anticipated to be reduced, below
$1.00, the Board might suspend further dividend payments on shares of the Fund
until the net asset value returns to $1.00. Thus, such expense, loss or
depreciation might result in a shareholder receiving no dividends for the period
during which it held shares of the Fund and/or its receiving upon redemption a
price per share lower than that which it paid.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
Each series of shares of 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. As a RIC, a Fund will not be subject to federal
income tax to the extent it distributes to its shareholders its investment
company taxable income and net capital gains as discussed below.
In order to qualify as a RIC, 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
74
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.
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.
Because each Fund intends to qualify under the Code as a RIC for each
taxable year, each Fund must, among other things, meet the following
requirements: (A) Each Fund must generally derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies and net income derived from certain
publicly traded partnerships; and (B) Each Fund must satisfy an asset
diversification test (the "Asset Diversification Test").
The Asset Diversification Test requires that at the close of each quarter
of each Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
RICs, and securities of other issuers, as to which the Fund has not invested
more than 5% of the value of the Fund's total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer, and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
of two or more issuers which the Fund controls and which are engaged in the same
or similar trades or businesses, or, collectively of securities of certain
publicly traded partnerships.
For purposes of the Asset Diversification Test, the IRS has ruled that the
issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying securities,
the IRS has ruled that the Asset Diversification Test will be applied solely to
such securities and not to the value of the option itself. With respect to
options on securities indexes, futures contracts on securities indexes and
options on such futures contracts, the IRS has informally ruled that the issuers
of such options and futures contracts are the separate entities whose securities
are listed on the index, in proportion to the weighing of securities in the
computation of the index. It is unclear under present law who should be treated
as the issuer of forward foreign currency exchange contracts, of options on
foreign currencies, or of foreign currency futures and related options. It has
been suggested that the issuer in each case may be the foreign central bank or
the foreign government backing the particular currency. Due to this uncertainty
and because the Funds may not rely on information rulings of the IRS, the Funds
may find it necessary to seek a ruling from the IRS as to the application of the
Asset Diversification Test to certain of the foregoing types of financial
instruments or to limit its holdings of some or all such instruments in order to
stay within the limits of such test.
75
Under an IRS revenue procedure, a Fund may treat its position as lender
under a repurchase agreement as a U.S. Government security for purposes of the
Asset Diversification Test where the repurchase agreement is fully
collateralized (under applicable SEC standards) with securities that constitute
U.S. Government securities.
The Code imposes a nondeductible 4% excise tax on a RIC that fails to
distribute during each calendar year the sum of 98% of its ordinary income for
the calendar year, plus 98% of its capital gain net income for the 12-month
period ending on October 31 of the calendar year. The amount which must be
distributed is increased by undistributed income and gains from prior years and
decreased by certain distributions in prior years. Each Fund intends to make
sufficient distributions to avoid imposition of the excise tax. Some Funds meet
an exception which results in their not being subject to excise tax.
As a RIC, each Fund will not be subject to federal income tax on its income
and gains distributed to shareholders if it distributes at least (i) 90% of its
investment company taxable income for the taxable year; and (ii) 90% of the
excess of its tax-exempt interest income under Code Section 103(a) over its
deductions disallowed under Code Sections 265 and 171(a)(2) (the "Distribution
Requirement"). Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gain of the taxable year
and can therefore satisfy the Distribution Requirement.
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 Asset Diversification is
satisfied and no more than 55% of the value of the account's total assets are
cash and cash items (including receivables), government securities and
securities of other RICs. Failure of a Fund to satisfy the Section 817(h)
requirements would result in taxation of and treatment of the Contract holders
investing in a corresponding division other than as described in the applicable
prospectuses of the various insurance company separate accounts.
SWAP AGREEMENTS. AIM V.I. Basic Balanced Fund, AIM V.I. Diversified Income
Fund and AIM V.I. High Yield Fund may enter into swap agreements. The rules
governing the tax aspects of certain types of swap agreements are in a
developing stage and are not entirely clear in certain respects. Accordingly,
while a Fund intends to account for such transactions in a manner deemed to be
appropriate, the IRS might not accept such treatment. If it did not, the status
of a Fund as a regulated investment company might be affected. AIM V.I. Basic
Balanced Fund, AIM V.I. Diversified Income Fund and AIM V.I. High Yield Fund
intend to monitor developments in this area. Certain requirements that must be
met under the Code in order for a Fund to qualify as a RIC may limit the extent
to which a Fund will be able to engage in certain types of swap agreements.
76
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLAN
The Trust has adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act with respect to each Fund's Series II shares (the "Plan"). Each Fund,
pursuant to the Plan, pays AIM Distributors compensation at the annual rate of
0.25% of average daily net assets of Series II shares.
The Plan compensates AIM Distributors for the purpose of financing any
activity which is primarily intended to result in the sale of Series II shares
of the Funds. Distribution activities appropriate for financing under the Plan
include, but are not limited to, the following: expenses relating to the
development, preparation, printing and distribution of advertisements and sales
literature and other promotional materials describing and/or relating to the
Fund; expenses of training sales personnel regarding the Fund; expenses of
organizing and conducting seminars and sales meetings designed to promote the
distribution of the Series II shares; compensation to financial intermediaries
and broker-dealers to pay or reimburse them for their services or expenses in
connection with the distribution of the Series II shares to fund variable
annuity and variable insurance contracts investing directly in the Series II
shares; compensation to sales personnel in connection with the allocation of
cash values and premium of variable annuity and variable insurance contracts to
investments in the Series II shares; compensation to and expenses of employees
of AIM Distributors, including overhead and telephone expenses, who engage in
the distribution of the Series II shares; and the costs of administering the
Plan.
Amounts payable by a Fund under the Plan need not be directly related to
the expenses actually incurred by AIM Distributors on behalf of each Fund. The
Plan does not obligate the Funds to reimburse AIM Distributors for the actual
expenses AIM Distributors may incur in fulfilling its obligations under the
Plan. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors at any given time, the Funds will not be obligated to pay more
than that fee. If AIM Distributors' expenses are less than the fee it receives,
AIM Distributors will retain the full amount of the fee. No provision of this
Distribution Plan shall be interpreted to prohibit any payments by the Trust
during periods when the Trust has suspended or otherwise limited sales. Payments
pursuant to the Plan are subject to any applicable limitations imposed by rules
of the National Association of Securities Dealers, Inc. ("NASD").
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Series II shares. Voluntary fee waivers or reductions may be
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions, AIM Distributors will retain its ability to
be reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions set forth in the Fee Table in a Prospectus may not be
terminated or amended to the Funds' detriment during the period stated in the
agreement between AIM Distributors and the Fund.
AIM Distributors has entered into agreements with Participating Insurance
Companies and other financial intermediaries to provide the distribution
services in furtherance of the Plan. Currently, AIM Distributors pays
Participating Insurance Companies and others at the annual rate of 0.25% of
average daily net assets of Series II shares attributable to the Contracts
issued by the Participating Insurance Company as compensation for providing such
distribution services. AIM Distributors does not act as principal, but rather as
agent for the Funds, in making distribution service payments. These payments are
an obligation of the Funds and not of AIM Distributors.
See Appendix M for a list of the amounts paid by Series II shares to AIM
Distributors pursuant to the Plan for the year, or period, ended December 31,
2005 and Appendix N for an estimate by category of the allocation of actual fees
paid by Series II shares of each Fund pursuant to its respective distribution
plan for the year or period ended December 31, 2005.
As required by Rule 12b-1, the Plan approved by the Board, including a
majority of the trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan (the "Rule
12b-1 Trustees"). In approving the Plans in accordance with the requirements of
Rule 12b-1, the
77
Trustees considered various factors and determined that there is a reasonable
likelihood that the Plan would benefit each Series II class of the Funds and its
respective shareholders by, among other things, providing broker-dealers with an
incentive to sell additional shares of the Trust, thereby helping to satisfy the
Trust's liquidity needs and helping to increase the Trust's investment
flexibility.
Unless terminated earlier in accordance with its terms, the Plan continues
from year to year as long as such continuance is specifically approved, in
person, at least annually by the Board, including a majority of the Rule 12b-1
Trustees. The Plan requires AIM Distributors to provide the Board at least
quarterly with a written report of the amounts expended pursuant to the
Distribution Plan and the purposes for which such expenditures were made. The
Board reviews these reports in connection with their decisions with respect to
the Plan. A Plan may be terminated as to any Fund or Series II shares by the
vote of a majority of the Rule 12b-1 Trustees or, with respect to the Series II
shares, by the vote of a majority of the outstanding voting securities of the
Series II shares.
Any change in the Plan that would increase materially the distribution
expenses paid by the Series II shares requires shareholder approval. No material
amendment to the Plan may be made unless approved by the affirmative vote of a
majority of the Rule 12b-1 Trustees cast in person at a meeting called for the
purpose of voting upon such amendment.
DISTRIBUTOR
The Trust has entered into a master distribution agreement relating to the
Funds (the "Distribution Agreement") with AIM Distributors, a registered
broker-dealer and a wholly owned subsidiary of AIM, pursuant to which AIM
Distributors acts as the distributor of shares of the Funds. The address of AIM
Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees and
officers of the Trust are affiliated with AIM Distributors. See "Management of
the Trust."
The Distribution Agreement provides AIM Distributors with the exclusive
right to distribute shares of the Funds on a continuous basis.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreement on sixty (60) days' written notice without
penalty. The Distribution Agreement will terminate automatically in the event of
its assignment.
FINANCIAL STATEMENTS
Each Fund's Financial Statements for the period ended December 31, 2005,
including the Financial Highlights and the report of the independent registered
public accounting firm pertaining thereto, are incorporated by reference into
this Statement of Additional Information ("SAI") from such Fund's Annual Report
to shareholders.
The portions of such Annual Reports that are not specifically listed above
are not incorporated by reference into this SAI and are not a part of this
Registration Statement.
PENDING LITIGATION
Regulatory Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, INVESCO Funds Group, Inc. ("IFG")
(the former investment advisor to certain AIM Funds) and ADI, as well as
numerous unrelated mutual fund complexes and financial institutions. None of the
AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint,
filed in the Circuit Court of Marshall County, West Virginia [Civil Action No.
05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose
78
in the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
Section 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary penalties;
a writ of quo warranto against the defendants; pre-judgment and post-judgment
interest; costs and expenses, including counsel fees; and other relief.
If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be
barred from serving as an investment adviser for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP PLC ("AMVESCAP")
from serving as an investment advisor to any registered investment company,
including your Fund. Your Fund has been informed by AIM that, if these results
occur, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as your Fund's investment advisor. There is no assurance that such
exemptive relief will be granted.
On October 19, 2005, the WVAG lawsuit was transferred for pretrial purposes
to the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority to bring an action based upon conduct that is
ancillary to the purchase or sale of securities. AIM intends to seek dismissal
of the WVAG's lawsuit against it, IFG and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that essentially mirror the WVAG's allegations mentioned above
and conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions, including restitution to affected
investors, disgorgement of fees, reimbursement of investigatory, administrative
and legal costs and an "administrative assessment," to be determined by the
Commissioner. Initial research indicates that these damages could be limited or
capped by statute.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, the
parent company of IFG and AIM, certain related entities, certain of their
current and former officers and/or certain unrelated third parties) based on
allegations of improper market timing and related activity in the AIM Funds.
These lawsuits allege a variety of theories of recovery, including but not
limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees. A list identifying such
lawsuits (excluding those lawsuits that have been recently transferred as
mentioned herein) that have been served on IFG, AIM, the AIM Funds or related
entities, or for which service of process has been waived, as of February 16,
2006 is set forth in Appendix O-1.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings (excluding the Berdat excessive fees consolidated lawsuit that has
been conditionally transferred to the MDL Court). Pursuant to an Order of the
MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial
purposes into three amended complaints against various AIM- and IFG-related
parties. A list identifying the amended complaints in the MDL Court is included
in Appendix O-2. Plaintiffs in two of the underlying lawsuits transferred to the
MDL
79
Court continue to seek remand of their action to state court. These lawsuits are
identified in Appendix O-1.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various
parties (including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs. A
list identifying such lawsuits that have been served on IFG, AIM, the AIM Funds
or related entities, or for which service of process has been waived, as of
February 16, 2006 is set forth in Appendix O-2.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. A list identifying such lawsuits that have
been served on IFG, AIM, the AIM Funds or related entities, or for which service
of process has been waived, as of February 16, 2006 is set forth in Appendix
O-3.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees. A list identifying such lawsuits that have been
served on IFG, AIM, the AIM Funds or related entities, or for which service of
process has been waived, as of February 16, 2006 is set forth in Appendix O-4.
80
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings
of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
AAA: Bonds and preferred stock 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-edged." 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 and preferred stock 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. These 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 risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock 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 and preferred stock 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 and preferred stock 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 both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock 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 and preferred stock 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 and preferred stock 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 and preferred stock 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 Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating
A-1
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to honor
senior financial obligations and contracts. Such obligations generally have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Note: In addition, in certain countries the prime rating may be modified by
the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal Ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.
AAA: Issuers or issues rated Aaa demonstrate the strongest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
AA: Issuers or issues rated Aa demonstrate very strong creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A-2
A: Issuers or issues rated A present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
BAA: Issuers or issues rated Baa represent average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
BA: Issuers or issues rated Ba demonstrate below-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative to
other US municipal or tax-exempt issuers or issues.
CAA: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
CA: Issuers or issues rated Ca demonstrate extremely weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to Caa. The modifier 1 indicates that the issue
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 category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for
short-term obligations that are considered investment grade. These ratings are
designated as Moody's Investment Grade (MIG) and are divided into three levels -
MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality
are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned. The first element represents Moody's evaluation of the
degree of risk associated with scheduled principal and interest payments. The
second element represents Moody's evaluation of the degree of risk associated
with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated
as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that
piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations
will be a function of each issue's specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly the
same.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
A-3
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments 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 exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example,
A-4
AAA/A-1+). With short-term demand debt, the note rating symbols are used with
the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note); and source of payment
(the more dependant the issue is on the market for its refinancing, the more
likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely basis. These credit ratings
apply to a variety of entities and issues, including but not limited to
sovereigns,
A-5
governments, structured financings, and corporations; debt, preferred/preference
stock, bank loans, and counterparties; as well as the financial strength of
insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood of
getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- - 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Entities or issues carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch Ratings believes to be
reliable. Fitch Ratings does not audit or verify the truth or accuracy of such
information. Ratings may be changed or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the program
concerned; it should not be assumed that these ratings apply to every issue made
under the program. In particular, in the case of non-standard issues, i.e.,
those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk. In
particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor has a very strong capacity for timely payment of financial commitments
which is not significantly vulnerable to foreseeable events.
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 good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
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" category.
NR: Indicates that Fitch does not rate the specific issue.
A-6
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is
a reasonable possibility of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively short
period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over time.
However, business and financial alternatives may be available to allow financial
commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments
is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
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 are valued on the basis of their prospects
for achieving partial or full 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 categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings. A Short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as in
the case of the higher ratings.
A-7
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
A-8
APPENDIX B
PERSONS TO WHOM AIM PROVIDES
NON-PUBLIC PORTFOLIO HOLDINGS ON AN ONGOING BASIS
(AS OF APRIL 15, 2006)
SERVICE PROVIDER DISCLOSURE CATEGORY
- ---------------- -------------------
ABN AMRO Financial Services, Inc. Broker (for certain AIM funds)
AIM Investment Services, Inc. Transfer Agent
Anglemyer & Co. Analyst (for certain AIM funds)
Ballard Spahr Andrews & Ingersoll, LLP Legal Counsel
BB&T Capital Markets Broker (for certain AIM funds)
Belle Haven Investments L.P. Broker (for certain AIM funds)
Bloomberg System Provider (for certain AIM funds)
BOSC, Inc. Broker (for certain AIM funds)
BOWNE & Co. Financial Printer
Brown Brothers Harriman & Co. Securities Lender (for certain AIM funds)
Cabrera Capital Markets Broker (for certain AIM funds)
Cenveo Financial Printer
Classic Printers Inc. Financial Printer
Coastal Securities, LP Broker (for certain AIM funds)
Color Dynamics Financial Printer
Duncan-Williams, Inc. Broker (for certain AIM funds)
Earth Color Houston Financial Printer
EMCO Press Financial Printer
Empirical Research Partners Analyst (for certain AIM funds)
Fidelity Investments Broker (for certain AIM funds)
First Albany Capital Broker (for certain AIM funds)
First Tryon Securities Broker (for certain AIM funds)
GainsKeeper Software Provider (for certain AIM funds)
GCom2 Solutions Software Provider (for certain AIM funds)
George K. Baum & Company Broker (for certain AIM funds)
Global Trading Analytics Analyst
Global Trend Alert Analyst (for certain AIM funds)
Grover Printing Financial Printer
Gulfstream Graphics Corp. Financial Printer
Hattier, Sanford & Reynoir Broker (for certain AIM funds)
Howe Barnes Investments, Inc. Broker (for certain AIM funds)
Hutchinson, Shockey, Erley & Co. Broker (for certain AIM funds)
iMoneyNet Rating & Ranking Agency (for certain AIM funds)
Institutional Shareholder Services, Inc. Proxy Voting Service (for certain AIM funds)
J.P. Morgan Chase Analyst (for certain AIM funds)
JPMorgan Securities Inc.\Citigroup Global Markets Lender (for certain AIM funds)
Inc.\JPMorgan Chase Bank
John Hancock Investment Management Services, LLC Sub-advisor (for certain sub-advised accounts)
Kevin Dann & Partners Analyst (for certain AIM funds)
Kirkpatrick, Pettis, Smith, Pollian, Inc. Broker (for certain AIM funds)
Kramer, Levin Naftalis & Frankel LLP Legal Counsel
Legg Mason Wood Walker Broker (for certain AIM funds)
Lehman Brothers, Inc. Broker (for certain AIM funds)
Lipper, Inc. Rating & Ranking Agency (for certain AIM funds)
B-1
SERVICE PROVIDER DISCLOSURE CATEGORY
- ---------------- -------------------
Loan Pricing Corporation Pricing Service (for certain AIM funds)
Loop Capital Markets Broker (for certain AIM funds)
M.R. Beal & Company Broker (for certain AIM funds)
MS Securities Services, Inc. and Morgan Stanley & Co. Securities Lender (for certain AIM funds)
Incorporated
McDonald Investments Inc. Broker (for certain AIM funds)
Mesirow Financial, Inc. Broker (for certain AIM funds)
Moody's Investors Service Rating & Ranking Agency (for certain AIM funds)
Morgan Keegan & Company, Inc. Broker (for certain AIM funds)
Morrison Foerster LLP Legal Counsel
Muzea Insider Consulting Services, LLC Analyst (for certain AIM funds)
Noah Financial, LLC Analyst (for certain AIM funds)
Page International Financial Printer
Piper Jaffray Analyst and Broker (for certain AIM funds)
PricewaterhouseCoopers LLP Independent Registered Public Accounting Firm
(for certain AIM funds)
Printing Arts of Houston Financial Printer
Protective Securities Broker (for certain AIM funds)
Ramirez & Co., Inc. Broker (for certain AIM funds)
Raymond James & Associates, Inc. Broker (for certain AIM funds)
RBC Capital Markets Analyst (for certain AIM funds)
RBC Dain Rauscher Incorporated Broker (for certain AIM funds)
Reuters America Inc. Pricing Service (for certain AIM funds)
Robert W. Baird & Co. Incorporated Broker (for certain AIM funds)
RR Donnelley Financial Printer
Salomon Smith Barney Broker (for certain AIM funds)
SBK Brooks Investment Corp. Broker (for certain AIM funds)
Seattle Northwest Securities Corporation Broker (for certain AIM funds)
Siebert Brandford Shank & Co., L.L.C. Broker (for certain AIM funds)
Signature Financial Printer
Simon Printing Company Financial Printer
Southwest Precision Printers, Inc. Financial Printer
Standard and Poor's/Standard and Poor's Securities Pricing Service (for certain AIM funds)
Evaluations, Inc.
State Street Bank and Trust Company Custodian (for certain AIM funds); Lender (for
certain AIM Funds); Securities Lender (for
certain AIM funds)
Sterne, Agee & Leach, Inc. Broker (for certain AIM funds)
Stifel, Nicholaus & Company, Incorporated Broker (for certain AIM funds)
The Bank of New York Custodian (for certain AIM funds)
The MacGregor Group, Inc. Software Provider
Thomson Information Services Incorporated Software Provider
UBS Financial Services, Inc. Broker (for certain AIM funds)
VCI Group Inc. Financial Printer
Wachovia National Bank, N.A. Broker (for certain AIM funds)
Western Lithograph Financial Printer
Wiley Bros. Aintree Capital L.L.C. Broker (for certain AIM funds)
XSP, LLC\Solutions Plus, Inc. Software Provider
B-2
APPENDIX C
TRUSTEES AND OFFICERS
As of March 31, 2006
The addresss of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Each trustee oversees 109 portfolios in the AIM Funds. The
trustees serve for the life of the Trust, subject to their earlier death,
incapacitation, resignation, retirement or removal as more specifically provided
in the Trust's organizational documents. Column two below includes length of
time served with predecessor entities, if any.
TRUSTEE OTHER
NAME, YEAR OF BIRTH AND AND/OR TRUSTEESHIP(S) HELD
POSITION(S) HELD WITH THE TRUST OFFICER SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
- ------------------------------- ------------- ------------------------------------------- -------------------
INTERESTED PERSONS
Robert H. Graham((1)) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, President Group Inc. (financial services holding
and Principal Executive Officer company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP PLC- AIM
Division (parent of AIM and a global
investment management firm); and Trustee,
Vice Chair, President and Principal
Executive Officer of the AIM Family of
Funds
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc. (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP PLC -
Managed Products
Mark H. Williamson((2)) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director and President, A I M Advisors,
Inc. (registered investment advisor);
Director, A I M Capital Management, Inc.
(registered investment advisor) and A I M
Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM
Investment Services, Inc. (registered
transfer agent), Fund Management Company
(registered broker dealer) and INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC - AIM Division
(parent of AIM and a global investment
management firm); and Trustee and Executive
Vice President of the AIM Family of Funds
Formerly: Director, Chairman, President and
Chief Executive Officer, INVESCO Funds
Group,
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
C-1
TRUSTEE OTHER
NAME, YEAR OF BIRTH AND AND/OR TRUSTEESHIP(S) HELD
POSITION(S) HELD WITH THE TRUST OFFICER SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
- ------------------------------- ------------- ------------------------------------------- -------------------
Inc.; President and Chief Executive
Officer, INVESCO Distributors, Inc.; Chief
Executive Officer, AMVESCAP PLC - Managed
Products; and Chairman, A I M Advisors,
Inc.
INDEPENDENT TRUSTEES
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee and Chair (technology consulting company) (insurance
company); and
Captaris, Inc.
(unified messaging
provider)
Bob R. Baker - 1936 2004 Retired None
Trustee
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee Formerly: Partner, law firm of Baker & (registered
McKenzie investment company
(2 portfolios))
James T. Bunch - 1942 2004 Founder, Green, Manning & Bunch Ltd. None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
2000 Director of a number of public and private None
Albert R. Dowden -- 1941 business corporations, including the Boss
Trustee Group, Ltd. (private investment and
management); Cortland Trust, Inc.(Chairman)
(registered investment company (3
portfolios)); Annuity and Life Re
(Holdings), Ltd. (insurance company);
CompuDyne Corporation (provider of products
and services to the public security
market); and Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various affiliated
Volvo companies
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff; and
Trustee Century Group, Inc. (government affairs Discovery Global
company) and Owner, Dos Angelos Ranch, L.P. Education Fund
(non-profit)
Formerly: Chief Executive Officer, Texana
Timber LP (sustainable forestry company)
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis Cortland Trust,
Trustee and Frankel LLP Inc. (registered
investment company
(3 portfolios))
C-2
TRUSTEE OTHER
NAME, YEAR OF BIRTH AND AND/OR TRUSTEESHIP(S) HELD
POSITION(S) HELD WITH THE TRUST OFFICER SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
- ------------------------------- ------------- ------------------------------------------- -------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of None
Trustee the USA
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
Larry Soll - 1942 2004 Retired None
Trustee
Raymond Stickel, Jr. - 1944 2005 Retired Director, Mainstay
Trustee Formerly: Partner, Deloitte & Touche VP Series Funds,
Inc. (21
portfolios)
OTHER OFFICERS
Russell C. Burk - 1958 2005 Senior Vice President and Senior Officer of N/A
Senior Vice President and the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance and
Assistant General Counsel, ICON Advisers,
Inc.; Financial Consultant, Merrill Lynch;
General Counsel and Director of Compliance,
ALPS Mutual Funds, Inc.
John M. Zerr(3) - 1962 2006 Director, Senior Vice President, Secretary N/A
Senior Vice President, Chief and General Counsel, A I M Management Group
Legal Officer and Secretary Inc. (financial services holding company)
and A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.; Vice
President, A I M Capital Management, Inc.,
AIM Investment Services, Inc., and Fund
Management Company; Senior Vice President,
A I M Distributors, Inc.; and Senior Vice
President, Chief Legal Officer and
Secretary of the AIM Family of Funds
Formerly: Chief Operating Officer, Senior
Vice President, General Counsel, and
Secretary, Liberty Ridge Capital, Inc. (an
investment adviser); Vice President and
Secretary, PBHG Funds (an investment
company); Vice President and Secretary,
PBHG Insurance Series Fund (an investment
company); General Counsel and Secretary,
Pilgrim Baxter Value Investors (an
investment adviser); Chief Operating
Officer, General Counsel and Secretary, Old
Mutual Investment Partners (a
broker/dealer); General Counsel and
Secretary, Old Mutual Fund
- ----------
(3) Mr. Zerr was elected Senior Vice President, Chief Legal Officer effective
March 29, 2006.
C-3
TRUSTEE OTHER
NAME, YEAR OF BIRTH AND AND/OR TRUSTEESHIP(S) HELD
POSITION(S) HELD WITH THE TRUST OFFICER SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
- ------------------------------- ------------- ------------------------------------------- -------------------
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and Secretary,
Old Mutual Capital, Inc. (an investment
adviser); and Vice President and Secretary,
Old Mutual Advisors Funds (an investment
company)
Lisa O. Brinkley - 1959 2004 Global Compliance Director, AMVESCAP; and N/A
Vice President Vice President of the AIM Family of Funds
Formerly: Senior Vice President and
Compliance Director, Delaware Investments
Family of Funds; Senior Vice President, A I
M Management Group Inc. (financial services
holding company); Senior Vice President and
Chief Compliance Officer, A I M Advisors,
Inc. and the AIM Family of Funds; Vice
President and Chief Compliance Officer, A I
M Capital Management, Inc. and A I M
Distributors, Inc.; and Vice President, AIM
Investment Services, Inc. and Fund
Management Company
Kevin M. Carome -- 1956 2003 Senior Vice President and General Counsel, N/A
Vice President AMVESCAP PLC; and Vice President of the AIM
Family of Funds
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.
and Liberty Funds Group, LLC; Director,
General Counsel, and Vice President Fund
Management Company; Director, Senior Vice
President, Secretary and General Counsel, A
I M Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M Distributors,
Inc.; Vice President, A I M Capital
Management, Inc. and AIM Investment
Services, Inc. and Senior Vice President,
Chief Legal Officer and Secretary of the
AIM Family of Funds
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Treasurer and Advisors, Inc. and Vice President,
Principal Financial Officer Treasurer and Principal Financial Officer
of the AIM Family of Funds
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
J. Philip Ferguson-- 1945 2005 Senior Vice President and Chief Investment N/A
Vice President Officer, A I M Advisors Inc.; Director,
Chairman, Chief Executive Officer,
President and Chief Investment Officer, A I
M Capital Management, Inc; Executive Vice
President, A I M Management Group Inc.; and
Vice President of
C-4
TRUSTEE OTHER
NAME, YEAR OF BIRTH AND AND/OR TRUSTEESHIP(S) HELD
POSITION(S) HELD WITH THE TRUST OFFICER SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
- ------------------------------- ------------- ------------------------------------------- -------------------
the AIM Family of Funds
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management Officer,
A I M Capital Management, Inc.; Director
and President, Fund Management Company;
Vice President, A I M Advisors, Inc.; and
Vice President of the AIM Family of Funds
Todd L. Spillane(4) - 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and Chief
Compliance Officer, A I M Advisors, Inc.;
Vice President and Chief Compliance
Officer, A I M Capital Management, Inc.;
Vice President, A I M Distributors, Inc.,
AIM Investment Services, Inc. and Fund
Management Company; and Chief Compliance
Officer of the AIM Family of Funds
Formerly: Global Head of Product
Development, AIG-Global Investment Group,
Inc.; Chief Compliance Officer and Deputy
General Counsel, AIG-SunAmerica Asset
Management, and Chief Compliance Officer,
Chief Operating Officer and Deputy General
Counsel, American General Investment
Management
- ----------
(4) Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
C-5
TRUSTEE OWNERSHIP OF FUND SHARES
AS OF DECEMBER 31, 2005
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY TRUSTEE IN THE AIM
NAME OF TRUSTEE SECURITIES PER FUND FAMILY OF FUNDS registered trademark
- --------------- ---------------------- ----------------------------------------
Robert H. Graham - 0 - Over $100,000
Mark H. Williamson - 0 - Over $100,000
Bob R. Baker - 0 - Over $100,000
Frank S. Bayley - 0 - Over $100,000
James T. Bunch - 0 - Over $100,000(5)
Bruce L. Crockett - 0 - Over $100,000(5)
Albert R. Dowden - 0 - Over $100,000
Edward K. Dunn, Jr.(6) - 0 - Over $100,000(5)
Jack M. Fields - 0 - Over $100,000(5)
Carl Frischling - 0 - Over $100,000(5)
Prema Mathai-Davis - 0 - Over $100,000(5)
Lewis F. Pennock - 0 - Over $100,000
Ruth H. Quigley - 0 - $50,001 - $100,000
Larry Soll - 0 - Over $100,000(5)
Raymond Stickel, Jr.(7) - 0 - Over $100,000
(5) Includes the total amount of compensation deferred by the trustee at his or
her election. Such deferred compensation is placed in a deferral account
and deemed to be invested in one or more of the AIM Funds.
(6) Mr. Dunn retired, effective March 31, 2006.
(7) Mr. Stickel was elected as trustee of the Trust effective October 1, 2005.
C-6
APPENDIX D
TRUSTEE COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each trustee of the Trust who was not affiliated with AIM during the year ended
December 31, 2005:
RETIREMENT
AGGREGATE BENEFITS ESTIMATED ANNUAL TOTAL
COMPENSATION ACCRUED BENEFITS UPON COMPENSATION
FROM THE BY ALL RETIREMENT FROM FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) ALL AIM FUNDS(3) FUNDS(4)
- ------- ------------ ------------ ---------------- ------------
Bob R. Baker $35,602 $200,136 $162,613 $213,750
Frank S. Bayley 38,157 132,526 120,000 229,000
James T. Bunch 33,048 162,930 120,000 198,500
Bruce L. Crockett 59,946 83,764 120,000 359,000
Albert R. Dowden 38,157 112,024 120,000 229,000
Edward K. Dunn, Jr.(5) 38,157 141,485 120,000 229,000
Jack M. Fields 30,727 59,915 120,000 185,000
Carl Frischling(6) 32,486 59,042 120,000 195,250
Gerald J. Lewis(5) 33,048 162,930 114,375 198,500
Prema Mathai-Davis 35,602 69,131 120,000 213,750
Lewis F. Pennock 33,048 86,670 120,000 198,500
Ruth H. Quigley 35,602 154,658 120,000 213,750
Larry Soll 33,048 201,483 138,990 198,500
Raymond Stickel, Jr.(7) 9,194 -- 120,000 54,000
(1) Amounts shown are based on the fiscal year ended December 31, 2005. The
total amount of compensation deferred by all trustees of the Trust during
the fiscal year ended December 31, 2005, including earnings, was $97,961.
(2) During the fiscal year ended December 31, 2005, the total amount of
expenses allocated to the Trust in respect of such retirement benefits was
$135,860.
(3) These amounts represent the estimated annual benefits payable by the AIM
Funds upon the trustee's retirement and assumes each trustee serves until
his or her normal retirement date.
(4) All trustees currently serve as trustees of 19 registered investment
companies advised by AIM.
(5) Mr. Dunn and Mr. Lewis retired effective March 31, 2006 and December 31,
2005, respectively.
(6) During the fiscal year ended December 31, 2005 the Trust paid $140,092 in
legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered by
such firm as counsel to the independent trustees of the Trust. Mr.
Frischling is a partner of such firm.
(7) Mr. Stickel was elected as trustee of the Trust effective October 1, 2005.
D-1
APPENDIX E
PROXY POLICIES AND PROCEDURES
THE PROXY VOTING POLICIES DATED OCTOBER 1, 2005 APPLICABLE TO EACH FUND (EXCEPT
AIM V.I. INTERNATIONAL CORE EQUITY FUND AND AIM V.I. REAL ESTATE FUND) FOLLOW:
A. PROXY POLICIES
Each of A I M Advisors, Inc., A I M Capital Management, Inc. and AIM
Private Asset Management, Inc. (each an "AIM Advisor" and collectively
"AIM") has the fiduciary obligation to, at all times, make the economic
best interest of advisory clients the sole consideration when voting
proxies of companies held in client accounts. As a general rule, each AIM
Advisor shall vote against any actions that would reduce the rights or
options of shareholders, reduce shareholder influence over the board of
directors and management, reduce the alignment of interests between
management and shareholders, or reduce the value of shareholders'
investments. At the same time, AIM believes in supporting the management of
companies in which it invests, and will accord proper weight to the
positions of a company's board of directors, and the AIM portfolio managers
who chose to invest in the companies. Therefore, on most issues, our votes
have been cast in accordance with the recommendations of the company's
board of directors, and we do not currently expect that trend to change.
Although AIM's proxy voting policies are stated below, AIM's proxy
committee considers all relevant facts and circumstances, and retains the
right to vote proxies as deemed appropriate.
I. BOARDS OF DIRECTORS
A board that has at least a majority of independent directors is
integral to good corporate governance. The key board committees (e.g.,
audit, Compensation and Nominating) should be composed of only
independent trustees.
There are some actions by directors that should result in votes being
withheld. These instances include directors who:
- Are not independent directors and (a) sit on the board's audit,
compensation or nominating committee, or (b) sit on a board where
the majority of the board is not independent;
- Attend less than 75 percent of the board and committee meetings
without a valid excuse;
- It is not clear that the director will be able to fulfill his
function;
- Implement or renew a dead-hand or modified dead-hand poison pill;
- Enacted egregious corporate governance or other policies or
failed to replace management as appropriate;
- Have failed to act on takeover offers where the majority of the
shareholders have tendered their shares; or
- Ignore a shareholder proposal that is approved by a majority of
the shares outstanding.
Votes in a contested election of directors must be evaluated on a
case-by-case basis, considering the following factors:
- Long-term financial performance of the target company relative to
its industry;
- Management's track record;
- Portfolio manager's assessment;
- Qualifications of director nominees (both slates);
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- Evaluation of what each side is offering shareholders as well as
the likelihood that the proposed objectives and goals can be met;
and
- Background to the proxy contest.
II. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A company should limit its relationship with its auditors to the audit
engagement, and certain closely related activities that do not, in the
aggregate, raise an appearance of impaired independence. We will
support the reappointment of the company's auditors unless:
- It is not clear that the auditors will be able to fulfill their
function;
- There is reason to believe the independent auditors have rendered
an opinion that is neither accurate nor indicative of the
company's financial position; or
- The auditors have a significant professional or personal
relationship with the issuer that compromises the auditor's
independence.
III. COMPENSATION PROGRAMS
Appropriately designed equity-based compensation plans, approved by
shareholders, can be an effective way to align the interests of
long-term shareholders and the interests of management, employees and
directors. Plans should not substantially dilute shareholders'
ownership interests in the company, provide participants with
excessive awards or have objectionable structural features. We will
consider all incentives, awards and compensation, and compare them to
a company-specific adjusted allowable dilution cap and a weighted
average estimate of shareholder wealth transfer and voting power
dilution.
- We will generally vote against equity-based plans where the total
dilution (including all equity-based plans) is excessive.
- We will support the use of employee stock purchase plans to
increase company stock ownership by employees, provided that
shares purchased under the plan are acquired for no less than 85%
of their market value.
- We will vote against plans that have any of the following
structural features: ability to reprice underwater options
without shareholder approval, ability to issue options with an
exercise price below the stock's current market price, ability to
issue reload options, or automatic share replenishment
("evergreen") feature.
- We will vote for proposals to reprice options if there is a
value-for-value (rather than a share-for-share) exchange.
- We will generally support the board's discretion to determine and
grant appropriate cash compensation and severance packages.
IV. CORPORATE MATTERS
We will review management proposals relating to changes to capital
structure, reincorporation, restructuring and mergers and acquisitions
on a case-by-case basis, considering the impact of the changes on
corporate governance and shareholder rights, anticipated financial and
operating benefits, portfolio manager views, level of dilution, and a
company's industry and performance in terms of shareholder returns.
- We will vote for merger and acquisition proposals that the proxy
committee and relevant portfolio managers believe, based on their
review of the materials, will result in financial and operating
benefits, have a fair offer price, have favorable prospectus for
the combined companies, and will not have a negative impact on
corporate governance or shareholder rights.
- We will vote against proposals to increase the number of
authorized shares of any class of stock that has superior voting
rights to another class of stock.
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- We will vote for proposals to increase common share authorization
for a stock split, provided that the increase in authorized
shares would not result in excessive dilution given a company's
industry and performance in terms of shareholder returns.
- We will vote for proposals to institute open-market share
repurchase plans in which all shareholders participate on an
equal basis.
V. SHAREHOLDER PROPOSALS
Shareholder proposals can be extremely complex, and the impact on
share value can rarely be anticipated with any high degree of
confidence. The proxy committee reviews shareholder proposals on a
case-by-case basis, giving careful consideration to such factors as:
the proposal's impact on the company's short-term and long-term share
value, its effect on the company's reputation, the economic effect of
the proposal, industry and regional norms applicable to the company,
the company's overall corporate governance provisions, and the
reasonableness of the request.
- We will generally abstain from shareholder social and
environmental proposals.
- We will generally support the board's discretion regarding
shareholder proposals that involve ordinary business practices.
- We will generally vote for shareholder proposals that are
designed to protect shareholder rights if the company's corporate
governance standards indicate that such additional protections
are warranted.
- We will generally vote for proposals to lower barriers to
shareholder action.
- We will generally vote for proposals to subject shareholder
rights plans to a shareholder vote. In evaluating these plans, we
give favorable consideration to the presence of "TIDE" provisions
(short-term sunset provisions, qualified bid/permitted offer
provisions, and/or mandatory review by a committee of independent
directors at least every three years).
VI. OTHER
- We will vote against any proposal where the proxy materials lack
sufficient information upon which to base an informed decision.
- We will vote against any proposals to authorize the proxy to
conduct any other business that is not described in the proxy
statement.
- We will vote any matters not specifically covered by these proxy
policies and procedures in the economic best interest of advisory
clients.
AIM's proxy policies, and the procedures noted below, may be amended
from time to time.
B. PROXY COMMITTEE PROCEDURES
The proxy committee currently consists of representatives from the Legal
and Compliance Department, the Investments Department and the Finance
Department.
The committee members review detailed reports analyzing the proxy issues
and have access to proxy statements and annual reports. Committee members
may also speak to management of a company regarding proxy issues and should
share relevant considerations with the proxy committee. The committee then
discusses the issues and determines the vote. The committee shall give
appropriate and significant weight to portfolio managers' views regarding a
proposal's impact on shareholders. A proxy committee meeting requires a
quorum of three committee members, voting in person or by e-mail.
AIM's proxy committee shall consider its fiduciary responsibility to all
clients when addressing proxy issues and vote accordingly. The proxy
committee may enlist the services of reputable outside professionals and/or
proxy evaluation services, such as Institutional Shareholder Services or
any of its subsidiaries ("ISS"), to assist with the analysis of voting
issues and/or to carry out the actual
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voting process. To the extent the services of ISS or another provider are
used, the proxy committee shall periodically review the policies of that
provider. The proxy committee shall prepare a report for the Funds' Board
of Trustees on a periodic basis regarding issues where AIM's votes do not
follow the recommendation of ISS or another provider because AIM's proxy
policies differ from those of such provider.
In addition to the foregoing, the following shall be strictly adhered to
unless contrary action receives the prior approval of the Funds' Board of
Trustees.
1. Other than by voting proxies and participating in Creditors'
committees, AIM shall not engage in conduct that involves an attempt
to change or influence the control of a company.
2. AIM will not publicly announce its voting intentions and the reasons
therefore.
3. AIM shall not participate in a proxy solicitation or otherwise seek
proxy-voting authority from any other public company shareholder.
