<PAGE>
[AIM LOGO APPEARS HERE]
PROSPECTUS AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. CAPITAL APPRECIATION FUND
May 1, 1996 AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH FUND
AIM V.I. GROWTH AND INCOME FUND
AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. MONEY MARKET FUND
AIM V.I. VALUE FUND
AIM V.I. Capital Appreciation Fund, AIM V.I. Diversified Income
Fund, AIM V.I. Global Utilities Fund, AIM V.I. Government
Securities Fund, AIM V.I. Growth Fund, AIM V.I. Growth and
Income Fund, AIM V.I. International Equity Fund, AIM V.I. Money
Market Fund and AIM V.I. Value Fund (the "Funds") are nine
investment portfolios comprising series of AIM Variable
Insurance Funds, Inc. (the "Company"), an open-end, series,
management investment company. Shares of the Funds are
currently offered only to insurance company separate accounts
to fund the benefits of variable annuity contracts and variable
life insurance policies. Shares of the Funds may be offered, in
the future, to certain pension or retirement plans. The
investment objectives of the Funds are described on the inside
cover page. The address for AIM Variable Insurance Funds, Inc.
is 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173,
and its telephone number is (713) 626-1919.
UP TO 50% OF THE SECURITIES IN WHICH THE AIM V.I. DIVERSIFIED
INCOME FUND INVESTS MAY BE SECURITIES RATED IN THE LOWER RATING
CATEGORIES OF NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS ("NRSROS"), OR ARE UNRATED, AND ARE COMMONLY
KNOWN AS "JUNK BONDS." INVESTMENT IN NON-INVESTMENT GRADE DEBT
SECURITIES ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST, AND MAY ENTAIL OTHER RISKS THAT ARE DIFFERENT FROM OR
MORE PRONOUNCED THAN THOSE INVOLVED IN HIGHER-RATED SECURITIES.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THIS FUND. SEE "RISK FACTORS" UNDER "INVESTMENT
PROGRAMS."
This prospectus sets forth basic information about the Funds
that prospective investors should know before investing. It
should be read and retained for future reference. A Statement
of Additional Information dated May 1, 1996, has been filed
with the Securities and Exchange Commission and is incorporated
herein by reference. The Statement of Additional Information is
available without charge upon written request to the Company at
the address shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUNDS' SHARES ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THERE IS NO ASSURANCE THAT THE AIM V.I. MONEY MARKET FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
About the Funds......................... 2
Financial Highlights.................... 3
Performance............................. 8
Investment Objectives and Programs...... 8
Risk Factors............................ 16
Management.............................. 17
Purchase and Redemption of Shares....... 20
</TABLE>
<TABLE>
<S> <C>
Determination of Net Asset Value........ 20
Dividends, Distributions and Tax
Matters................................ 21
General Information..................... 22
Appendix A.............................. A-1
Appendix B.............................. B-1
Appendix C.............................. C-1
</TABLE>
- -------------------------------------------------------------------------------
ABOUT THE FUNDS
The following is a brief description of the investment objectives and
programs of the Funds:
AIM V.I. CAPITAL APPRECIATION FUND ("CAPITAL APPRECIATION FUND") is a
diversified portfolio which seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
AIM V.I. DIVERSIFIED INCOME FUND ("DIVERSIFIED INCOME FUND") is a
diversified portfolio which seeks to achieve a high level of current income
primarily by investing in a diversified portfolio of foreign and U.S.
government and corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
AIM V.I. GLOBAL UTILITIES FUND ("GLOBAL UTILITIES FUND") is a non-
diversified portfolio which seeks to achieve a high level of current income,
and as a secondary objective to achieve capital appreciation, by investing
primarily in common and preferred stocks of public utility companies (either
domestic or foreign).
AIM V.I. GOVERNMENT SECURITIES FUND ("GOVERNMENT FUND") is a diversified
portfolio which seeks to achieve a high level of current income consistent
with reasonable concern for safety of principal by investing in debt
securities issued, guaranteed or otherwise backed by the U.S. Government.