4. All communications regarding proxy issues between the proxy committee
and companies or their agents, or with fellow shareholders shall be
for the sole purpose of expressing and discussion AIM's concerns for
its advisory clients' interests and not for an attempt to influence or
control management.
C. BUSINESS/DISASTER RECOVERY
If the proxy committee is unable to meet due to a temporary business
interruption, such as a power outage, a sub-committee of the proxy
committee, even if such sub-committee does not constitute a quorum of the
proxy committee, may vote proxies in accordance with the policies stated
herein. If the sub-committee of the proxy committee is not able to vote
proxies, the sub-committee shall authorize ISS to vote proxies by default
in accordance with ISS' proxy policies and procedures, which may vary
slightly from AIM's.
D. RESTRICTIONS AFFECTING VOTING
If a country's laws allow a company in that country to block the sale of
the company's shares by a shareholder in advance of a shareholder meeting,
AIM will not vote in shareholder meetings held in that country, unless the
company represents that it will not block the sale of its shares in
connection with the meeting. Administrative or other procedures, such as
securities lending, may also cause AIM to refrain from voting. Although AIM
considers proxy voting to be an important shareholder right, the proxy
committee will not impede a portfolio manager's ability to trade in a stock
in order to vote at a shareholder meeting.
E. CONFLICTS OF INTEREST
The proxy committee reviews each proxy to assess the extent to which there
may be a material conflict between AIM's interests and those of advisory
clients. A potential conflict of interest situation may include where AIM
or an affiliate manages assets for, administers an employee benefit plan
for, provides other financial products or services to, or otherwise has a
material business relationship with, a company whose management is
soliciting proxies, and failure to vote proxies in favor of management of
the company may harm AIM's relationship with the company. In order to avoid
even the appearance of impropriety, the proxy committee will not take AIM's
relationship with the company into account, and will vote the company's
proxies in the best interest of the advisory clients, in accordance with
these proxy policies and procedures.
If AIM's proxy policies and voting record do not guide the proxy
committee's vote in a situation where a conflict of interest exists, the
proxy committee will vote the proxy in the best interest of the advisory
clients, and will provide information regarding the issue to the Funds'
Board of Trustees in the next quarterly report.
If a committee member has any conflict of interest with respect to a
company or an issue presented, that committee member should inform the
proxy committee of such conflict and abstain from voting on that company or
issue.
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F. FUND OF FUNDS
When an AIM Fund (an "Investing Fund") that invests in another AIM Fund(s)
(an "Underlying Fund") has the right to vote on the proxy of the Underlying
Fund, the Investing Fund will echo the votes of the other shareholders of
the Underlying AIM Fund.
G. CONFLICT IN THESE POLICIES
If following any of the policies listed herein would lead to a vote that
the proxy committee deems to be not in the best interest of AIM's advisory
clients, the proxy committee will vote the proxy in the manner that they
deem to be the best interest of AIM's advisory clients and will inform the
Funds' Board of Trustees of such vote and the circumstances surrounding it
promptly thereafter.
THE PROXY VOTING POLICIES APPLICABLE TO AIM V.I. INTERNATIONAL CORE
EQUITY FUND AND AIM V.I. REAL ESTATE FUND FOLLOW:
GENERAL POLICY
(dated February 10, 2005)
INVESCO Institutional (N.A.), Inc. and its wholly-owned subsidiaries, and
INVESCO Global Asset Management (N.A.), Inc. (collectively, "INVESCO"), each has
responsibility for making investment decisions that are in the best interests of
its clients. As part of the investment management services it provides to
clients, INVESCO may be authorized by clients to vote proxies appurtenant to the
shares for which the clients are beneficial owners.
INVESCO believes that it has a duty to manage clients' assets in the best
economic interests of the clients and that the ability to vote proxies is a
client asset.
INVESCO reserves the right to amend its proxy policies and procedures from time
to time without prior notice to its clients.
PROXY VOTING POLICIES
VOTING OF PROXIES
INVESCO will vote client proxies in accordance with the procedures set forth
below unless the client for non-ERISA clients retains in writing the right to
vote, the named fiduciary (e.g., the plan sponsor) for ERISA clients retains in
writing the right to direct the plan trustee or a third party to vote proxies or
INVESCO determines that any benefit the client might gain from voting a proxy
would be outweighed by the costs associated therewith.
BEST ECONOMIC INTERESTS OF CLIENTS
In voting proxies, INVESCO will take into consideration those factors that may
affect the value of the security and will vote proxies in a manner in which, in
its opinion, is in the best economic interests of clients. INVESCO endeavors to
resolve any conflicts of interest exclusively in the best economic interests of
clients.
ISS SERVICES
INVESCO has contracted with Institutional Shareholder Services ("ISS"), an
independent third party service provider, to vote INVESCO's clients' proxies
according to ISS's proxy voting recommendations. In addition, ISS will provide
proxy analyses, vote recommendations, vote execution and record-keeping services
for clients for which INVESCO has proxy voting responsibility. On an annual
basis, INVESCO
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will review information obtained from ISS to ascertain whether ISS (i) has the
capacity and competency to adequately analyze proxy issues, and (ii) can make
such recommendations in an impartial manner and in the best economic interest of
INVESCO's clients. This may include a review of ISS' Policies, Procedures and
Practices Regarding Potential Conflicts of Interests and obtaining information
about the work ISS does for corporate issuers and the payments ISS receives from
such issuers.
Custodians forward proxy materials for clients who rely on INVESCO to vote
proxies to ISS. ISS is responsible for exercising the voting rights in
accordance with the ISS proxy voting guidelines. If INVESCO receives proxy
materials in connection with a client's account where the client has, in
writing, communicated to INVESCO that the client, plan fiduciary or other third
party has reserved the right to vote proxies, INVESCO will forward to the party
appointed by client any proxy materials it receives with respect to the account.
In order to avoid voting proxies in circumstances where INVESCO, or any of its
affiliates have or may have any conflict of interest, real or perceived, INVESCO
has engaged ISS to provide the proxy analyses, vote recommendations and voting
of proxies.
In the event that (i) ISS recuses itself on a proxy voting matter and makes no
recommendation or (ii) INVESCO decides to override the ISS vote recommendation,
the Proxy Committee will review the issue and direct ISS how to vote the proxies
as described below.
PROXY COMMITTEE
The Proxy Committee shall have seven (7) members, which shall include
representatives from portfolio management, operations, and legal/compliance or
other functional departments as deemed appropriate who are knowledgeable
regarding the proxy process. A majority of the members of the Proxy Committee
shall constitute a quorum and the Proxy Committee shall act by a majority vote.
The chair of the Proxy Committee shall be chosen by the Chief Compliance Officer
of INVESCO. The Proxy Committee shall keep minutes of its meetings that shall be
kept with the proxy voting records of INVESCO. The Proxy Committee will appoint
a Proxy Manager to manage the proxy voting process, which includes the voting of
proxies and the maintenance of appropriate records.
Proxy Committee meetings shall be called by the Proxy Manager when override
submissions are made and in instances when ISS has recused itself from a vote
recommendation. In these situations, the Proxy Committee shall meet and
determine how proxies are to be voted in the best interests of clients.
The Proxy Committee periodically reviews new types of corporate governance
issues, evaluates proposals not addressed by the ISS proxy voting guidelines in
instances when ISS has recused itself, and determines how INVESCO should vote.
The Committee monitors adherence to these Procedures, industry trends and
reviews the ISS proxy voting guidelines.
ISS RECUSAL
When ISS makes no recommendation on a proxy voting issue or is recused due to a
conflict of interest, the Proxy Committee will review the issue and, if INVESCO
does not have a conflict of interest, direct ISS how to vote the proxies. In
such cases where INVESCO has a conflict of interest, INVESCO, in its sole
discretion, shall either (a) vote the proxies pursuant to ISS's general proxy
voting guidelines, (b) engage an independent third party to provide a vote
recommendation, or (c) contact its client(s) for direction as to how to vote the
proxies.
OVERRIDE OF ISS RECOMMENDATION
There may be occasions where the INVESCO investment personnel, senior officers
or a member of the Proxy Committee seek to override ISS's recommendations if
they believe that ISS's recommendations are not in accordance with the best
economic interests of clients. In the event that an individual listed above in
this section disagrees with an ISS recommendation on a particular voting issue,
the individual shall document in writing the reasons that he/she believes that
the ISS recommendation is not in accordance
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with clients' best economic interests and submit such written documentation to
the Proxy Manager for consideration by the Proxy Committee. Upon review of the
documentation and consultation with the individual and others as the Proxy
Committee deems appropriate, the Proxy Committee may make a determination to
override the ISS voting recommendation if the Committee determines that it is in
the best economic interests of clients and the Committee has addressed conflict
of interest issues as discussed below.
PROXY COMMITTEE MEETINGS
When a Proxy Committee Meeting is called, whether because of an ISS recusal or
request for override of an ISS recommendation, the Proxy Committee shall review
the report of the Chief Compliance Officer as to whether any INVESCO person has
reported a conflict of interest.
The Proxy Committee shall review the information provided to it to determine if
a real or perceived conflict of interest exists and the minutes of the Proxy
Committee shall:
(1) describe any real or perceived conflict of interest,
(2) discuss any procedure used to address such conflict of interest,
(3) report any contacts from outside parties (other than routine
communications from proxy solicitors), and
(4) include confirmation that the recommendation as to how the proxies are
to be voted is in the best economic interests of clients and was made
without regard to any conflict of interest.
Based on the above review and determinations, the Proxy Committee will direct
ISS how to vote the proxies.
CERTAIN PROXY VOTES MAY NOT BE CAST
In some cases, INVESCO may determine that it is not in the best economic
interests of clients to vote proxies. For example, proxy voting in certain
countries outside the United States requires share blocking. Shareholders who
wish to vote their proxies must deposit their shares 7 to 21 days before the
date of the meeting with a designated depositary. During the blocked period,
shares to be voted at the meeting cannot be sold until the meeting has taken
place and the shares have been returned to the Custodian/Sub-Custodian bank. In
addition, voting certain international securities may involve unusual costs to
clients. In other cases, it may not be possible to vote certain proxies despite
good faith efforts to do so, for instance when inadequate notice of the matter
is provided. In the instance of loan securities, voting of proxies typically
requires termination of the loan, so it is not usually in the best economic
interests of clients to vote proxies on loaned securities. INVESCO typically
will not, but reserves the right to, vote where share blocking restrictions,
unusual costs or other barriers to efficient voting apply. If INVESCO does not
vote, it would have made the determination that the cost of voting exceeds the
expected benefit to the client. The Proxy Manager shall record the reason for
any proxy not being voted, which record shall be kept with the proxy voting
records of INVESCO.
PROXY VOTING RECORDS
Clients may obtain information about how INVESCO voted proxies on their behalf
by contacting their client services representative. Alternatively, clients may
make a written request for proxy voting information to: Proxy Manager, 1360
Peachtree Street, N.E., Atlanta, Georgia 30309.
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CONFLICTS OF INTEREST
PROCEDURES TO ADDRESS CONFLICTS OF INTEREST AND IMPROPER INFLUENCE
In order to avoid voting proxies in circumstances where INVESCO or any of its
affiliates have or may have any conflict of interest, real or perceived, INVESCO
has contracted with ISS to provide proxy analyses, vote recommendations and
voting of proxies. Unless noted otherwise by ISS, each vote recommendation
provided by ISS to INVESCO includes a representation from ISS that ISS faces no
conflict of interest with respect to the vote. In instances where ISS has
recused itself and makes no recommendation on a particular matter or if an
override submission is requested, the Proxy Committee shall determine how the
proxy is to be voted and instruct the Proxy Manager accordingly in which case
the conflict of interest provisions discussed below shall apply.
In effecting the policy of voting proxies in the best economic interests of
clients, there may be occasions where the voting of such proxies may present a
real or perceived conflict of interest between INVESCO, as the investment
manager, and clients.
For each director, officer and employee of INVESCO ("INVESCO person"), the
interests of INVESCO's clients must come first, ahead of the interest of INVESCO
and any person within the INVESCO organization, which includes INVESCO's
affiliates.
Accordingly, each INVESCO person must not put "personal benefit," whether
tangible or intangible, before the interests of clients of INVESCO or otherwise
take advantage of the relationship to INVESCO's clients. "Personal benefit"
includes any intended benefit for oneself or any other individual, company,
group or organization of any kind whatsoever, except a benefit for a client of
INVESCO, as appropriate. It is imperative that each of INVESCO's directors,
officers and employees avoid any situation that might compromise, or call into
question, the exercise of fully independent judgment in the interests of
INVESCO's clients.
Occasions may arise where a person or organization involved in the proxy voting
process may have a conflict of interest. A conflict of interest may also exist
if INVESCO has a business relationship with (or is actively soliciting business
from) either the company soliciting the proxy or a third party that has a
material interest in the outcome of a proxy vote or that is actively lobbying
for a particular outcome of a proxy vote. An INVESCO person (excluding members
of the Proxy Committee) shall not be considered to have a conflict of interest
if the INVESCO person did not know of the conflict of interest and did not
attempt to influence the outcome of a proxy vote. Any individual with actual
knowledge of a conflict of interest relating to a particular referral item shall
disclose that conflict to the Chief Compliance Officer.
The following are examples of situations where a conflict may exist:
- Business Relationships - where INVESCO manages money for a company or
an employee group, manages pension assets or is actively soliciting
any such business, or leases office space from a company;
- Personal Relationships - where a INVESCO person has a personal
relationship with other proponents of proxy proposals, participants in
proxy contests, corporate directors, or candidates for directorships;
and
- Familial Relationships - where an INVESCO person has a known familial
relationship relating to a company (e.g. a spouse or other relative
who serves as a director of a public company or is employed by the
company).
In the event that INVESCO (or an affiliate) manages assets for a company, its
pension plan, or related entity or where any member of the Proxy Committee has a
personal conflict of interest, and where clients'
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funds are invested in that company's shares, the Proxy Committee will not take
into consideration this relationship and will vote proxies in that company
solely in the best economic interest of its clients.
It is the responsibility of the Proxy Manager and each member of the Proxy
Committee to report any real or potential conflict of interest of which such
individual has actual knowledge to the Chief Compliance Officer, who shall
present any such information to the Proxy Committee. However, once a particular
conflict has been reported to the Chief Compliance Officer, this requirement
shall be deemed satisfied with respect to all individuals with knowledge of such
conflict.
In addition, the Proxy Manager and each member of the Proxy Committee shall
certify annually as to their compliance with this policy. In addition, any
INVESCO person who submits an ISS override recommendation to the Proxy Committee
shall certify as to their compliance with this policy concurrently with the
submission of their override recommendation. A form of such certification is
attached as Appendix A hereto.
In addition, members of the Proxy Committee must notify INVESCO's Chief
Compliance Officer, with impunity and without fear of retribution or
retaliation, of any direct, indirect or perceived improper influence made by
anyone within INVESCO or by an affiliated company's representatives with regard
to how INVESCO should vote proxies. The Chief Compliance Officer will
investigate the allegations and will report his or her findings to the INVESCO
Risk Management Committee. In the event that it is determined that improper
influence was made, the Risk Management Committee will determine the appropriate
action to take which may include, but is not limited to, (1) notifying the
affiliated company's Chief Executive Officer, its Management Committee or Board
of Directors, (2) taking remedial action, if necessary, to correct the result of
any improper influence where clients have been harmed, or (3) notifying the
appropriate regulatory agencies of the improper influence and to fully cooperate
with these regulatory agencies as required. In all cases, the Proxy Committee
shall not take into consideration the improper influence in determining how to
vote proxies and will vote proxies solely in the best economic interest of
clients.
Furthermore, members of the Proxy Committee must advise INVESCO's Chief
Compliance Officer and fellow Committee members of any real or perceived
conflicts of interest he or she may have with regard to how proxies are to be
voted regarding certain companies (e.g., personal security ownership in a
company, or personal or business relationships with participants in proxy
contests, corporate directors or candidates for corporate directorships). After
reviewing such conflict, upon advice from the Chief Compliance Officer, the
Committee may require such Committee member to recuse himself or herself from
participating in the discussions regarding the proxy vote item and from casting
a vote regarding how INVESCO should vote such proxy.
ISS PROXY VOTING GUIDELINES
A copy of ISS's Proxy Voting Guidelines Summary in effect as of the revised date
set forth on the title page of this Proxy Voting Policy is attached hereto as
Appendix B.
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APPENDIX A
ACKNOWLEDGEMENT AND CERTIFICATION
I acknowledge that I have read the INVESCO Proxy Voting Policy (a copy of
which has been supplied to me, which I will retain for future reference) and
agree to comply in all respects with the terms and provisions thereof. I have
disclosed or reported all real or potential conflicts of interest to the INVESCO
Compliance Officer and will continue to do so as matters arise. I have complied
with all provisions of this Policy.
----------------------------------------
Print Name
- --------------- ----------------------------------------
Date Signature
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APPENDIX B
ISS 2005 PROXY VOTING GUIDELINES SUMMARY
The following is a condensed version of all proxy voting recommendations
contained in the ISS Proxy Voting Manual.
1. Operational Items
ADJOURN MEETING
Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal. Vote FOR proposals that relate specifically to soliciting votes for a
merger or transaction for which ISS has recommended a FOR vote. Vote AGAINST
proposals if the wording is too vague or if the proposal includes "other
business."
AMEND QUORUM REQUIREMENTS
Vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
AMEND MINOR BYLAWS
Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
CHANGE COMPANY NAME
Vote FOR proposals to change the corporate name.
CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING
Vote FOR management proposals to change the date/time/location of the annual
meeting unless the proposed change is unreasonable.
Vote AGAINST shareholder proposals to change the date/time/location of the
annual meeting unless the current scheduling or location is unreasonable.
RATIFYING AUDITORS
Vote FOR proposals to ratify auditors, unless any of the following apply:
- An auditor has a financial interest in or association with the
company, and is therefore not independent
- Fees for non-audit services are excessive, or
- There is reason to believe that the independent auditor has rendered
an opinion which is neither accurate nor indicative of the company's
financial position.
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account the tenure of the audit firm, the length of rotation
specified in the proposal, any significant audit-related issues at the company,
the number of Audit Committee meetings held each year, the number of financial
experts serving on the committee, and whether the company has a periodic renewal
process where the auditor is evaluated for both audit quality and competitive
price.
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TRANSACT OTHER BUSINESS
Vote AGAINST proposals to approve other business when it appears as voting item.
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Votes on director nominees should be made on a CASE-BY-CASE basis, examining the
following factors: composition of the board and key board committees, attendance
at board meetings, corporate governance provisions and takeover activity,
long-term company performance relative to a market index, directors' investment
in the company, whether the chairman is also serving as CEO, and whether a
retired CEO sits on the board. However, there are some actions by directors that
should result in votes being withheld. These instances include directors who:
- Attend less than 75 percent of the board and committee meetings
without a valid excuse
- Implement or renew a dead-hand or modified dead-hand poison pill
- Adopt a poison pill without shareholder approval since the company's
last annual meeting and there is no requirement to put the pill to
shareholder vote within 12 months of its adoption
- Ignore a shareholder proposal that is approved by a majority of the
shares outstanding
- Ignore a shareholder proposal that is approved by a majority of the
votes cast for two consecutive years
- Failed to act on takeover offers where the majority of the
shareholders tendered their shares
- Are inside directors or affiliated outsiders and sit on the audit,
compensation, or nominating committees
- Are inside directors or affiliated outsiders and the full board serves
as the audit, compensation, or nominating committee or the company
does not have one of these committees
- Are audit committee members and the non -audit fees paid to the
auditor are excessive. In addition, directors who enacted egregious
corporate governance policies or failed to replace management as
appropriate would be subject to recommendations to withhold votes.
- Are inside directors or affiliated outside directors and the full
board is less than majority independent
- Sit on more than six public company boards or on more than two public
boards in addition to their own if they are CEOs of public companies.
- Are on the compensation committee when there is a negative correlation
between chief executive pay and company performance
- Have failed to address the issue(s) that resulted in any of the
directors receiving more than 50% withhold votes out of those cast at
the previous board election
E-12
AGE LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors either through term limits or mandatory retirement ages.
BOARD SIZE
Vote FOR proposals seeking to fix the board size or designate a range for the
board size.
Vote AGAINST proposals that give management the ability to alter the size of the
board outside of a specified range without shareholder approval.
CLASSIFICATION/DECLASSIFICATION OF THE BOARD
Vote AGAINST proposals to classify the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
CUMULATIVE VOTING
Vote AGAINST proposals to eliminate cumulative voting.
Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
based on the extent that shareholders have access to the board through their own
nominations.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Proposals on director and officer indemnification and liability protection
should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard.
Vote AGAINST proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care.
Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to acts, such as negligence, that are more serious violations of
fiduciary obligation than mere carelessness.
Vote FOR only those proposals providing such expanded coverage in cases when a
director's or officer's legal defense was unsuccessful if both of the following
apply:
- The director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the company,
and
- Only if the director's legal expenses would be covered.
ESTABLISH/AMEND NOMINEE QUALIFICATIONS
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.
Vote AGAINST shareholder proposals requiring two candidates per board seat.
FILLING VACANCIES/REMOVAL OF DIRECTORS
Vote AGAINST proposals that provide that directors may be removed only for
cause.
Vote FOR proposals to restore shareholder ability to remove directors with or
without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
E-13
INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO)
Generally vote FOR shareholder proposals requiring the position of chairman be
filled by an independent director unless there are compelling reasons to
recommend against the proposal, such as a counterbalancing governance structure.
This should include all of the following:
- Designated lead director, elected by and from the independent board
members with clearly delineated and comprehensive duties (The role may
alternatively reside with a presiding director, vice chairman, or
rotating lead director)
- Two-thirds independent board
- All-independent key committees
- Established governance guidelines
Additionally, the company should not have under-performed its peers.
MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
ISS's definition of independence.
Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.
OPEN ACCESS
Vote CASE-BY-CASE on shareholder proposals asking for open access taking into
account the ownership threshold specified in the proposal and the proponent's
rationale for targeting the company in terms of board and director conduct.
STOCK OWNERSHIP REQUIREMENTS
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While ISS favors stock ownership on the part of directors, the
company should determine the appropriate ownership requirement.
Vote CASE-BY-CASE shareholder proposals asking that the company adopt a holding
or retention period for its executives (for holding stock after the vesting or
exercise of equity awards), taking into account any stock ownership requirements
or holding period/retention ratio already in place and the actual ownership
level of executives.
TERM LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors either through term limits or mandatory retirement ages.
2. Proxy Contests
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis, considering the following factors:
- Long-term financial performance of the target company relative to its
industry; management's track record
E-14
- Background to the proxy contest
- Qualifications of director nominees (both slates)
- Evaluation of what each side is offering shareholders as well as the
likelihood that the proposed objectives and goals can be met; and
stock ownership positions
REIMBURSING PROXY SOLICITATION EXPENSES
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis. In cases where ISS recommends in favor of the dissidents, we
also recommend voting for reimbursing proxy solicitation expenses.
CONFIDENTIAL VOTING
Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.
Vote FOR management proposals to adopt confidential voting.
3. Anti-takeover Defenses and Voting Related Issues
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS
Votes on advance notice proposals are determined on a CASE-BY-CASE basis, giving
support to those proposals which allow shareholders to submit proposals as close
to the meeting date as reasonably possible and within the broadest window
possible.
AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT
Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.
POISON PILLS
Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it.
Vote FOR shareholder proposals asking that any future pill be put to a
shareholder vote.
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent.
Vote FOR proposals to allow or make easier shareholder action by written
consent.
SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings.
Vote FOR proposals that remove restrictions on the right of shareholders to act
independently of management.
SUPERMAJORITY VOTE REQUIREMENTS
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
E-15
4. Mergers and Corporate Restructurings
APPRAISAL RIGHTS
Vote FOR proposals to restore, or provide shareholders with, rights of
appraisal.
ASSET PURCHASES
Vote CASE-BY-CASE on asset purchase proposals, considering the following
factors:
- Purchase price
- Fairness opinion
- Financial and strategic benefits
- How the deal was negotiated
- Conflicts of interest
- Other alternatives for the business
- Non-completion risk
ASSET SALES
Votes on asset sales should be determined on a CASE-BY-CASE basis, considering
the following factors:
- Impact on the balance sheet/working capital
- Potential elimination of diseconomies
- Anticipated financial and operating benefits
- Anticipated use of funds
- Value received for the asset
- Fairness opinion
- How the deal was negotiated
- Conflicts of interest.
BUNDLED PROPOSALS
Review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals.
In the case of items that are conditioned upon each other, examine the benefits
and costs of the packaged items.
In instances when the joint effect of the conditioned items is not in
shareholders' best interests, vote against the proposals. If the combined effect
is positive, support such proposals.
CONVERSION OF SECURITIES
Votes on proposals regarding conversion of securities are determined on a
CASE-BY-CASE basis. When evaluating these proposals the investor should review
the dilution to existing shareholders, the conversion price relative to market
value, financial issues, control issues, termination penalties, and conflicts of
interest. Vote FOR the conversion if it is expected that the company will be
subject to onerous penalties or will be forced to file for bankruptcy if the
transaction is not approved.
CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY PLANS/REVERSE
LEVERAGED BUYOUTS/WRAP PLANS
Votes on proposals to increase common and/or preferred shares and to issue
shares as part of a debt restructuring plan are determined on a CASE-BY-CASE
basis, taking into consideration the following:
- Dilution to existing shareholders' position
- Terms of the offer
- Financial issues
- Management's efforts to pursue other alternatives
E-16
- Control issues
- Conflicts of interest
Vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
FORMATION OF HOLDING COMPANY
Votes on proposals regarding the formation of a holding company should be
determined on a CASE-BY-CASE basis, taking into consideration the following:
- The reasons for the change
- Any financial or tax benefits
- Regulatory benefits
- Increases in capital structure
- Changes to the articles of incorporation or bylaws of the company.
Absent compelling financial reasons to recommend the transaction, vote AGAINST
the formation of a holding company if the transaction would include either of
the following:
- Increases in common or preferred stock in excess of the allowable
maximum as calculated by the ISS
- Capital Structure model
- Adverse changes in shareholder rights
GOING PRIVATE TRANSACTIONS (LBOS AND MINORITY SQUEEZEOUTS)
Vote going private transactions on a CASE-BY-CASE basis, taking into account the
following: offer price/premium, fairness opinion, how the deal was negotiated,
conflicts of interest, other alternatives/offers considered, and non-completion
risk.
JOINT VENTURES
Votes CASE-BY-CASE on proposals to form joint ventures, taking into account the
following: percentage of assets/business contributed percentage ownership,
financial and strategic benefits, governance structure, conflicts of interest,
other alternatives, and non-completion risk.
LIQUIDATIONS
Votes on liquidations should be made on a CASE-BY-CASE basis after reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation.
Vote FOR the liquidation if the company will file for bankruptcy if the proposal
is not approved.
MERGERS AND ACQUISITIONS/ ISSUANCE OF SHARES TO FACILITATE MERGER OR ACQUISITION
Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis,
determining whether the transaction enhances shareholder value by giving
consideration to the following:
- Prospects of the combined company, anticipated financial and operating
benefits
- Offer price
- Fairness opinion
- How the deal was negotiated
- Changes in corporate governance
- Change in the capital structure
- Conflicts of interest
E-17
PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES
Votes on proposals regarding private placements should be determined on a
CASE-BY-CASE basis. When evaluating these proposals the investor should review:
dilution to existing shareholders' position, terms of the offer, financial
issues, management's efforts to pursue other alternatives, control issues, and
conflicts of interest. Vote FOR the private placement if it is expected that the
company will file for bankruptcy if the transaction is not approved.
SPIN-OFFS
Votes on spin-offs should be considered on a CASE-BY-CASE basis depending on:
- Tax and regulatory advantages
- Planned use of the sale proceeds
- Valuation of spin-off
- Fairness opinion
- Benefits to the parent company
- Conflicts of interest
- Managerial incentives
- Corporate governance changes
- Changes in the capital structure
VALUE MAXIMIZATION PROPOSALS
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by hiring a financial advisor to explore strategic alternatives, selling the
company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors: prolonged poor performance with no turnaround in sight, signs of
entrenched board and management, strategic plan in place for improving value,
likelihood of receiving reasonable value in a sale or dissolution, and whether
company is actively exploring its strategic options, including retaining a
financial advisor.
5. State of Incorporation
CONTROL SHARE ACQUISITION PROVISIONS
Vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders.
Vote AGAINST proposals to amend the charter to include control share acquisition
provisions.
Vote FOR proposals to restore voting rights to the control shares.
CONTROL SHARE CASH-OUT PROVISIONS
Vote FOR proposals to opt out of control share cash-out statutes.
DISGORGEMENT PROVISIONS
Vote FOR proposals to opt out of state disgorgement provisions.
FAIR PRICE PROVISIONS
Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis,
evaluating factors such as the vote required to approve the proposed
acquisition, the vote required to repeal the fair price provision, and the
mechanism for determining the fair price.
E-18
Generally, vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.
FREEZE-OUT PROVISIONS
Vote FOR proposals to opt out of state freeze-out provisions.
GREENMAIL
Vote FOR proposals to adopt anti-greenmail charter of bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
Review on a CASE-BY-CASE basis anti-greenmail proposals when they are bundled
with other charter or bylaw amendments.
REINCORPORATION PROPOSALS
Proposals to change a company's state of incorporation should be evaluated on a
CASE-BY-CASE basis, giving consideration to both financial and corporate
governance concerns, including the reasons for reincorporating, a comparison of
the governance provisions, and a comparison of the jurisdictional laws.
Vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
STAKEHOLDER PROVISIONS
Vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
STATE ANTI-TAKEOVER STATUTES
Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freeze-out provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).
6. Capital Structure
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Vote FOR management proposals to reduce the par value of common stock.
COMMON STOCK AUTHORIZATION
Votes on proposals to increase the number of shares of common stock authorized
for issuance are determined on a CASE-BY-CASE basis using a model developed by
ISS.
Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has superior
voting rights.
Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being de-listed or if a company's ability to
continue to operate as a going concern is uncertain.
DUAL-CLASS STOCK
Vote AGAINST proposals to create a new class of common stock with superior
voting rights.
Vote FOR proposals to create a new class of nonvoting or sub-voting common stock
if:
E-19
- It is intended for financing purposes with minimal or no dilution to
current shareholders
- It is not designed to preserve the voting power of an insider or
significant shareholder
ISSUE STOCK FOR USE WITH RIGHTS PLAN
Vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a shareholder rights plan (poison pill).
PREEMPTIVE RIGHTS
Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive
rights. In evaluating proposals on preemptive rights, consider the size of a
company, the characteristics of its shareholder base, and the liquidity of the
stock.
PREFERRED STOCK
Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).
Vote FOR proposals to create "de-clawed" blank check preferred stock (stock that
cannot be used as a takeover defense).
Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable. Vote AGAINST proposals to
increase the number of blank check preferred stock authorized for issuance when
no shares have been issued or reserved for a specific purpose.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.
RECAPITALIZATION
Votes CASE-BY-CASE on recapitalizations (reclassifications of securities),
taking into account the following: more simplified capital structure, enhanced
liquidity, fairness of conversion terms, impact on voting power and dividends,
reasons for the reclassification, conflicts of interest, and other alternatives
considered.
REVERSE STOCK SPLITS
Vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced.
Vote FOR management proposals to implement a reverse stock split to avoid
delisting.
Votes on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue should be
determined on a CASE-BY-CASE basis using a model developed by ISS.
SHARE REPURCHASE PROGRAMS
Vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by ISS.
E-20
TRACKING STOCK
Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis,
weighing the strategic value of the transaction against such factors as: adverse
governance changes, excessive increases in authorized capital stock, unfair
method of distribution, diminution of voting rights, adverse conversion
features, negative impact on stock option plans, and other alternatives such as
spin-off.
7. Executive and Director Compensation
Votes with respect to equity-based compensation plans should be determined on a
CASE-BY-CASE basis. Our methodology for reviewing compensation plans primarily
focuses on the transfer of shareholder wealth (the dollar cost of pay plans to
shareholders instead of simply focusing on voting power dilution). Using the
expanded compensation data disclosed under the SEC's rules, ISS will value every
award type. ISS will include in its analyses an estimated dollar cost for the
proposed plan and all continuing plans. This cost, dilution to shareholders'
equity, will also be expressed as a percentage figure for the transfer of
shareholder wealth, and will be considered along with dilution to voting power.
Once ISS determines the estimated cost of the plan, we compare it to a
company-specific dilution cap.
Our model determines a company-specific allowable pool of shareholder wealth
that may be transferred from the company to plan participants, adjusted for:
- Long-term corporate performance (on an absolute basis and
relative to a standard industry peer group and an appropriate
market index),
- Cash compensation, and
- Categorization of the company as emerging, growth, or mature.
These adjustments are pegged to market capitalization.
Vote AGAINST plans that expressly permit the re-pricing of underwater stock
options without shareholder approval.
Generally vote AGAINST plans in which (I) there is a disconnect between the
CEO's pay and company performance (an increase in pay and a decrease in
performance) and the main source of the pay increase (over half) is equity-based
and (2) the CEO is the participant of the equity proposal. A decrease in
performance is based on negative one- and three-year total shareholder returns.
An increase in pay is based on the CEO's total direct compensation (salary, cash
bonus, present value of stock options, face value of restricted stock, face
value of long-term incentive plan payouts, and all other compensation)
increasing over the previous year. Also may WITHHOLD votes from the Compensation
Committee members.
Generally vote AGAINST plans if the company's most recent three-year burn rate
exceeds one standard deviation in excess of the industry mean and is over two
percent of common shares outstanding. See Table 1 for details.
TABLE 1: PROXY SEASON 2005 BURN RATE THRESHOLDS
RUSSELL 3000 NON-RUSSELL 3000
-------------------------- --------------------------
Standard Mean + Standard Mean +
GICS GICS Dsec Mean Deviation Std Dev Mean Deviation Std Dev
- ---- -------------------------------- ---- --------- ------- ---- --------- -------
1010 Energy 1.60% 1.02% 2.61% 2.59% 2.19% 4.78%
1510 Materials 1.55% 0.81% 2.36% 2.54% 1.92% 4.46%
2010 Capital Goods 1.86% 1.19% 3.05% 3.23% 2.93% 6.17%
2020 Commercial Services & Supplies 2.87% 1.53% 4.40% 4.39% 3.68% 8.07%
2030 Transportation 2.10% 1.50% 3.60% 2.44% 2.22% 4.66%
2510 Automobiles & Components 2.10% 1.37% 3.48% 2.90% 2.28% 5.18%
2520 Consumer Durables & Apparel 2.40% 1.51% 3.90% 3.42% 2.79% 6.21%
E-21
RUSSELL 3000 NON-RUSSELL 3000
-------------------------- --------------------------
2530 Hotels Restaurants & Leisure 2.39% 1.08% 3.48% 3.30% 2.87% 6.17%
2540 Media 2.34% 1.50% 3.84% 4.12% 2.89% 7.01%
2550 Retailing 2.89% 1.95% 4.84% 4.26% 3.50% 7.75%
3010 to 3030 Food & Staples Retailing 1.98% 1.50% 3.48% 3.37% 3.32% 6.68%
3510 Health Care Equipment & Services 3.24% 1.96% 5.20% 4.55% 3.24% 7.79%
3520 Pharmaceuticals & Biotechnology 3.60% 1.72% 5.32% 5.77% 4.15% 9.92%
4010 Banks 1.44% 1.17% 2.61% 1.65% 1.60% 3.25%
4020 Diversified Financials 3.12% 2.54% 5.66% 5.03% 3.35% 8.55%
4030 Insurance 1.45% 0.88% 2.32% 2.47% 1.77% 4.24%
4040 Real Estate 1.01% 0.89% 1.90% 1.51% 1.50% 3.01%
4510 Software & Services 5.44% 3.05% 8.49% 8.08% 6.01% 14.10%
4520 Technology Hardware & Equipment 4.00% 2.69% 6.68% 5.87% 4.25% 10.12%
4530 Semiconductors & Semiconductor 5.12% 2.86% 7.97% 6.79% 3.95% 10.74%
Equipment
5010 Telecommunications Services 2.56% 2.39% 4.95% 4.66% 3.90% 8.56%
5510 Utilities 0.90% 0.65% 1.55% 3.74% 4.63% 8.38%
A company with high three-year average burn rates may avoid triggering the burn
rate policy by committing to the industry average over the next years.
However, the above general voting guidelines for pay for performance may change
if the compensation committee members can demonstrate that they have improved
committee performance based on additional public filing such as a DEFA 14A or
8K. The additional filing needs to present strong and compelling evidence of
improved performance with new information that has not been disclosed in the
original proxy statement. The reiteration of the compensation committee report
will not be sufficient evidence of improved committee performance.
Evidence of improved compensation committee performance includes all of the
following:
The compensation committee has reviewed all components of the CEO's
compensation, including the following:
- Base salary, bonus, long-term incentives
- Accumulative realized and unrealized stock option and restricted
stock gains
- Dollar value of perquisites and other personal benefits to the
CEO and the cost to the company
- Earnings and accumulated payment obligations under the company's
nonqualified deferred compensation program
- Actual projected payment obligations under the company's
supplemental executive retirement plan (SERPs)
A tally sheet setting forth all the above components was prepared and reviewed
affixing dollar amounts under the various payout scenarios.
A tally sheet with all the above components should be disclosed for the
following termination scenarios:
- Payment if termination occurs within 12 months: $_____
- Payment if "not for cause" termination occurs within 12 months:
$______
- Payment if "change of control" termination occurs within 12
months: $_____
E-22
The compensation committee is committed to provide additional information on the
named executives' annual cash bonus program and/or long-term incentive cash plan
for the current fiscal year. The compensation committee will provide full
disclosure of the qualitative and quantitative performance criteria and hurdle
rates used to determine the payouts of the cash program. From this disclosure,
shareholders will know the minimum level of performance required for any cash
bonus to be delivered as well as the maximum cash bonus payable for superior
performance.
The repetition of the compensation committee report does not meet ISS'
requirement of compelling and strong evidence of improved disclosure. The level
of transparency and disclosure is at the highest level where shareholders can
understand the mechanics of the annual cash bonus and/or long-term incentive
cash plan based on the additional disclosure.
(1)The compensation committee is committed to grant a substantial portion of
performance-based equity awards to the named executive officers. A substantial
portion of performance-based awards would be at least 50 percent of the shares
awarded to each of the named executive officers. Performance-based equity awards
are earned or paid out based on the achievement of company performance targets.
The company will disclose the details of the performance criteria (e.g., return
on equity) and the hurdle rates (e.g., 15 percent) associated with the
performance targets. From this disclosure, shareholders will know the minimum
level of performance required for any equity grants to be made. The
performance-based equity awards do not refer to non-qualified stock options' or
performance-accelerated grants2. Instead, performance-based equity awards are
performance-contingent grants where the individual will not receive the equity
grant by not meeting the target performance and vice versa.
The level of transparency and disclosure is at the highest level where
shareholders can understand the mechanics of the performance-based equity awards
based on the additional disclosure.
(2)The compensation committee has the sole authority to hire and fire outside
compensation consultants. The role of the outside compensation consultant is to
assist the compensation committee to analyze executive pay packages or contracts
and understand the company's financial measures.
Based on the additional disclosure of improved performance of the compensation
committee, ISS will generally vote FOR the compensation committee members up for
annual election and vote FOR the employee-based stock plan if there is one on
the ballot. However, ISS is not likely to vote FOR the compensation committee
members and/or the employee-based stock plan if ISS believes the company has not
provided compelling and sufficient evidence of transparent additional disclosure
of executive compensation based on the above requirements.
DIRECTOR COMPENSATION
Votes on compensation plans for directors are determined on a CASE-BY-CASE
basis, using a proprietary, quantitative model developed by ISS.
On occasion, director stock plans that set aside a relatively small of shares
when combined with employee or executive stock compensation plans exceed the
allowable cap. In such cases, starting proxy season 2005, ISS will supplement
the analytical approach with a qualitative review of board compensation for
companies, taking into consideration:
- Director stock ownership guidelines
- ----------
(1) Non-qualified stock options are not performance-based awards unless the
grant or the vesting of the stock options is tied to the achievement of a
pre-determined and disclosed performance measure. A rising stock market
will generally increase share prices of all companies, despite of the
company's underlying performance.
(2) Performance-accelerated grants are awards that vest earlier based on the
achievement of a specified measure. However, these grants will ultimately
vest over time even without the attainment of the goal(s).
E-23
- A minimum of three times the annual cash retainer.
- Vesting schedule or mandatory holding/deferral period
- A minimum vesting of three years for stock options or
restricted stock, or
- Deferred stock payable at the end of a three-year deferral
period.
- Mix between cash and equity
- A balanced mix of cash and equity, for example 40% cash/60%
equity or 50% cash/50% equity.
- If the mix is heavier on the equity component, the vesting
schedule or deferral period should be more stringent, with
the lesser of five years or the term of directorship.
- Retirement/Benefit and Perquisites programs
- No retirement/benefits and perquisites provided to
non-employee directors.
- Quality of disclosure
- Provide detailed disclosure on cash and equity compensation
delivered to each non-employee director for the most recent
fiscal year in a table. The column headers for the table may
include the following: name of each non-employee director,
annual retainer, board meeting fees, committee retainer,
committee-meeting fees, and equity grants.
For ISS to recommend a vote FOR director equity plans based on the above
qualitative features, a company needs to demonstrate that it meets all the above
qualitative features in its proxy statement.
STOCK PLANS IN LIEU OF CASH
Votes for plans which provide participants with the option of taking all or a
portion of their cash compensation in the form of stock are determined on a
CASE-BY-CASE basis. Vote FOR plans which provide a dollar-for-dollar cash for
stock exchange.
Votes for plans which do not provide a dollar-for-dollar cash for stock exchange
should be determined on a CASE-BY-CASE basis using a proprietary, quantitative
model developed by ISS. In cases where the exchange is not dollar-for-dollar,
the request for new or additional shares for such equity program will be
considered in the quantitative model. However, the cost would be lower than
full-value awards since part of the deferral compensation is in-lieu-of cash
compensation.
DIRECTOR RETIREMENT PLANS
Vote AGAINST retirement plans for non-employee directors.
Vote FOR shareholder proposals to eliminate retirement plans for non-employee
directors.
MANAGEMENT PROPOSALS SEEKING APPROVAL TO RE-PRICE OPTIONS
Votes on management proposals seeking approval to re-price options are evaluated
on a CASE-BY-CASE basis giving consideration to the following:
- Historic trading patterns
- Rationale for the re-pricing
- Value-for-value exchange
- Treatment of surrendered options
- Option vesting
- Term of the option
- Exercise price
- Participation
E-24
QUALIFIED EMPLOYEE STOCK PURCHASE PLANS
Votes on qualified employee stock purchase plans should be determined on a
CASE-BY-CASE basis.
Vote FOR employee stock purchase plans where all of the following apply:
- Purchase price is at least 85 percent of fair market value
- Offering period is 27 months or less, and
- The number of shares allocated to the plan is ten percent or less
of the outstanding shares
Vote AGAINST qualified employee stock purchase plans where any of the following
apply:
- Purchase price is less than 85 percent of fair market value, or
- Offering period is greater than 27 months, or
- The number of shares allocated to the plan is more than ten
percent of the outstanding shares
NONQUALIFIED EMPLOYEE STOCK PURCHASE PLANS
Votes on nonqualified employee stock purchase plans should be determined on a
CASE-BY-CASE basis.
Vote FOR nonqualified employee stock purchase plans with all the following
features:
- Broad-based participation (i.e., all employees of the company
with the exclusion of individuals with 5 percent or more of
beneficial ownership of the company)
- Limits on employee contribution, which may be a fixed dollar
amount or expressed as a percent of base salary
- Company matching contribution up to 25 percent of employee's
contribution, which is effectively a discount of 20 percent from
market value
- No discount on the stock price on the date of purchase since
there is a company matching contribution
Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria.
INCENTIVE BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED COMPENSATION
PROPOSALS)
Vote FOR proposals that simply amend shareholder-approved compensation plans to
include administrative features or place a cap on the annual grants any one
participant may receive to comply with the provisions of Section 162(m).
Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate.
Votes to amend existing plans to increase shares reserved and to qualify for
favorable tax treatment under the provisions of Section 162(m) should be
considered on a CASE-BY-CASE basis using a proprietary, quantitative model
developed by ISS.
Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.
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EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares.)
401(K) EMPLOYEE BENEFIT PLANS
Vote FOR proposals to implement a 40 1(k) savings plan for employees.
SHAREHOLDER PROPOSALS REGARDING EXECUTIVE AND DIRECTOR PAY
Generally, vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.
Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
Vote AGAINST shareholder proposals requiring director fees be paid in stock
only. Vote FOR shareholder proposals to put option re-pricings to a shareholder
vote.
Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding
executive and director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate outlook.
OPTION EXPENSING
Generally vote FOR shareholder proposals asking the company to expense stock
options, unless the company has already publicly committed to expensing options
by a specific date
PERFORMANCE-BASED AWARDS
Generally vote FOR shareholder proposals advocating the use of performance-based
awards like indexed, premium-priced, and performance-vested options or
performance-based shares, unless:
- The proposal is overly restrictive (e.g., it mandates that awards
to all employees must be performance-based or all awards to top
executives must be a particular type, such as indexed options)
- The company demonstrates that it is using a substantial portion
of performance-based awards for its top executives
GOLDEN PARACHUTES AND EXECUTIVE SEVERANCE AGREEMENTS
Vote FOR shareholder proposals to require golden parachutes or executive
severance agreements to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes.
An acceptable parachute should include the following:
- The triggering mechanism should be beyond the control of
management
- The amount should not exceed three times base amount (defined as
the average annual taxable W-2 compensation during the five years
prior to the year in which the change of control occurs
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- Change-in-control payments should be double-triggered, i.e., (1)
after a change in control has taken place, and (2) termination of
the executive as a result of the change in control. ISS defines
change in control as a change in the company ownership structure
PENSION PLAN INCOME ACCOUNTING
Generally vote FOR shareholder proposals to exclude pension plan income in the
calculation of earnings used in determining executive bonuses/compensation.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERP5)
Generally vote FOR shareholder proposals requesting to put extraordinary
benefits contained in SERP agreements to a shareholder vote unless the company's
executive pension plans do not contain excessive benefits beyond what is offered
under employee-wide plans.
8. Social and Environmental Issues
CONSUMER ISSUES AND PUBLIC SAFETY
ANIMAL RIGHTS
Vote CASE-BY-CASE on proposals to phase out the use of animals in product
testing, taking into account:
- The nature of the product and the degree that animal testing is
necessary or federally mandated (such as medical products),
- The availability and feasibility of alternatives to animal
testing to ensure product safety, and
- The degree that competitors are using animal-free testing
Generally vote FOR proposals seeking a report on the company's animal welfare
standards unless:
- The company has already published a set of animal welfare
standards and monitors compliance
- The company's standards are comparable to or better than those of
peer firms, and
- There are no serious controversies surrounding the company's
treatment of animals
DRUG PRICING
Vote CASE-BY-CASE on proposals asking the company to implement price restraints
on pharmaceutical products, taking into account:
- Whether the proposal focuses on a specific drug and region
- Whether the economic benefits of providing subsidized drugs
(e.g., public goodwill) outweigh the costs in
- terms of reduced profits, lower R&D spending, and harm to
competitiveness
- The extent that reduced prices can be offset through the
company's marketing budget without affecting
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- R&D spending
- Whether the company already limits price increases of its
products
- Whether the company already contributes life -saving
pharmaceuticals to the needy and Third World countries
- The extent that peer companies implement price restraints
GENETICALLY MODIFIED FOODS
Vote AGAINST proposals asking companies to voluntarily label genetically
engineered (GE) ingredients in their products or alternatively to provide
interim labeling and eventually eliminate GE ingredients due to the costs and
feasibility of labeling and/or phasing out the use of GE ingredients.
Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account:
- The relevance of the proposal in terms of the company's business
and the proportion of it affected by the resolution
- The quality of the company's disclosure on GE product labeling
and related voluntary initiatives and how this disclosure
compares with peer company disclosure
- Company's current disclosure on the feasibility of GE product
labeling, including information on the related costs
- Any voluntary labeling initiatives undertaken or considered by
the company
- Vote CASE-BY-CASE on proposals asking for the preparation of a
report on the financial, legal, and environmental impact of
continued use of GE ingredients/seeds
- The relevance of the proposal in terms of the company's business
and the proportion of it affected by the resolution
- The quality of the company's disclosure on risks related to GE
product use and how this disclosure compares with peer company
disclosure
- The percentage of revenue derived from international operations,
particularly in Europe, where GE products are more regulated and
consumer backlash is more pronounced
Vote AGAINST proposals seeking a report on the health and environmental effects
of genetically modified organisms (GMOs). Health studies of this sort are better
undertaken by regulators and the scientific community. Vote AGAINST proposals to
completely phase out GE ingredients from the company's products or proposals
asking for reports outlining the steps necessary to eliminate GE ingredients
from the company's products. Such resolutions presuppose that there are proven
health risks to GE ingredients (an issue better left to federal regulators) that
outweigh the economic benefits derived from biotechnology.
HANDGUNS
Generally vote AGAINST requests for reports on a company's policies aimed at
curtailing gun violence in the United States unless the report is confined to
product safety information. Criminal misuse of firearms is beyond company
control and instead falls within the purview of law enforcement agencies.
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HIV/AIDS
Vote CASE-BY-CASE on requests for reports outlining the impact of the health
pandemic (HIV/AIDS, malaria and tuberculosis) on the company's Sub-Saharan
operations and how the company is responding to it, taking into account:
- The nature and size of the company's operations in Sub-Saharan Africa
and the number of local employees
- The company's existing healthcare policies, including benefits and
healthcare access for local workers
- Company donations to healthcare providers operating in the region
Vote AGAINST proposals asking companies to establish, implement, and report on a
standard of response to the HIV/AIDS, TB, and Malaria health pandemic in Africa
and other developing countries, unless the company has significant operations in
these markets and has failed to adopt policies and/or procedures to address
these issues comparable to those of industry peers.
PREDATORY LENDING
Vote CASE-BY CASE on requests for reports on the company's procedures for
preventing predatory lending, including the establishment of a board committee
for oversight, taking into account:
- Whether the company has adequately disclosed mechanisms in place to
prevent abusive lending practices
- Whether the company has adequately disclosed the financial risks of
its sub-prime business
- Whether the company has been subject to violations of lending laws or
serious lending controversies
- Peer companies' policies to prevent abusive lending practices
TOBACCO
Most tobacco-related proposals should be evaluated on a CASE-BY-CASE basis,
taking into account the following factors:
Second-hand smoke:
- Whether the company complies with all local ordinances and regulations
- The degree that voluntary restrictions beyond those mandated by law
might hurt the company's competitiveness
- The risk of any health-related liabilities.
Advertising to youth:
- Whether the company complies with federal, state, and local laws on
the marketing of tobacco or if it has been fined for violations
- Whether the company has gone as far as peers in restricting
advertising
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- Whether the company entered into the Master Settlement Agreement,
which restricts marketing of tobacco to youth
- Whether restrictions on marketing to youth extend to foreign countries
Cease production of tobacco-related products or avoid selling products to
tobacco companies:
- The percentage of the company's business affected
- The economic loss of eliminating the business versus any potential
tobacco-related liabilities.
Spin-off tobacco-related businesses:
- The percentage of the company's business affected
- The feasibility of a spin-off
- Potential future liabilities related to the company's tobacco business
Stronger product warnings:
Vote AGAINST proposals seeking stronger product warnings. Such decisions are
better left to public health authorities.
Investment in tobacco stocks:
Vote AGAINST proposals prohibiting investment in tobacco equities. Such
decisions are better left to portfolio managers.
ENVIRONMENT AND ENERGY
ARCTIC NATIONAL WILDLIFE REFUGE
Generally vote AGAINST request for reports outlining potential environmental
damage from drilling in the Arctic National Wildlife Refuge (ANWR) unless:
- New legislation is adopted allowing development and drilling in the
ANWR region;
- The company intends to pursue operations in the ANWR; and
The company does not currently disclose an environmental risk report for their
operations in the ANWR.
CERES PRINCIPLES
Vote CASE-BY-CASE on proposals to adopt the CERES Principles, taking into
account:
- The company's current environmental disclosure beyond legal
requirements, including environmental health and safety (EHS) audits
and reports that may duplicate CERES
- The company's environmental performance record, including violations
of federal and state regulations, level of toxic emissions, and
accidental spills
- Environmentally conscious practices of peer companies, including
endorsement of CERES
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- Costs of membership and implementation.
ENVIRONMENTAL-ECONOMIC RISK REPORT
Vote CASE by CASE on proposals requesting an economic risk assessment of
environmental performance considering:
- The feasibility of financially quantifying environmental risk factors,
- The company's compliance with applicable legislation and/or
regulations regarding environmental performance,
- The costs associated with implementing improved standards,
- The potential costs associated with remediation resulting from poor
environmental performance, and
- The current level of disclosure on environmental policies and
initiatives.
ENVIRONMENTAL REPORTS
Generally vote FOR requests for reports disclosing the company's environmental
policies unless it already has well-documented environmental management systems
that are available to the public.
GLOBAL WARMING
Generally vote FOR proposals requesting a report on greenhouse gas emissions
from company operations and/or products unless this information is already
publicly disclosed or such factors are not integral to the company's line of
business.
Generally vote AGAINST proposals that call for reduction in greenhouse gas
emissions by specified amounts or within a restrictive time frame unless the
company lags industry standards and has been the subject of recent, significant
fines or litigation resulting from greenhouse gas emissions.
RECYCLING
Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy,
taking into account:
- The nature of the company's business and the percentage affected
- The extent that peer companies are recycling
- The timetable prescribed by the proposal
- The costs and methods of implementation
- Whether the company has a poor environmental track record, such as
violations of federal and state regulations
RENEWABLE ENERGY
In general, vote FOR requests for reports on the feasibility of developing
renewable energy sources unless the report is duplicative of existing disclosure
or irrelevant to the company's line of business.
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Generally vote AGAINST proposals requesting that the company invest in renewable
energy sources. Such decisions are best left to management's evaluation of the
feasibility and financial impact that such programs may have on the company.
SUSTAINABILITY REPORT
Generally vote FOR proposals requesting the company to report on policies and
initiatives related to social, economic, and environmental sustainability,
unless:
- The company already discloses similar information through existing
reports or policies such as an Environment, Health, and Safety (EHS)
report; comprehensive Code of Corporate Conduct; and/or Diversity
Report; or
- The company has formally committed to the implementation of a
reporting program based on Global Reporting Initiative (GRI)
guidelines or a similar standard within a specified time frame.
GENERAL CORPORATE ISSUES
OUTSOURCING/ OFFSHORING
Vote Case by Case on proposals calling for companies to report on the risks
associated with outsourcing, considering:
- Risks associated with certain international markets
- The utility of such a report to shareholders
- The existence of a publicly available code of corporate conduct that
applies to international operations
LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE
Vote CASE-BY-CASE on proposals to review ways of linking executive compensation
to social factors, such as corporate downsizings, customer or employee
satisfaction, community involvement, human rights, environmental performance,
predatory lending, and executive/employee pay disparities. Such resolutions
should be evaluated in the context of:
- The relevance of the issue to be linked to pay
- The degree that social performance is already included in the
company's pay structure and disclosed
- The degree that social performance is used by peer companies in
setting pay
- Violations or complaints filed against the company relating to the
particular social performance measure
- Artificial limits sought by the proposal, such as freezing or capping
executive pay
- Independence of the compensation committee
- Current company pay levels.
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CHARITABLE/POLITICAL CONTRIBUTIONS
Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as:
- The company is in compliance with laws governing corporate political
activities, and
- The company has procedures in place to ensure that employee
contributions to company-sponsored political action committees (PACs)
are strictly voluntary and not coercive.
Vote AGAINST proposals to report or publish in newspapers the company's
political contributions. Federal and state laws restrict the amount of corporate
contributions and include reporting requirements. Vote AGAINST proposals
disallowing the company from making political contributions. Businesses are
affected by legislation at the federal, state, and local level and barring
contributions can put the company at a competitive disadvantage.
Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self-dealing, or gross negligence, management should determine which
contributions are in the best interests of the company.
Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.
LABOR STANDARDS AND HUMAN RIGHTS
CHINA PRINCIPLES
Vote AGAINST proposals to implement the China Principles unless:
- There are serious controversies surrounding the company's China
operations, and
- The company does not have a code of conduct with standards similar to
those promulgated by the International Labor Organization (ILO).
COUNTRY-SPECIFIC HUMAN RIGHTS REPORTS
Vote CASE-BY-CASE on requests for reports detailing the company's operations in
a particular country and steps to protect human rights, based on:
- The nature and amount of company business in that country
- The company's workplace code of conduct
- Proprietary and confidential information involved
- Company compliance with U.S. regulations on investing in the country
- Level of peer company involvement in the country.
E-33
INTERNATIONAL CODES OF CONDUCT/VENDOR STANDARDS
Vote CASE-BY-CASE on proposals to implement certain human rights standards at
company facilities or those of its suppliers and to commit to outside,
independent monitoring. In evaluating these proposals, the following should be
considered:
- The company's current workplace code of conduct or adherence to other
global standards and the degree they meet the standards promulgated by
the proponent
- Agreements with foreign suppliers to meet certain workplace standards
- Whether company and vendor facilities are monitored and how
- Company participation in fair labor organizations
- Type of business
- Proportion of business conducted overseas
- Countries of operation with known human rights abuses
- Whether the company has been recently involved in significant labor
and human rights controversies or violations
- Peer company standards and practices
- Union presence in company's international factories
Generally vote FOR reports outlining vendor standards compliance unless any of
the following apply:
- The company does not operate in countries with significant human
rights violations
- The company has no recent human rights controversies or violations, or
- The company already publicly discloses information on its vendor
standards compliance.
MACBRIDE PRINCIPLES
Vote CASE-BY-CASE on proposals to endorse or increase activity on the MacBride
Principles, taking into account:
- Company compliance with or violations of the Fair Employment Act of
1989
- Company antidiscrimination policies that already exceed the legal
requirements
- The cost and feasibility of adopting all nine principles
The cost of duplicating efforts to follow two sets of standards (Fair Employment
and the MacBride Principles)
- The potential for charges of reverse discrimination
- The potential that any company sales or contracts in the rest of the
United Kingdom could be negatively impacted
- The level of the company's investment in Northern Ireland
E-34
- The number of company employees in Northern Ireland
- The degree that industry peers have adopted the MacBride Principles
- Applicable state and municipal laws that limit contracts with
companies that have not adopted the MacBride Principles.
MILITARY BUSINESS
FOREIGN MILITARY SALES/OFFSETS
Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
LANDMINES AND CLUSTER BOMBS
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in antipersonnel landmine production, taking into account:
- Whether the company has in the past manufactured landmine components
- Whether the company's peers have renounced future production
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in cluster bomb production, taking into account:
- What weapons classifications the proponent views as cluster bombs
- Whether the company currently or in the past has manufactured cluster
bombs or their components
- The percentage of revenue derived from cluster bomb manufacture
- Whether the company's peers have renounced future production
NUCLEAR WEAPONS
Vote AGAINST proposals asking a company to cease production of nuclear weapons
components and delivery systems, including disengaging from current and proposed
contracts. Components and delivery systems serve multiple military and
non-military uses, and withdrawal from these contracts could have a negative
impact on the company's business.
OPERATIONS IN NATIONS SPONSORING TERRORISM (IRAN)
Vote CASE-BY-CASE on requests for a board committee review and report outlining
the company's financial and reputational risks from its operations in Iran,
taking into account current disclosure on:
- The nature and purpose of the Iranian operations and the amount of
business involved (direct and indirect revenues and expenses) that
could be affected by political disruption
- Compliance with U.S. sanctions and laws
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SPACED-BASED WEAPONIZATION
Generally vote FOR reports on a company's involvement in spaced-based
weaponization unless:
- The information is already publicly available or
The disclosures sought could compromise proprietary information.
WORKPLACE DIVERSITY
BOARD DIVERSITY
Generally vote FOR reports on the company's efforts to diversify the board,
unless:
- The board composition is reasonably inclusive in relation to companies
of similar size and business or
- The board already reports on its nominating procedures and diversity
initiatives.
Generally vote AGAINST proposals that would call for the adoption of specific
committee charter language regarding diversity initiatives unless the company
fails to publicly disclose existing equal opportunity or nondiscrimination
policies.
Vote CASE-BY-CASE on proposals asking the company to increase the representation
of women and minorities on the board, taking into account:
- The degree of board diversity
- Comparison with peer companies
- Established process for improving board diversity
- Existence of independent nominating committee
- Use of outside search firm
- History of EEO violations
EQUAL EMPLOYMENT OPPORTUNITY (EEO)
Generally vote FOR reports outlining the company's affirmative action
initiatives unless all of the following apply:
- The company has well-documented equal opportunity programs
- The company already publicly reports on its company-wide affirmative
initiatives and provides data on its workforce diversity, and
- The company has no recent EEO-related violations or litigation.
Vote AGAINST proposals seeking information on the diversity efforts of suppliers
and service providers, which can pose a significant cost and administration
burden on the company.
E-36
GLASS CEILING
Generally vote FOR reports outlining the company's progress towards the Glass
Ceiling Commission's business recommendations, unless:
- The composition of senior management and the board is fairly inclusive
- The company has well-documented programs addressing diversity
initiatives and leadership development
- The company already issues public reports on its company-wide
affirmative initiatives and provides data on its workforce diversity,
and
- The company has had no recent, significant EEO-related violations or
litigation
SEXUAL ORIENTATION
Vote FOR proposals seeking to amend a company's EEO statement in order to
prohibit discrimination based on sexual orientation, unless the change would
result in excessive costs for the company.
Vote AGAINST proposals to ext end company benefits to or eliminate benefits from
domestic partners. Benefits decisions should be left to the discretion of the
company.
10. Mutual Fund Proxies
ELECTION OF DIRECTORS
Vote the election of directors on a CASE-BY-CASE basis, considering the
following factors: board structure; director independence and qualifications;
and compensation of directors within the fund and the family of funds attendance
at board and committee meetings.
Votes should be withheld from directors who:
- attend less than 75 percent of the board and committee meetings
without a valid excuse for the absences. Valid reasons include illness
or absence due to company business. Participation via telephone is
acceptable.
- In addition, if the director missed only one meeting or one day's
meetings, votes should not be withheld even if such absence dropped
the director's attendance below 75 percent.
- ignore a shareholder proposal that is approved by a majority of shares
outstanding;
- ignore a shareholder proposal that is approved by a majority of the
votes cast for two consecutive years;
- are interested directors and sit on the audit or nominating committee;
or
- are interested directors and the full board serves as the audit or
- nominating committee or the company does not have one of these
committees.
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote conversion proposals on a CASE-BY-CASE basis, considering the following
factors: past performance as a closed-end fund; market in which the fund
invests; measures taken by the board to address the discount; and past
shareholder activism, board activity, and votes on related proposals.
E-37
PROXY CONTESTS
Votes on proxy contests should be determined on a CASE-BY-CASE basis,
considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the issues
- Past shareholder activism, board activity, and votes on related
proposals
- Strategy of the incumbents versus the dissidents
- Independence of directors
- Experience and skills of director candidates
- Governance profile of the company
- Evidence of management entrenchment
INVESTMENT ADVISORY AGREEMENTS
Votes on investment advisory agreements should be determined on a CASE-BY-CASE
basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the advisor undergoes a change of control)
APPROVING NEW CLASSES OR SERIES OF SHARES
Vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS
Votes on the authorization for or increase in preferred shares should be
determined on a CASE-BY-CASE basis, considering the following factors: stated
specific financing purpose, possible dilution for common shares, and whether the
shares can be used for anti-takeover purposes
1940 ACT POLICIES
Votes on 1940 Act policies should be determined on a CASE-BY-CASE basis,
considering the following factors:
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- potential competitiveness; regulatory developments; current and
potential returns; and current and potential risk.
Generally vote FOR these amendments as long as the proposed changes do not
fundamentally alter the investment focus of the fund and do comply with t he
current SEC interpretation.
CHANGING A FUNDAMENTAL RESTRICTION TO A NON-FUNDAMENTAL RESTRICTION
Proposals to change a fundamental restriction to a non-fundamental restriction
should be evaluated on a CASE- BY-CASE basis, considering the following factors:
the fund's target investments, the reasons given by the fund for the change, and
the projected impact of the change on the portfolio.
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NON-FUNDAMENTAL
Vote AGAINST proposals to change a fund's fundamental investment objective to
non-fundamental.
NAME CHANGE PROPOSALS
Votes on name change proposals should be determined on a CASE-BY-CASE basis,
considering the following factors: political/economic changes in the target
market, consolidation in the target market, and current asset composition
CHANGE IN FUND'S SUB-CLASSIFICATION
Votes on changes in a fund's sub-classification should be determined on a
CASE-BY-CASE basis, considering the following factors: potential
competitiveness, current and potential returns, risk of concentration, and
consolidation in target industry
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION
Vote these proposals on a CASE-BY-CASE basis, considering the following factors:
strategies employed to salvage the company; the fund's past performance; and
terms of the liquidation.
CHANGES TO THE CHARTER DOCUMENT
Votes on changes to the charter document should be determined on a CASE-BY-CASE
basis, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation
- Regulatory standards and implications
Vote AGAINST any of the following changes:
- Removal of shareholder approval requirement to reorganize or terminate
the trust or any of its series
- Removal of shareholder approval requirement for amendments to the new
declaration of trust
E-39
- Removal of shareholder approval requirement to amend the fund's
management contract, allowing the contract to be modified by the
investment manager and the trust management, as permitted by the 1940
Act
- Allow the trustees to impose other fees in addition to sales charges
on investment in a fund, such as deferred sales charges and redemption
fees that may be imposed upon redemption of a fund's shares
- Removal of shareholder approval requirement to engage in and terminate
sub-advisory arrangements
Removal of shareholder approval requirement to change the domicile of the fund
CHANGING THE DOMICILE OF A FUND
Vote re-incorporations on a CASE-BY-CASE basis, considering the following
factors:
- regulations of both states; required fundamental policies of both
states; and the increased flexibility available.
AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUB-ADVISORS WITHOUT SHAREHOLDER
APPROVAL
Vote AGAINST proposals authorizing the board to hire/terminate sub-advisors
without shareholder approval.
DISTRIBUTION AGREEMENTS
Vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- fees charged to comparably sized funds with similar objectives, the
proposed distributor's reputation and past performance, the
competitiveness of the fund in the industry, and terms of the
agreement.
MASTER-FEEDER STRUCTURE
Vote FOR the establishment of a master-feeder structure.
MERGERS
Vote merger proposals on a CASE-BY-CASE basis, considering the following
factors:
- resulting fee structure, performance of both funds, continuity of
management personnel, and changes in corporate governance and their
impact on shareholder rights.
SHAREHOLDER PROPOSALS TO ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board. While ISS favors stock ownership on the part of directors,
the company should determine the appropriate ownership requirement.
SHAREHOLDER PROPOSALS TO REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis. In cases where ISS recommends in favor of the dissidents, we
also recommend voting for reimbursing proxy solicitation expenses.
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SHAREHOLDER PROPOSALS TO TERMINATE THE INVESTMENT ADVISOR
Vote to terminate the investment advisor on a CASE-BY-CASE basis, considering
the following factors: performance of the fund's NAV, the fund's history of
shareholder relations, and the performance of other funds under the advisor's
management.
- performance of the fund's NAV, the fund's history of shareholder
relations, and the performance of other funds under the advisor's
management.
E-41
APPENDIX F
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record
and beneficial holders of 5% or more of the outstanding shares of each class of
the Trust's equity securities and the percentage of the outstanding shares held
by such holders are set forth below. Unless otherwise indicated below, the Trust
has no knowledge as to whether all or any portion of the shares owned of record
are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of April 6, 2006.
AIM V.I. BASIC BALANCED FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INS CO OF NEW YORK 6.25%
NY PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE OF NEW YORK 12.07%
3100 SANDERAS ROAD
NORTHBROOK IL 60062-7155
ALLSTATE LIFE INSURANCE COMPANY 5.78%
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 51.39%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 12.41%
GLAC VA1
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE CO 33.93%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
MINNESOTA LIFE INSURANCE CO 49.57%
ATTN: A6-5216
400 ROBERT ST N
ST PAUL MN 55101-2015
F-1
AIM V.I. BASIC BALANCED FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
UNION CENTRAL LIFE INSURANCE 14.13%
FBO VARIABLE UNIVERSAL LIFE
ATTN ROBERTA UJVARY
PO BOX 40888
CINCINNATI OH 45240-0888
AIM V.I. BASIC VALUE FUND
AIM V.I. BASIC VALUE FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLMERICA FINANCIAL LIFE INS & ANNUITY COMPANY 11.53%
ATTN: LYNNE MCENTEGART SEP ACCOUNT
440 LINCOLN STSREET
MAILSTOP S-310
WORCESTER MA 01653-0001
ALLSTATE LIFE INSURANCE CO 5.40%
AIM VI-AIM VA3
3100 SANDERS RD STE K4A
NORTHBROOK IL 60062-7154
ALLSTATE LIFE INSURANCE COMPANY 5.60%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
AMERICAN ENTERPRISE LIFE INS CO 13.50%
1497 AXP FINANCIAL CTR
MINNEAPOLIS MN 55474-0014
GE LIFE AND ANNUITY ASSURANCE CO 8.46%
VARIABLE EXTRA CREDIT
ATTN: VARIABLE ACCOUNTING
6610 W BROAD ST
RICHMOND VA 23230-1702
HARTFORD LIFE AND ANNUITY 57.03%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE SEPARATE ACCOUNT 19.15%
ATTN DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
F-2
AIM V.I. BASIC VALUE FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
LINCOLN BENEFIT LIFE 5.50%
2940 S 84TH ST
LINCOLN NE 68506-4142
NATIONWIDE INSURANCE COMPANY NWVAII 14.39%
C/O IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS OH 43218-2029
TRANSAMERICA LIFE INSURANCE CO 15.78%
LANDMARK
ATTN FMD OPERATIONAL ACCOUNTING
4333 EDGEWOOD RD NE
CEDAR RAPIDS IA 52499-0001
TRANSAMERICA LIFE INSURANCE CO 5.46%
EXTRA
ATTN FMD OPERATIONAL ACCOUNTING
4333 EDGEWOOD DR NE
CEDAR RAPIDS IA 52499-0001
AIM V.I. BLUE CHIP FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLMERICA FINANCIAL LIFE INS & ANNUITY COMPANY 14.72%
ATTN: LYNNE MCENTEGART SEP ACCOUNT
440 LINCOLN STREET
MAILSTOP S-310
WORCESTER MA 01653-0001
ALLSTATE LIFE OF NEW YORK 23.95%
3100 SANDERAS ROAD
NORTHBROOK IL 60061-7155
ALLSTATE LIFE INS CO OF NEW YORK 5.37%
NY PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 15.59%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
F-3
AIM V.I. BLUE CHIP FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 76.03%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
HARTFORD LIFE 40.40%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE AND ANNUITY 17.05%
ATTN: DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
AIM V.I. CAPITAL APPRECIATION FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 8.13%
ATTN FINANCIAL CONTROL- CIGNA
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 5.09%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
HARTFORD LIFE AND ANNUITY 6.41%
SEPARATE ACCOUNT
ATTN: DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
IDS LIFE INSURANCE CO 12.99% 77.76%
222 AXP FINANCIAL CENTER
MINNEAPOLIS MN 55474-0002
ING LIFE INSURANCE AND ANNUITY CO 5.58%
CONVEYOR
ATTN FUND OPERATIONS
151 FARMINGTON AVE TN41
HARTFORD CT 06156-0001
F-4
AIM V.I. CAPITAL APPRECIATION FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
MERRILL LYNCH PIERCE FENNER & SMITH 12.77%
FBO THE SOLE BENEFIT OF CUSTOMERS
4800 DEER LAKE DR E
JACKSONVILLE FL 32246-6484
PHOENIX HOME LIFE 5.91%
ATTN BRIAN COOPER
P.O. BOX 22012
ALBANY NY 12201-2012
AIM V.I. CAPITAL DEVELOPMENT FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE COMPANY 17.48%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
IDS LIFE INSURANCE CO 54.93% 68.63%
222 AXP FINANCIAL CENTER
MINNEAPOLIS MN 55474-0002
NATIONWIDE INSURANCE CO NWVAII 20.18%
C/O IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS OH 43218-2029
NATIONWIDE INSURANCE CO 10.05%
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
F-5
AIM V.I. CORE EQUITY FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 11.26%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 5.41%
GLAC PROPRIETARY
PO BOX 94200
PALATINE IL 60094-4200
IDS LIFE INSURANCE COMPANY 61.41%
222 AXP FINANCIAL CTR
MINNEAPOLIS MN 55474-0002
ING LIFE INSURANCE AND ANNUITY CO 5.69%
CONVEYOR
ATTN FUND OPERATIONS
151 FARMINGTON AVE TN41
HARTFORD CT 06156-0001
PRINCIPAL LIFE INSURANCE COMPANY 5.94%
ATTN CHAD NICHOLS
711 HIGH ST
DES MOINES IA 50392-9992
PRUDENTIAL INSURANCE CO OF AMERICA 6.13%
ATTN IGG FINL REP SEP ACCTS
213 WASHINGTON ST 7TH FL
NEWARK NJ 07102-2992
SAGE LIFE ASSURANCE OF AMERICA 38.89%
175 KING ST
ARMONK NY 10504-1606
SUN LIFE FINANCIAL 10.58%
P.O. BOX 9137
WELLESLEY HILLS MA 02481-9137
TRANSAMERICA LIFE INSURANCE CO 13.11%
HUNTINGTON ALLSTAR SELECT
4333 EDGEWOOD DR NE
CEDAR RAPIDS IA 52499-0001
TRANSAMERICA LIFE INSURANCE CO RIB III 12.29%
ATTN: FMD OPERATIONAL ACCOUNTING
4333 EDGEWOOD RD NE
CEDAR RAPIDS IA 52499-0001
F-6
AIM V.I. DEMOGRAPHIC TRENDS FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE COMPANY 14.10%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE CO 13.84%
GLAC VA3
P.O. BOX 94200
PALATINE IL 60094-4200
HARTFORD LIFE AND ANNUITY 42.20%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE SEPARATE ACCOUNT 13.60%
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
LINCOLN BENEFIT LIFE 34.30%
2940 S 84TH ST
LINCOLN NE 68506-4142
MINNESOTA LIFE INSURANCE CO 39.65%
ATTN A6-5216
400 ROBERT ST N
ST PAUL MN 55101-2015
RELIASTAR LIFE INSURANCE CO 15.82%
FBO SELECT LIFE 2/3
RTE 5106 PO BOX 20
MINNEAPOLIS MN 55440-0020
TRANSAMERICA LIFE INSURANCE CO FBO 6.70%
FIRST UNION PORTFOLIO
ATTN FMD ACCOUNTING
4333 EDGEWOOD RD NE
CEDAR SPRINGS IA 52499
F-7
AIM V.I. DIVERSIFIED INCOME FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 19.59%
ATTN FINANCIAL CONTROL- CIGNA
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE OF NEW YORK 18.69%
3100 SANDERS ROAD
NORTHBROOK IL 60062-7155
ALLSTATE LIFE INSURANCE COMPANY 32.75%
GLAC PROPRIETARY
PO BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 17.30%
GLAC VA1
PO BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE CO 81.31%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
AMERICAN GENERAL ANNUITY 5.10%
ATTN CHRIS BOUMAN
205 E 10TH ST
AMARILLO TX 79101-3507
GENERAL AMERICAN LIFE INSURANCE 6.29%
13045 TESSON FERRY RD
ST LOUIS MO 63128-3499
AIM V.I. DYNAMICS FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS, INC 100.00%
ATTN: CORPORATE CONTROLLER
11 E GREENWAY PLZ STE 1919
HOUSTON TX 77046-1103
F-8
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
AMERICAN SKANDIA LIFE ASSURANCE CO 59.93%
VARIABLE ACCOUNT / SAQ
ATTN INVESTMENT ACCOUNTING
P.O. BOX 883
1 CORPORATE DR
SHELTON CT 06484-6208
IDS LIFE INSURANCE COMPANY 13.26%
222 AXP FINANCIAL CTR
MINNEAPOLIS MN 55474-0002
AIM V.I. FINANCIAL SERVICES FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS, INC 100.00%
ATTN: CORPORATE CONTROLLER
11 E GREENWAY PLZ STE 1919
HOUSTON TX 77046-1103
AMERICAN SKANDIA LIFE ASSURANCE CO 53.67%
VARIABLE ACCOUNT / SAQ
ATTN INVESTMENT ACCOUNTING
P.O. BOX 883
1 CORPORATE DR
SHELTON CT 06484-6208
CM LIFE INSURANCE CO 7.64%
FUND OPERATIONS
1295 STATE ST
SPRINGFIELD MA 01111-0001
IDS LIFE INSURANCE COMPANY 19.21%
222 AXP FINANCIAL CTR
MINNEAPOLIS MN 55474-0002
F-9
AIM V.I. GLOBAL HEALTH CARE FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS, INC 100.00%
ATTN: CORPORATE CONTROLLER
11 E GREENWAY PLZ STE 1919
HOUSTON TX 77046-1103
ALLMERICA FIN LIFE INS & ANNU 7.97%
GROUP VEL ACCOUNT
440 LINCOLN ST
SEPERATE ACCOUNTING
MAIL STATION S310
WORCESTER MA 01653-0002
AMERICAN SKANDIA LIFE ASSURANCE CO 45.34%
VARIABLE ACCOUNT / SAQ
ATTN INVESTMENT ACCOUNTING
P.O. BOX 883
1 CORPORATE DR
SHELTON CT 06484-6208
CM LIFE INSURANCE CO 8.61%
FUND OPERATIONS/N255
1295 STATE ST
SPRINGFIELD MA 01111-0001
MASS MUTUAL LIFE INS CO 6.66%
FUND OPERATIONS/N255
1295 STATE ST
SPRINGFIELD MA 01111-0001
PRINCIPAL LIFE INSURANCE CO 5.53%
FVA-PRINCIPAL VARIABLE ANNUITY
ATTN LISA DAGUE - IND ACG G-008-N10
711 HIGH ST
DES MOINES IA 50392-0001
AIM V.I. GOVERNMENT SECURITIES FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 11.62%
GLAC VA3
P.O. BOX 94200
PALATINE IL 60094-4200
F-10
AIM V.I. GOVERNMENT SECURITIES FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
GUARDIAN INSURANCE & ANNUITY - 4RE 20.61%
ATTN: PAUL IANNELLI
3900 BURGESS PL
EQUITY ACCOUNTING 3-S
BETHLEHEM PA 18017-9097
GUARDIAN INSURANCE & ANNUITY - 4RE 20.41%
ATTN: PAUL IANNELLI
3900 BURGESS PL
EQUITY ACCOUNTING 3-S
BETHLEHEM PA 18017-9097
HARTFORD LIFE AND ANNUITY 62.99%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE 22.68%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
SAGE LIFE ASSURANCE OF AMERICA 12.38%
175 KING ST
ARMONK NY 10504-1606
THE LINCOLN NATIONAL LIFE INS CO 13.37%
ATTN SHIRLEY SMITH
1300 SOUTH CLINTON STREET
FORT WAYNE IN 46802-3506
TRANSAMERICA LIFE INSURANCE CO 18.64%
PREFERRED ADVANTAGE
ATTN FMD OPERATIONAL ACCOUNTING
4333 EDGEWOOD RD NE
CEDAR RAPIDS IA 52499
ALLSTATE LIFE INSURANCE CO 11.62%
GLAC VA3
P.O. BOX 94200
PALATINE IL 60094-4200
F-11
AIM V.I. HIGH YIELD FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE COMPANY 23.87%
GLAC PROPRIETARY
PO BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE CO 80.72%
GLAC VA3
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE OF NEW YORK 19.28%
3100 SANDERS ROAD
NORTHBROOK IL 60062-7155
ANNUITY INVESTORS LIFE INS CO 7.57%
ATTN: TODD GAYHART
580 WALNUT ST
CINCINNATI OH 45202-3110
GREAT-WEST LIFE & ANNUITY 15.26%
UNIT VALUATIONS 2T2
ATTN: MUTUAL FUND TRADING 2T2
8515 E ORCHARD RD
ENGLEWOOD CO 80111-5002
HARTFORD LIFE INSURANCE CO 14.64%
SEPARATE ACCOUNT 2
ATTN DAVID TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
JEFFERSON NATIONAL LIFE INSURANCE 11.90%
9920 CORPORATE CAMPUS DR STE 1000
LOUISVILLE KY 40223-4051
F-12
AIM V.I. INTERNATIONAL GROWTH FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO. 9.12%
ATTN: FINANCIAL CONTROL-CIGNA
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 7.00%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
GE LIFE AND ANNUITY ASSURANCE CO 26.20%
VARIABLE EXTRA CREDIT
ATTN: VARIABLE ACCOUNTING
6610 WEST BROAD ST
RICHMOND VA 23230-1702
HARTFORD LIFE AND ANNUITY 14.50%
SEPARATE ACCOUNT
ATTN: DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE SEPARATE ACCOUNT 6.40%
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
LINCOLN NATIONAL LIFE INSURANCE COMPANY 5.16%
1300 S. CLINTON STREET
FORT WAYNE IN 46802-3506
LINCOLN NATIONAL LIFE INSURANCE COMPANY 9.58%
1300 S. CLINTON STREET
FORT WAYNE IN 46802-3506
MERRILL LYNCH LIFE INSURANCE CO 5.57%
FBO THE SOLE BENEFIT OF CUSTOMERS
4800 DEER LAKE DR E
JACKSONVILLE FL 32246-6484
METLIFE INVESTORS VA/VL 11.47%
ACCOUNT ONE
ATTN: STACIE GANNON
PO BOX 295
DES MOINES IA 50301-0295
F-13
AIM V.I. INTERNATIONAL GROWTH FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
SECURITY BENEFIT LIFE 16.36%
FBO UNBUNDLED
C/O VARIABLE ANNUITY DEPT
1 SW SECURITY BENEFIT PL
TOPEKA KS 66606-2444
SECURITY BENEFIT LIFE 17.01%
SBL ADVANCE DESIGNS
C/O VARIABLE ANNUITY DEPT
1 SW SECURITY BENEFIT PL
TOPEKA KS 66636-0001
SUN LIFE FINANCIAL 7.50%
RETIREMENT PRODUCTS & SERVICES
PO BOX 9134
WELLESLEY HILLS, MA 02481
SUN LIFE ASSURANCE COMPANY OF CANADA (US) 7.12%
P.O. BOX 9133
WELLESLEY HILLS MA 02481-9133
AIM V.I. LARGE CAP GROWTH FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS, INC. 12.66% 100.00%
ATTN: CORPORATE CONTROLLER
11 GREENWAY PLAZA SUITE 1919
HOUSTON TX 77046-1103
HARTFORD LIFE AND ANNUITY 74.22%
SEPARATE ACCOUNT
P.O. BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE SEPARATE ACCOUNT 13.12%
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
F-14
AIM V.I. LEISURE FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS, INC 100.00%
ATTN: CORPORATE CONTROLLER
11 E GREENWAY PLZ STE 1919
HOUSTON TX 77046-1103
ING USA ANNUITY AND LIFE INSURANCE CO 99.31%
1475 DUNWOODY DR
WEST CHESTER PA 19380-1478
AIM V.I. MID CAP CORE EQUITY FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 10.40%
AIM VI-AIM VA3
3100 SANDERS RD STE K4A
NORTHBROOK IL 60062-7054
AMERICAN ENTERPRISE LIFE INS CO 15.46%
1497 AXP FINANCIAL CTR
MINNEAPOLIC MN 55474-0014
HARTFORD LIFE AND ANNUITY 64.68%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE SEPARATE ACCOUNT 19.30%
ATTN DAVE TEN BROECK
PO BOX 2999
HARTFORD CT 06104-2999
LINCOLN BENEFIT LIFE 21.60%
2940 S 84TH ST
LINCOLN NE 68506-4142
SECURITY BENEFIT LIFE 6.95%
VARIFLEX Q NAVISYS
1 SW SECURITY BENEFIT PL
TOPEKA KS 66606-2444
F-15
AIM V.I. MID CAP CORE EQUITY FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
SECURITY BENEFIT LIFE 6.82%
FBO UNBUNDLED
C/O VARIABLE ANNUITY DEPARTMENT
1 SW SECURITY BENEFIT PL
TOPEKA KS 66636-1000
TRAVELERS INSURANCE COMPANY 10.23%
ATTN SHAREHOLDER ACCOUNTING
ONE TOWER SQUARE 6MS
HARTFORD CT 06183-0002
TRAVELERS LIFE & ANNUITY COMPANY 6.61%
ATTN SHAREHOLDER ACCOUNTING
ONE TOWER SQUARE 6MS
HARTFORD CT 06183-0002
AIM V.I. MONEY MARKET FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 15.86%
ATTN FINANCIAL CONTROL- CIGNA
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE OF NEW YORK 11.00%
3100 SANDERS ROAD
NORTHBROOK IL 60062-7155
ALLSTATE LIFE INSURANCE COMPANY 35.97%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 17.05%
GLAC VA1
P.O. BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE CO 89.00%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
F-16
AIM V.I. MONEY MARKET FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
SAGE LIFE ASSURANCE OF AMERICA 19.67%
175 KING ST
ARMONK NY 10504-1606
AIM V.I. REAL ESTATE FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS INC 17.66%
ATTN: CORPORATE CONTROLLER
11 E GREENWAY PLZ STE 1919
HOUSTON TX 77046-1103
AMERICAN NATIONAL GROUP UNALLOCATED 5.56%
1 MOODY PLZ
GALVESTON TX 77550-7947
GE CAPITAL LIFE ASSURANCE CO OF NY 65.46
NY CHOICE 160BP
6610 W BROAD ST
RICHMOND VA 23230-1702
GE LIFE AND ANNUITY ASSURANCE CO 16.89%
VARIABLE EXTRA CREDIT
ATTN VARIABLE ACCOUNTING
6610 W BROAD ST
RICHMOND VA 23230-1702
JEFFERSON NATIONAL LIFE INSURANCE 8.52%
9920 CORPORATE CAMPUS DR STE 1000
LOUISVILLE KY 40223-4051
KEMPER INVESTORS LIFE INSURANCE CO 10.82%
VARIABLE SEPARATE ACCOUNT
1600 MCCONNOR PKWY
SCHAUMBURG IL 60196-6801
F-17
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
SECURITY BENEFIT LIFE 17.32%
FBO UNBUNDLED
C/O VARIABLE ANNUITY DEPARTMENT
1 SW SECURITY BENEFIT PL
TOPEKA KS 66636-1000
SECURITY BENEFIT LIFE 7.74%
VARIFLEX Q NAVISYS
1 SW SECURITY BENEFIT PL
TOPEKA KS 66606-2444
SECURITY BENEFIT LIFE 5.24%
SBL ADVANCE DESIGNS
C/O VARIABLE ANNUITY DEPARTMENT
1 SW SECURITY BENEFIT PL
TOPEKA KS 66636-1000
SYMETRA LIFE INSURANCE CO 26.84%
ATTN: MICHEAL ZHANG
SEP ACCTS SC-15
777 108TH AVE NE STE 1200
BELLEVUE WA 98004-5135
AIM V.I. SMALL CAP EQUITY FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS INC 98.01%
ATTN: CORPORATE CONTROLLER
11 GREENWAY PLAZA SUITE 1919
HOUSTON TX 77046-1103
HARTFORD LIFE & ANNUITY 73.26%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
HARTFORD LIFE INSURANCE COMPANY 25.41%
SEPARATE ACCOUNT
ATTN DAVE TEN BROECK
P.O. BOX 2999
HARTFORD CT 06104-2999
F-18
AIM V.I. SMALL COMPANY GROWTH FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
A I M ADVISORS, INC 16.41%
ATTN: CORPORATE CONTROLLER
11 E GREENWAY PLZ STE 1919
HOUSTON TX 77046-1103
AMERICAN NATL GROUP UNALLOCATED 8.16%
1 MOODY PLZ
GALVESTON TX 77550-7947
ANNUITY INVESTORS LIFE INS CO 5.87
ATTN TODD GAYHART
580 WALNUT ST
CINCINNATI OH 45202-3110
CONNECTICUT GENERAL LIFE INS 39.24%
PRODUCT LOB #1501
ATTN BRENDA CHRISTIAN H18D
280 TRUMBULL ST
P.O. BOX 2975
HARTFORD CT 06104-2975
CONNECTICUT GENERAL LIFE INS CO 8.15%
SEPARATE ACCOUNT FE
ATTN BRENDA CHRISTIAN H18D
280 TRUMBULL ST
P.O. BOX 2975
HARTFORD CT 06104-2975
PRINCIPAL LIFE INSURANCE CO 12.92%
FVA - PRINCIPAL VARIABLE ANNUITY
ATTN LISA DAGUE
711 HIGH ST
DES MOINES IA 50392-0001
SEPARATE ACCOUNT 65 OF THE 83.59%
EQUITABLE LIFE ASSURANCE SOCIETY OF
THE U.S.