AIM V.I. GROWTH FUND ("GROWTH FUND") is a diversified portfolio which seeks
to provide growth of capital through investments primarily in common stocks of
leading U.S. companies considered by AIM to have strong earnings momentum.
AIM V.I. GROWTH AND INCOME FUND ("GROWTH & INCOME FUND") is a diversified
portfolio which seeks to provide growth of capital, with current income as a
secondary objective by investing primarily in dividend paying common stocks
which have prospects for both growth of capital and dividend income.
AIM V.I. INTERNATIONAL EQUITY FUND ("INTERNATIONAL FUND") is a diversified
portfolio which seeks to provide long-term growth of capital by investing in
international equity securities, the issuers of which are considered by AIM to
have strong earnings momentum.
AIM V.I. MONEY MARKET FUND ("MONEY MARKET FUND") is a diversified portfolio
which seeks to provide as high a level of current income as is consistent with
the preservation of capital and liquidity by investing in a diversified
portfolio of money market instruments.
AIM V.I. VALUE FUND ("VALUE FUND") is a diversified portfolio which seeks to
achieve long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by the companies issuing the securities
or relative to the equity markets generally. Income is a secondary objective.
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK and AIM Institutional Funds are
registered service marks of A I M Management Group Inc.
2
<PAGE>
The Capital Appreciation Fund, Diversified Income Fund, Global Utilities
Fund, Government Fund, Growth Fund, Growth & Income Fund, International Fund,
Money Market Fund and Value Fund are separate series of shares of AIM Variable
Insurance Funds, Inc., a Maryland corporation organized on January 22, 1993
and registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company (see "General
Information--Organization of the Company"). Each Fund has its own investment
objective(s) and policies designed to meet specific investment goals, operates
as an open-end management investment company and expects to be treated as a
regulated investment company for federal income tax purposes. Each Fund is
diversified except Global Utilities Fund. For more information on
diversification, see "Risk Factors" in this Prospectus.
Each Fund invests in securities of different issuers and industry
classifications in an attempt to spread and reduce the risks inherent in all
investing. Each Fund continuously offers new shares for sale to separate
accounts of participating life insurance companies ("Participating Insurance
Companies"), and stands ready to redeem its outstanding shares for cash at
their net asset value. A I M Advisors, Inc. ("AIM"), the investment advisor
for each Fund, continuously reviews and, from time to time, changes the
portfolio holdings of each of the Funds in pursuit of each Fund's
objective(s).
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of each of
the Funds (except the Global Utilities Fund and the Growth & Income Fund) for
the period May 5, 1993 (date operations commenced) through January 31, 1994,
for the fiscal year ended January 31, 1995 and for the eleven months ended
December 31, 1995. Financial highlights for a share outstanding of each of the
Global Utilities Fund and the Growth & Income Fund for the period May 2, 1994
(date operations commenced) through January 31, 1995 and for the eleven months
ended December 31, 1995, are also shown below. The financial highlights have
been audited by Tait, Weller & Baker, independent auditors, whose unqualified
reports thereon are included in the Statement of Additional Information.
Additional information about the performance of the Funds is contained in the
Funds' annual report to shareholders, which may be obtained without charge
upon request.
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
January 31,
December 31, -----------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period...... $ 12.05 $ 12.58 $ 10.00
-------- ------- -------
Income from investment operations:
Net investment income................... 0.04 0.05 --
Net gains (losses) on securities (both
realized and unrealized)............... 4.46 (0.54) 2.59
-------- ------- -------
Total from investment operations...... 4.50 (0.49) 2.59
-------- ------- -------
Less distributions:
Dividends from net investment income.... -- (0.04) (0.01)
-------- ------- -------
Net asset value, end of period............ $ 16.55 $ 12.05 $ 12.58
======== ======= =======
Total return(a)........................... 37.38% (3.91)% 25.90%
======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).. $212,152 $88,177 $35,354
======== ======= =======
Ratio of expenses to average net assets... 0.75%(b) 0.84% 1.06%(c)
======== ======= =======
Ratio of net investment income to average
net assets............................... 0.39%(b) 0.46% 0.07%(c)
======== ======= =======
Portfolio turnover rate................... 37% 81% 34%
======== ======= =======
</TABLE>
- -------
(a)Total returns are not annualized for periods less than one year.