1290 AVENUE OF THE AMERICAS
NEW YORK NY 10104-0101
SUN LIFE ASSURANCE CO OF CANADA 12.61%
FUTURITY (NY)
P.O. BOX 9134
WELLESLEY HLS MA 02481-9134
F-19
AIM V.I. TECHNOLOGY FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLSTATE LIFE INSURANCE CO 93.21%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE OF NEW YORK 6.79%
3100 SANDERS RD
NORTHBROOK IL 60062-7155
AMERICAN SKANDIA LIFE ASSURANCE CO 36.39%
VARIABLE ACCOUNT / SAQ
ATTN INVESTMENT ACCOUNTING
P.O. BOX 883
1 CORPORATE DR
SHELTON CT 06484-6208
CM LIFE INSURANCE CO 6.04%
FUND OPERATIONS/N255
1295 STATE ST
SPRINGFIELD MA 01111-0001
IDS LIFE INSURANCE COMPANY 23.18%
222 AXP FINANCIAL CTR
MINNEAPOLIS MN 55474-0002
AIM V.I. UTILITIES FUND
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ALLMERICA FIN LIFE INS & ANNU 11.56%
GROUP VEL ACCOUNT
440 LINCOLN ST
SEPARATE ACCOUNTING
MAIL STATION S310
WORCESTER MA 01653-0002
ALLSTATE LIFE INSURANCE CO 41.58%
GLAC VA3
PO BOX 94200
PALATINE IL 60094-4200
ALLSTATE LIFE INSURANCE COMPANY 9.45%
GLAC PROPRIETARY
P.O. BOX 94200
PALATINE IL 60094-4200
F-20
SERIES I SHARES SERIES II SHARES
---------------- ----------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF PRINCIPAL HOLDER OF RECORD OF RECORD
- ------------------------------------ ---------------- ----------------
ANNUITY INVESTORS LIFE INSURANCE 56.31%
580 WALNUT
CINCINNATI OH 45202-3110
KEMPER INVESTORS LIFE INSURANCE CO 27.04%
ATTN INVESTMENT ACCOUNTING LL-2W
P.O. BOX 19097
GREENVILLE SC 29602-9097
GUARDIAN INSURANCE & ANNUITY CO 7.36%
ATTN EQUITY ACCOUNTING DEPT 3-S-18
BETHLEHEM PA 18017-9097
JOHN HANCOCK LIFE INS CO (USA) 5.99%
500 BOYLSTON ST STE 400
BOSTON MA 02116-37875.99
MANAGEMENT OWNERSHIP
As of April 6, 2006, the trustees and officers as a group owned less than
1% of the shares outstanding of each class of any Fund.
F-21
APPENDIX G
MANAGEMENT FEES
For the last three fiscal years ended December 31, the management fees payable
by each Fund, the amounts waived by AIM and the net fees paid by each Fund were
as follows:
2005 2004 2003
------------------------------------ ------------------------------------ ------------------------------------
NET NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FUND NAME FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
- --------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------- ----------
AIM V.I. Basic $ 740,114 $199,504 $ 540,610 $ 776,652 $ 156 $ 776,496 $ 670,072 $ 1,157 $ 668,915
Balanced Fund
AIM V.I. Basic 6,010,305 404,786 5,605,519 5,071,350 5,972 5,065,378 2,541,285 3,341 2,537,944
Value Fund
AIM V.I. Blue 941,739 122,565 819,174 970,308 792 969,516 675,009 854 674,155
Chip Fund
AIM V.I. Capital 6,447,166 8,070 6,439,096 6,192,972 6,076 6,186,896 5,305,478 5,898 5,299,580
Appreciation
Fund
AIM V.I. Capital 1,427,053 11,009 1,416,044 1,138,855 1,414 1,137,441 735,867 1,296 734,571
Development
Fund
AIM V.I. Core 8,283,089 24,520 8,258,569 9,144,411 22,212 9,122,199 8,597,730 71,875 8,525,855
Equity Fund
AIM V.I. 891,181 154,090 737,091 1,115,158 1,326 1,113,832 616,306 561 615,745
Demographic
Trends Fund
AIM V.I. 365,805 111,016 254,789 417,563 217 417,346 433,226 351 432,875
Diversified
Income Fund
AIM V.I. 859,238 7,530 851,708 1,032,136 2,585 1,029,551 1,023,701 16,682 1,007,019
Dynamics Fund
AIM V.I. 1,254,039 2,512 1,251,527 1,589,014 3,538 1,585,476 1,246,039 1,189 1,244,850
Financial
Services Fund
G-1
2005 2004 2003
------------------------------------ ------------------------------------ ------------------------------------
NET NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FUND NAME FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
- --------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------- ----------
AIM V.I. Global 2,307,364 9,866 2,297,498 2,740,016 8,321 2,731,695 2,027,613 102 2,027,511
Health Care Fund
AIM V.I 3,556,610 218,537 3,338,073 2,816,229 35,684 2,780,545 2,629,869 10,193 2,619,676
Government
Securities Fund
AIM V.I. High 460,257 112,430 347,827 468,562 623 467,939 203,923 318 203,605
Yield Fund
AIM V.I 2,975,590 5,724 2,969,866 2,340,955 2,156 2,338,799 1,987,244 3,809 1,983,435
International
Growth Fund
AIM V.I. Large 17,816 17,816 -- 8,341 8,341 -0- 2,683 2,683 -0-
Cap Growth Fund*
AIM V.I. Leisure 391,455 82,448 309,007 320,330 22,726 297,604 124,471 62,608 61,863
Fund
AIM V.I. Mid Cap 4,227,362 20,795 4,206,567 2,917,207 12,691 2,904,516 1,192,366 5,000 1,187,366
Core Equity Fund
AIM V.I. Money 218,849 -- 218,849 279,009 -0- 279,009 430,021 -0- 430,021
Market Fund
AIM V.I. Real 774,807 131,049 643,758 413,031 50,176 362,855 161,033 62 160,971
Estate Fund**
AIM V.I. Small 278,323 115,253 163,070 124,241 103,556 20,685 3,921 3,921 -0-
Cap Equity Fund*
AIM V.I. Small 313,373 58,928 254,445 338,067 34,261 303,806 299,443 18,166 281,277
Company Growth
Fund
AIM V.I 1,352,694 2,094 1,350,600 1,387,379 2,413 1,384,966 1,027,939 1,660 1,026,279
Technology Fund
AIM V.I 1,043,296 43,450 999,846 614,369 3,095 611,274 258,226 263 257,963
Utilities Fund
* Commenced operations on September 1, 2003.
** Fee information prior to April 30, 2004, relates to predecessor fund.
G-2
APPENDIX H
PORTFOLIO MANAGERS
PORTFOLIO MANAGER FUND HOLDINGS AND INFORMATION ON OTHER MANAGED ACCOUNTS
AIM's portfolio managers develop investment models which are used in
connection with the management of certain AIM funds as well as other mutual
funds for which AIM or an affiliate acts as sub-advisor, other pooled investment
vehicles that are not registered mutual funds, and other accounts managed for
organizations and individuals. The following chart reflects the portfolio
managers' investments in the Funds that they manage. The chart also reflects
information regarding accounts other than the Funds for which each portfolio
manager has day-to-day management responsibilities. Accounts are grouped into
three categories: (i) mutual funds, (ii) other pooled investment vehicles, and
(iii) other accounts. To the extent that any of these accounts pay advisory fees
that are based on account performance ("performance-based fees"), information on
those accounts is specifically broken out. In addition, any assets denominated
in foreign currencies have been converted into U.S. Dollars using the exchange
rates as of the applicable date.
The following table reflects information as of December 31, 2005:
OTHER POOLED
INVESTMENT VEHICLES OTHER ACCOUNTS
OTHER REGISTERED MUTUAL FUNDS (ASSETS IN MILLIONS) (ASSETS IN MILLIONS)
DOLLAR RANGE OF (ASSETS IN MILLIONS) -------------------- --------------------
INVESTMENTS IN ----------------------------- NUMBER OF NUMBER OF
PORTFOLIO MANAGER EACH FUND(1) NUMBER OF ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
----------------- --------------- ------------------ --------- --------- ------ --------- --------
AIM V.I. AGGRESSIVE GROWTH FUND
Kirk L. Anderson None 13 $11,545.0 1 $ 68.4 212(2) $ 30.6
James G. Birdsall None 13 $12,707.2 1 $ 68.4 212(2) $ 30.6
Lanny H. Sachnowitz None 14 $18,523.4 1 $ 68.4 212(2) $ 30.6
AIM V.I. BASIC BALANCED FUND
R. Canon Coleman, II None 7 $ 9,902.4 1 $ 16.7 3137(2) $ 977.7
Jan H. Friedli None 5 $ 3,129.9 2 $748.1 None None
Brendan D. Gau(3) None None None None None None None
Scot W. Johnson None 8 $ 4,896.2 2 $748.1 None None
Matthew W. Seinsheimer None 7 $ 9,902.4 1 $ 16.7 3137(2) $ 977.7
- ----------
(1) This column reflects investments in a Fund's shares owned directly by a
portfolio manager or beneficially owned by a portfolio manager (as
determined in accordance with Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934, as amended). A portfolio manager is presumed to be a
beneficial owner of securities that are held by his or her immediate family
members sharing the same household.
(2) These are accounts of individual investors for which AIM's affiliate, AIM
Private Asset Management, Inc. ("APAM") provides investment advice. APAM
offers separately managed accounts that are managed according to the
investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may be
invested in accordance with one or more of those investment models and
investments held in those accounts are traded in accordance with the
applicable models.
(3) Mr. Gau began serving as a portfolio manager on AIM V.I. Basic Balanced
Fund and AIM V.I. Diversified Income Fund on May 1, 2006.
H-1
OTHER POOLED
INVESTMENT VEHICLES OTHER ACCOUNTS
OTHER REGISTERED MUTUAL FUNDS (ASSETS IN MILLIONS) (ASSETS IN MILLIONS)
DOLLAR RANGE OF (ASSETS IN MILLIONS) -------------------- --------------------
INVESTMENTS IN ----------------------------- NUMBER OF NUMBER OF
PORTFOLIO MANAGER EACH FUND(1) NUMBER OF ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
----------------- --------------- ------------------ --------- --------- ------ --------- --------
Michael J. Simon None 11 $11,186.1 1 $ 16.7 3137(2) $ 977.7
Bret W. Stanley None 10 $18,986.6 1 $ 16.7 3137(2) $ 977.7
AIM V.I. BASIC VALUE FUND
R. Canon Coleman, II None 7 $ 9,147.4 1 $ 16.7 3137(2) $ 977.7
Matthew W. Seinsheimer None 7 $ 9,147.4 1 $ 16.7 3137(2) $ 977.7
Michael J. Simon None 11 $10,431.1 1 $ 16.7 3137(2) $ 977.7
Bret W. Stanley None 10 $18,231.7 1 $ 16.7 3137(2) $ 977.7
AIM V.I. BLUE CHIP FUND
Kirk L. Anderson None 13 $11,568.6 1 $ 68.4 212(2) $ 30.6
AIM V.I. CAPITAL APPRECIATION FUND
Kirk L. Anderson None 13 $10,530.6 1 $ 68.4 212(2) $ 30.6
James G. Birdsall None 13 $11,692.7 1 $ 68.4 212(2) $ 30.6
Robert J. Lloyd None 7 $ 8,620.7 1 $ 68.4 212(2) $ 30.6
Lanny H. Sachnowitz None 14 $17,509.0 1 $ 68.4 212(2) $ 30.6
AIM V.I. CAPITAL DEVELOPMENT FUND
Paul R. Rasplicka None 5 $ 3,517.5 None None 1(2) $ 0.4
AIM V.I. CORE EQUITY FUND
Ronald S. Sloan None 9 $13,878.9 1 $ 11.1 9451(2) $2,220.0
AIM V.I. CORE STOCK FUND
Ronald S. Sloan None 9 $15,046.9 1 $ 11.1 9451(2) $2,220.0
AIM V.I. DEMOGRAPHIC TRENDS FUND
Kirk L. Anderson None 13 $11,625.4 1 $ 68.4 212(2) $ 30.6
James. G. Birdsall None 13 $12,787.5 1 $ 68.4 212(2) $ 30.6
Lanny H. Sachnowitz None 14 $18,603.8 1 $ 68.4 212(2) $ 30.6
AIM V.I. DIVERSIFIED DIVIDEND FUND
Meggan M. Walsh None 4 $ 2,888.9 None None None None
H-2
OTHER POOLED
INVESTMENT VEHICLES OTHER ACCOUNTS
OTHER REGISTERED MUTUAL FUNDS (ASSETS IN MILLIONS) (ASSETS IN MILLIONS)
DOLLAR RANGE OF (ASSETS IN MILLIONS) -------------------- --------------------
INVESTMENTS IN ----------------------------- NUMBER OF NUMBER OF
PORTFOLIO MANAGER EACH FUND(1) NUMBER OF ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
----------------- --------------- ------------------ --------- --------- ------ --------- --------
AIM V.I. DIVERSIFIED INCOME FUND
Peter Ehret(4) None 2 $ 1,013.7 1 $ 7.1 None None
Jan H. Friedli None 5 $ 3,170.7 2 $748.1 None None
Brendan D. Gau(3) None None None None None None None
Carolyn L. Gibbs None 3 $ 1,659.1 1 $ 7.1 None None
Darren S. Hughes(4) None 2 $ 1,013.7 1 $ 7.1 None None
Scot W. Johnson None 8 $ 4,937.0 2 $748.1 None None
AIM V.I. DYNAMICS FUND
Karl Farmer None 3 $2,106.3 None None None None
Paul J. Rasplicka None 5 $3,606.7 None None 1(2) $ 0.4
AIM V.I. FINANCIAL SERVICES FUND
Michael J. Simon None 11 $11,141.2 1 $ 16.7 3137(2) $ 977.7
Meggan M. Walsh None 3 $ 2,747.2 None None None None
AIM V.I. GLOBAL EQUITY FUND
Derek S. Izuel None 5 $ 1,274.2 6 $901.9 None None
Duy Nguyen None 5 $ 1,274.2 6 $901.9 None None
AIM V.I. GLOBAL HEALTH CARE FUND
Derek Tanner None 4 $ 1,864.2 4 $346.5 None None
AIM V.I. GOVERNMENT SECURITIES FUND
Clint W. Dudley None 2 $ 935.2 None None None None
Scot W. Johnson None 8 $ 4,161.9 2 $748.1 None None
AIM V.I. GROWTH FUND
James G. Birdsall None 13 $12,535.8 1 $ 68.4 212(2) $ 30.6
Lanny H. Sachnowitz None 14 $18,352.1 1 $ 68.4 212(2) $ 30.6
- ----------
(4) Mr. Ehret and Mr. Hughes began serving as portfolio managers on AIM V.I.
Diversified Income Fund on May 1, 2006.
H-3
OTHER POOLED
INVESTMENT VEHICLES OTHER ACCOUNTS
OTHER REGISTERED MUTUAL FUNDS (ASSETS IN MILLIONS) (ASSETS IN MILLIONS)
DOLLAR RANGE OF (ASSETS IN MILLIONS) -------------------- --------------------
INVESTMENTS IN ----------------------------- NUMBER OF NUMBER OF
PORTFOLIO MANAGER EACH FUND(1) NUMBER OF ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
- ----------------- --------------- ------------------ --------- --------- -------- --------- ---------
AIM V.I. HIGH YIELD FUND
Peter Ehret None 1 $ 956.7 1 $ 7.1 None None
Carolyn L. Gibbs None 3 $ 1,658.1 1 $ 7.1 None None
Darren S. Hughes None 1 $ 956.7 1 $ 7.1 None None
AIM V.I. INTERNATIONAL CORE EQUITY FUND
Erik B. Granade None 3 $ 777.9 10 $2,359.4 128 $14,645.4
W. Lindsay Davidson None 3 $ 777.9 10 $2,359.4 128 $14,645.4
Michele T. Garren None 3 $ 777.9 10 $2,359.4 128 $14,645.4
Kent A. Starke None 3 $ 777.9 10 $2,359.4 128 $14,645.4
Ingrid E. Baker None 3 $ 777.9 10 $2,359.4 128 $14,645.4
AIM V.I. INTERNATIONAL GROWTH FUND
Shuxin Cao None 8 $ 4,667.9 1 $ 30.6 692(2) $ 289.6
Matthew W. Dennis None 5 $ 3,795.2 4 $ 155.8 None None
Jason T. Holzer None 8 $ 5,368.5 10 $2,574.4 692(2) $ 289.6
Clas G. Olsson None 6 $ 3,857.3 10 $2,574.4 692(2) $ 289.6
Barrett K. Sides None 6 $ 3,166.6 1 $ 30.6 692(2) $ 289.6
AIM V.I. LARGE CAP GROWTH FUND
Geoffrey V. Keeling None 3 $ 1,210.8 1 $ 9.2 14(2) $ 3.8
Robert L. Shoss None 3 $ 1,210.8 1 $ 9.2 14(2) $ 3.8
AIM V.I. LEISURE FUND
Mark D. Greenberg None 2 $ 1,117.5 2 $ 95.3 None None
AIM V.I. MID CAP CORE EQUITY FUND
Ronald S. Sloan None 9 $14,495.7 1 $ 11.1 9451(2) $ 2,220.0
AIM V.I. PREMIER EQUITY FUND
Lanny H. Sachnowitz None 14 $17,109.2 1 $ 68.4 212(2) $ 30.6
Ronald S. Sloan None 9 $13,568.3 1 $ 11.1 9451(2) $ 2,220.0
H-4
OTHER POOLED
INVESTMENT VEHICLES OTHER ACCOUNTS
OTHER REGISTERED MUTUAL FUNDS (ASSETS IN MILLIONS) (ASSETS IN MILLIONS)
DOLLAR RANGE OF (ASSETS IN MILLIONS) -------------------- --------------------
INVESTMENTS IN ----------------------------- NUMBER OF NUMBER OF
PORTFOLIO MANAGER EACH FUND(1) NUMBER OF ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
- ----------------- --------------- ------------------ --------- --------- -------- --------- ---------
Bret W. Stanley None 10 $17,521.1 1 $ 16.7 3137(2) $ 977.7
AIM V.I. REAL ESTATE FUND
Mark Blackburn None 6 $ 3,059.7 7 $ 564.7 51 $ 3,134.0
James Cowen(5) None None None None None None None
Joe V. Rodriguez, Jr None 6 $ 3,059.7 7 $ 564.7 51 $ 3,134.0
James W. Trowbridge None 6 $ 3,059.7 7 $ 564.7 51 $ 3,134.0
Ping-Ying Wang(5) None None None None None None None
AIM V.I. SMALL CAP EQUITY FUND
Juliet S. Ellis None 8 $ 2,970.7 None None None None
Juan R. Hartsfield(6) None 7 $ 2,542.5 None None None None
AIM V.I. SMALL COMPANY GROWTH FUND
Juliet S. Ellis None 8 $ 2,982.9 None None None None
Juan R. Hartsfield None 6 $ 2,511.4 None None None None
AIM V.I. TECHNOLOGY FUND
Michelle Fenton None 1 $ 1,209.1 4 $ 397.9 None None
AIM V.I. UTILITIES FUND
John S. Segner None 4 $ 2,029.6 2 $ 259.5 2(2) $ 28.3
POTENTIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to more than one
Fund or other account. More specifically, portfolio managers who manage multiple
Funds and /or other accounts may be presented with one or more of the following
potential conflicts:
- - The management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of
each Fund and/or other account. AIM seeks to manage such competing
interests for the time and attention of portfolio managers by having
portfolio managers focus on a particular investment discipline. Most other
accounts managed by a portfolio
- ----------
(5) Mr. Cowan and Ms. Wang each began serving as portfolio managers on AIM V.I.
Real Estate Fund on January 1, 2006.
(6) Mr. Hartsfield began serving as a portfolio manager on AIM V.I. Small Cap
Equity Fund on May 1, 2006.
H-5
manager are managed using the same investment models that are used in
connection with the management of the Funds.
- - If a portfolio manager identifies a limited investment opportunity which
may be suitable for more than one Fund or other account, a Fund may not be
able to take full advantage of that opportunity due to an allocation of
filled purchase or sale orders across all eligible Funds and other
accounts. To deal with these situations, AIM and the Funds have adopted
procedures for allocating portfolio transactions across multiple accounts.
- - With respect to securities transactions for the Funds, AIM determines which
broker to use to execute each order, consistent with its duty to seek best
execution of the transaction. However, with respect to certain other
accounts (such as mutual funds for which AIM or an affiliate acts as
sub-advisor, other pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and
individuals), AIM may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a
particular broker. In these cases, trades for a Fund in a particular
security may be placed separately from, rather than aggregated with, such
other accounts. Having separate transactions with respect to a security may
temporarily affect the market price of the security or the execution of the
transaction, or both, to the possible detriment of the Fund or other
account(s) involved.
- - Finally, the appearance of a conflict of interest may arise where AIM has
an incentive, such as a performance-based management fee, which relates to
the management of one Fund or account but not all Funds and accounts with
respect to which a portfolio manager has day-to-day management
responsibilities.
AIM and the Funds have adopted certain compliance procedures which are
designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict
arises.
DESCRIPTION OF COMPENSATION STRUCTURE
AIM ADVISORS, INC.
AIM seeks to maintain a compensation program that is competitively positioned to
attract and retain high-caliber investment professionals. Portfolio managers
receive a base salary, an incentive bonus opportunity, an equity compensation
opportunity, and a benefits package. Portfolio manager compensation is reviewed
and may be modified each year as appropriate to reflect changes in the market,
as well as to adjust the factors used to determine bonuses to promote good
sustained fund performance. AIM evaluates competitive market compensation by
reviewing compensation survey results conducted by an independent third party of
investment industry compensation. Each portfolio manager's compensation consists
of the following five elements:
- - BASE SALARY. Each portfolio manager is paid a base salary. In setting the
base salary, AIM's intention is to be competitive in light of the
particular portfolio manager's experience and responsibilities.
- - ANNUAL BONUS. Each portfolio manager is eligible to receive an annual cash
bonus which has quantitative and non-quantitative components. Generally,
70% of the bonus is quantitatively determined, based typically on a
four-year rolling average of pre-tax performance of all registered
investment company accounts for which a portfolio manager has day-to-day
management responsibilities versus the performance of a pre-determined peer
group. In instances where a portfolio manager has responsibility for
management of more than one fund, an asset weighted four-year rolling
average is used.
H-6
High fund performance (against applicable peer group) would deliver
compensation generally associated with top pay in the industry (determined
by reference to the third-party provided compensation survey information)
and poor fund performance (versus applicable peer group) could result in no
bonus. The amount of fund assets under management typically has an impact
on the bonus potential (for example, managing more assets increases the
bonus potential); however, this factor typically carries less weight than
relative performance. The remaining 30% portion of the bonus is
discretionary as determined by AIM and takes into account other subjective
factors.
- - EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares of AMVESCAP stock
from pools determined from time to time by the Remuneration Committee of
the AMVESCAP Board of Directors. Awards of equity-based compensation
typically vest over time, so as to create incentives to retain key talent.
- - PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are provided
life insurance coverage in the form of a group variable universal life
insurance policy, under which they may make additional contributions to
purchase additional insurance coverage or for investment purposes.
- - PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords participating employees the tax benefits of deferring the
receipt of a portion of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
INVESCO GLOBAL ASSET MANAGEMENT (N.A.), INC. (SUB-ADVISOR TO AIM V.I.
INTERNATIONAL CORE EQUITY FUND)
Each portfolio manager's compensation consists of the following five elements:
- - BASE SALARY. Each portfolio manager is paid a base salary which is set at a
level determined to be appropriate based upon an individual's experience
and responsibilities through the use of independent compensation surveys of
the investment management industry.
- - ANNUAL BONUS. Each portfolio manager is paid an annual cash bonus which has
a performance driven component and a discretionary component, the combined
total of which will typically range from 50 to over 100 percent of the
manager's base salary. Generally, the majority of the of the bonus is
pre-tax performance driven, based on the success of the team's investment
results which are measured against appropriate market benchmarks and peer
groups. The remaining portion of the bonus is discretionary and is
determined by the sub-advisor's Chief Investment Officer and Chief
Executive Officer.
- - EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares or deferred shares
of AMVESCAP stock from pools determined from time to time by the
Remuneration Committee of the AMVESCAP Board of Directors. Awards of
equity-based compensation typically vest over time, so as to create
incentives to retain key talent.
- - PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are provided
life insurance coverage in the form of a group variable universal life
insurance policy, under which they may make additional contributions to
purchase additional insurance coverage or for investment purposes.
- - PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords participating employees the tax benefits of deferring the
receipt of a portion of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
H-7
INVESCO INSTITUTIONAL, (N.A.) INC. (SUB-ADVISOR TO AIM V.I. REAL ESTATE FUND)
Each portfolio manager's compensation consists of the following five elements:
- BASE SALARY. Each portfolio manager is paid a base salary which is set
at a level determined to be appropriate based upon an individual's
experience and responsibilities through the use of independent
compensation surveys of the investment management industry.
- ANNUAL BONUS. Each portfolio manager is paid an annual cash bonus
which has a performance driven component and a discretionary
component, the combined total of which will typically range from 50 to
over 100 percent of the manager's base salary. Generally, the majority
of the of the bonus is pre-tax performance driven, based on the
success of the team's investment results which are measured against
appropriate market benchmarks and peer groups.. The remaining portion
of the bonus is discretionary and is determined by the sub-advisor's
Chief Investment Officer and Chief Executive Officer.
- EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options
to purchase common shares and/or granted restricted shares or deferred
shares of AMVESCAP stock from pools determined from time to time by
the Remuneration Committee of the AMVESCAP Board of Directors. Awards
of equity-based compensation typically vest over time, so as to create
incentives to retain key talent.
- PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are
provided life insurance coverage in the form of a group variable
universal life insurance policy, under which they may make additional
contributions to purchase additional insurance coverage or for
investment purposes.
PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are eligible to
participate in a non-qualified deferred compensation plan, which affords
participating employees the tax benefits of deferring the receipt of a portion
of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
H-8
APPENDIX I
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services for
the last three fiscal years ended December 31:
FUND NAME 2005 2004 2003
--------- ---------- ---------- ----------
AIM V.I. Basic Balanced Fund $ 255,807 $ 265,946 $ 240,713
AIM V.I. Basic Value Fund 2,271,261 1,908,101 948,718
AIM V.I. Blue Chip Fund 350,680 359,043 265,238
AIM V.I. Capital Appreciation Fund 2,660,779 2,510,722 1,906,559
AIM V.I. Capital Development Fund 506,813 410,377 277,771
AIM V.I. Core Equity Fund 3,555,685 3,911,626 2,696,121
AIM V.I. Demographic Trends Fund 330,968 385,564 219,678
AIM V.I. Diversified Income Fund 154,692 164,221 158,727
AIM V.I. Dynamics Fund 335,943 381,088 371,708
AIM V.I. Financial Services Fund 465,794 577,778 450,267
AIM V.I. Global Health Care Fund 840,377 994,456 726,423
AIM V.I. Government Securities Fund 2,024,797 1,561,525 1,416,373
AIM V.I. High Yield Fund 223,050 223,282 116,171
AIM V.I. International Growth Fund 996,048 737,999 574,278
AIM V.I. Large Cap Growth Fund(1) 51,916 50,049 17,790
AIM V.I. Leisure Fund 180,452 145,439 53,980
AIM V.I. Mid Cap Core Equity Fund 1,586,512 1,088,325 447,630
AIM V.I. Money Market Fund 151,196 177,043 234,416
AIM V.I. Real Estate Fund(2) 241,239 130,388 57,415
AIM V.I. Small Cap Equity Fund(1) 130,414 84,182 18,048
AIM V.I. Small Company Growth Fund 155,316 146,880 115,803
AIM V.I. Technology Fund 494,632 500,491 373,205
AIM V.I. Utilities Fund 463,332 277,440 124,050
(1) Commenced operations on September 1, 2003.
(2) Prior to April 30, 2004, INVESCO either directly or through affiliated
companies, provided certain administrative subaccounting, and recordkeeping
services to AIM V.I. Real Estate Fund under a prior administrative service
agreement.
I-1
APPENDIX J
BROKERAGE COMMISSIONS
Brokerage commissions* paid by each of the Funds listed below during the last
three fiscal years ended December 31, were as follows:
FUND 2005 2004 2003
---- ---------- ---------- ----------
AIM V.I. Basic Balanced Fund ......... $ 21,203 $ 28,539 $ 193,685
AIM V.I. Basic Value Fund ............ 294,952 303,397 491,798
AIM V.I. Blue Chip Fund .............. 199,374 104,862 94,336
AIM V.I. Capital Appreciation Fund ... 2,068,125 1,715,908 1,510,636
AIM V.I. Capital Development Fund .... 525,615 396,080 313,340
AIM V.I. Core Equity Fund ............ 1,662,414 1,863,698 1,346,577
AIM V.I. Demographic Trends Fund ..... 288,272 499,491 424,117
AIM V.I. Diversified Income Fund ..... 0 68 -0-
AIM V.I. Dynamics Fund ............... 299,712 468,914 276,545
AIM V.I. Financial Services Fund ..... 48,974 350,290 107,416
AIM V.I. Global Health Care Fund ..... 614,742 1,471,720 188,913
AIM V.I. Government Securities Fund .. N/A -0- -0-
AIM V.I. High Yield Fund ............. 150 2,287 1,105
AIM V.I. International Growth Fund ... 672,128 694,935 876,842
AIM V.I. Large Cap Growth Fund** ..... 6,368 2,882 1,749
AIM V.I. Leisure Fund ............... 33,323 33,290 12,212
AIM V.I. Mid Cap Core Equity Fund .... 881,607 609,099 341,186
AIM V.I. Money Market Fund ........... N/A -0- -0-
AIM V.I. Real Estate Fund ............ 129,032 75,806 42,840
AIM V.I. Small Cap Equity Fund** ..... 62,530 88,814 4,140
AIM V.I. Small Company Growth Fund ... 301,980 352,979 137,507
AIM V.I. Technology Fund ............. 760,447 992,768 153,086
AIM V.I. Utilities Fund .............. 150,751 273,041 57,944
* Disclosure regarding brokerage commissions is limited to commissions paid
on agency trades and designated as such on the trade confirm.
** Commenced operations on September 1, 2003.
J-1
APPENDIX K
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended December 31, 2005, each Fund allocated
the following amount of transactions to broker-dealers that provided AIM with
certain research, statistics and other information:
Related
Brokerage
Fund Transactions Commissions
---- -------------- -----------
AIM V.I. Basic Balanced Fund ......... $ 20,226,915 $ 33,063
AIM V.I. Basic Value Fund ............ 244,687,040 347,958
AIM V.I. Blue Chip Fund .............. 159,406,624 188,510
AIM V.I. Capital Appreciation Fund ... 1,635,964,988 2,013,720
AIM V.I. Capital Development Fund .... 318,323,239 1,035,614
AIM V.I. Core Equity Fund ............ 1,246,754,316 1,599,117
AIM V.I. Demographic Trends Fund ..... 211,626,435 291,228
AIM V.I. Diversified Income Fund ..... 0 0
AIM V.I. Dynamics Fund ............... 183,664,616 520,741
AIM V.I. Financial Services Fund ..... 82,983,126 86,664
AIM V.I. Global Health Care Fund ..... 346,582,402 819,152
AIM V.I. Government Securities Fund .. N/A N/A
AIM V.I. High Yield Fund ............. 69,341 150
AIM V.I. International Growth Fund ... 319,543,143 753,908
AIM V.I. Large Cap Growth Fund ....... 6,976,748 5,643
AIM V.I. Leisure Fund ................ 27,680,751 53,865
AIM V.I. Mid Cap Core Equity Fund .... 543,910,253 808,733
AIM V.I. Money Market Fund ........... N/A N/A
AIM V.I. Real Estate Fund ............ 66,324,051 105,124
AIM V.I. Small Cap Equity Fund ....... 36,872,086 134,376
AIM V.I. Small Company Growth Fund ... 100,643,752 415,401
AIM V.I. Technology Fund ............. 321,938,972 927,587
AIMI V.I. Utilities Fund ............. 117,361,450 139,797
* Amount is inclusive of commissions paid to, and brokerage transactions
placed with, certain brokers that provide execution, research and other
services.
Information concerning the Funds' acquisition of securities of their
regular brokers or dealers during the last fiscal year ended December 31, 2005
were as follows:
FUND / ISSUER SECURITY MARKET VALUE
------------- ------------- ------------
AIM V.I. Basic Balanced Fund
Credit Suisse First Boston, Inc. Bonds & Notes $ 15,157
JPMorgan Chase & Co. Common Stock $ 2,153,897
Lehman Brothers Inc. Bonds & Notes $ 101,143
Merrill Lynch & Co., Inc. Common Stock $ 1,232,686
Morgan Stanley Common Stock $ 1,310,694
AIM V.I. Basic Value Fund
JPMorgan Chase & Co. Common Stock $30,271,166
Merrill Lynch & Co., Inc. Common Stock $17,057,801
Morgan Stanley Common Stock $19,005,063
K-1
FUND / ISSUER SECURITY MARKET VALUE
------------- ------------- ------------
AIM V.I. Blue Chip Fund
Goldman Sachs Group, Inc. (The) Common Stock $ 3,326,973
Lehman Brothers Holdings Inc. Common Stock $ 1,296,824
Merrill Lynch & Co., Inc. Common Stock $ 1,497,443
AIM V.I. Capital Appreciation Fund
Goldman Sachs Group, Inc. (The) Common Stock $14,699,421
Merrill Lynch & Co., Inc. Common Stock $11,302,444
AIM V.I. Core Equity Fund
Merrill Lynch & Co., Inc. Common Stock $17,704,351
Morgan Stanley Common Stock $17,657,715
AIM V.I. Demographic Trends Fund
Goldman Sachs Group, Inc. (The) Common Stock $ 1,851,795
Lehman Brothers Holding Inc. Common Stock $ 1,097,648
AIM V.I. Financial Services Fund
JPMorgan Chase & Co. Common Stock $ 8,750,097
Lehman Brothers Holdings Inc. Common Stock $ 2,548,789
Merrill Lynch & Co., Inc. Common Stock $ 7,420,296
Morgan Stanley Common Stock $ 5,674,567
AIM V.I. Large Cap Growth Fund
Bear Stearns Cos. Inc. (The) Common Stock $ 41,591
Goldman Sachs Group, Inc. (The) Common Stock $ 91,313
Lehman Brothers Holdings Inc. Common Stock $ 114,071
K-2
APPENDIX L
CERTAIN FINANCIAL INSTITUTIONS THAT RECEIVE ONE OR MORE TYPES OF PAYMENTS
1ST Global Capital Corporation
A G Edwards & Sons, Inc.
ADP Broker Dealer, Inc.
Advantage Capital Corporation
Advest, Inc
Allstate Life Insurance Company
American General Securities, Inc.
American Skandia Life Assurance Corporation
American United Life Insurance Company
Ameriprise Financial Services, Inc.
Amsouth Investment Services, Inc.
Associated Investment Services
Associated Securities Corporation
B N Y Investment Center Inc.
Banc One Securities Corporation
Bank of Oklahoma N.A.
Cadaret Grant & Company, Inc.
Cambridge Investment Research, Inc.
Capital Analysts, Inc.
Charles Schwab & Company, Inc.
Chase Investment Services Corporation
CitiCorp Investment Services
Citigroup Global Markets, Inc.
Citistreet Equities LLC
City National Bank
Comerica Bank
Comerica Securities, Inc.
Commonwealth Financial Network
Compass Brokerage, Inc.
Contemporary Financial Solutions, Inc.
CUNA Brokerage Services, Inc.
CUSO Financial Services, Inc.
Equity Services, Inc.
Fidelity Brokerage Services, LLC
Fidelity Institutional Operations Company, Inc.
Financial Network Investment Corporation
Fintegra Financial Solutions
Frost Brokerage Services, Inc.
FSC Securities Corporation
Great West Life & Annuity Company
Guardian Insurance & Annuity Company, Inc.
H & R Block Financial Advisors, Inc.
H Beck, Inc.
H. D. Vest Investment Securities, Inc.
Hibernia Investments LLC
Hilliard Lyons, Inc.
Hornor Townsend & Kent, Inc.
HSBC Brokerage, Inc.
Infinex Investments, Inc.
ING Financial Partners, Inc.
ING USA Annuity and Life Insurance Company
Intersecurities, Inc.
INVEST Financial Corporation, Inc.
Investment Centers of America, Inc.
Investments By Planners, Inc.
Investors Capital Corporation
Jefferson Pilot Securities Corporation
Lasalle Street Securities LLC
Leg Mason Wood Walker, Inc.
Lincoln Financial Advisors Corporartion
Lincoln Investment Planning, Inc.
Linsco/Private Ledger Corporation
M & I Brokerage Services, Inc.
M & T Securities, Inc.
M M L Investors Services, Inc.
Manulife Wood Logan, Inc.
McDonald Investments, Inc.
Mellon Bank, N.A.
Merrill Lynch & Company, Inc.
Merrill Lynch Life Insurance Company
Metlife Securities, Inc.
Money Concepts Capital Corporation
Morgan Keegan & Company, Inc.
Morgan Stanley DW Inc.
Morningstar, Inc.
Multi-Financial Securities Corporation
Mutual Service Corporation
N F P Securities, Inc.
NatCity Investments, Inc.
National Planning Corporation
Nationwide Financial Services, Inc.
Nationwide Investment Services Corporation
Nationwide Life and Annuity Company of America
Nationwide Life and Annuity Insurance Company of America
Nationwide Life Insurance Company
New England Securities Corporation
Next Financial Group, Inc.
Northwestern Mutual Investment Services
NYLIFE Distributors, LLC
Oppenheimer & Company, Inc.
Pershing LLC
PFS Investments, Inc.
Piper Jaffray & Company
Popular Securities, Inc.
Prime Capital Services, Inc.
Primevest Financial Services, Inc.
Proequities, Inc.
R B C Centura Securities, Inc.
R B C Dain Rauscher, Inc.
Raymond James & Associates, Inc.
Raymond James Financial Services, Inc.
Royal Alliance Associates, Inc.
S I I Investments, Inc.
Securities America, Inc.
Securities Service Network, Inc.
Security Benefit life Insurance Company
Sentra Securities Corporation
Sigma Financial Corporation
Signator Investors, Inc.
Spelman & Company, Inc.
State Farm VP Management Corp
Stifel Nicolaus & Company, Inc.
Sungard Investment Products, Inc.
SunTrust Bank, Central Florida, N.A.
TD Waterhouse Investor Services, Inc.
Terra Securities Corporation
TFS Securities, Inc.
Tower Square Securities, Inc.
Transamerica Financial Advisors, Inc.
Transamerica Life Insurance & Annuity Company
U.S. Bancorp Investments, Inc.
UBS Financial Services, Inc.
United Planner Financial Service
USAllianz Securities, Inc.
UVEST Financial Services, Inc.
V S R Financial Services, Inc.
VALIC Financial Advisors, Inc.
Wachovia Securities, LLC
Walnut Street Securities, Inc.
Waterstone Financial Group, Inc.
Webster Investments Service Inc.
Wells Fargo Bank, N.A.
Wells Fargo Investments, LLC
Woodbury Financial Services, Inc.
X C U Capital Corporation, Inc.
L-1
APPENDIX M
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLAN
A list of amounts paid by each class of shares to AIM Distributors pursuant
to the Plan for the fiscal year or period ended December 31, 2005 are as
follows:
SERIES I SERIES II
FUND SHARES SHARES
- ---- -------- ---------
AIM V.I. Basic Balanced Fund .............. N/A $ 14,086
AIM V.I. Basic Value Fund.................. N/A 884,933
AIM V.I. Blue Chip Fund.................... N/A 3,495
AIM V.I. Capital Appreciation Fund......... N/A 562,106
AIM V.I. Capital Development Fund.......... N/A 189,905
AIM V.I. Core Equity Fund.................. N/A 9,800
AIM V.I. Demographic Trends Fund........... N/A 118,911
AIM V.I. Diversified Income Fund........... N/A 2,382
AIM V.I. Dynamics Fund..................... N/A 29
AIM V.I. Financial Services Fund........... N/A 27
AIM V.I. Global Health Care Fund........... N/A 26
AIM V.I. Government Securities Fund........ N/A 45,415
AIM V.I. High Yield Fund................... N/A 3,521
AIM V.I. International Growth Fund......... N/A 87,003
AIM V.I. Large Cap Growth Fund............. N/A 1,486
AIM V.I. Leisure Fund...................... N/A 27
AIM V.I. Mid Cap Core Equity Fund.......... N/A 111,000
AIM V.I. Money Market Fund................. N/A 11,398
AIM V.I. Real Estate Fund.................. N/A 57
AIM V.I. Small Cap Equity Fund............. N/A 1,582
AIM V.I. Small Company Growth Fund......... N/A 29
AIM V.I. Technology Fund................... N/A 371
AIM V.I. Utilities Fund.................... N/A 1,721
M-1
APPENDIX N
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLAN
An estimate by category of the allocation of actual fees paid by Series II
shares of the Funds during the fiscal year or period ended December 31, 2005
follows:
PRINTING COMPENSATION COMPENSATION ANNUAL
& TO TO SALES REPORT
ADVERTISING MAILING SEMINARS DEALER* PERSONNEL TOTAL
----------- -------- -------- ------------ ------------ --------
AIM V.I. Basic Balanced Fund -- -- -- $ 14,086 -- $ 14,086
AIM V.I. Basic Value Fund -- -- -- 884,933 -- 884,933
AIM V.I. Blue Chip Fund -- -- -- 3,495 -- 3,495
AIM V.I. Capital Appreciation Fund -- -- -- 562,106 -- 562,106
AIM V.I. Capital Development Fund -- -- -- 189,905 -- 189,905
AIM V.I. Core Equity Fund -- -- -- 9,800 -- 9,800
AIM V.I. Demographic Trends Fund -- -- -- 118,911 -- 118,911
AIM V.I. Diversified Income Fund -- -- -- 2,382 -- 2,382
AIM V.I. Dynamics Fund -- -- -- 29 -- 29
AIM V.I. Financial Services Fund -- -- -- 27 -- 27
AIM V.I. Global Health Care Fund -- -- -- 26 -- 26
AIM V.I. Government Securities Fund -- -- -- 45,415 -- 45,415
AIM V.I. High Yield Fund -- -- -- 2,929 -- 2,929
AIM V.I. International Growth Fund -- -- -- 87,004 -- 87,004
AIM V.I. Large Cap Growth Fund -- -- -- 1,199 -- 1,199
AIM V.I. Leisure Fund -- -- -- 22 -- 22
AIM V.I. Mid Cap Core Equity Fund -- -- -- 110,999 -- 110,999
AIM V.I. Money Market Fund -- -- -- 11,398 -- 11,398
AIM V.I. Real Estate Fund -- -- -- 55 -- 55
AIM V.I. Small Cap Equity Fund -- -- -- 1,280 -- 1,280
AIM V.I. Small Company Growth Fund -- -- -- 23 -- 23
AIM V.I. Technology Fund -- -- -- 371 -- 371
AIM V.I. Utilities Fund -- -- -- 1,721 -- 1,721
N-1
* Compensation to financial intermediaries and broker-dealers to pay or
reimburse them for their services or expenses in connection with the
distribution of the Shares to fund variable annuity and variable insurance
contracts investing directly in the Shares.
N-2
APPENDIX O-1
PENDING LITIGATION ALLEGING MARKET TIMING
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more AIM
Funds, IFG, AIM, AIM Management, AMVESCAP, certain related entities, certain of
their current and former officers and/or certain unrelated third parties and are
based on allegations of improper market timing and related activity in the AIM
Funds. These lawsuits either have been served or have had service of process
waived as of February 16, 2006 (with the exception of the Sayegh lawsuit
discussed below).
RICHARD LEPERA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V.
INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., INVESCO BOND FUNDS,
INC., INVESCO SECTOR FUNDS, INC. AND DOE DEFENDANTS 1-100, in the District
Court, City and County of Denver, Colorado, (Civil Action No. 03-CV-7600),
filed on October 2, 2003. This claim alleges: common law breach of
fiduciary duty; common law breach of contract; and common law tortious
interference with contract. The plaintiff in this case is seeking:
compensatory and punitive damages; injunctive relief; disgorgement of
revenues and profits; and costs and expenses, including counsel fees and
expert fees.
MIKE SAYEGH, ON BEHALF OF THE GENERAL PUBLIC, V. JANUS CAPITAL CORPORATION,
JANUS CAPITAL MANAGEMENT LLC, JANUS INVESTMENT FUND, EDWARD J. STERN,
CANARY CAPITAL PARTNERS LLC, CANARY INVESTMENT MANAGEMENT LLC, CANARY
CAPITAL PARTNERS LTD., KAPLAN & CO. SECURITIES INC., BANK ONE CORPORATION,
BANC ONE INVESTMENT ADVISORS, THE ONE GROUP MUTUAL FUNDS, BANK OF AMERICA
CORPORATION, BANC OF AMERICA CAPITAL MANAGEMENT LLC, BANC OF AMERICA
ADVISORS LLC, NATIONS FUND INC., ROBERT H. GORDON, THEODORE H. SIHPOL III,
CHARLES D. BRYCELAND, SECURITY TRUST COMPANY, STRONG CAPITAL MANAGEMENT
INC., JB OXFORD & COMPANY, ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.,
ALLIANCE CAPITAL MANAGEMENT L.P., ALLIANCE CAPITAL MANAGEMENT CORPORATION,
AXA FINANCIAL INC., ALLIANCEBERNSTEIN REGISTRANTS, GERALD MALONE, CHARLES
SCHAFFRAN, MARSH & MCLENNAN COMPANIES, INC., PUTNAM INVESTMENTS TRUST,
PUTNAM INVESTMENT MANAGEMENT LLC, PUTNAM INVESTMENT FUNDS, AND DOES 1-500,
in the Superior Court of the State of California, County of Los Angeles
(Case No. BC304655), filed on October 22, 2003 and amended on December 17,
2003 to substitute INVESCO Funds Group, Inc. and Raymond R. Cunningham for
unnamed Doe defendants. This claim alleges unfair business practices and
violations of Sections 17200 and 17203 of the California Business and
Professions Code. The plaintiff in this case is seeking: injunctive relief;
restitution, including pre-judgment interest; an accounting to determine
the amount to be returned by the defendants and the amount to be refunded
to the public; the creation of an administrative process whereby injured
customers of the defendants receive their losses; and counsel fees.
RAJ SANYAL, DERIVATIVELY ON BEHALF OF NATIONS INTERNATIONAL EQUITY FUND, V.
WILLIAM P. CARMICHAEL, WILLIAM H. GRIGG, THOMAS F. KELLER, CARL E. MUNDY,
JR., CORNELIUS J. PINGS, A. MAX WALKER, CHARLES B. WALKER, EDMUND L.
BENSON, III, ROBERT H. GORDON, JAMES B. SOMMERS, THOMAS S. WORD, JR.,
EDWARD D. BEDARD, GERALD MURPHY, ROBERT B. CARROLL, INVESCO GLOBAL ASSET
MANAGEMENT, PUTNAM INVESTMENT MANAGEMENT, BANK OF AMERICA CORPORATION,
MARSICO CAPITAL MANAGEMENT, LLC, BANC OF AMERICA ADVISORS, LLC, BANC OF
AMERICA CAPITAL MANAGEMENT, LLC, AND NATIONS FUNDS TRUST, in the Superior
Court Division,
O-1
State of North Carolina (Civil Action No. 03-CVS-19622), filed on November
14, 2003. This claim alleges common law breach of fiduciary duty; abuse of
control; gross mismanagement; waste of fund assets; and unjust enrichment.
The plaintiff in this case is seeking: injunctive relief, including
imposition of a constructive trust; damages; restitution and disgorgement;
and costs and expenses, including counsel fees and expert fees.
L. SCOTT KARLIN, DERIVATIVELY ON BEHALF OF INVESCO FUNDS GROUP, INC. V.
AMVESCAP, PLC, INVESCO, INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., in the
United States District Court, District of Colorado (Civil Action No.
03-MK-2406), filed on November 28, 2003. This claim alleges violations of
Section 36(b) of the Investment Company Act of 1940 ("Investment Company
Act"), and common law breach of fiduciary duty. The plaintiff in this case
is seeking damages and costs and expenses, including counsel fees and
expert fees.
RICHARD RAVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC, AIM MANAGEMENT
GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP PLC, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS
FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND,
INVESCO GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL PARTNERS,
LLC, AND DOES 1-100, in the United States District Court, District of
Colorado (Civil Action No. 03-F-2441), filed on December 2, 2003. This
claim alleges violations of: Sections 11 and 15 of the Securities Act of
1933 (the "Securities Act"); Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"); Rule 10b-5 under the Exchange
Act; and Sections 34(b), 36(a) and 36(b) of the Investment Company Act. The
claim also alleges common law breach of fiduciary duty. The plaintiffs in
this case are seeking: damages; pre-judgment and post-judgment interest;
counsel fees and expert fees; and other relief.
JERRY FATTAH, CUSTODIAN FOR BASIM FATTAH, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO
S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET
RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO
U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE
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FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND,
INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND,
INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION
STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL
FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"),
AMVESCAP PLC, INVESCO FUNDS GROUP INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM,
THOMAS KOLBE, EDWARD STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO.,
INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC,
CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the United States
District Court, District of Colorado (Civil Action No. 03-F-2456), filed on
December 4, 2003. This claim alleges violations of: Sections 11 and 15 of
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5
under the Exchange Act; and Section 206 of the Investment Advisers Act of
1940, as amended (the "Advisers Act"). The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees paid; accounting
for wrongfully gotten gains, profits and compensation; restitution and
disgorgement; and other costs and expenses, including counsel fees and
expert fees.
EDWARD LOWINGER AND SHARON LOWINGER, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO
S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET
RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO
U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND,
INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO
SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS
FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO;
INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO
FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS
INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM
MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN
AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP,
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN,
AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS,
LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND
JOHN DOES 1-100, in the United States District Court, Southern District of
New York (Civil Action No. 03-CV-9634), filed on December 4, 2003. This
claim alleges violations of: Sections 11 and 15 of the Securities Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the Exchange
Act; and Section 206 of the Advisers Act. The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees
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paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
JOEL GOODMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC. AND RAYMOND R. CUNNINGHAM, in the District
Court, City and County of Denver, Colorado (Case Number 03CV9268), filed on
December 5, 2003. This claim alleges common law breach of fiduciary duty
and aiding and abetting breach of fiduciary duty. The plaintiffs in this
case are seeking: injunctive relief; accounting for all damages and for all
profits and any special benefits obtained; disgorgement; restitution and
damages; costs and disbursements, including counsel fees and expert fees;
and equitable relief.
STEVEN B. EHRLICH, CUSTODIAN FOR ALEXA P. EHRLICH, UGTMA/FLORIDA, AND DENNY
P. JACOBSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL
BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY
FUND, AIM INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO
TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO
TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN
GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS,
AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC.,
BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the
United States District Court, District of Colorado (Civil Action No.
03-N-2559), filed on December 17, 2003. This claim alleges violations of:
Sections 11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully gotten
gains, profits and compensation; restitution and disgorgement; and other
costs and expenses, including counsel fees and expert fees.
JOSEPH R. RUSSO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL
SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES
FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS
INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP
GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY
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GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM
INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO TREASURERS
TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO
ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO
GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO
REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION
STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL
FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"),
AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER, RAYMOND
CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN
MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the
United States District Court, Southern District of New York (Civil Action
No. 03-CV-10045), filed on December 18, 2003. This claim alleges violations
of: Sections 11 and 15 of the Securities Act; Sections 10(b) and 20(a) of
the Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully gotten
gains, profits and compensation; restitution and disgorgement; and other
costs and expenses, including counsel fees and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AMVESCAP PLC, AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP
NATIONAL TRUST COMPANY, ROBERT F. MCCULLOUGH, GORDON NEBEKER, JEFFREY G.
CALLAHAN, INVESCO FUNDS GROUP, INC., RAYMOND R. CUNNINGHAM, AND DOES 1-100,
in the United States District Court, District of Colorado (Civil Action No.
03-M-2604), filed on December 24, 2003. This claim alleges violations of
Sections 404, 405 and 406B of the Employee Retirement Income Security Act
("ERISA"). The plaintiffs in this case are seeking: declarations that the
defendants breached their ERISA fiduciary duties and that they are not
entitled to the protection of Section 404(c)(1)(B) of ERISA; an order
compelling the defendants to make good all losses to a particular
retirement plan described in this case (the "Retirement Plan") resulting
from the defendants' breaches of their fiduciary duties, including losses
to the Retirement Plan resulting from imprudent investment of the
Retirement Plan's assets, and to restore to the Retirement Plan all profits
the defendants made through use of the Retirement Plan's assets, and to
restore to the Retirement Plan all profits which the participants would
have made if the defendants had fulfilled their fiduciary obligations;
damages on behalf of the Retirement Plan; imposition of a constructive
trust, injunctive relief, damages suffered by the Retirement Plan, to be
allocated proportionately to the participants in the Retirement Plan;
restitution and other costs and expenses, including counsel fees and expert
fees.
PAT B. GORSUCH AND GEORGE L. GORSUCH V. INVESCO FUNDS GROUP, INC. AND AIM
ADVISER, INC., in the United States District Court, District of Colorado
(Civil Action No. 03-MK-2612), filed on December 24, 2003. This claim
alleges violations of Sections 15(a), 20(a) and 36(b) of the Investment
Company Act. The plaintiffs in this case are seeking: rescission and/or
voiding of the investment advisory agreements; return of fees paid;
damages; and other costs and expenses, including counsel fees and expert
fees.
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LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST,
AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND
FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC.,
AMVESCAP PLC, TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J.
STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS,
LTD., AND JOHN DOES 1-100, in the United States District Court, Southern
District of New York (Civil Action No. 04-CV-00492), filed on January 21,
2004. This claim alleges violations of: Sections 11 and 15 of the 1933 Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the Exchange
Act; and Section 206 of the Advisers Act. The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees paid; accounting
for wrongfully gotten gains, profits and compensation; restitution and
disgorgement; and other costs and expenses, including counsel fees and
expert fees.
ROBERT S. BALLAGH, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP
PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO
BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH
YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP
VALUE FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0152), filed on January 28,
2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5
under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of the
Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees; and
other relief.
JONATHAN GALLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP
PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO
BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH
YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP
VALUE FUND, INVESCO REAL ESTATE
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OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND, INVESCO
TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO
VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT MANAGEMENT, LLC, CANARY
CAPITAL PARTNERS, LTD., CANARY CAPITAL PARTNERS, LLC, AND DOES 1-100, in
the United States District Court, District of Colorado (Civil Action No.
04-MK-0151), filed on January 28, 2004. This claim alleges violations of:
Sections 11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Sections 34(b), 36(a)
and 36(b) of the Investment Company Act. The claim also alleges common law
breach of fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees; and
other relief.
EILEEN CLANCY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL
BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY
FUND, AIM INVESCO TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO
TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO
TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN
AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS
INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS
INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO
FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY
MILLER, RAYMOND CUNNINGHAM AND THOMAS KOLBE, in the United States District
Court, Southern District of New York (Civil Action No. 04-CV-0713), filed
on January 30, 2004. This claim alleges violations of Sections 11 and 15 of
the Securities Act. The plaintiffs in this case are seeking: compensatory
damages, rescission; return of fees paid; and other costs and expenses,
including counsel fees and expert fees.
SCOTT WALDMAN, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V.
INVESCO FUNDS GROUP, INC., INVESCO DYNAMICS FUND, INVESCO EUROPEAN FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS
INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS
INC., AIM INTERNATIONAL FUNDS INC., AMVESCAP PLC, AND RAYMOND CUNNINGHAM,
in the United States District Court, Southern District of New York (Civil
Action No. 04-CV-00915), filed on February 3, 2004. This claim alleges
violations of Sections 11 and 15 of the Securities Act and common law
breach of fiduciary duty. The plaintiffs in this case are seeking
compensatory damages; injunctive relief; and costs and expenses, including
counsel fees and expert fees.
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CARL E. VONDER HAAR AND MARILYN P. MARTIN, ON BEHALF OF THEMSELVES AND ALL
OTHERS SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK
FUNDS, INC. AND DOE DEFENDANTS 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-CV-812), filed on February 5,
2004. This claim alleges: common law breach of fiduciary duty; breach of
contract; and tortious interference with contract. The plaintiffs in this
case are seeking: injunctive relief; damages; disgorgement; and costs and
expenses, including counsel fees and expert fees.
HENRY KRAMER, DERIVATIVELY ON BEHALF OF INVESCO ENERGY FUND, INVESCO STOCK
FUNDS, INC., AND INVESCO MUTUAL FUNDS V. AMVESCAP, PLC, INVESCO FUNDS
GROUP, INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT,
LLC, AND CANARY CAPITAL PARTNERS, LTD., DEFENDANTS, AND INVESCO ENERGY
FUND, INVESCO STOCK FUNDS, INC., AND INVESCO MUTUAL FUNDS, NOMINAL
DEFENDANTS, in the United States District Court, District of Colorado
(Civil Action No. 04-MK-0397), filed on March 4, 2004. This claim alleges
violations of Section 36(b) of the Investment Company Act and common law
breach of fiduciary duty. The plaintiff in this case is seeking damages and
costs and expenses, including counsel fees and expert fees.
CYNTHIA L. ESSENMACHER, DERIVATIVELY ON BEHALF OF THE INVESCO DYNAMICS FUND
AND THE REMAINING "INVESCO FUNDS" V. INVESCO FUNDS GROUPS, INC., AMVESCAP
PLC, AIM MANAGEMENT GROUP, INC., RAYMOND CUNNINGHAM, TIMOTHY MILLER, THOMAS
KOLBE AND MICHAEL LEGOSKI, DEFENDANTS, AND INVESCO DYNAMICS FUND AND THE
"INVESCO FUNDS", NOMINAL DEFENDANTS, in the United States District Court,
District of Delaware (Civil Action No. 04-CV-188), filed on March 29, 2004.
This claim alleges: violations of Section 36(b) of the Investment Company
Act; violations of Section 206 of the Advisers Act; common law breach of
fiduciary duty; and civil conspiracy. The plaintiff in this case is
seeking: damages; injunctive relief; and costs and expenses, including
counsel fees and expert fees.
ANNE G. PERENTESIS (WIDOW) V. AIM INVESTMENTS, ET AL (INVESCO FUNDS GROUP,
INC.), in the District Court of Maryland for Baltimore County (Case No.
080400228152005), filed on July 21, 2005. This claim alleges financial
losses, mental anguish and emotional distress as a result of unlawful
market timing and related activity by the defendants. The plaintiff in this
case is seeking damages and costs ad expenses.
Pursuant to an Order of the MDL Court, plaintiffs in the above lawsuits
(with the exception of Carl E. Vonder Haar, et al. v. INVESCO Funds Group, Inc.
et al. and Mike Sayegh v. Janus Capital Corporation, et al.) consolidated their
claims for pre-trial purposes into three amended complaints against various AIM-
and IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds (the Lepera
lawsuit discussed below); (ii) a Consolidated Amended Fund Derivative Complaint
purportedly brought on behalf of the AIM Funds and fund registrants (the
Essenmacher lawsuit discussed below); and (iii) an Amended Class Action
Complaint for Violations of the Employee Retirement Income Securities Act
("ERISA") purportedly brought on behalf of participants in AMVESCAP's 401(k)
plan (the Calderon lawsuit discussed below). The plaintiffs in the Vonder Haar
and Sayegh lawsuits continue to seek remand of their lawsuits to state court.
Set forth below is detailed information about these three amended complaints.
RICHARD LEPERA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
(LEAD PLAINTIFF: CITY OF CHICAGO DEFERRED COMPENSATION PLAN), V. INVESCO
FUNDS GROUP, INC., AMVESCAP, PLC, AIM INVESTMENTS, AIM ADVISORS, INC.,
INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED,
INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM STOCK FUNDS, AIM MUTUAL FUNDS,
AIM COMBINATION STOCK & BOND
O-8
FUNDS, AIM SECTOR FUNDS, AIM TREASURER'S SERIES TRUST, INVESCO
DISTRIBUTORS, INC., AIM DISTRIBUTORS, INC., RAYMOND R. CUNNINGHAM, TIMOTHY
J. MILLER, THOMAS A. KOLBE, MICHAEL D. LEGOSKI, MICHAEL K. BRUGMAN, MARK
WILLIAMSON, EDWARD J. STERN, CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., RYAN GOLDBERG,
MICHAEL GRADY, CITIGROUP, INC., CITIGROUP GLOBAL MARKETS HOLDINGS, INC.,
SALOMON SMITH BARNEY, INC., MORGAN STANLEY DW, ANNA BRUGMAN, ANB
CONSULTING, LLC, KAPLAN & CO. SECURITIES INC., SECURITY TRUST COMPANY,
N.A., GRANT D. SEEGER, JB OXFORD HOLDINGS, INC., NATIONAL CLEARING
CORPORATION, JAMES G. LEWIS, KRAIG L. KIBBLE, JAMES Y. LIN, BANK OF AMERICA
CORPORATION, BANC OF AMERICA SECURITIES LLC, THEODORE C. SIHPOL, III, BEAR
STEARNS & CO., INC., BEAR STEARNS SECURITIES CORP., CHARLES SCHWAB & CO.,
CREDIT SUISSE FIRST BOSTON (USA) INC., PRUDENTIAL FINANCIAL, INC.,
PRUDENTIAL SECURITIES, INC., CANADIAN IMPERIAL BANK OF COMMERCE, JP MORGAN
CHASE AND CO., AND JOHN DOE DEFENDANTS 1-100, in the MDL Court (Case No.
04-MD-15864; No. 04-CV-00814-JFM) (originally in the United States District
Court for the District of Colorado), filed on September 29, 2004. This
lawsuit alleges violations of Sections 11, 12(a) (2), and 15 of the
Securities Act; Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder; Section 20(a) of the Exchange Act; Sections 34(b),
36(a), 36(b) and 48(a) of the Investment Company Act; breach of fiduciary
duty/constructive fraud; aiding and abetting breach of fiduciary duty; and
unjust enrichment. The plaintiffs in this lawsuit are seeking: compensatory
damages, including interest; and other costs and expenses, including
counsel and expert fees.
CYNTHIA ESSENMACHER, SILVANA G. DELLA CAMERA, FELICIA BERNSTEIN AS
CUSTODIAN FOR DANIELLE BROOKE BERNSTEIN, EDWARD CASEY, TINA CASEY, SIMON
DENENBERG, GEORGE L. GORSUCH, PAT B. GORSUCH, L. SCOTT KARLIN, HENRY
KRAMER, JOHN E. MORRISEY, HARRY SCHIPPER, BERTY KREISLER, GERSON SMITH,
CYNTHIA PULEO, ZACHARY ALAN STARR, JOSHUA GUTTMAN, AND AMY SUGIN,
DERIVATIVELY ON BEHALF OF THE MUTUAL FUNDS, TRUSTS AND CORPORATIONS
COMPRISING THE INVESCO AND AIM FAMILY OF MUTUAL FUNDS V. AMVESCAP, PLC,
INVESCO FUNDS GROUP, INC., INVESCO DISTRIBUTORS, INC., INVESCO
INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED, INVESCO
GLOBAL ASSETS MANAGEMENT (N.A.), AIM MANAGEMENT GROUP, INC., AIM ADVISERS,
INC., AIM INVESTMENT SERVICES, INC., AIM DISTRIBUTORS, INC., FUND
MANAGEMENT COMPANY, MARK H. WILLIAMSON, RAYMOND R. CUNNINGHAM, TIMOTHY
MILLER, THOMAS KOLBE, MICHAEL LEGOSKI, MICHAEL BRUGMAN, FRED A. DEERING,
VICTOR L. ANDREWS, BOB R. BAKER, LAWRENCE H. BUDNER, JAMES T. BUNCH, GERALD
J. LEWIS, JOHN W. MCINTYRE, LARRY SOLL, RONALD L. GROOMS, WILLIAM J.
GALVIN, JR., ROBERT H. GRAHAM, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT
R. DOWDEN, EDWARD K. DUNN, JACK M. FIELDS, CARL FRISCHILING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, LOUIS S. SKLAR, OWEN DALY
II, AURUM SECURITIES CORP., AURUM CAPITAL MANAGEMENT CORP., GOLDEN GATE
FINANCIAL GROUP, LLC, BANK OF AMERICA CORP., BANC OF AMERICA SECURITIES
LLC, BANK OF AMERICA, N.A., BEAR STEARNS & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY INVESTMENT MANAGEMENT,
LLC, EDWARD J. STERN, CANADIAN IMPERIAL BANK OF COMMERCE, CIRCLE TRUST
COMPANY, RYAN GOLDBERG, MICHAEL GRADY, KAPLAN & CO. SECURITIES, INC., JP
MORGAN CHASE & CO., OPPENHEIMER & CO., INC., PRITCHARD CAPITAL PARTNERS
LLC, TIJA MANAGEMENT, TRAUTMAN WASSERMAN & COMPANY, INC., DEFENDANTS, AND
THE INVESCO FUNDS AND THE AIM FUNDS AND ALL TRUSTS AND CORPORATIONS THAT
COMPRISE THE INVESCO FUNDS AND AIM FUNDS THAT
O-9
WERE MANAGED BY INVESCO AND AIM, NOMINAL DEFENDANTS, in the MDL Court (Case
No. 04-MD-15864-FPS; No. 04-819), filed on September 29, 2004. This lawsuit
alleges violations of Sections 206 and 215 of the Investment Advisers Act;
Sections 36(a), 36(b) and 47 of the Investment Company Act; control person
liability under Section 48 of the Investment Company Act; breach of
fiduciary duty; aiding and abetting breach of fiduciary duty; breach of
contract; unjust enrichment; interference with contract; and civil
conspiracy. The plaintiffs in this lawsuit are seeking: removal of director
defendants; removal of adviser, sub-adviser and distributor defendants;
rescission of management and other contracts between the Funds and
defendants; rescission of 12b-1 plans; disgorgement of management fees and
other compensation/profits paid to adviser defendants; compensatory and
punitive damages; and fees and expenses, including attorney and expert
fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP NATIONAL TRUST
COMPANY, INVESCO FUNDS GROUP, INC., AMVESCAP, ROBERT F. MCCULLOUGH, GORDON
NEBEKER, JEFFREY G. CALLAHAN, AND RAYMOND R. CUNNINGHAM, in the MDL Court
(Case No. 1:04-MD-15864-FPS), filed on September 29, 2004. This lawsuit
alleges violations of ERISA Sections 404, 405 and 406. The plaintiffs in
this lawsuit are seeking: declaratory judgment; restoration of losses
suffered by the plan; disgorgement of profits; imposition of a constructive
trust; injunctive relief; compensatory damages; costs and attorneys' fees;
and equitable restitution.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative (Essenmacher) and class action (Lepera) lawsuits. The
MDL Court dismissed all derivative causes of action in the Essenmacher lawsuit
but two: (i) the excessive fee claim under Section 36(b) of the Investment
Company Act of 1940 (the "1940 Act"); and (ii) the "control person liability"
claim under Section 48 of the 1940 Act. The MDL Court dismissed all claims
asserted in the Lepera class action lawsuit but three: (i) the securities fraud
claims under Section 10(b) of the Securities Exchange Act of 1934; (ii) the
excessive fee claim under Section 36(b) of the 1940 Act (which survived only
insofar as plaintiffs seek recovery of fees associated with the assets involved
in market timing); and (iii) the "control person liability" claim under Section
48 of the 1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims
asserted against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
(Essenmacher) lawsuit.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA (Calderon)
lawsuit. Judge Motz granted the motion in part and denied the motion in part,
holding that: (i) plaintiff has both constitutional and statutory standing to
pursue her claims under ERISA Section 502(a)(2); (ii) plaintiff lacks standing
under ERISA Section 502(a)(3) to obtain equitable relief; (iii) the motion is
granted as to the claims alleged under ERISA Section 404 for failure to
prudently and loyally manage plan assets against certain AMVESCAP defendants;
(iv) the motion is denied as to the claims alleged under ERISA Section 404 for
failure to prudently and loyally manage plan assets against AMVESCAP and certain
other AMVESCAP defendants. The opinion also: (i) confirmed plaintiff's
abandonment of her claims that defendants engaged in prohibited transactions
and/or misrepresentation; (ii) postponed consideration of the duty to monitor
and co-fiduciary duty claims until after any possible amendments to the
complaints; (iii) stated that plaintiff may seek leave to amend her complaint
within 40 days of the date of filing of the memorandum opinion. Judge Motz
requested that the parties submit proposed orders within 30 days of the opinion
implementing his rulings.
O-10
APPENDIX O-2
PENDING LITIGATION ALLEGING INADEQUATELY EMPLOYED FAIR VALUE PRICING
The following civil class action lawsuits involve, depending on the
lawsuit, one or more AIM Funds, IFG and/or AIM and allege that the defendants
inadequately employed fair value pricing. These lawsuits either have been served
or have had service of process waived as of February 16, 2006.
T.K. PARTHASARATHY, EDMUND WOODBURY, STUART ALLEN SMITH AND SHARON SMITH,
INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, V. T. ROWE
PRICE INTERNATIONAL FUNDS, INC., T. ROWE PRICE INTERNATIONAL, INC., ARTISAN
FUNDS, INC., ARTISAN PARTNERS LIMITED PARTNERSHIP, AIM INTERNATIONAL FUNDS,
INC. AND AIM ADVISORS, INC., in the Third Judicial Circuit Court for
Madison County, Illinois (Case No. 2003-L-001253), filed on September 23,
2003. This claim alleges: common law breach of duty and common law
negligence and gross negligence. The plaintiffs in these cases are seeking:
compensatory and punitive damages; interest; and attorneys' fees and costs.
The Third Judicial Circuit Court for Madison County, Illinois has issued an
order severing the claims of plaintiff Parthasarathy from the claims of the
other plaintiffs against AIM and other defendants. As a result, AIM is a
defendant in the following severed action: EDMUND WOODBURY, STUART ALLEN
SMITH and SHARON SMITH, Individually and On Behalf of All Others Similarly
Situated, v. AIM INTERNATIONAL FUNDS, INC., ET AL., in the Third Judicial
Circuit Court for Madison County, Illinois (Case No. 03-L-1253A). The
claims made by plaintiffs and the relief sought in the Woodbury lawsuit are
identical to those in the Parthasarathy lawsuit. On April 22, 2005,
Defendants in the Woodbury lawsuit removed the action to Federal Court
(U.S. District Court, Southern District of Illinois, No. 05-CV-302-DRH).
Based on a recent Federal appellate court decision (the "Kircher" case),
AIM and the other defendants in the Woodbury lawsuit removed the action to
Federal court (U.S. District Court, Southern District of Illinois, Cause
No. 05-CV-302-DRH) on April 22, 2005. On April 26, 2005, AIM and the other
defendants filed their Motion to Dismiss the plaintiffs' state law based
claims. On June 10, 2005, the Court dismissed the Woodbury lawsuit based
upon the Kircher ruling and ordered the court clerk to close this case.
Plaintiffs filed a Motion to Amend the Judgment arguing that the Kircher
ruling does not apply to require the dismissal of the claims against AIM in
the Woodbury lawsuit. On July 7, 2005, the Court denied this Motion. The
plaintiffs filed a Notice of Appeal. On September 2, 2005, the Court
combined the nine cases on this subject matter, including the case against
AIM.
JOHN BILSKI, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. AIM INTERNATIONAL FUNDS, INC., AIM ADVISORS, INC., INVESCO INTERNATIONAL
FUNDS, INC., INVESCO FUNDS GROUP, INC., T. ROWE PRICE INTERNATIONAL FUNDS,
INC. AND T. ROWE PRICE INTERNATIONAL, INC., in the United States District
Court, Southern District of Illinois (East St. Louis) (Case No. 03-772),
filed on November 19, 2003. This claim alleges: violations of Sections
36(a) and 36(b) of the Investment Company Act of 1940; common law breach of
duty; and common law negligence and gross negligence. The plaintiff in this
case is seeking: compensatory and punitive damages; interest; and
attorneys' fees and costs. This lawsuit has been transferred to the MDL
Court by order of the United States District Court, Southern District of
Illinois (East St. Louis).
O-11
APPENDIX O-3
PENDING LITIGATION ALLEGING EXCESSIVE ADVISORY AND/OR DISTRIBUTION FEES
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
IFG, AIM, IINA, ADI and/or INVESCO Distributors and allege that the defendants
charged excessive advisory and/or distribution fees and failed to pass on to
shareholders the perceived savings generated by economies of scale and, in some
cases, also allege that the defendants adopted unlawful distribution plans.
These lawsuits either have been served or have had service of process waived as
of February 16, 2006
All of the lawsuits discussed below have been transferred to the United
States District Court for the Southern District of Texas, Houston Division by
order of the applicable United States District Court in which they were
initially filed. By order of the United States District Court for the Southern
District of Texas, Houston Division, the Kondracki and Papia lawsuits discussed
below have been consolidated for pre-trial purpose into the Berdat lawsuit
discussed below and administratively closed. On December 8, 2005, the Court
granted plaintiffs' Motion for Leave to File a Second Amended Consolidated
Complaint. The result of the Court's order is to remove certain plaintiffs from
the suit, remove certain claims by other plaintiffs relating to certain funds
and bring in additional plaintiffs' claims relating to additional funds. On
December 29, 2005, the defendants filed a Notice of Tag-Along case in the MDL
Court regarding this matter due to the extensive allegations of market timing
contained in the plaintiffs' Second Amended Consolidated Complaint. On February
1, 2006, the MDL Court issued a Conditional Transfer Order transferring the
Berdat lawsuit to the MDL Court. The plaintiffs filed a Notice of Opposition to
this Conditional Transfer Order on February 17, 2006. The parties are briefing
this issue for the MDL Court's consideration and final decision.
RONALD KONDRACKI V. AIM ADVISORS, INC. AND AIM DISTRIBUTOR, INC., in the
United States District Court for the Southern District of Illinois (Civil
Action No. 04-CV-263-DRH), filed on April 16, 2004. This claim alleges
violations of Section 36(b) of the Investment Company Act of 1940 (the
"Investment Company Act"). The plaintiff in this case is seeking: damages;
injunctive relief; prospective relief in the form of reduced fees;
rescission of the investment advisory agreements and distribution plans;
and costs and expenses, including counsel fees.
DOLORES BERDAT, MARVIN HUNT, MADELINE HUNT, RANDAL C. BREVER AND RHONDA
LECURU V. INVESCO FUNDS GROUP, INC., INVESCO INSTITUTIONAL (N.A.), INC.,
INVESCO DISTRIBUTORS, INC., AIM ADVISORS, INC. AND AIM DISTRIBUTORS, INC.,
in the United States District Court for the Middle District of Florida,
Tampa Division (Case No. 8:04-CV-978-T24-TBM), filed on April 29, 2004.
This claim alleges violations of Sections 36(b) and 12(b) of the Investment
Company Act. The plaintiffs in this case are seeking: damages; injunctive
relief; rescission of the investment advisory agreements and distribution
plans; and costs and expenses, including counsel fees.
FERDINANDO PAPIA, FRED DUNCAN, GRACE GIAMANCO, JEFFREY S. THOMAS, COURTNEY
KING, KATHLEEN BLAIR, HENRY BERDAT, RUTH MOCCIA, MURRAY BEASLEY AND FRANCES
J. BEASLEY V. A I M ADVISORS, INC. AND A I M DISTRIBUTORS, INC., in the
United States District Court for the Middle District of Florida, Tampa
Division (Case No. 8:04-CV-977-T17-MSS), filed on April 29, 2004. This
claim alleges violations of Sections 36(b) and 12(b) of the Investment
Company Act. The plaintiffs in this case are seeking: damages; injunctive
relief; rescission of the investment advisory agreements and distribution
plans; and costs and expenses, including counsel fees.
O-12
APPENDIX O-4
PENDING LITIGATION ALLEGING IMPROPER MUTUAL FUND SALES PRACTICES
AND DIRECTED-BROKERAGE ARRANGEMENTS
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
AIM Management, IFG, AIM, AIS and/or certain of the trustees of the AIM Funds
and allege that the defendants improperly used the assets of the AIM Funds to
pay brokers to aggressively push the AIM Funds over other mutual funds and that
the defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits either have been served or have had
service of process waived as of February 16, 2006.
By order of the United States District Court for the Southern District of
Texas, Houston Division, the claims made in the Beasley, Kehlbeck Trust, Fry,
Apu and Bendix lawsuits discussed below were consolidated into the Boyce lawsuit
discussed below and these other lawsuits were administratively closed. On June
7, 2005, plaintiffs filed their Consolidated Amended Complaint in which they
make substantially identical allegations to those of the individual underlying
lawsuits. However, the City of Chicago Deferred Compensation Plan has been
joined as an additional plaintiff in the Consolidated Amended Complaint.
Plaintiffs added defendants, including current and former directors/trustees of
the AIM Funds formerly advised by IFG. On December 16, 2005, the defendants
filed their Motions to Dismiss these claims.
JOY D. BEASLEY AND SHEILA MCDAID, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP,
INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM,
MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN,
EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS,
LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM
INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP
GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID
CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH
FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES
II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL
CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND,
AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE
HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND,
INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY
O-13
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District Court for
the District of Colorado (Civil Action No. 04-B-0958), filed on May 10,
2004. The plaintiffs voluntarily dismissed this case in Colorado and
re-filed it on July 2, 2004 in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action H-04-2589). This
claim alleges violations of Sections 34(b), 36(b) and 48(a) of the
Investment Company Act of 1940 (the "Investment Company Act") and
violations of Sections 206 and 215 of the Investment Advisers Act of 1940
(the "Advisers Act"). The claim also alleges common law breach of fiduciary
duty. The plaintiffs in this case are seeking: compensatory and punitive
damages; rescission of certain Funds' advisory agreements and distribution
plans and recovery of all fees paid; an accounting of all fund-related
fees, commissions and soft dollar payments; restitution of all unlawfully
or discriminatorily obtained fees and charges; and attorneys' and experts'
fees.
RICHARD TIM BOYCE V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC.,
AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK
H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD
K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM
INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP
GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID
CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH
FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES
II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL
CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND,
AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE
HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND,
INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District
Court for the District of Colorado (Civil Action No. 04-N-0989), filed on
May 13, 2004. The plaintiff voluntarily dismissed this case in Colorado and
re-filed it on July 1, 2004 in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action H-04-2587). This
claim alleges violations of Sections 34(b), 36(b) and 48(a) of the
Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is seeking: compensatory and punitive damages;
rescission of certain Funds' advisory
O-14
agreements and distribution plans and recovery of all fees paid; an
accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
KEHLBECK TRUST DTD 1-25-93, BILLY B. KEHLBECK AND DONNA J. KEHLBECK, TTEES
V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT
SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON,
FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR.,
JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH
H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM
AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND,
AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM
CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM
DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED
DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM
EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE
GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND,
AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM
LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP
CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III
FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY
FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP
GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND,
AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES
FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL
DEFENDANTS, in the United States District Court for the Southern District
of Texas, Houston Division (Civil Action No. H-04-2802), filed on July 9,
2004. This claim alleges violations of Sections 34(b), 36(b) and 48(a) of
the Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is seeking: compensatory and punitive damages;
rescission of certain Funds' advisory agreements and distribution plans and
recovery of all fees paid; an accounting of all fund-related fees,
commissions and soft dollar payments; restitution of all unlawfully or
discriminatorily obtained fees and charges; and attorneys' and experts'
fees.
JANICE R. FRY, BOB J. FRY, JAMES P. HAYES, VIRGINIA L. MAGBUAL, HENRY W.
MEYER AND GEORGE ROBERT PERRY V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS
GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H.
GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R.
DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND
JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA
PACIFIC GROWTH
O-15
FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM
BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP
INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM
LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP
CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III
FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY
FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP
GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND,
AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES
FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL
DEFENDANTS, in the United States District Court for the Southern District
of Texas, Houston Division (Civil Action No. H-04-2832), filed on July 12,
2004. This claim alleges violations of Sections 34(b), 36(b) and 48(a) of
the Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is seeking: compensatory and punitive damages;
rescission of certain Funds' advisory agreements and distribution plans and
recovery of all fees paid; an accounting of all fund-related fees,
commissions and soft dollar payments; restitution of all unlawfully or
discriminatorily obtained fees and charges; and attorneys' and experts'
fees.
ROBERT P. APU, SUZANNE K. APU, MARINA BERTI, KHANH DINH, FRANK KENDRICK,
EDWARD A. KREZEL, DAN B. LESIUK, JOHN B. PERKINS, MILDRED E. RUEHLMAN,
LOUIS E. SPERRY, J. DORIS WILLSON AND ROBERT W. WOOD V. AIM MANAGEMENT
GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM
ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY,
BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS,
CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND
LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH
FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED
FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT
FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS
FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM
EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY
FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM
GLOBAL VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH
O-16
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM
INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP
GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID
CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH
FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES
II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL
CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND,
AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE
HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND,
INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District Court for
the Southern District of Texas, Houston Division (Civil Action No.
H-04-2884), filed on July 15, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and
violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case is
seeking: compensatory and punitive damages; rescission of certain Funds'
advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees
and charges; and attorneys' and experts' fees.
HARVEY R. BENDIX, CVETAN GEORGIEV, DAVID M. LUCOFF, MICHAEL E. PARMELEE,
TRUSTEE OF THE HERMAN S. AND ESPERANZA A.. DRAYER RESIDUAL TRUST U/A
1/22/83 AND STANLEY S. STEPHENSON, TRUSTEE OF THE STANLEY J. STEPHENSON
TRUST V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM
INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H.
WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K.
DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP
INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM
LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP
CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III
FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY
FUND, AIM SHORT TERM BOND FUND, AIM
O-17
SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE
FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK
FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS
FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District Court for
the Southern District of Texas, Houston Division (Civil Action No.
H-04-3030), filed on July 27, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and
violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case is
seeking: compensatory and punitive damages; rescission of certain Funds'
advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees
and charges; and attorneys' and experts' fees.
O-18
APPENDIX II
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.32%
AEROSPACE & DEFENSE-4.55%
Boeing Co. (The) 309,842 $ 25,379,158
- --------------------------------------------------------------------------
General Dynamics Corp. 265,026 17,348,602
- --------------------------------------------------------------------------
Precision Castparts Corp. 139,956 8,363,771
- --------------------------------------------------------------------------
Rockwell Collins, Inc. 158,513 8,856,121
- --------------------------------------------------------------------------
United Technologies Corp. 188,776 11,972,174
==========================================================================
71,919,826
==========================================================================
AGRICULTURAL PRODUCTS-0.47%
Archer-Daniels-Midland Co. 177,766 7,338,180
==========================================================================
APPAREL RETAIL-2.49%
Aeropostale, Inc.(a) 470,904 13,604,416
- --------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 276,150 11,979,387
- --------------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 203,265 7,402,911
- --------------------------------------------------------------------------
Limited Brands, Inc. 248,196 6,351,336
==========================================================================
39,338,050
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.30%
Carter's, Inc.(a) 181,330 4,792,552
==========================================================================
APPLICATION SOFTWARE-4.16%
Amdocs Ltd.(a) 996,164 36,459,603
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 1,257,502 16,460,701
- --------------------------------------------------------------------------
Citrix Systems, Inc.(a) 319,317 12,817,384
==========================================================================
65,737,688
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.06%
Janus Capital Group Inc. 932,331 16,688,725
==========================================================================
BIOTECHNOLOGY-1.49%
Gilead Sciences, Inc.(a) 398,513 23,576,029
==========================================================================
COMMUNICATIONS EQUIPMENT-5.93%
Cisco Systems, Inc.(a) 2,084,688 40,713,956
- --------------------------------------------------------------------------
Harris Corp. 211,302 8,771,146
- --------------------------------------------------------------------------
QUALCOMM Inc. 735,870 29,486,311
- --------------------------------------------------------------------------
Redback Networks Inc.(a) 218,505 4,007,382
- --------------------------------------------------------------------------
Tellabs, Inc.(a) 800,958 10,660,751
==========================================================================
93,639,546
==========================================================================
COMPUTER & ELECTRONICS RETAIL-1.78%
Best Buy Co., Inc. 288,398 15,815,746
- --------------------------------------------------------------------------
Circuit City Stores, Inc. 453,477 12,343,644
==========================================================================
28,159,390
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
COMPUTER HARDWARE-1.72%
Apple Computer, Inc.(a) 272,228 $ 15,549,663
- --------------------------------------------------------------------------
Hewlett-Packard Co. 368,564 11,676,108
==========================================================================
27,225,771
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.21%
EMC Corp.(a) 510,680 5,602,159
- --------------------------------------------------------------------------
Seagate Technology(a) 288,439 6,530,259
- --------------------------------------------------------------------------
Western Digital Corp.(a) 350,943 6,952,181
==========================================================================
19,084,599
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.01%
Joy Global Inc. 300,798 15,668,568
- --------------------------------------------------------------------------
Oshkosh Truck Corp. 137,119 6,515,895
- --------------------------------------------------------------------------
Terex Corp.(a) 97,293 9,602,819
==========================================================================
31,787,282
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.23%
VeriFone Holdings, Inc.(a) 119,264 3,635,167
==========================================================================
DEPARTMENT STORES-2.40%
Federated Department Stores, Inc. 420,784 15,400,694
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 332,305 22,433,911
==========================================================================
37,834,605
==========================================================================
DIVERSIFIED METALS & MINING-0.56%
Phelps Dodge Corp. 107,934 8,867,857
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.59%
Cooper Industries, Ltd.-Class A 90,355 8,395,787
- --------------------------------------------------------------------------
Emerson Electric Co. 199,860 16,750,266
==========================================================================
25,146,053
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.76%
Amphenol Corp.-Class A 213,537 11,949,531
==========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.50%
Waste Management, Inc. 219,704 7,882,980
==========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.75%
Monsanto Co. 140,378 11,818,424
==========================================================================
GENERAL MERCHANDISE STORES-1.46%
Family Dollar Stores, Inc.(b) 609,993 14,902,129
- --------------------------------------------------------------------------
Target Corp. 165,938 8,109,390
==========================================================================
23,011,519
==========================================================================
HEALTH CARE DISTRIBUTORS-1.18%
Cardinal Health, Inc. 289,931 18,651,261
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-1.93%
Becton, Dickinson and Co. 264,408 $ 16,163,261
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 302,283 14,313,100
==========================================================================
30,476,361
==========================================================================
HEALTH CARE FACILITIES-0.66%
Manor Care, Inc. 222,676 10,447,958
==========================================================================
HEALTH CARE SERVICES-1.23%
Caremark Rx, Inc. 234,539 11,696,460
- --------------------------------------------------------------------------
Omnicare, Inc. 161,619 7,663,973
==========================================================================
19,360,433
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.50%
Electronic Arts Inc.(a) 183,746 7,908,428
==========================================================================
HOUSEHOLD PRODUCTS-1.48%
Colgate-Palmolive Co. 246,682 14,776,252
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 153,002 8,506,911
==========================================================================
23,283,163
==========================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.51%
Robert Half International Inc.(b) 191,762 8,054,004
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.79%
Costco Wholesale Corp. 216,878 12,390,240
==========================================================================
INDUSTRIAL CONGLOMERATES-1.88%
McDermott International, Inc.(a) 218,688 9,943,743
- --------------------------------------------------------------------------
Textron Inc. 214,649 19,786,345
==========================================================================
29,730,088
==========================================================================
INDUSTRIAL MACHINERY-0.55%
Parker Hannifin Corp. 112,777 8,751,495
==========================================================================
INTEGRATED OIL & GAS-1.38%
Occidental Petroleum Corp. 212,853 21,828,075
==========================================================================
INTERNET SOFTWARE & SERVICES-2.69%
eBay Inc.(a) 322,104 9,434,426
- --------------------------------------------------------------------------
Google Inc.-Class A(a) 78,611 32,963,951
==========================================================================
42,398,377
==========================================================================
INVESTMENT BANKING & BROKERAGE-5.31%
Goldman Sachs Group, Inc. (The) 187,778 28,247,445
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 329,092 22,891,639
- --------------------------------------------------------------------------
Morgan Stanley 135,000 8,533,350
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 1,514,058 24,194,647
==========================================================================
83,867,081
==========================================================================
MANAGED HEALTH CARE-1.79%
Aetna Inc. 374,837 14,967,242
- --------------------------------------------------------------------------
Health Net Inc.(a) 295,037 13,326,821
==========================================================================
28,294,063
==========================================================================
MOVIES & ENTERTAINMENT-0.74%
News Corp.-Class A 604,848 11,600,985
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
MULTI-LINE INSURANCE-1.68%
Assurant, Inc. 354,181 $ 17,142,360
- --------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 320,327 9,430,427
==========================================================================
26,572,787
==========================================================================
OIL & GAS DRILLING-1.45%
ENSCO International Inc. 262,764 12,092,400
- --------------------------------------------------------------------------
GlobalSantaFe Corp. 187,399 10,822,292
==========================================================================
22,914,692
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.16%
Baker Hughes Inc. 217,628 17,812,852
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 256,615 16,248,862
==========================================================================
34,061,714
==========================================================================
OIL & GAS REFINING & MARKETING-1.01%
Valero Energy Corp. 240,426 15,993,137
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.75%
JPMorgan Chase & Co. 659,116 27,682,872
==========================================================================
PHARMACEUTICALS-3.57%
Allergan, Inc. 178,814 19,179,590
- --------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 295,000 14,068,550
- --------------------------------------------------------------------------
Johnson & Johnson 126,500 7,579,880
- --------------------------------------------------------------------------
Wyeth 349,799 15,534,573
==========================================================================
56,362,593
==========================================================================
RAILROADS-2.63%
Burlington Northern Santa Fe Corp. 310,931 24,641,282
- --------------------------------------------------------------------------
CSX Corp. 239,212 16,850,093
==========================================================================
41,491,375
==========================================================================
RESTAURANTS-1.66%
Burger King Holdings Inc.(a)(b) 437,496 6,890,562
- --------------------------------------------------------------------------
Darden Restaurants, Inc. 318,599 12,552,800
- --------------------------------------------------------------------------
Ruby Tuesday, Inc. 279,529 6,823,303
==========================================================================
26,266,665
==========================================================================
SEMICONDUCTORS-6.08%
Analog Devices, Inc. 889,131 28,576,670
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 765,118 22,494,469
- --------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 259,141 3,674,619
- --------------------------------------------------------------------------
Marvell Technology Group Ltd.(a) 139,757 6,195,428
- --------------------------------------------------------------------------
Microchip Technology Inc. 676,596 22,699,796
- --------------------------------------------------------------------------
PMC-Sierra, Inc.(a) 1,320,744 12,414,994
==========================================================================
96,055,976
==========================================================================
SOFT DRINKS-1.16%
PepsiCo, Inc. 304,221 18,265,429
==========================================================================
SPECIALTY STORES-2.35%
Office Depot, Inc.(a) 639,785 24,311,830
- --------------------------------------------------------------------------
PetSmart, Inc. 500,000 12,800,000
==========================================================================
37,111,830
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SYSTEMS SOFTWARE-0.87%
Red Hat, Inc.(a)(b) 589,214 $ 13,787,608
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.34%
MGIC Investment Corp. 83,142 5,404,230
==========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.57%
WESCO International, Inc.(a) 129,905 8,963,445
==========================================================================
Total Domestic Common Stocks (Cost
$1,163,557,607) 1,347,410,139
==========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.08%
AUSTRALIA-0.97%
BHP Billiton Ltd. (Diversified Metals &
Mining)(c) 707,444 15,236,185
==========================================================================
BRAZIL-0.84%
Companhia Vale do Rio Doce-ADR (Steel)(b) 548,486 13,185,603
==========================================================================
FINLAND-1.02%
Nokia Oyj-ADR (Communications Equipment) 797,189 16,151,049
==========================================================================
JAPAN-3.65%
FANUC Ltd. (Industrial Machinery)(c) 88,700 8,006,068
- --------------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services)(c) 1,613 9,954,552
- --------------------------------------------------------------------------
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 577,000 11,560,901
- --------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(c) 514,500 10,888,547
- --------------------------------------------------------------------------
Millea Holdings, Inc. (Property & Casualty
Insurance)(c) 375 7,016,575
- --------------------------------------------------------------------------
Mitsui O.S.K. Lines, Ltd. (Marine)(b)(c) 1,500,000 10,234,108
==========================================================================
57,660,751
==========================================================================
NETHERLANDS-0.54%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 419,978 8,491,955
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SOUTH KOREA-0.65%
Kookmin Bank (Diversified Banks)(c) 124,650 $ 10,317,797
==========================================================================
SWITZERLAND-3.49%
ABB Ltd. (Heavy Electrical Equipment) 879,851 11,443,086
- --------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 288,744 15,569,077
- --------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 170,381 28,165,950
==========================================================================
55,178,113
==========================================================================
UNITED KINGDOM-1.92%
AstraZeneca PLC-ADR (Pharmaceuticals) 259,683 15,534,237
- --------------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals &
Mining)(c) 281,784 14,783,875
==========================================================================
30,318,112
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $187,199,958) 206,539,565
==========================================================================
MONEY MARKET FUNDS-1.09%
Liquid Assets Portfolio-Institutional
Class(d) 8,578,434 8,578,434
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 8,578,434 8,578,434
==========================================================================
Total Money Market Funds (Cost
$17,156,868) 17,156,868
==========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.49% (Cost
$1,367,914,433) 1,571,106,572
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED-2.15%
MONEY MARKET FUNDS-2.15%
Liquid Assets Portfolio-Institutional
Class(d)(e) 33,961,505 33,961,505
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $33,961,505) 33,961,505
==========================================================================
TOTAL INVESTMENTS-101.64% (Cost
$1,401,875,938) 1,605,068,077
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.64)% (25,831,571)
==========================================================================
NET ASSETS-100.00% $1,579,236,506
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security was out on loan at June 30, 2006.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at June 30, 2006 was $97,998,608, which
represented 6.21% of the Fund's Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $1,350,757,565)* $1,553,949,704
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $51,118,373) 51,118,373
=============================================================
Total investments (cost $1,401,875,938) 1,605,068,077
=============================================================
Foreign currencies, at value (cost
$3,759,648) 3,807,250
- -------------------------------------------------------------
Receivables for:
Investments sold 24,010,241
- -------------------------------------------------------------
Fund shares sold 860,932
- -------------------------------------------------------------
Dividends 749,223
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 169,219
- -------------------------------------------------------------
Other assets 387
=============================================================
Total assets 1,634,665,329
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 18,841,462
- -------------------------------------------------------------
Fund shares reacquired 822,850
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 271,753
- -------------------------------------------------------------
Collateral upon return of securities loaned 33,961,505
- -------------------------------------------------------------
Accrued administrative services fees 974,809
- -------------------------------------------------------------
Accrued distribution fees -- Series II 241,935
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,045
- -------------------------------------------------------------
Accrued operating expenses 311,464
=============================================================
Total liabilities 55,428,823
=============================================================
Net assets applicable to shares outstanding $1,579,236,506
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,596,777,609
- -------------------------------------------------------------
Undistributed net investment income 763,957
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (221,546,639)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 203,241,579
=============================================================
$1,579,236,506
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,187,260,963
_____________________________________________________________
=============================================================
Series II $ 391,975,543
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 48,283,042
_____________________________________________________________
=============================================================
Series II 16,121,845
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 24.59
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 24.31
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $33,049,981 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$223,809) $ 5,979,428
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$150,494, after compensation to
counterparties of $1,151,103) 689,190
=============================================================
Total investment income 6,668,618
=============================================================
EXPENSES:
Advisory fees 4,059,883
- -------------------------------------------------------------
Administrative services fees 1,707,940
- -------------------------------------------------------------
Custodian fees 97,020
- -------------------------------------------------------------
Distribution fees -- Series II 463,041
- -------------------------------------------------------------
Transfer agent fees 30,747
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 27,645
- -------------------------------------------------------------
Other 96,500
=============================================================
Total expenses 6,482,776
=============================================================
Less: Fees waived and expense offset
arrangement (3,682)
=============================================================
Net expenses 6,479,094
=============================================================
Net investment income 189,524
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities (includes gains
(losses) from securities sold to
affiliates of $(95,376)) 102,185,900
- -------------------------------------------------------------
Foreign currencies (98,845)
=============================================================
102,087,055
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (137,995,188)
- -------------------------------------------------------------
Foreign currencies 33,988
=============================================================
(137,961,200)
=============================================================
Net gain (loss) from investment securities and
foreign currencies (35,874,145)
=============================================================
Net increase (decrease) in net assets
resulting from operations $ (35,684,621)
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 189,524 $ 607,946
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 102,087,055 99,452,610
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (137,961,200) (5,854,578)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (35,684,621) 94,205,978
==============================================================================================
Distributions to shareholders from net investment
income-Series I -- (505,822)
==============================================================================================
Share transactions-net:
Series l 395,544,178 (131,492,019)
- ----------------------------------------------------------------------------------------------
Series ll 57,288,323 175,908,989
==============================================================================================
Net increase in net assets resulting from share
transactions 452,832,501 44,416,970
==============================================================================================
Net increase in net assets 417,147,880 138,117,126
==============================================================================================
NET ASSETS:
Beginning of period 1,162,088,626 1,023,971,500
==============================================================================================
End of period (including undistributed net investment
income of $763,957 and $574,433, respectively) $1,579,236,506 $1,162,088,626
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Appreciation Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is growth of capital.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 including estimates
and assumptions related to taxation. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes 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 specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close 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 securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current value will be priced at the indication of fair
value from the independent pricing service. Multiple factors may be
considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices,
ADRs and domestic and foreign index futures.
AIM V.I. CAPITAL APPRECIATION FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M 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
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
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 (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. A risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. In addition, there can be
no assurance that a liquid secondary market will exist for any option
purchased or sold.
AIM V.I. CAPITAL APPRECIATION FUND
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.65%
- -------------------------------------------------------------------
Over $250 million 0.60%
__________________________________________________________________
===================================================================
</Table>
Effective May 1, 2006 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund (based on the Fund's average daily net assets) do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.695%
- ----------------------------------------------------------------------
Next $750 million 0.625%
- ----------------------------------------------------------------------
Next $1.5 billion 0.62%
- ----------------------------------------------------------------------
Next $2.5 billion 0.595%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
_____________________________________________________________________
======================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through April 30, 2008. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $2,516.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, AMVESCAP did not
reimburse any expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and fund administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide services to the participants of separate accounts. These administrative
services provided by the insurance companies may include, among other things:
the printing of prospectuses, financial reports and proxy statements and the
delivery of the same to existing participants; the maintenance of master
accounts; the facilitation of purchases and redemptions requested by the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the six months ended June 30, 2006, AIM was paid $158,212 for
accounting and fund administrative services and reimbursed $1,549,728 for
services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $30,747.
The Trust has entered into a master distribution agreement with AIM
Distributors, Inc. ("ADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays
AIM V.I. CAPITAL APPRECIATION FUND
ADI compensation at the annual rate of 0.25% of the Fund's average daily net
assets of Series II shares. Of the Rule 12b-1 payment, up to 0.25% of the
average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. Pursuant to the Plan, for the six
months ended June 30, 2006, the Series II shares paid $463,041.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances and
cash collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $14,102,149 $109,892,562 $(115,416,277) $ -- $ 8,578,434 $268,598 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 10,822,907 (2,244,473) -- 8,578,434 3,808 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 14,102,149 107,157,998 (121,260,147) -- -- 266,290 --
==================================================================================================================================
Subtotal $28,204,298 $227,873,467 $(238,920,897) $ -- $17,156,868 $538,696 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $66,155,830 $166,488,716 $(198,683,041) $ -- $33,961,505 $150,494 $ --
==================================================================================================================================
Total $94,360,128 $394,362,183 $(437,603,938) $ -- $51,118,373 $689,190 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of compensation to counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $5,779,555, which resulted in net realized gains
(losses) of $(95,376) and securities purchases of $33,835,240.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,166.
NOTE 6--TRUSTEES' AND OFFICERS FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the six months ended June 30, 2006, the Fund paid legal fees of
$3,756 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $33,049,981 were on
loan to brokers. The loans were secured by cash collateral of $33,961,505
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended June 30, 2006, the Fund received dividends on
cash collateral investments of $150,494 for securities lending transactions,
which are net of compensation to counterparties.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $103,221,919
- -----------------------------------------------------------------------------
December 31, 2010 156,444,344
- -----------------------------------------------------------------------------
December 31, 2011 56,312,951
=============================================================================
Total capital loss carryforward $315,979,214
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above has been reduced for
limitations in effect as of that date, if any, to the extent required by the
Internal Revenue Code. The amount does not include the effects on the capital
loss carryforward of the reorganization of AIM V.I. Aggressive Growth Fund and
AIM V.I. Growth Fund into the Fund on May 1, 2006, as it occurred after the
Fund's most recent fiscal year end. To the extent that unrealized gains as of
May 1, 2006, the date of the reorganization of AIM V.I. Aggressive Growth Fund
and AIM V.I. Growth Fund into the Fund are realized on securities held in each
fund at such date of reorganization, the capital loss carryforward may be
further limited for up to five years from the date of the reorganization.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $954,960,052 and $793,427,011, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $233,905,545
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (36,593,720)
==============================================================================
Net unrealized appreciation of investment securities $197,311,825
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,407,756,252.
</Table>
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,175,171 $ 82,352,366 7,080,254 $158,159,074
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,594,842 40,202,276 8,650,154 194,868,060
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 17,427 439,171
========================================================================================================================
Issued in connection with acquisitions:(b)
Series I 15,874,072 417,607,202 -- --
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,020,000 26,553,152 -- --
========================================================================================================================
Reacquired:
Series I (4,116,330) (104,415,390) (12,847,505) (290,090,264)
- ------------------------------------------------------------------------------------------------------------------------
Series II (379,592) (9,467,105) (851,863) (18,959,071)
========================================================================================================================
17,168,163 $ 452,832,501 2,048,467 $ 44,416,970
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are six entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 49% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM,
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
(b) As of the open of business on May 1, 2006, the Fund acquired all the net
asset of AIM V.I. Aggressive Growth Fund and AIM V.I. Growth Fund pursuant
to a plan of reorganization approved by the Trustees of the Fund on November
14, 2005 and by the shareholders of AIM V.I. Aggressive Growth Fund and AIM
V.I. Growth Fund on April 4, 2006. The acquisition was accomplished by a
tax-free exchange of 16,894,072 shares of the Fund for 11,361,885 shares
outstanding of AIM V.I. Aggressive Growth Fund and 15,600,092 shares
outstanding of AIM V.I. Growth Fund as of the close of business on April 28,
2006. AIM V.I. Aggressive Growth Fund's net assets at that date of
$155,800,373 including $27,776,076 of unrealized appreciation and AIM V.I.
Growth Fund's net assets at that date of $288,359,981 including $64,941,780
of unrealized appreciation, were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$1,269,556,120.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 13 -- FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2006 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.03 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.09) 1.97 1.39 4.89 (5.24) (7.17)
================================================================================================================================
Total from investment operations (0.08) 2.00 1.41 4.85 (5.29) (7.22)
================================================================================================================================
Less distributions:
Dividends from net investment income -- (0.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (1.90)
================================================================================================================================
Total distributions -- (0.02) -- -- -- (1.90)
================================================================================================================================
Net asset value, end of period $ 24.59 $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (0.32)% 8.79% 6.62% 29.52% (24.35)% (23.28)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,187,261 $822,899 $886,990 $938,820 $763,038 $1,160,236
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 0.90%(d) 0.89% 0.91% 0.85% 0.85% 0.85%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.10%(d) 0.11% 0.09%(a) (0.23)% (0.27)% (0.22)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 66% 97% 74% 61% 67% 65%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and (0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$970,173,600.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 13 -- FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------
AUGUST 21, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------ DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70 $ 23.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.10) 1.96 1.36 4.87 (5.23) 0.45
=================================================================================================================================
Total from investment operations (0.12) 1.93 1.34 4.78 (5.32) 0.41
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 24.31 $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.49)% 8.58% 6.33% 29.18% (24.52)% 1.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $391,976 $339,190 $136,982 $70,466 $23,893 $ 3,527
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.15%(d) 1.14% 1.16% 1.10% 1.10% 1.09%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.15)%(d) (0.14)% (0.16)%(a) (0.48)% (0.52)% (0.46)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 66% 97% 74% 61% 67% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.08) and (0.42)%, respectively.
(a) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$373,502,489.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 14 -- SUBSEQUENT EVENT
The Board of Trustees of the Trust unanimously approved, on August 1, 2006, a
Plan of Reorganization pursuant to which the Fund would acquire all of the
assets to AIM V.I. Demographic Trends Fund ("Buying Fund"), a series of the
Trust ("the Reorganization"). Upon closing of the Reorganization, shareholders
of the Selling Fund will receive a corresponding class of shares of the Fund in
exchange for their shares of the Selling Fund, and the Selling Fund will cease
operations.
The Plan of Reorganization requires approval of Selling Fund's shareholders.
The Selling Fund currently intends to submit the Plan of Reorganization to the
shareholders for their consideration at a meeting to be held on or around
October 31, 2006. Additional information regarding the Plan of Reorganization
will be included in proxy materials to be mailed to shareholders for
consideration. If the Plan of Reorganization is approved by the shareholders of
the Selling Fund and certain conditions required by the Plan of Reorganization
are satisfied, the Reorganization is expected to become effective on or around
November 6, 2006.
NOTE 15 -- LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by AIM, which was done pursuant to the terms of the settlement. These
two fair funds may increase as a result of contributions from third parties who
reach final settlements with the SEC or other regulators to resolve allegations
of market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. As the methodology is unknown at the present time, management
of AIM and the Fund are unable to estimate the impact, if any, that the
distribution of these two fair funds may have on the Fund or whether such
distribution will have an impact on the Fund's financial statements in the
future.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 15 -- LEGAL PROCEEDINGS--(CONTINUED)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor-Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity
in the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees
and failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
AIM V.I. CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.37%
AEROSPACE & DEFENSE-3.87%
Boeing Co. (The) 10,128 $ 829,584
- --------------------------------------------------------------------
General Dynamics Corp. 9,445 618,270
- --------------------------------------------------------------------
Precision Castparts Corp. 5,019 299,935
- --------------------------------------------------------------------
United Technologies Corp. 6,773 429,544
====================================================================
2,177,333
====================================================================
AGRICULTURAL PRODUCTS-0.47%
Archer-Daniels-Midland Co. 6,398 264,109
====================================================================
APPAREL RETAIL-2.99%
Aeropostale, Inc.(a) 18,059 521,724
- --------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 9,758 423,302
- --------------------------------------------------------------------
DSW Inc.-Class A(a) 14,000 509,880
- --------------------------------------------------------------------
Limited Brands, Inc. 8,900 227,751
====================================================================
1,682,657
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.31%
Carter's, Inc.(a) 6,627 175,152
====================================================================
APPLICATION SOFTWARE-4.39%
Amdocs Ltd.(a) 37,012 1,354,639
- --------------------------------------------------------------------
BEA Systems, Inc.(a) 48,397 633,517
- --------------------------------------------------------------------
Citrix Systems, Inc.(a) 11,948 479,593
====================================================================
2,467,749
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.11%
Janus Capital Group Inc. 34,842 623,672
====================================================================
BIOTECHNOLOGY-1.57%
Gilead Sciences, Inc.(a) 14,961 885,093
====================================================================
COMMUNICATIONS EQUIPMENT-6.00%
Cisco Systems, Inc.(a) 74,955 1,463,871
- --------------------------------------------------------------------
Harris Corp. 7,525 312,363
- --------------------------------------------------------------------
QUALCOMM Inc. 26,544 1,063,618
- --------------------------------------------------------------------
Redback Networks Inc.(a) 7,370 135,166
- --------------------------------------------------------------------
Tellabs, Inc.(a) 30,119 400,884
====================================================================
3,375,902
====================================================================
COMPUTER & ELECTRONICS RETAIL-1.86%
Best Buy Co., Inc. 10,430 571,981
- --------------------------------------------------------------------
Circuit City Stores, Inc. 17,434 474,554
====================================================================
1,046,535
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
COMPUTER HARDWARE-1.73%
Apple Computer, Inc.(a) 9,753 $ 557,091
- --------------------------------------------------------------------
Hewlett-Packard Co. 13,135 416,117
====================================================================
973,208
====================================================================
COMPUTER STORAGE & PERIPHERALS-1.21%
EMC Corp.(a) 18,199 199,643
- --------------------------------------------------------------------
Seagate Technology(a) 10,363 234,619
- --------------------------------------------------------------------
Western Digital Corp.(a) 12,430 246,238
====================================================================
680,500
====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.36%
Joy Global Inc. 10,786 561,843
- --------------------------------------------------------------------
Oshkosh Truck Corp. 5,600 266,112
- --------------------------------------------------------------------
Terex Corp.(a) 5,088 502,185
====================================================================
1,330,140
====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.23%
VeriFone Holdings, Inc.(a) 4,280 130,454
====================================================================
DEPARTMENT STORES-2.45%
Federated Department Stores, Inc. 15,075 551,745
- --------------------------------------------------------------------
J.C. Penney Co., Inc. 12,251 827,065
====================================================================
1,378,810
====================================================================
DIVERSIFIED METALS & MINING-0.56%
Phelps Dodge Corp. 3,867 317,713
====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.78%
Cooper Industries, Ltd.-Class A 4,240 393,981
- --------------------------------------------------------------------
Emerson Electric Co. 7,218 604,940
====================================================================
998,921
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.76%
Amphenol Corp.-Class A 7,661 428,709
====================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.50%
Waste Management, Inc. 7,878 282,663
====================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.77%
Monsanto Co. 5,147 433,326
====================================================================
GENERAL MERCHANDISE STORES-1.50%
Family Dollar Stores, Inc. 22,801 557,029
- --------------------------------------------------------------------
Target Corp. 5,867 286,720
====================================================================
843,749
====================================================================
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-1.20%
Cardinal Health, Inc. 10,458 $ 672,763
====================================================================
HEALTH CARE EQUIPMENT-2.02%
Becton, Dickinson and Co. 10,002 611,422
- --------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 11,117 526,390
====================================================================
1,137,812
====================================================================
HEALTH CARE FACILITIES-0.72%
Manor Care, Inc. 8,579 402,527
====================================================================
HEALTH CARE SERVICES-1.30%
Caremark Rx, Inc. 8,482 422,997
- --------------------------------------------------------------------
Omnicare, Inc. 6,513 308,847
====================================================================
731,844
====================================================================
HOME ENTERTAINMENT SOFTWARE-0.50%
Electronic Arts Inc.(a) 6,595 283,849
====================================================================
HOUSEHOLD PRODUCTS-1.51%
Colgate-Palmolive Co. 8,921 534,368
- --------------------------------------------------------------------
Procter & Gamble Co. (The) 5,693 316,531
====================================================================
850,899
====================================================================
HYPERMARKETS & SUPER CENTERS-0.80%
Costco Wholesale Corp. 7,843 448,070
====================================================================
INDUSTRIAL CONGLOMERATES-1.90%
McDermott International, Inc.(a) 7,953 361,623
- --------------------------------------------------------------------
Textron Inc. 7,660 706,099
====================================================================
1,067,722
====================================================================
INDUSTRIAL MACHINERY-0.56%
Parker Hannifin Corp. 4,044 313,814
====================================================================
INTEGRATED OIL & GAS-1.43%
Occidental Petroleum Corp. 7,832 803,172
====================================================================
INTERNET SOFTWARE & SERVICES-2.70%
eBay Inc.(a) 11,479 336,220
- --------------------------------------------------------------------
Google Inc.-Class A(a) 2,822 1,183,349
====================================================================
1,519,569
====================================================================
INVESTMENT BANKING & BROKERAGE-5.59%
Goldman Sachs Group, Inc. (The) 6,791 1,021,570
- --------------------------------------------------------------------
Merrill Lynch & Co., Inc. 13,571 943,999
- --------------------------------------------------------------------
Morgan Stanley 4,790 302,776
- --------------------------------------------------------------------
Schwab (Charles) Corp. (The) 54,837 876,295
====================================================================
3,144,640
====================================================================
MANAGED HEALTH CARE-1.98%
Aetna Inc. 13,556 541,291
- --------------------------------------------------------------------
Health Net Inc.(a) 12,722 574,653
====================================================================
1,115,944
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
MOVIES & ENTERTAINMENT-0.74%
News Corp.-Class A 21,669 $ 415,611
====================================================================
MULTI-LINE INSURANCE-1.80%
Assurant, Inc. 12,775 618,310
- --------------------------------------------------------------------
HCC Insurance Holdings, Inc. 13,449 395,938
====================================================================
1,014,248
====================================================================
OIL & GAS EQUIPMENT & SERVICES-2.25%
Baker Hughes Inc. 8,393 686,967
- --------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 9,158 579,885
====================================================================
1,266,852
====================================================================
OIL & GAS REFINING & MARKETING-1.02%
Valero Energy Corp. 8,614 573,003
====================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.83%
JPMorgan Chase & Co. 24,454 1,027,068
====================================================================
PHARMACEUTICALS-3.76%
Allergan, Inc. 6,589 706,736
- --------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 12,073 575,761
- --------------------------------------------------------------------
Johnson & Johnson 4,506 270,000
- --------------------------------------------------------------------
Wyeth 12,618 560,365
====================================================================
2,112,862
====================================================================
RAILROADS-2.74%
Burlington Northern Santa Fe Corp. 11,313 896,555
- --------------------------------------------------------------------
CSX Corp. 9,126 642,836
====================================================================
1,539,391
====================================================================
RESTAURANTS-1.80%
Burger King Holdings Inc.(a) 15,591 245,558
- --------------------------------------------------------------------
Darden Restaurants, Inc. 11,541 454,716
- --------------------------------------------------------------------
Ruby Tuesday, Inc. 12,720 310,495
====================================================================
1,010,769
====================================================================
SEMICONDUCTORS-6.07%
Analog Devices, Inc. 36,127 1,161,122
- --------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 25,952 762,989
- --------------------------------------------------------------------
Marvell Technology Group Ltd.(a) 4,981 220,808
- --------------------------------------------------------------------
Microchip Technology Inc. 24,373 817,714
- --------------------------------------------------------------------
PMC-Sierra, Inc.(a) 48,269 453,728
====================================================================
3,416,361
====================================================================
SOFT DRINKS-1.16%
PepsiCo, Inc. 10,842 650,954
====================================================================
SPECIALTY STORES-2.35%
Office Depot, Inc.(a) 22,921 870,998
- --------------------------------------------------------------------
PetSmart, Inc. 17,722 453,683
====================================================================
1,324,681
====================================================================
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
SYSTEMS SOFTWARE-0.88%
Red Hat, Inc.(a) 21,109 $ 493,951
====================================================================
THRIFTS & MORTGAGE FINANCE-0.34%
MGIC Investment Corp. 2,987 194,155
====================================================================
Total Domestic Common Stocks (Cost
$45,285,614) 48,028,926
====================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-12.78%
AUSTRALIA-1.36%
BHP Billiton Ltd. (Diversified Metals &
Mining)(b) 35,616 767,060
====================================================================
BRAZIL-1.05%
Companhia Vale do Rio Doce-ADR (Steel) 24,592 591,192
====================================================================
FINLAND-1.03%
Nokia Oyj-ADR (Communications Equipment) 28,560 578,625
====================================================================
JAPAN-2.53%
Fanuc Ltd. (Industrial Machinery)(b) 2,969 267,982
- --------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services)(b) 57 351,773
- --------------------------------------------------------------------
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(b) 22,352 447,850
- --------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(b) 17,000 359,777
====================================================================
1,427,382
====================================================================
NETHERLANDS-0.54%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 14,987 303,037
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
SOUTH KOREA-0.75%
Kookmin Bank (Diversified Banks)(b) 5,080 $ 420,493
====================================================================
SWITZERLAND-3.77%
ABB Ltd. (Heavy Electrical Equipment) 31,550 410,330
- --------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 10,415 561,577
- --------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 6,955 1,149,742
====================================================================
2,121,649
====================================================================
UNITED KINGDOM-1.75%
AstraZeneca PLC-ADR (Pharmaceuticals) 9,971 596,465
- --------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals &
Mining)(b) 7,379 387,141
====================================================================
983,606
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $6,493,316) 7,193,044
====================================================================
MONEY MARKET FUNDS-2.02%
Liquid Assets Portfolio-Institutional
Class(c) 567,668 567,668
- --------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 567,668 567,668
====================================================================
Total Money Market Funds (Cost
$1,135,336) 1,135,336
====================================================================
TOTAL INVESTMENTS-100.17% (Cost $52,914,266) 56,357,306
====================================================================
OTHER ASSETS LESS LIABILITIES-(0.17)% (95,982)
====================================================================
NET ASSETS-100.00% $56,261,324
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at June 30, 2006 was $3,002,076, which
represented 5.34% of the Fund's Net Assets. See Note 1A.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DEMOGRAPHIC TRENDS FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $51,778,930) $55,221,970
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,135,336) 1,135,336
============================================================
Total investments (cost $52,914,266) 56,357,306
============================================================
Foreign currencies, at value (cost $101,123) 101,796
- ------------------------------------------------------------
Receivables for:
Investments sold 933,535
- ------------------------------------------------------------
Fund shares sold 10,347
- ------------------------------------------------------------
Dividends 34,403
- ------------------------------------------------------------
Fund expenses absorbed 4,023
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,908
============================================================
Total assets 57,466,318
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,090,356
- ------------------------------------------------------------
Fund shares reacquired 4,834
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 29,736
- ------------------------------------------------------------
Accrued administrative services fees 36,042
- ------------------------------------------------------------
Accrued distribution fees -- Series II 6,436
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 174
- ------------------------------------------------------------
Accrued transfer agent fees 1,140
- ------------------------------------------------------------
Accrued operating expenses 36,276
============================================================
Total liabilities 1,204,994
============================================================
Net assets applicable to shares outstanding $56,261,324
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $57,792,581
- ------------------------------------------------------------
Undistributed net investment income (loss) (55,570)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (4,919,639)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 3,443,952
============================================================
$56,261,324
____________________________________________________________
============================================================
NET ASSETS:
Series I $54,136,130
____________________________________________________________
============================================================
Series II $ 2,125,194
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,970,799
____________________________________________________________
============================================================
Series II 355,764
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 6.03
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 5.97
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$12,251) $ 265,149
- -------------------------------------------------------------
Dividends from affiliated money market funds 30,319
=============================================================
Total investment income 295,468
=============================================================
EXPENSES:
Advisory fees 246,536
- -------------------------------------------------------------
Administrative services fees 101,678
- -------------------------------------------------------------
Custodian fees 13,925
- -------------------------------------------------------------
Distribution fees -- Series II 2,701
- -------------------------------------------------------------
Transfer agent fees 6,650
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 8,135
- -------------------------------------------------------------
Professional services fees 22,102
- -------------------------------------------------------------
Other 12,534
=============================================================
Total expenses 414,261
=============================================================
Less: Fees waived (88,294)
=============================================================
Net expenses 325,967
=============================================================
Net investment income (loss) (30,499)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized (loss) from:
Investment securities (includes gains from
securities sold to affiliates of $20,214) 8,344,018
- -------------------------------------------------------------
Foreign currencies (5,365)
=============================================================
8,338,653
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (6,951,987)
- -------------------------------------------------------------
Foreign currencies 1,534
=============================================================
(6,950,453)
=============================================================
Net gain from investment securities and foreign
currencies 1,388,200
=============================================================
Net increase in net assets resulting from
operations $ 1,357,701
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DEMOGRAPHIC TRENDS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (30,499) $ (536,433)
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 8,338,653 21,400,058
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (6,950,453) (16,311,733)
=============================================================================================
Net increase in net assets resulting from operations 1,357,701 4,551,892
=============================================================================================
Share transactions-net:
Series I (12,869,443) (14,201,030)
- ---------------------------------------------------------------------------------------------
Series II (3,850) (67,782,840)
=============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (12,873,293) (81,983,870)
=============================================================================================
Net increase (decrease) in net assets (11,515,592) (77,431,978)
=============================================================================================
NET ASSETS:
Beginning of period 67,776,916 145,208,894
=============================================================================================
End of period (including undistributed net investment
income (loss) of $(55,570) and $(25,071), respectively) $ 56,261,324 $ 67,776,916
_____________________________________________________________________________________________
=============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Demographic Trends, (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide long-term growth of capital.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 including estimates
and assumptions related to taxation. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes 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 specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close 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 securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current value will be priced at the indication of fair
value from the independent pricing service. Multiple factors may be
considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices,
ADRs and domestic and foreign index futures.
AIM V.I. DEMOGRAPHIC TRENDS FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, A I M may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M 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
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
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 (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
AIM V.I. DEMOGRAPHIC TRENDS FUND
J. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. A risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. In addition, there can be
no assurance that a liquid secondary market will exist for any option
purchased or sold.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ---------------------------------------------------------------------
First $2 billion 0.77%
- ---------------------------------------------------------------------
Over $2 billion 0.72%
____________________________________________________________________
=====================================================================
</Table>
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund based
on the Fund's average daily net assets do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.695%
- --------------------------------------------------------------------
Next $250 million 0.67%
- --------------------------------------------------------------------
Next $500 million 0.645%
- --------------------------------------------------------------------
Next $1.5 billion 0.62%
- --------------------------------------------------------------------
Next $2.5 billion 0.595%
- --------------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------------
Over $10 billion 0.52%
___________________________________________________________________
====================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.01% and Series
II shares to 1.26% of average daily net assets, through April 30, 2008. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $88,294.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, AMVESCAP did not
reimburse any expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and fund administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide services to the participants of separate accounts. These administrative
services provided by the insurance companies may include, among other things:
AIM V.I. DEMOGRAPHIC TRENDS FUND
the printing of prospectuses, financial reports and proxy statements and the
delivery of the same to existing participants; the maintenance of master
accounts; the facilitation of purchases and redemptions requested by the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $76,883 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $6,650.
The Trust has entered into a master distribution agreement with AIM
Distributors, Inc. ("ADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $2,701.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $329,174 $10,223,342 $ (9,984,848) $ -- $ 567,668 $15,118 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 700,483 (132,815) -- 567,668 250 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 329,174 10,223,342 (10,552,516) -- -- 14,951 --
===================================================================================================================================
Total $658,348 $21,147,167 $(20,670,179) $ -- $1,135,336 $30,319 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $217,476, which resulted in net realized gains of
$20,214 and securities purchases of $3,137,823.
NOTE 5--TRUSTEES' AND OFFICERS FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the six months ended June 30, 2006, the Fund paid legal fees of
$1,885 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by
AIM V.I. DEMOGRAPHIC TRENDS FUND
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $2,838,512 of capital loss carryforward in the fiscal year
ended December 31, 2006.
The Fund had a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 590,799
- -----------------------------------------------------------------------------
December 31, 2010 13,601,762
=============================================================================
Total capital loss carryforward $14,192,561
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
On April 28, 2006, 242,808 Series I shares valued at $10,126,974 were
redeemed by a significant shareholder and settled through a redemption-in-kind
transaction, which resulted in a realized gain of $1,544,649 to the Fund for
book purposes. From a federal income tax perspective, the realized gains are not
recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward available for future utilization by the Fund
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six month
ended June 30, 2006 was $43,901,636 and $56,992,347, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 5,178,541
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,892,002)
===============================================================================
Net unrealized appreciation of investment securities $ 3,286,539
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $53,070,767.
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
Changes in Shares Outstanding
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year ended
JUNE 30, 2006(a) December 31, 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 895,056 $ 5,396,941 3,629,070 $ 20,081,064
- -----------------------------------------------------------------------------------------------------------------------
Series II 48,993 302,090 483,710 2,637,149
=======================================================================================================================
Reacquired:
Series I (2,887,620) (18,266,384) (6,149,473) (34,282,094)
- -----------------------------------------------------------------------------------------------------------------------
Series II (49,652) (305,940) (12,475,751) (70,419,989)
=======================================================================================================================
(1,993,223) $(12,873,293) (14,512,444) $(81,983,870)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 81% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
account funding variable products that are invested in the Fund. The
fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, AIM and/or AIM
affiliates including but not limited to services such as, securities
brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by these entities are also
owned beneficially.
NOTE 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.99 $ 5.64 $ 5.21 $ 3.79 $ 5.59 $ 8.21
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (0.02)(a) (0.02)(a)(b) (0.03)(a) (0.03)(a) (0.05)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.04 0.37 0.45 1.45 (1.77) (2.57)
=================================================================================================================================
Total from investment operations 0.04 0.35 0.43 1.42 (1.80) (2.62)
=================================================================================================================================
Net asset value, end of period $ 6.03 $ 5.99 $ 5.64 $ 5.21 $ 3.79 $ 5.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.67% 6.21% 8.25% 37.47% (32.20)% (31.91)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,136 $65,661 $76,040 $65,162 $26,747 $39,226
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.01%(d) 1.02% 1.18% 1.30% 1.30% 1.38%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(d) 1.15% 1.19% 1.30% 1.43% 1.44%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.09)%(d) (0.36)% (0.42)%(b) (0.61)% (0.67)% (0.79)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 69% 113% 141% 139% 208% 144%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
(c)dividend are $(0.03) and (0.52)%, respectively.
Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
(d)with a variable product, which if included would reduce total returns.
Ratios are annualized and based on average daily net assets of
(e)$62,387,246.
Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------------------
NOVEMBER 7, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.94 $ 5.60 $ 5.19 $ 3.78 $ 5.58 $ 5.33
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.03)(a) (0.03)(a)(b) (0.03)(a) (0.04)(a) (0.01)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.04 0.37 0.44 1.44 (1.76) 0.26
=================================================================================================================================
Total from investment operations 0.03 0.34 0.41 1.41 (1.80) 0.25
=================================================================================================================================
Net asset value, end of period $ 5.97 $ 5.94 $ 5.60 $ 5.19 $ 3.78 $ 5.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.50% 6.07% 7.90% 37.30% (32.26)% 4.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $2,125 $2,116 $69,169 $59,358 $11,498 $3,552
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.26%(d) 1.27% 1.43% 1.45% 1.45% 1.45%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.54%(d) 1.40% 1.44% 1.55% 1.68% 1.61%(e)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.34)%(d) (0.61)% (0.67)%(b) (0.76)% (0.82)% (0.85)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 69% 113% 141% 139% 208% 144%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and (0.77)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$2,178,834.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 12--SUBSEQUENT EVENT
The Board of Trustees of the Trust unanimously approved, on August 1, 2006, a
Plan of Reorganization pursuant to which the Fund would transfer all of its
assets to AIM V.I. Capital Appreciation Fund ("Buying Fund"), a series of the
Trust ("the Reorganization"). Upon closing of the Reorganization, shareholders
of the Fund will receive a corresponding class of shares of Buying Fund in
exchange for their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around October 31, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around November 6, 2006.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by AIM, which was done pursuant to the terms of the settlement. These
two fair funds may increase as a result of contributions from third parties who
reach final settlements with the SEC or other regulators to resolve allegations
of market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. As the methodology is unknown at the present time, management
of AIM and the Fund are unable to estimate the impact, if any, that the
distribution of these two fair funds may have on the Fund or whether such
distribution will have an impact on the Fund's financial statements in the
future.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds, including those formerly advised by
IFG, and failed to disclose these arrangements in the prospectuses for such
Funds, and conclusions of law to the effect that AIM and ADI violated the West
Virginia securities laws. The WVASC orders AIM and ADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
AIM V.I. DEMOGRAPHIC TRENDS FUND
PART C. OTHER INFORMATION
Item 15. - Indemnification
The Registrant's Amended and Restated Agreement and Declaration of
Trust, dated September 14, 2005, as amended, provides, among other
things (i) that trustees and officers of the Registrant, when acting
as such, shall not be personally liable for any act, omission or
obligation of the Registrant or any trustee or officer (except for
liabilities to the Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of duty); (ii) for the indemnification by the Registrant of
the trustees, officers, employees and agents of the Registrant to the
fullest extent permitted by the Delaware Statutory Trust Act and
Bylaws and other applicable law; (iii) that shareholders of the
Registrant shall not be personally liable for the debts, liabilities,
obligations or expenses of the Registrant or any portfolio or class;
and (iv) for the indemnification by the Registrant, out of the assets
belonging to the applicable portfolio, of shareholders and former
shareholders of the Registrant in case they are held personally
liable solely by reason of being or having been shareholders of the
Registrant or any portfolio or class and not because of their acts or
omissions or for some other reason.
A I M Advisors, Inc. ("AIM"), the Registrant and other investment
companies managed by AIM, their respective officers, trustees,
directors and employees (the "Insured Parties") are insured under a
joint Mutual Fund and Investment Advisory Professional and Directors
and Officers Liability Policy, issued by ICI Mutual Insurance
Company, with a $55,000,000 limit of liability (an additional
$10,000,000 coverage applies to independent directors/trustees only).
Section 16 of the Master Investment Advisory Agreement between the
Registrant and AIM provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of AIM or any of its
officers, directors or employees, that AIM shall not be subject to
liability to the Registrant or to any series of the Registrant, or to
any shareholder of any series of the Registrant 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. Any liability of AIM to any series
of the Registrant shall not automatically impart liability on the
part of AIM to any other series of the Registrant. No series of the
Registrant shall be liable for the obligations of any other series of
the Registrant.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, 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 trustee, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered hereby, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
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Item 16. Exhibits
- -------- --------
1 (a) - Amended and Restated Agreement and Declaration of Trust of
Registrant, dated September 14, 2005.(26)
(b) - Amendment No. 1, dated December 21, 2005, effective as of December
21, 2005, to the Amended and Restated Agreement and Declaration of
Trust of Registrant.(26)
(c) - Amendment No. 2, dated December 7, 2005, effective as of July 3,
2006, to the Amended and Restated Agreement and Declaration of Trust
of Registrant.(26)
(d) - Amendment No. 3, dated January 9, 2006, effective as of January 9,
2006, to the Amended and Restated Agreement and Declaration of Trust
of Registrant.(27)
(e) - Amendment No. 4, dated February 2, 2006, effective as of July 3,
2006, to the Amended and Restated Agreement and Declaration of Trust
of Registrant.(27)
2 - Amended and Restated By-Laws of Registrant, adopted effective
September 14, 2005.(26)
3 - Voting Trust Agreements - None
4 - Form of Plan Reorganization of Registrant on behalf of AIM V.I.
Demographic Trends Fund and AIM V.I. Capital Appreciation Fund is
attached as Appendix I to the Combined Proxy Statement Prospectus
relating to AIM V.I. Demographic Trends Fund contained in this
Registrant Statement.
5 - All rights of security holders are contained in the Registrant's
Amended and Restated Agreement and Declaration of Trust.
6 (a) - (1) Master Investment Advisory Agreement, dated May 1, 2000, between
Registrant and A I M Advisors, Inc.(14)
- (2) Amendment No. 1, dated May 1, 2001, to Master Investment Advisory
Agreement, dated May 1, 2000, between Registrant and A I M Advisors,
Inc.(15)
- (3) Amendment No. 2 to Master Investment Advisory Agreement of
Registrant dated September 7, 2001, between Registrant and A I M
Advisors, Inc.(18)
- (4) Amendment No. 3 to Master Investment Advisory Agreement of
Registrant dated May 1, 2002, between Registrant and A I M Advisors,
Inc.(20)
- (5) Amendment No. 4, dated August 29, 2003, to Master Investment
Advisory Agreement, dated May 1, 2000, between Registrant and A I M
Advisors, Inc.(22)
- (6) Amendment No. 5, dated April 30, 2004 to Master Investment
Advisory Agreement between Registrant and A I M Advisors, Inc.(24)
- (7) Amendment No. 6, dated July 1, 2004, to Master Investment
Advisory Agreement between Registrant and A I M Advisors, Inc.(24)
- (8) Amendment No. 7, dated October 15, 2004, to Master Investment
Advisory Agreement between Registrant and A I M Advisors, Inc.(24)
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- (9) Amendment No. 8, dated July 1, 2005, to Master Investment
Advisory Agreement between Registrant and A I M Advisors, Inc.(26)
- (10) Amendment No. 9, dated December 21, 2005, to Master Investment
Advisory Agreement between Registrant and A I M Advisors, Inc.(26)
- (11) Form of Amendment No. 10 to Master Investment Advisory Agreement
between Registrant and A I M Advisors, Inc.(26)
- (12) Form of Amendment No. 11 to Master Investment Advisory Agreement
between Registrant and A I M Advisors, Inc.(27)
- (13) Form of Amendment No. 12 to Master Investment Advisory Agreement
between Registrant and A I M Advisors, Inc.(27)
(b) - (1) Master Intergoup Sub-Advisory Contract for Mutual Funds, dated
April 30, 2004, between A I M Advisors, Inc. and INVESCO
Institutional (N.A.), Inc.(24)
- (2) Amendment No. 1, dated July 16, 2004, to Master Intergroup
Sub-Advisory Contract for Mutual Funds between A I M Advisors, Inc.
and INVESCO Institutional (N.A.), Inc.(24)
- (3) Amendment No. 2, dated September 30, 2004, to Master Intergroup
Sub-Advisory Contract for Mutual Funds between A I M Advisors, Inc.
and INVESCO Institutional (N.A.), Inc.(24)
- (4) Amendment No. 3, dated October 15, 2004, to Master Intergroup
Sub-Advisory Contract for Mutual Funds between A I M Advisors, Inc.
and INVESCO Institutional (N.A.), Inc. (24)
- (5) Amendment No. 4, dated June 1, 2005, to Master Intergroup
Sub-Advisory Contract for Mutual Funds between A I M Advisors, Inc.
and INVESCO Institutional (N.A.), Inc.(26)
- (6) Form of Amendment No. 5 to Master Intergroup Sub-Advisory
Contract for Mutual Funds between A I M Advisors, Inc. and INVESCO
Institutional (N.A.), Inc.(27)
(c) - Form of Master Intergroup Sub-Advisory Contract for Mutual Funds
between A I M Advisors, Inc. and INVESCO Global Asset Management
(N.A.), Inc.(26)
7 (a) - (1) First Amended and Restated Master Distribution Agreement, dated
July 16, 2001, between Registrant and A I M Distributors, Inc.(17)
- (2) Amendment No. 1, dated September 7, 2001, to First Amended and
Restated Master Distribution Agreement, between Registrant and A I M
Distributors, Inc., dated July 16, 2001.(18)
- (3) Amendment No. 2, dated May 1, 2002, to First Amended and Restated
Master Distribution Agreement between Registrant and A I M
Distributors Inc., dated July 16, 2001.(20)
- (4) Amendment No. 3, dated August 29, 2003, to First Amended and
Restated Master Distribution Agreement, between Registrant and A I M
Distributors, Inc., dated July 16, 2001.(22)
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- (5) Amendment No. 4, dated April 30, 2004, to First Amended and
Restated Master Distribution Agreement between Registrant and A I M
Distributors, Inc.(24)
- (6) Amendment No. 5, dated October 15, 2004, to First Amended and
Restated Master Distribution Agreement between Registrant and A I M
Distributors, Inc.(24)
- (7) Amendment No. 6, dated July 1, 2005, to First Amended and
Restated Master Distribution Agreement between Registrant and A I M
Distributors, Inc.(26)
- (8) Amendment No. 7, dated December 21, 2005, to First Amended and
Restated Master Distribution Agreement between Registrant and A I M
Distributors, Inc.(26)
- (9) Form of Amendment No. 8 to First Amended and Restated Master
Distribution Agreement between Registrant and A I M Distributors,
Inc.(26)
- (10) Form of Amendment No. 9 to First Amended and Restated Master
Distribution Agreement between Registrant and A I M Distributors,
Inc.(27)
- (11) Form of Amendment No. 10 to First Amended and Restated Master
Distribution Agreement between Registrant and A I M Distributors,
Inc.(27)
8 (a) - Retirement Plan of Registrant's Non-Affiliated Directors, effective
March 8, 1994, as restated September 18, 1995.(4)
(b) - Retirement Plan for Eligible Directors/Trustees effective as of March
8, 1994, as Restated September 18, 1995 and as Restated March 7,
2000.(14)
(c) - Form of Director Deferred Compensation Agreement effective as Amended
March 7, 2000, September 28, 2001 and September 26, 2002.(22)
9 (a) - (1) Master Custodian Contract, dated May 1, 2000, between Registrant
and State Street Bank and Trust Company.(15)
- (2) Amendment, dated May 1, 2000, to Master Custodian Contract, dated
May 1, 2000, between Registrant and State Street Bank and Trust
Company.(15)
- (3) Amendment, dated June 29, 2001, to Master Custodian Contract
dated May 1, 2000, between Registrant and State Street Bank and Trust
Company.(20)
- (4) Amendment, dated April 2, 2002, to Master Custodian Contract
dated May 1, 2000, between Registrant and State Street Bank and Trust
Company.(20)
- (5) Amendment, dated September 8, 2004, to Master Custodian Contract
dated May 1, 2000, between Registrant and State Street Bank and Trust
Company.(24)
(b) - Custody Agreement, dated September 19, 2000, between Registrant and
The Bank of New York.(15)
10 (a) - (1) Registrant's Master Distribution Plan pursuant to Rule 12b-1 for
Series II shares.(17)
- (2) Amendment No. 1 to the Registrant's Master Distribution Plan,
dated September 7, 2001.(18)
- (3) Amendment No. 2 to the Registrant's Master Distribution Plan,
dated May 1, 2002.(20)
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- (4) Amendment No. 3 to the Registrant's Master Distribution Plan,
dated August 29, 2003.(22)
- (5) Amendment No. 4 to the Registrant's Master Distribution Plan,
dated April 30, 2004.(24)
- (6) Amendment No. 5 to the Registrant's Master Distribution Plan,
dated October 15, 2004.(24)
- (7) Amendment No. 6 to the Registrant's Master Distribution Plan,
dated July 1, 2005.(26)
- (8) Amendment No. 7 to the Registrant's Master Distribution Plan,
dated December 21, 2005.(26)
- (9) Form of Amendment No. 8 to the Registrant's Master Distribution
Plan.(26)
- (10) Form of Amendment No. 9 to the Registrant's Master Distribution
Plan.(27)
- (11) Form of Amendment No. 10 to the Registrant's Master Distribution
Plan.(27)
(b) - Registrant's Amended and Restated Multiple Class Plan, effective July
16, 2001, as amended and restated August 18, 2003.(22)
11 - Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll,
LLP, as to the legality of the securities being registered is filed
herewith.
12 - Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll,
LLP, supporting the tax matters and consequences to shareholders will
be filed as part of a Post-effective Amendment to this Registration
Statement.
13 (a) - (1) Second Amended and Restated Master Administrative Services
Agreement, dated July 1, 2004, between Registrant and A I M Advisors,
Inc.(24)
- (2) Amendment No. 1, dated October 15, 2004, to Second Amended and
Restated Master Administrative Services Agreement, dated July 1,
2004, between Registrant and A I M Advisors, Inc.(24)
- (3) Amendment No. 2, dated December 2, 2004, to Second Amended and
Restated Master Administrative Services Agreement, dated July 1,
2004, between Registrant and A I M Advisors, Inc.(24)
- (4) Amendment No. 3, dated July 1, 2005, to Second Amended and
Restated Master Administrative Services Agreement, dated July 1,
2004, between Registrant and A I M Advisors, Inc.(26)
- (5) Amendment No. 4, dated December 21, 2005, to Second Amended and
Restated Master Administrative Services Agreement, dated July 1,
2004, between Registrant and A I M Advisors, Inc.(26)
- (6) Form of Amendment No. 5 to Second Amended and Restated Master
Administrative Services Agreement, dated July 1, 2004, between
Registrant and A I M Advisors, Inc.(26)
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- (7) Form of Amendment No. 6 to Second Amended and Restated Master
Administrative Services Agreement, dated July 1, 2004, between
Registrant and A I M Advisors, Inc.(27)
- (8) Form of Amendment No. 7 to Second Amended and Restated Master
Administrative Services Agreement, dated July 1, 2004, between
Registrant and A I M Advisors, Inc.(27)
(b) - (1) Transfer Agency and Service Agreement, dated October 15, 2001,
between Registrant and A I M Fund Services, Inc., (now known as AIM
Investment Services, Inc.).(18)
- (2) Amendment No. 1, dated July 1, 2005, to the Transfer Agency and
Service Agreement, dated October 15, 2001, between Registrant and A I
M Fund Services, Inc. (now known as AIM Investment Services,
Inc.).(26)
(c) - Participation Agreement, dated February 25, 1993, between Registrant,
Connecticut General Life Insurance Company and A I M Distributors,
Inc.(4)
(d) - (1) Participation Agreement, dated February 10, 1995, between
Registrant and Citicorp Life Insurance Company.(4)
- (2) Amendment No. 1, dated February 3, 1997, to the Participation
Agreement dated February 10, 1995, between Registrant and Citicorp
Life Insurance Company.(6)
(e) - (1) Participation Agreement, dated February 10, 1995, between
Registrant and First Citicorp Life Insurance Company.(4)
- (2) Amendment No. 1, dated February 3, 1997, to the Participation
Agreement, dated February 10, 1995, between Registrant and First
Citicorp Life Insurance Company.(6)
(f) - (1a) Participation Agreement, dated December 19, 1995, between
Registrant and Glenbrook Life and Annuity Company.(4)
- (1b) Side Letter Agreement, dated December 1, 1995, among Registrant
and Glenbrook Life and Annuity Company.(5)
- (2) Amendment No. 1, dated November 7, 1997, to the Participation
Agreement, dated December 19, 1995, between Registrant and Glenbrook
Life and Annuity Company.(7)
- (3) Amendment No. 2, dated September 2, 1997, to the Participation
Agreement, dated December 19, 1995, between Registrant and Glenbrook
Life and Annuity Company.(6)
- (4) Amendment No. 3, dated January 26, 1998, to the Participation
Agreement, dated December 19, 1995, between Registrant and Glenbrook
Life and Annuity Company.(7)
- (5) Amendment No. 4, dated May 1, 1998, to the Participation
Agreement, dated December 19, 1995, between Registrant and Glenbrook
Life and Annuity Company.(7)
- (6) Amendment No. 5, dated January 12, 1999, to the Participation
Agreement,
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dated December 19, 1995, between Registrant and Glenbrook Life and
Annuity Insurance Company.(8)
- (7) Amendment No. 6, dated September 26, 2001, to the Participation
Agreement, dated December 19, 1995, between Registrant and Glenbrook
Life and Annuity Company.(20)
- (8) Amendment No. 7, dated May 1, 2004, to the Participation
Agreement, dated December 19, 1995, between Registrant and Glenbrook
Life and Annuity Insurance Company.(27)
(g) - Participation Agreement, dated March 4, 1996, between Registrant and
IDS Life Insurance Company.(4)
(h) - (1a) Participation Agreement, dated October 7, 1996, between
Registrant and IDS Life Insurance Company (supersedes and replaces
Participation Agreement dated March 4, 1996).(5)
- (1b) Side Letter Agreement, dated September 27, 1996, between
Registrant, IDS Life Insurance Company and IDS Life Insurance Company
of New York.(6)
- (2) Amendment No. 1, dated November 11, 1997, to the Participation
Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company.(8)
- (3) Amendment No. 2, dated August 13, 2001, to the Participation
Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company.(27)
- (4) Amendment No. 3, dated May 1, 2002, to the Participation
Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company.(27)
- (5) Amendment January 1, 2003, to the Participation Agreement, dated
October 7, 1996, between Registrant and IDS Life Insurance
Company.(27)
- (6) Amendment dated September 30, 2003, to the Participation
Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company.(27)
- (7) Amendment dated April 30, 2004, to the Participation Agreement,
dated October 7, 1996, between Registrant and IDS Life Insurance
Company.(27)
(i) - (1) Participation Agreement, dated October 7, 1996, between
Registrant and IDS Life Insurance Company of New York.(5)
- (2) Amendment No. 1, dated November 11, 1997, to the Participation
Agreement, dated October 7, 1996 between Registrant and IDS Life
Insurance Company of New York.(8)
- (3) Amendment No. 2, dated August 13, 2001, to the Participation
Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company of New York.(27)
- (4) Amendment No. 3, dated May 1, 2002, to the Participation
Agreement, dated October 7, 1996, between Registrant and IDS Life
Insurance Company of New York.(27)
- (5) Amendment dated January 1, 2003, to the Participation Agreement,
dated October 7, 1996, between Registrant and IDS Life Insurance
Company of New
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York.(27)
- (6) Amendment dated August 18, 2003, to the Participation Agreement,
dated October 7, 1996, between Registrant and IDS Life Insurance
Company of New York.(27)
- (7) Amendment dated April 30, 2004, to the Participation Agreement,
dated October 7, 1996, between Registrant and IDS Life Insurance
Company of New York.(27)
(j) - (1) Participation Agreement, dated April 8, 1996, between Registrant
and Connecticut General Life Insurance Company.(4)
- (2) Amendment No. 1, dated April 30, 2004, to the Participation
Agreement, dated April 8, 1996, between Registrant and Connecticut
General Life Insurance Company.(27)
(k) - (1) Participation Agreement, dated September 21, 1996, between
Registrant and Pruco Life Insurance Company.(5)
- (2) Amendment No. 1, dated July 1, 1997, to the Participation
Agreement, dated September 21, 1996, between Registrant and Pruco
Life Insurance Company.(6)
- (3) Amendment No. 2, dated August 1, 1998, to the Participation
Agreement, dated September 21, 1996, between Registrant and Pruco
Life Insurance Company.(7)
- (4) Amendment No. 3, dated November 8, 1999, to the Participation
Agreement dated September 21, 1996, between Registrant and Pruco Life
Insurance Company.(14)
- (5) Amendment No. 4 dated April 10, 2000, to the Participation
Agreement dated September 21, 1996, between Registrant and Pruco Life
Insurance Company.(14)
(l) - (1a) Participation Agreement, dated October 1, 1996, between
Registrant and Allstate Life Insurance Company of New York.(5)
- (1b) Side Letter Agreement, dated October 1, 1996, between Registrant
and Allstate Life Insurance Company of New York.(7)
- (2) Amendment No. 1, dated November 7, 1997, to the Participation
Agreement, dated October 1, 1996, between Registrant and Allstate
Life Insurance Company of New York.(9)
- (3) Amendment No. 2, dated December 18, 2002, to the Participation
Agreement, dated October 1, 1996, between Registrant and Allstate
Life Insurance Company of New York.(27)
- (4) Amendment No. 3, dated May 1, 2003, to the Participation
Agreement, dated October 1, 1996, between Registrant and Allstate
Life Insurance Company of New York.(27)
(m) - (1a) Participation Agreement, dated December 18, 1996, between
Registrant and Merrill Lynch Life Insurance Company.(5)
- (1b) Side Letter Agreement, dated December 18, 1996, between
Registrant and
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Merrill, Lynch, Pierce, Fenner & Smith, Incorporated.(5)
- (2) Amendment No. 1, dated May 1, 1997, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(6)
- (3) Amendment No. 2, dated April 13, 2000, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(14)
- (4) Amendment No. 3, dated February 16, 2001, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(18)
- (5) Amendment No. 4, dated May 1, 2001, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(18)
- (6) Amendment No. 5, dated October 5, 2001, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(18)
- (7) Agreement No. 6, dated September 10, 2002, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(20)
- (8) Amendment No. 7, dated March 1, 2005, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(27)
- (9) Amendment No. 8, dated May 1, 2006, to the Participation
Agreement, dated December 18, 1996, between Registrant and Merrill
Lynch Life Insurance Company.(27)
(n) - (1) Participation Agreement, dated December 18, 1996, between
Registrant and ML Life Insurance Company of New York.(5)
- (2) Amendment No. 1, dated May 1, 1997, to the Participation
Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(6)
- (3) Amendment No. 2, dated April 3, 2000, to the Participation
Agreement, dated December 18, 1996, by and between Registrant and ML
Life Insurance Company of New York.(14)
- (4) Amendment No. 3 dated February 16, 2001, to the Participation
Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(18)
- (5) Amendment No. 4, dated May 1, 2001, to the Participation
Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(18)
- (6) Amendment No. 5, dated October 5, 2001, to the Participation
Agreement, dated, December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(18)
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- (7) Amendment No. 6, dated September 10, 2002, to the Participation
Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(20)
- (8) Amendment No. 7, dated March 1, 2005, to the Participation
Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(27)
- (9) Amendment No. 8, dated May 1, 2006, to the Participation
Agreement, dated December 18, 1996, between Registrant and ML Life
Insurance Company of New York.(27)
(o) - (1) Participation Agreement, dated February 14, 1997, between
Registrant and Pruco Life Insurance Company of New Jersey.(5)
- (2) Amendment No. 1, dated November 8, 1999, to the Participation
Agreement, dated February 14, 1997, between Registrant and Pruco Life
Insurance Company of New Jersey.(14)
- (3) Amendment No. 2, dated April 10, 2000, to the Participation
Agreement, dated February 14, 1997, between Registrant and Pruco Life
Insurance Company of New Jersey.(14)
- (4) Amendment dated April 30, 2004, to the Participation Agreement,
dated February 14, 1997, between Registrant and Pruco Life Insurance
Company of New Jersey.(27)
(p) - Participation Agreement, dated April 30, 1997, between Registrant and
Prudential Insurance Company of America.(6)
(q) - (1) Participation Agreement, dated October 30, 1997, between
Registrant and American Centurion Life Assurance Company.(6)
- (2) Amendment No. 1, dated May 1, 2002, to the Participation
Agreement, dated October 30, 1997, between Registrant and American
Centurion Life Assurance Company.(27)
- (3) Amendment dated January 1, 2003, to the Participation Agreement,
dated October 30, 1997, between Registrant and American Centurion
Life Assurance Company.(27)
- (4) Amendment dated April 30, 2004, to the Participation Agreement,
dated October 30, 1997, between Registrant and American Centurion
Life Assurance Company.(27)
- (5) Amendment dated September 14, 2004, to the Participation
Agreement, dated October 30, 1997, between Registrant and American
Centurion Life Assurance Company.(27)
(r) - (1a) Participation Agreement, dated October 30, 1997, between
Registrant and American Enterprise Life Insurance Company.(6)
- (1b) Letter Agreement, dated October 30, 1997, between American
Enterprise Life Insurance Company and American Centurion Life
Assurance Company.(6)
C-10
- (2) Amendment No. 1, dated January 1, 2000, to the Participation
Agreement, dated October 30, 1997, between Registrant and American
Enterprise Life Insurance Company.(27)
- (3) Amendment No. 2, dated May 1, 2002, to the Participation
Agreement, dated October 30, 1997, between Registrant and American
Enterprise Life Insurance Company.(27)
- (4) Amendment dated January 1, 2003, to the Participation Agreement,
dated October 30, 1997, between Registrant and American Enterprise
Life Insurance Company.(27)
- (5) Amendment dated April 30, 2004, to the Participation Agreement,
dated October 30, 1997, between Registrant and American Enterprise
Life Insurance Company.(27)
- (6) Amendment dated September 16, 2004, to the Participation
Agreement, dated October 30, 1997, between Registrant and American
Enterprise Life Insurance Company.(27)
(s) - (1) Participation Agreement, dated November 20, 1997, between
Registrant and AIG Life Insurance Company.(6)
- (2) Amendment No. 1, dated October 11, 1999, to the Participation
Agreement, dated November 20, 1997, between Registrant and AIG Life
Insurance Company.(27)
(t) - Participation Agreement, dated November 20, 1997, between Registrant
and American International Life Assurance Company of New York.(6)
(u) - (1) Participation Agreement, dated November 4, 1997, between
Registrant and Nationwide Life Insurance Company.(6)
- (2) Amendment No. 1, dated June 15, 1998, to the Participation
Agreement, dated November 4, 1997, between Registrant and Nationwide
Life Insurance Company.(7)
(v) - (1) Participation Agreement, dated December 3, 1997, between
Registrant and Security Life of Denver.(6)
- (2) Amendment No. 1, dated June 23, 1998, to the Participation
Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver.(7)
- (3) Amendment No. 2, dated May 20, 1999, to the Participation
Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver Insurance Company.(10)
- (4) Amendment No. 3, dated November 1, 1999, to the Participation
Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver Insurance Company.(12)
- (5) Amendment No. 4, dated March 2, 2000, to the Participation
Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver Insurance Company.(14)
C-11
- (6) Amendment No. 5, dated December 28, 2000, to the Participation
Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver Insurance Company.(14)
- (7) Amendment No. 6, dated September 5, 2001, to the Participation
Agreement, dated December 3, 1997, between Registrant and Security
Life of Denver Insurance Company.(18)
(w) - (1) Participation Agreement, dated December 31, 1997, between
Registrant and Cova Financial Services Life Insurance Company.(6)
- (2) Amendment No. 1, dated April 23, 1999, to the Participation
Agreement, dated December 31, 1997, between Registrant and Cova
Financial Services Life Insurance Company.(12)
- (3) Amendment No. 2, dated September 1, 2000, to the Participation
Agreement, dated December 31, 1997, between Registrant and Cova
Financial Services Life Insurance Company.(14)
- (4) Amendment No. 3, dated February 12, 2001, to the Participation
Agreement, dated December 31, 1997, between Registrant and Met Life
Investors Insurance Company (formerly Cova Financial Services Life
Insurance Company).(18)
(x) - (1) Participation Agreement, dated December 31, 1997, between
Registrant and Cova Financial Life Insurance Company.(6)
- (2) Amendment No. 1, dated April 23, 1999, to the Participation
Agreement, dated December 31, 1997, between Registrant and Cova
Financial Life Insurance Company.(10)
- (3) Amendment No. 2, dated February 12, 2001, to the Participation
Agreement, dated April 23, 1999, between Registrant and Met Life
Investors Insurance Company (formerly Cova Financial Life Insurance
Company).(18)
(y) - (1) Participation Agreement, dated February 2, 1998, between
Registrant and The Guardian Insurance & Annuity Company, Inc.(7)
- (2) Amendment No. 1, dated July 1, 1999, to the Participation
Agreement, dated February 2, 1998, between Registrant and The
Guardian Life Insurance & Annuity Company, Inc.(11)
- (3) Amendment No. 2, dated May 1, 2000, to the Participation
Agreement, dated February 2, 1998, between Registrant and The
Guardian Life Insurance & Annuity Company, Inc.(14)
- (4) Amendment No. 3, dated August 1, 2000, to the Participation
Agreement, dated February 2, 1998, between Registrant and The
Guardian Life Insurance & Annuity Company.(14)
- (5) Amendment No. 4, dated December 1, 2000, to the Participation
Agreement, dated February 2, 1998, between Registrant and The
Guardian Life Insurance and Annuity Company, Inc.(18)
- (6) Amendment dated January 1, 2003, to the Participation Agreement,
dated February 2, 1998, between Registrant and The Guardian Life
Insurance and Annuity Company, Inc.(27)
C-12
- (7) Amendment No. 5, dated May 1, 2004, to the Participation
Agreement, dated February 2, 1998, between Registrant and The
Guardian Life Insurance and Annuity Company, Inc.(27)
(z) - (1) Participation Agreement, dated February 17, 1998, between
Registrant and Sun Life Assurance Company of Canada (U.S.).(7)
- (2) Amendment No. 1, dated December 11, 1998, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(8)
- (3) Amendment No. 2, dated March 15, 1999, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(14)
- (4) Amendment No. 3, dated April 17, 2000, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(14)
- (5) Amendment No. 4, dated May 1, 2000, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S).(18)
- (6) Amendment No. 5, dated May 1, 2001, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(18)
- (7) Amendment No. 6, dated September 1, 2001, to the Participation
Agreement dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(18)
- (8) Amendment No. 7, date April 1, 2002 to the Participation
Agreement dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(20)
- (9) Amendment No. 8, dated August 5, 2002, to the Participation
Agreement dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(20)
- (10) Amendment No. 9, dated August 20, 2003, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(27)
- (11) Amendment No. 10, dated December 31, 2003, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(27)
- (12) Amendment No. 11, dated April 30, 2004, to the Participation
Agreement, dated February 17, 1998, between Registrant and Sun Life
Assurance Company of Canada (U.S.).(27)
(aa) - Participation Agreement, dated April 1, 1998, between Registrant and
United Life & Annuity Insurance Company.(7)
C-13
(bb) - (1) Participation Agreement, dated April 21, 1998, between Registrant
and Keyport Life Insurance Company.(7)
- (2) Amendment No. 1, dated December 28, 1998, to the Participation
Agreement, dated April 21, 1998, between Registrant and Keyport Life
Insurance Company.(8)
- (3) Amendment No. 2, dated March 12, 2001, to the Participation
Agreement, dated April 21, 1998, between Registrant and Keyport Life
Insurance Company.(18)
(cc) - (1) Participation Agreement, dated May 1, 1998, between Registrant
and PFL Life Insurance Company.(7)
- (2) Amendment No. 1, dated June 30, 1998, to the Participation
Agreement, dated May 1, 1998, between Registrant and PFL Life
Insurance Company.(7)
- (3) Amendment No. 2, dated November 27, 1998, to the Participation
Agreement, dated May 1, 1998, between Registrant and PFL Life
Insurance Company.(8)
- (4) Amendment No. 3, dated August 1, 1999, to the Participation
Agreement, dated May 1, 1998, between Registrant and PFL Life
Insurance Company.(18)
- (5) Amendment No. 4, dated February 28, 2001, to the Participation
Agreement, dated May 1, 1998, between Registrant and PFL Life
Insurance Company.(18)
- (6) Amendment No. 5, dated July 1, 2001, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(18)
- (7) Amendment No. 6, dated August 15, 2001, to the Participation
Agreement dated May 1, 1998, between Transamerica Life Insurance
Company (formerly PFL Life Insurance Company).(18)
- (8) Amendment No. 7 dated May 1, 2002, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(20)
- (9) Amendment No. 8 dated July 15, 2002, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(20)
- (10) Amendment No. 9 dated December 1, 2002, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(20)
- (11) Amendment No. 10, dated May 1, 2003, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(27)
- (12) Amendment No. 11, dated December 1, 2003, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(27)
- (13) Amendment No. 12, dated May 1, 2004, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(27)
C-14
- (14) Amendment No. 13, dated September 1, 2005, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(27)
- (15) Amendment No. 14, dated May 1, 2006, to the Participation
Agreement, dated May 1, 1998, between Registrant and Transamerica
Life Insurance Company (formerly PFL Life Insurance Company).(27)
(dd) - (1) Participation Agreement, dated May 1, 1998, between Registrant
and Fortis Benefits Insurance Company.(7)
- (2) Form of Amendment No. 1, dated April 30, 2004, to the
Participation Agreement, dated May 1, 1998, between Registrant and
Fortis Benefits Insurance Company (n/k/a Union Security Insurance
Company).(27)
(ee) - (1) Participation Agreement, dated June 1, 1998, between Registrant
and American General Life Insurance Company.(7)
- (2) Amendment No. 1, dated January 1, 1999, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(9)
- (3) Amendment No. 2, dated September 29, 1999, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(14)
- (4) Amendment No. 3, dated February 1, 2000, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(14)
- (5) Amendment No. 4, dated November 1, 2000, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(18)
- (6) Amendment No. 5, dated May 14, 2002, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(20)
- (7) Amendment No. 6, dated October 1, 2002, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(27)
- (8) Amendment No. 7, dated January 15, 2004, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(27)
- (9) Amendment No. 8, dated January 1, 1005, to the Participation
Agreement, dated June 1, 1998, between Registrant and American
General Life Insurance Company.(27)
(ff) - (1) Participation Agreement, dated June 16, 1998, between Registrant
and Lincoln National Life Insurance Company.(7)
- (2) Amendment No. 1, dated November 20, 1998, to the Participation
Agreement, dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(8)
C-15
- (3) Amendment No. 2, dated May 1, 1999, to the Participation
Agreement, dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(14)
- (4) Amendment No. 3, dated October 14, 1999, to the Participation
Agreement, dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(14)
- (5) Amendment No. 4, dated May 1, 2000, to the Participation
Agreement, dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(14)
- (6) Amendment No. 5, dated July 15, 2000, to the Participation
Agreement, dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(18)
- (7) Amendment No. 6, dated July 15, 2001, to the Participation
Agreement dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(18)
- (8) Amendment No. 7, dated May 1, 2003, to the Participation
Agreement dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(27)
- (9) Amendment No. 8, dated April 30, 2004, to the Participation
Agreement dated June 16, 1998, between Registrant and Lincoln
National Life Insurance Company.(27)
(gg) - (1) Participation Agreement, dated June 30, 1998, between Registrant
and Aetna Life Insurance and Annuity Company.(7)
- (2) Amendment No. 1, dated October 1, 2000, to the Participation
Agreement, dated June 20, 1998, between Registrant and AETNA Life
Insurance and Annuity Company.(18)
- (3) Amendment dated July 12, 2002, to the Participation Agreement,
dated June 30, 1998, between Registrant and AETNA Life Insurance and
Annuity Company.(27)
(hh) - (1) Participation Agreement, dated July 1, 1998, between Registrant
and The Union Central Life Insurance Company.(8)
- (2) Amendment dated January 1, 2003, to the Participation Agreement,
dated July 1, 1998, between Registrant and The Union Central Life
Insurance Company.(20)
- (3) Amendment dated April 30, 2004, to the Participation Agreement,
dated July 1, 1998, between Registrant and The Union Central Life
Insurance Company (ING Life Insurance and Annuity Company).(27)
(ii) - (1) Participation Agreement, dated July 1, 1998, between Registrant
and United Investors Life Insurance Company.(8)
- (2) Amendment No. 1, dated July 1, 2002, to the Participation
Agreement, dated July 1, 1998, between Registrant and United
Investors Life Insurance Company.(27)
C-16
(jj) - (1) Participation Agreement, dated July 2, 1998, between Registrant
and Hartford Life Insurance Company.(7)
- (2) Amendment No. 1, dated April 29, 2002, to be effective as of
November 1, 2000, to the Participation Agreement, dated July 2, 1998,
between Registration and Hartford Life Insurance Company.(20)
- (3) Amendment No. 2, dated September 20, 2001, to the Participation
Agreement, dated July 2, 1998, between Registrant and Hartford Life
Insurance Company.(20)
- (4) Amendment No. 3, dated June 1, 2003, to the Participation
Agreement, dated July 2, 1998, between Registrant and Hartford Life
Insurance Company.(27)
- (5) Amendment No. 4, dated November 1, 2003, to the Participation
Agreement, dated July 2, 1998, between Registrant and Hartford Life
Insurance Company.(27)
- (6) Amendment No. 5, dated May 1, 2004, to the Participation
Agreement, dated July 2, 1998, between Registrant and Hartford Life
Insurance Company.(27)
(kk) - (1) Participation Agreement, dated July 13, 1998, between Registrant
and Keyport Benefit Life Insurance Company.(7)
- (2) Amendment No. 1, dated December 28, 1998 to the Participation
Agreement, dated July 13, 1998, between Registrant and Keyport
Benefit Life Insurance Company.(8)
- (3) Amendment No. 2, dated March 12, 2001, to the Participation
Agreement, dated July 13, 1998, between Registrant and Keyport
Benefit Life Insurance Company.(27)
(ll) - (1) Participation Agreement, dated July 27, 1998, between Registrant
and Allmerica Financial Life Insurance and Annuity Company.(7)
- (2) Amendment No. 1, dated February 11, 2000, to the Participation
Agreement dated July 27, 1998 between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(13)
- (3) Amendment No. 2, dated April 10, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(14)
- (4) Amendment No. 3, dated May 1, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(14)
- (5) Amendment No. 4, dated October 4, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(14)
- (6) Amendment No. 5, dated December 1, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(18)
C-17
- (7) Amendment No. 6, dated May 1, 2001, to the Participation
Agreement dated July 27, 1998, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(18)
- (8) Amendment No. 7, dated May 1, 2002, to the Participation
Agreement dated July 27, 1998, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(20)
- (9) Amendment dated January 1, 2003, to the Participation Agreement
dated July 27, 1998, between Registrant and Allmerica Financial Life
Insurance and Annuity Company.(27)
(mm) - (1) Participation Agreement, dated July 27, 1998, between Registrant
and First Allmerica Financial Life Insurance Company.(7)
- (2) Amendment No. 1, dated February 11, 2000, to the Participation
Agreement dated July 27, 1998 between Registrant and First Allmerica
Financial Life Insurance Company.(13)
- (3) Amendment No. 2, dated April 10, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and First
Allmerica Financial Life Insurance Company.(14)
- (4) Amendment No. 3, dated May 1, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and First
Allmerica Financial Life Insurance Company.(14)
- (5) Amendment No. 4, dated October 4, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and First
Allmerica Financial Life Insurance Company.(14)
- (6) Amendment No. 5, dated December 1, 2000, to the Participation
Agreement, dated July 27, 1998, between Registrant and First
Allmerica Financial Life Insurance Company.(18)
- (7) Amendment No. 6, dated May 1, 2001, to the Participation
Agreement, dated July 27, 1998, between Registrant and First
Allmerica Financial Life Insurance Company.(18)
- (8) Amendment No. 7, dated May 1, 2002, to the Participation
Agreement, dated July 27, 1998, between Registrant and First
Allmerica Financial Life Insurance Company.(20)
- (9) Amendment dated January 1, 2003, to the Participation Agreement,
dated July 27, 1998, between Registrant and First Allmerica Financial
Life Insurance Company.(27)
(nn) - (1) Participation Agreement, dated October 15, 1998, between
Registrant and Lincoln Life & Annuity Insurance Company of New
York.(9)
- (2) Amendment No. 1, dated February 15, 2000, to the Participation
Agreement, dated October 15, 1998, between Registrant and Lincoln
Life & Annuity Insurance Company of New York.(27)
C-18
- (3) Amendment No. 2, dated May 1, 2000, to the Participation
Agreement, dated October 15, 1998, between Registrant and Lincoln
Life & Annuity Insurance Company of New York.(27)
- (4) Amendment No. 3, dated July 15, 2000, to the Participation
Agreement, dated October 15, 1998, between Registrant and Lincoln
Life & Annuity Insurance Company of New York.(27)
- (5) Amendment dated January 1, 2003, to the Participation Agreement,
dated October 15, 1998, between Registrant and Lincoln Life & Annuity
Insurance Company of New York.(27)
- (6) Amendment No. 5, dated April 30, 2004, to the Participation
Agreement, dated October 15, 1998, between Registrant and Lincoln
Life & Annuity Insurance Company of New York.(27)
(oo) - (1) Participation Agreement, dated November 23, 1998, between
Registrant and American General Annuity Insurance Company.(8)
- (2) Amendment No. 1, dated July 1, 1999, to the Participation
Agreement dated November 23, 1998, between Registrant and American
General Annuity Insurance Company.(11)
- (3) Amendment No. 2, dated August 1, 2000, to the Participation
Agreement, dated November 23, 1998, between Registrant and American
General Annuity Insurance Company.(14)
(pp) - (1) Participation Agreement, dated December 1, 1998, between
Registrant and the Prudential Insurance Company of America.(8)
- (2) Amendment No. 1, dated March 8, 2000, to the Participation
Agreement, dated December 1, 1998, between Registrant and the
Prudential Insurance Company of America.(27)
- (3) Amendment dated April 30, 2004, to the Participation Agreement,
dated December 1, 1998, between Registrant and the Prudential
Insurance Company of America.(27)
- (4) Form of Amendment dated May 1, 2006, to the Participation
Agreement, dated December 1, 1998, between Registrant and the
Prudential Insurance Company of America.(27)
(qq) - (1) Participation Agreement, dated February 1, 1999, between
Registrant and Sage Life Assurance of America, Inc.(9)
- (2) Amendment No. 1, dated October 1, 2001, to the Participation
Agreement, dated February 1, 1999, between Registrant and Sage Life
Assurance of America, Inc.(18)
- (3) Amendment No. 2, dated February 1, 2002, to the Participation
Agreement, dated February 1, 1999, between Registrant and Sage Life
Assurance of America, Inc.(27)
- (4) Amendment No. 3, dated May 1, 2003, to the Participation
Agreement, dated February 1, 1999, between Registrant and Sage Life
Assurance of America, Inc.(27)
C-19
(rr) - (1) Participation Agreement, dated April 1, 1999, between Registrant
and Liberty Life Assurance Company of Boston.(9)
- (2) Amendment No. 1, dated May 1, 2001, to the Participation
Agreement, dated April 1, 1999, between Registrant and Liberty Life
Assurance Company of Boston.(18)
- (3) Amendment No. 2, dated April 30, 2004, to the Participation
Agreement, dated April 1, 1999, between Registrant and Liberty Life
Assurance Company of Boston.(27)
(ss) - Participation Agreement, dated April 13, 1999, between Registrant and
Western-Southern Life Insurance Company.(10)
(tt) - (1) Participation Agreement, dated May 1, 1999, between Registrant
and Columbus Life Insurance Company.(10)
- (2) Amendment dated April 25, 2003, to the Participation Agreement,
dated May 1, 1999, between Registrant and Columbus Life Insurance
Company.(27)
- (3) Amendment No. 2, dated April 30, 2004, to the Participation
Agreement, dated May 1, 1999, between Registrant and Columbus Life
Insurance Company.(27)
(uu) - (1) Participation Agreement, dated April 26, 1999, between Registrant
and First Variable Life Insurance Company.(10)
- (2) Amendment dated April 30, 2004, to the Participation Agreement,
dated April 26, 1999, between Registrant and Protective Life
Insurance Company (formerly, First Variable Life Insurance
Company).(27)
(vv) - Participation Agreement, dated August 21, 1999, between Registrant
and Life Investors Insurance Company of America.(11)
(ww) - Participation Agreement, dated June 8, 1999, between Registrant and
The Principal Life Insurance Company.(10)
(xx) - (1) Participation Agreement, dated June 8, 1999, between Registrant
and Principal Life Insurance Company.(11)
- (2) Amendment, dated April 1, 2001, to the Participation Agreement,
dated June 8, 1999, between Registrant and Principal Life Insurance
Company.(27)
- (3) Amendment, dated May 1, 2002, to the Participation Agreement,
dated June 8, 1999, between Registrant and Principal Life Insurance
Company.(20)
- (4) Amendment, dated August 15, 2002, to the Participation Agreement,
dated June 8, 1999, between Registrant and Principal Life Insurance
Company.(20)
- (5) Amendment dated January 8, 2003, to the Participation Agreement,
dated June 8, 1999, between Registrant and Principal Life Insurance
Company.(27)
- (6) Amendment dated February 14, 2003, to the Participation
Agreement, dated June 8, 1999, between Registrant and Principal Life
Insurance Company.(27)
- (7) Amendment, dated April 30, 2004, to the Participation Agreement,
dated June 8, 1999, between Registrant and Principal Life Insurance
Company.(27)
C-20
- (8) Amendment dated April 29, 2005, to the Participation Agreement,
dated June 8, 1999, between Registrant and Principal Life Insurance
Company.(27)
- (9) Form of Amendment No. 8, dated May 1, 2006, to the Participation
Agreement, dated June 8, 1999, between Registrant and Principal Life
Insurance Company.(27)
(yy) - Participation Agreement, dated June 14, 1999, between Registrant and
Security First Life Insurance Company.(11)
(zz) - (1) Participation Agreement, dated July 1, 1999, between Registrant
and Allstate Life Insurance Company.(11)
- (2) Amendment No. 1, dated December 20, 2001, to the Participation
Agreement, dated July 1, 1999, between Registrant and Allstate Life
Insurance Company.(18)
- (3) Amendment No. 2, dated May 1, 2003, to the Participation
Agreement, dated July 1, 1999, between Registrant and Allstate Life
Insurance Company.(27)
(aaa) - Participation Agreement, dated July 27, 1999, between Registrant and
Allianz Life Insurance Company of North America.(11)
(bbb) - Participation Agreement, dated July 27, 1999, between Registrant and
Preferred Life Insurance Company of New York.(11)
(ccc) - (1) Participation Agreement, dated August 31, 1999, between
Registrant and John Hancock Mutual Life Insurance Company.(11)
(ddd) - (1) Participation Agreement, dated August 31, 1999, between
Registrant and The United States Life Insurance Company in the City
of New York.(11)
- (2) Amendment No. 1, dated October 1, 2001, to the Participation
Agreement, dated August 31, 1999, between Registrant and The United
States Life Insurance Company in the City of New York.(27)
- (3) Amendment No. 2, dated December 31, 2002, to the Participation
Agreement, dated August 31, 1999, between Registrant and The United
States Insurance Company in the City of New York.(27)
- (4) Amendment No. 3, dated September 5, 2003, to the Participation
Agreement, dated August 31, 1999, between Registrant and The United
States Insurance Company in the City of New York.(27)
(eee) - (1) Participation Agreement, dated November 1, 1999, between
Registrant and AETNA Insurance Company of America.(12)
- (2) Amendment No. 1, dated November 17, 2000, to the Participation
Agreement dated November 1, 1999, between Registrant and AETNA
Insurance Company of America.(18)
- (3) Amendment dated July 21, 2002, to the Participation Agreement,
dated November 1, 1999, between Registrant and AETNA Insurance
Company of America.(27)
C-21
(fff) - Participation Agreement, dated January 28, 2000, between Registrant
and Northbrook Life Insurance Company.(13)
(ggg) - (1) Participation Agreement, dated March 2, 2000, between Registrant
and GE Life and Annuity Assurance Company.(14)
- (2) Amendment No. 1, dated January 12, 2005, to the Participation
Agreement, dated January 28, 2000, between Registrant and GE Life and
Annuity Assurance Company.(27)
- (3) Amendment No. 2, dated April 29, 2005, to the Participation
Agreement, dated January 28, 2000, between Registrant and GE Life and
Annuity Assurance Company.(27)
(hhh) - Participation Agreement, dated March 27, 2000, between Registrant and
Reliastar Life Insurance Company of New York.(14)
(iii) - Participation Agreement, dated March 27, 2000, between Registrant and
Northern Life Insurance Company.(14)
(jjj) - Participation Agreement, dated March 27, 2000, between Registrant and
Reliastar Life Insurance Company.(14)
(kkk) - (1) Participation Agreement, dated April 10, 2000, between Registrant
and Allmerica Financial Life Insurance and Annuity Company.(14)
- (2) Amendment No. 1, dated December 1, 2000, to the Participation
Agreement, dated April 10, 2000, between Registrant and Allmerica
Financial Life Insurance and Annuity Company.(18)
(lll) - (1) Participation Agreement, dated April 14, 2000, between Registrant
and United Investors Life Insurance Company.(14)
- (2) Amendment dated April 30, 2004, to the Participation Agreement,
dated April 14, 2000, between Registrant and United Investors Life
Insurance Company.(27)
(mmm) - (1) Participation Agreement, dated April 17, 2000, between Registrant
and Sun Life Insurance and Annuity Company of New York.(14)
- (2) Amendment No. 1, dated April 27, 2000, to the Participation
Agreement, dated April 17, 2000, between Registrant and Sun Life
Insurance and Annuity Company of New York.(20)
- (3) Amendment No. 2, dated September 1, 2001, to the Participation
Agreement, dated April 17, 2000, between Registrant and Sun Life
Insurance and Annuity Company of New York.(20)
- (4) Amendment No. 3, dated April 1, 2002, to the Participation
Agreement, dated April 17, 2000, between Registrant and Sun Life
Insurance and Annuity Company of New York.(20)
- (5) Amendment No. 4, dated December 31, 2002, to the Participation
Agreement, dated April 17, 2000, between Registrant and Sun Life
Insurance and Annuity Company of New York.(20)
C-22
- (6) Amendment No. 5, dated August 20, 2003, to the Participation
Agreement, dated April 17, 2000, between Registrant and Sun Life
Insurance and Annuity Company of New York.(27)
- (7) Amendment No. 6, dated April 30, 2004, to the Participation
Agreement, dated April 17, 2000, between Registrant and Sun Life
Insurance and Annuity Company of New York.(27)
(nnn) - (1) Participation Agreement, dated August 1, 2000, between Registrant
and Kansas City Life Insurance Company.(14)
- (2) Amendment dated October 31, 2002, to the Participation Agreement,
dated August 1, 2000, between Registrant and Kansas City Life
Insurance Company.(27)
(ooo) - (1) Participation Agreement, dated September 25, 2000, between
Registrant and Security Life of Denver Insurance Company.(14)
- (2) Amendment No. 1, dated September 5, 2001, to the Private
Placement Participation Agreement, dated September 25, 2000, between
Registrant and Security Life of Denver Insurance Company.(18)
(ppp) - (1) Participation Agreement, dated February 26, 1999, between
Registrant and American General Life Insurance Company.(18)
- (2) Amendment No. 1, dated November 1, 2000, to the Participation
Agreement, dated February 26, 1999, between Registrant and American
General Life Insurance Company.(18)
- (3) Amendment No. 2, dated October 12, 2002, to the Participation
Agreement, dated February 26, 1999, between Registrant and American
General Life Insurance Company.(27)
(qqq) - (1) Participation Agreement, dated April 3, 2000, between Registrant
and First Cova Life Insurance Company.(18)
- (2) Amendment No. 1, dated February 12, 2001, to the Participation
Agreement dated December 31, 1997, between Registrant and First Met
Life Investors Insurance Company (formerly, First Cova Life Insurance
Company).(18)
(rrr) - (1) Participation Agreement, dated February 1, 2001, between
Registrant and Peoples Benefit Life Insurance Company.(18)
- (2) Amendment dated April 6, 2004, to the Participation Agreement,
dated February 1, 2001, between Registrant and Peoples Benefit Life
Insurance Company.(27)
(sss) - (1) Participation Agreement, dated March 28, 2001, between Registrant
and Security Benefit Life Insurance Company.(18)
- (2) Amendment No. 1, dated May 1, 2003, to the Participation
Agreement, dated March 28, 2001, between Registrant and Security
Benefit Life Insurance Company.(27)
- (3) Amendment No. 2, dated September 29, 2005, to the Participation
Agreement, dated March 28, 2001, between Registrant and Security
Benefit Life Insurance Company.(27)
C-23
(ttt) - Participation Agreement, dated March 29, 2001, between Registrant and
Phoenix Home Life Mutual Insurance Company.(18)
(uuu) - Participation Agreement, dated March 29, 2001, between Registrant and
Phoenix Life and Annuity Company.(18)
(vvv) - Participation Agreement, dated March 29, 2001, between Registrant and
PHL Variable Insurance Company.(18)
(www) - (1) Participation Agreement, dated April 4, 2001, between Registrant
and Annuity Investors Life Insurance Company.(18)
- (2) Amendment No. 1, dated July 1, 2002, to the Participation
Agreement, dated April 4, 2001, between Registrant and Annuity
Investors Life Insurance Company.(27)
- (3) Amendment dated April 30, 2004, to the Participation Agreement,
dated April 4, 2001, between Registrant and Annuity Investors Life
Insurance Company.(27)
(xxx) - Participation Agreement, dated April 17, 2001, between Registrant and
Sun Life Insurance and Annuity Company of New York.(18)
(yyy) - (1) Participation Agreement, dated April 30, 2001, between Registrant
and Western Reserve Life Assurance Co. of Ohio.(18)
- (2) Amendment dated April 30, 2001, to the Participation Agreement,
dated April 30, 2001, between Registrant and Western Reserve Life
Assurance Co. of Ohio.(27)
(zzz) - (1) Participation Agreement, dated July 13, 2001, between Registrant
and Golden American Life Insurance Company.(18)
- (2) Amendment dated April 30, 2004, to the Participation Agreement,
dated July 13, 2001, between Registrant and Golden American Life
Insurance Company.(27)
(aaaa) - (1) Participation Agreement, dated July 24, 2001, between Registrant
and Lincoln Benefit Life Company.(18)
- (2) Amendment No. 1, dated December 18, 2002, to the Participation
Agreement, dated July 24, 2001, between Registrant and Lincoln
Benefit Life Company.(20)
(bbbb) - (1) Participation Agreement, dated October 1, 2001, between
Registrant and The Travelers Life and Annuity Company.(18)
- (2) Amendment dated May 1, 2003, to the Participation Agreement,
dated October 1, 2001, between Registrant and The Travelers Life and
Annuity Company.(27)
- (3) Amendment dated March 31, 2005, to the Participation Agreement,
dated October 1, 2001, between Registrant and The Travelers Life and
Annuity Company.(27)
C-24
(cccc) - Participation Agreement, dated November 1, 2001, between Registrant
and The American Life Insurance Company of New York.(18)
(dddd) - (1) Participation Agreement, dated May 1, 2002, between the
Registrant and Hartford Life and Annuity Insurance Company.(27)
- (2) Amendment No. 1, dated April 30, 2004, to the Participation
Agreement, dated May 1, 2002, between Registrant and Hartford Life
and Annuity Insurance Company.(27)
(eeee) - (1) Participation Agreement, dated March 4, 2002, between Registrant
and Minnesota Life Insurance Company.(19)
- (2) Amendment No. 1, dated April 30, 2004, to the Participation
Agreement, dated March 4, 2002, between Registrant and Minnesota Life
Insurance Company.(27)
(ffff) - (1) Participation Agreement, dated May 1, 2002, between Registrant
and AUSA Life Insurance Company, Inc.(20)
- (2) Amendment No. 1, dated May 1, 2004, to the Participation
Agreement, dated May 1, 2002, between Registrant and AUSA Life
Insurance Company, Inc.(27)
(gggg) - Participation Agreement, dated October 1, 2002, between Registrant
and CUNA Mutual Life Insurance Company.(20)
(hhhh) - (1) Participation Agreement, dated May 1, 2000, between Registrant
and SAFECO Life Insurance Company.(27)
- (2) Amendment dated May 1, 2003, to the Participation Agreement,
dated May 1, 2000, between Registrant and SAFECO Life Insurance
Company.(27)
- (3) Amendment dated April 30, 2004, to the Participation Agreement,
dated May 1, 2000, between Registrant and SAFECO Life Insurance
Company.(27)
- (4) Amendment dated July 15, 2005, to the Participation Agreement,
dated May 1, 2000, between Registrant and SAFECO Life Insurance
Company.(27)
(iiii) - (1) Participation Agreement, dated May 22, 2002, between Registrant
and The Penn Mutual Life Insurance Company.(27)
- (2) Amendment No. 1, dated May 1, 2004, to the Participation
Agreement, dated May 22, 2002, between Registrant and The Penn Mutual
Life Insurance Company.(27)
(jjjj) - (1) Participation Agreement, dated June 21, 2002, between Registrant
and First Security Benefit Life Insurance and Annuity Company.(27)
- (2) Amendment No. 1, dated May 1, 2003, to the Participation
Agreement, dated June 21, 2002, between Registrant and First Security
Benefit Life Insurance and Annuity Company.(27)
- (3) Amendment No. 2, dated September 29, 2005, to the Participation
Agreement, dated June 21, 2002, between Registrant and First Security
Benefit Life Insurance and Annuity Company.(27)
C-25
(kkkk) - Participation Agreement, dated April 30, 2003, between Registrant and
MONY Life Insurance Company.(27)
(llll) - Participation Agreement, dated April 30, 2003, between Registrant and
MONY Life Insurance Company of America.(27)
(mmmm) - Participation Agreement, dated September 1, 2005, between Registrant
and American National Insurance Company.(27)
(nnnn) - (1) Participation Agreement, dated October 12, 1999, between
Registrant and Security Equity Life Insurance Company.(27)
- (2) Amendment No. 1, dated October 31, 2003, to the Participation
Agreement, dated October 12, 1999, between Registrant and Security
Equity Life Insurance Company.(27)
(oooo) - (1) Participation Agreement, dated October 12, 1999, between
Registrant and General American Life Insurance Company.(27)
- (2) Amendment dated September 2, 2002, to the Participation
Agreement, dated October 12, 1999, between Registrant and General
American Life Insurance Company.(27)
(pppp) - (1) Participation Agreement, dated May 1, 2003, between Registrant
and Jefferson National Life Insurance Company.(27)
- (2) Amendment dated April 30, 2004, to the Participation Agreement,
dated May 1, 2003, between Registrant and Jefferson National Life
Insurance Company.(27)
- (3) Amendment dated May 1, 2006, to the Participation Agreement,
dated May 1, 2003, between Registrant and Jefferson National Life
Insurance Company.(27)
(qqqq) - Participation Agreement, dated April 30, 2004, between Registrant and
Midland National Life Insurance Company.(27)
(rrrr) - Participation Agreement, dated April 30, 2004, between Registrant and
National Life Insurance Company.(27)
(ssss) - Participation Agreement, dated April 30, 2004, between Registrant and
Metropolitan Life Insurance Company.(27)
(tttt) - Participation Agreement, dated April 30, 2004, between Registrant and
Ameritas Variable Life Insurance Company.(27)
(uuuu) - Participation Agreement, dated April 30, 2004, between Registrant and
Ameritas Life Insurance Company.(27)
(vvvv) - Participation Agreement, dated April 30, 2004, between Registrant and
Business Men's Assurance Company of America.(27)
(wwww) - Participation Agreement, dated April 30, 2004, between Registrant and
American Skandia Life Assurance Corp.(27)
(xxxx) - Participation Agreement, dated April 30, 2004, between Registrant and
Great-West Life Annuity Insurance Company.(27)
C-26
(yyyy) - Participation Agreement, dated April 30, 2004, between Registrant and
American United Life Insurance Company.(27)
(zzzz) - (1) Participation Agreement, dated March 2, 2003, between Registrant
and GE Capital Life Assurance Company of New York.(27)
- (2) Amendment No. 1, dated April 29, 2005, to the Participation
Agreement, dated March 2, 2003, between Registrant and GE Capital
Life Assurance Company of New York.(27)
(aaaaa) - Participation Agreement, dated April 30, 2004, between Registrant and
American Partners Life Insurance Company.(27)
(bbbbb) - Participation Agreement, dated April 30, 2004, between Registrant and
Massachusetts Mutual Life Insurance Company.(27)
(ccccc) - Participation Agreement, dated April 30, 2004, between Registrant and
C.M. Life Insurance Company.(27)
(ddddd) - Participation Agreement, dated July 1, 2005, between Registrant and
AXA Equitable Life Insurance Company.(27)
(eeeee) - (1) Participation Agreement, dated September 14, 2005, between
Registrant and New York Life Insurance and Annuity Corp.(27)
- (2) Addendum dated March 17, 2006, to the Participation Agreement,
dated September 14, 2005, between Registrant and New York Life
Insurance and Annuity Corp.(27)
(fffff) - Participation Agreement, dated April 30, 2004, between Registrant and
Chase Insurance Life and Annuity Company.(27)
(ggggg) - Participation Agreement, dated April 30, 2004, between Registrant and
Kemper Investors Life Insurance Company.(27)
(hhhhh) - (1) Participation Agreement, dated January 6, 2003, between
Registrant and Nationwide Life Insurance Company.(27)
- (2) Amendment No. 1, dated April 30, 2004, to the Participation
Agreement, dated January 6, 2003, between Registrant and Nationwide
Life Insurance Company.(27)
- (3) Amendment No. 2, dated July 1, 2005, to the Participation
Agreement, dated January 6, 2003, between Registrant and Nationwide
Life Insurance Company.(27)
(iiiii) - Accounting Services Agreement, dated March 31, 1993, between the
Registrant and State Street Bank and Trust Company.(4)
(jjjjj) - Agreement and Plan of Reorganization, dated December 7, 1999, between
Registrant and AIM Variable Insurance Funds.(12)
(kkkkk) - (1) Memorandum of Agreement between Registrant, on behalf of AIM V.I.
Basic Value Fund and AIM V.I. Mid Cap Equity Fund, and A I M
Advisors, Inc., dated July 1, 2001.(18)
C-27
- (2) Memorandum of Agreement, between Registrant, on behalf of AIM
V.I. Basic Value Fund and AIM V.I. Mid Cap Equity Fund, and A I M
Advisors, Inc. regarding securities lending, dated July 1, 2001.(18)
(lllll) - (1) Form of Memorandum of Agreement between Registrant, on behalf of
AIM V.I. Large Cap Growth Fund and AIM V.I. Small Cap Equity Fund,
and A I M Advisors, Inc. (21)
- (2) Form of Memorandum of Agreement between Registrant, on behalf of
AIM V.I. Large Cap Growth Fund and AIM V.I. Small Cap Equity Fund,
and A I M Advisors, Inc. regarding securities lending.(21)
(mmmmm) - Second Amended and Restated Interfund Loan Agreement, dated April 30,
2004, between Registrant and A I M Advisors, Inc.(24)
(nnnnn) - Memorandum of Agreement, dated as of January 1, 2005, between
Registrant and A I M Advisors, Inc. with respect to AIM V.I.
Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Basic Value
Fund, AIM V.I. Blue Chip Fund, AIM V.I. Capital Appreciation Fund,
AIM V.I. Capital Development Fund, AIM V.I. Core Equity Fund, AIM
V.I. Core Stock Fund, AIM V.I. Dent Demographic Trends Fund, AIM V.I.
Dynamics Fund, AIM V.I. Financial Services Fund, AIM V.I. Growth
Fund, AIM V.I. Health Sciences Fund, AIM V.I. International Growth
Fund, AIM V.I. Large Cap Growth Fund, AIM V.I. Leisure Fund, AIM V.I.
Mid Cap Core Equity Fund, AIM V.I. Premier Equity Fund, AIM V.I. Real
Estate Fund, AIM V.I. Small Cap Equity Fund, AIM V.I. Small Company
Growth Fund, AIM V.I. Technology Fund, AIM V.I. Total Return Fund and
AIM V.I. Utilities Fund.(24)
(ooooo) - (1) Memorandum of Agreement, dated as of January 1, 2005, between
Registrant, on behalf of all funds, and A I M Advisors, Inc.(24)
- (2) Memorandum of Agreement, dated as of July 1, 2005, between
Registrant, on behalf of all funds and A I M Advisors, Inc.(26)
- (3) Memorandum of Agreement, dated as of November 1, 2005, between
Registrant, on behalf of all funds, and A I M Advisors, Inc.(26)
- (4) Memorandum of Agreement, dated as of January 1, 2006, between
Registrant, on behalf of all funds, and A I M Advisors, Inc.(26)
- (5) Memorandum of Agreement, dated as of April 1, 2006, between
Registrant, on behalf of all funds, and A I M Advisors, Inc.(27)
(ppppp) - Memorandum of Agreement, dated as of January 1, 2005, between
Registrant, on behalf of all funds, and A I M Distributors, Inc.(24)
14 (a) - Consent of Tait Weller & Baker is filed herewith.
(b) - Consent of PricewaterhouseCoopers LLP is filed herewith.
15 - Financial Statements for the period ended December 31, 2005 and June
30, 2006 are incorporated by reference to AIM V.I. Demographic Trends
Fund's and AIM V.I. Capital Appreciation Fund's annual and
semi-annual reports to shareholders contained in the Registrant's
Form N-CSR filed on March 3, 2006 and [August __, 2006],
respectively.
C-28
16 - Powers of Attorney for Baker, Bayley, Bunch, Crockett, Dowden,
Fields, Frischling, Graham, Mathai-Davis, Pennock, Quigley, Soll,
Stickel and Williamson.(26)
17 - Form of Proxy relating to the Special Meeting of Shareholders of AIM
V.I. Demographic Trends Fund is filed herewith.
- ----------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A, filed on April 19, 1993.
(2) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A, filed on November 3,
1994.
(3) Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A, filed on April 26, 1995.
(4) Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 29, 1996.
(5) Incorporated herein by reference to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 23, 1997.
(6) Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 13, 1998.
(7) Incorporated herein by reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
October 2, 1998.
(8) Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 18, 1999.
(9) Incorporated herein by reference to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 29, 1999.
(10) Incorporated herein by reference to Post-Effective Amendment No. 13 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
July 13, 1999.
(11) Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
September 28, 1999.
(12) Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 16, 2000.
(13) Incorporated herein by reference to Post-Effective Amendment No. 16 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 17, 2000.
(14) Incorporated herein by reference to Post-Effective Amendment No. 18 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 16, 2001.
(15) Incorporated herein by reference to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 12, 2001.
(16) Incorporated herein by reference to Post Effective Amendment No. 20 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
May 29, 2001.
(17) Incorporated herein by reference to Post Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
July 18, 2001.
(18) Incorporated herein by reference to Post Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 12, 2002.
(19) Incorporated herein by reference to Post Effective Amendment No. 24 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 30, 2002.
(20) Incorporated herein by reference to Post Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 29, 2003.
(21) Incorporated herein by reference to Post Effective Amendment No. 26 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
June 18, 2003.
(22) Incorporated herein by reference to Post Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 13, 2004.
(23) Incorporated herein by reference to Post Effective Amendment No. 28 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
April 13, 2004.
(24) Incorporated herein by reference to Post Effective Amendment No. 29 to the
Registrant's Registration Statement on Form N-1A, filed electronically on
February 28, 2005.
(25) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A, filed electronically on
April 28, 2005.
(26) Incorporated herein by reference to Post-Effective Amendment No. 31, to
Registrant's Registration Statement on Form N-1A, filed electronically on
February 14, 2006.
(27) Incorporated herein by reference to Post-Effective Amendment No. 32, to
Registrant's Registration Statement on Form N-1A, filed electronically on
April 27, 2006.
C-29
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act [17 CRF 203.145C], the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filled under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used until the
amendment is effective, and that, in determining any liability under
the 1933 Act, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(3) The undersigned Registrant undertakes to file an opinion of
counsel supporting the tax matters and consequences to shareholders
discussed in the prospectus in a post-effective amendment to this
registration statement.
C-30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Houston, State of Texas, on the 16th day of August, 2006.
REGISTRANT: AIM VARIABLE INSURANCE FUNDS
By: /s/ PHILIP A. TAYLOR
------------------------------------
Philip A. Taylor, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form N-14 has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert H. Graham Trustee August 16, 2006
-----------------------------------
(Robert H. Graham)
/s/ Bob R. Baker* Trustee August 16, 2006
-----------------------------------
(Bob R. Baker)
/s/ Frank S. Bayley* Trustee August 16, 2006
-----------------------------------
(Frank S. Bayley)
/s/ James T. Bunch* Trustee August 16, 2006
-----------------------------------
(James T. Bunch)
/s/ Bruce L. Crockett* Chair & Trustee August 16, 2006
-----------------------------------
(Bruce L. Crockett)
/s/ Albert R. Dowden* Trustee August 16, 2006
-----------------------------------
(Albert R. Dowden)
/s/ Jack M. Fields* Trustee August 16, 2006
-----------------------------------
(Jack M. Fields)
/s/ Carl Frischling* Trustee August 16, 2006
-----------------------------------
(Carl Frischling)
/s/ Prema Mathai-Davis* Trustee August 16, 2006
-----------------------------------
(Prema Mathai-Davis)
/s/ Lewis F. Pennock* Trustee August 16, 2006
-----------------------------------
(Lewis F. Pennock)
/s/ Ruth H. Quigley* Trustee August 16, 2006
-----------------------------------
(Ruth H. Quigley)
/s/ Larry Soll* Trustee August 16, 2006
-----------------------------------
(Larry Soll)
/s/ Raymond Stickel, Jr.* Trustee August 16, 2006
-----------------------------------
(Raymond Stickel, Jr.)
/s/ Mark H. Williamson* Trustee & August 16, 2006
----------------------------------- Executive Vice President
(Mark H. Williamson)
/s/ Philip A. Taylor President August 16, 2006
----------------------------------- (Principal Executive Officer)
(Philip A. Taylor)
/s/ Sidney M. Dilgren Vice President & Treasurer August 16, 2006
----------------------------------- (Principal Financial and
(Sidney M. Dilgren) Accounting Officer)
*By /s/ Robert H. Graham August 16, 2006
-----------------------------------
Robert H. Graham
Attorney-in-Fact
*Robert H. Graham, pursuant to powers of attorney filed in Post-Effective
Amendment No. 31 to the Registrant's Registration Statement on Form N-1A on
February 14, 2006.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll,
LLP, as to the legality of the securities being registered
14(a) Consent of Tait Weller & Baker
14(b) Consent of PricewaterhouseCoopers LLP
17 Form of Proxy relating to the Special Meeting of Shareholders of AIM
V.I. Demographic Trends Fund