(b)Ratios are annualized and based on average net assets of $148,432,750.
(c)Annualized.
3
<PAGE>
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
January 31,
December 31, -----------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period....... $ 9.12 $ 10.46 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income.................... 0.69 0.76 0.54
Net gains (losses) on securities (both
realized and unrealized)................ 0.94 (1.42) 0.29
------- ------- -------
Total from investment operations....... 1.63 (0.66) 0.83
------- ------- -------
Less distributions:
Dividends from net investment income..... (0.75) (0.68) (0.35)
Distributions from net realized capital
gains................................... -- -- (0.02)
------- ------- -------
Total distributions.................... (0.75) (0.68) (0.37)
------- ------- -------
Net asset value, end of period............. $ 10.00 $ 9.12 $ 10.46
======= ======= =======
Total return(a)............................ 18.11% (6.35)% 8.33%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)... $44,630 $25,271 $14,530
======= ======= =======
Ratio of expenses to average net assets(c). 0.88%(b) 0.91% 1.05%(e)
======= ======= =======
Ratio of net investment income to average
net assets(d)............................. 7.65%(b) 8.07% 6.78%(e)
======= ======= =======
Portfolio turnover rate.................... 72% 100% 57%
======= ======= =======
</TABLE>
- -------
(a)Total returns for periods less than one year are not annualized.
(b)Ratios are annualized and based on average net assets of $35,153,645.
(c) After waiver of advisory fee and expense reimbursement. Ratios of expenses
to average net assets prior to waiver of advisory fees and/or expense
reimbursements are 1.03% and 1.69% (annualized) for January 31, 1995 and
1994, respectively.
(d) After waiver of advisory fee and expense reimbursement. Ratios of net
investment income to average net assets prior to waiver of advisory fees
and/or expense reimbursements are 7.95% and 6.14% (annualized) for January
31, 1995 and 1994, respectively.
(e) Annualized.
AIM V.I. GLOBAL UTILITIES FUND
<TABLE>
<CAPTION>
December 31, January 31,
1995 1995
------------ -----------
<S> <C> <C>
Net asset value, beginning of period............. $ 9.69 $10.00
------ ------
Income from investment operations:
Net investment income.......................... 0.29 0.27
Net gains (losses) on securities (both realized
and unrealized)............................... 1.98 (0.33)
------ ------
Total from investment operations............. 2.27 (0.06)
------ ------
Less distributions:
Dividends from net investment income........... (0.31) (0.25)
Distributions from capital gain................ (0.01) --
------ ------
Total distributions.......................... (0.32) (0.25)
------ ------
Net asset value, end of period................... $11.64 $ 9.69
====== ======
Total return(a).................................. 23.73% (0.56)%
====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $8,394 $2,958
====== ======
Ratio of expenses to average net assets.......... 1.47%(b) 1.31%(c)(d)
====== ======
Ratio of net investment income to average net
assets.......................................... 3.76%(b) 4.39%(c)(d)
====== ======
Portfolio turnover rate.......................... 58% 69%
====== ======
</TABLE>
- -------
(a)Total return is not annualized.
(b) Ratios are annualized and based on average net assets of $5,261,394.
Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees and expense reimbursements are
2.44% and 2.79%, respectively.
(c) Annualized.
(d) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees and expense reimbursements are
2.80% and 2.90%, respectively.
4
<PAGE>
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
January 31,
December 31, -------------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period..... $ 9.39 $ 10.24 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income.................. 0.54 0.53 0.38
Net gains (losses) on securities (both
realized and unrealized).............. 0.74 (0.88) 0.10
------- ------- -------
Total from investment operations..... 1.28 (0.35) 0.48
------- ------- -------
Less distributions:
Dividends from net investment income... (0.50) (0.50) (0.24)
------- ------- -------
Total distributions.................. (0.50) (0.50) (0.24)
------- ------- -------
Net asset value, end of period........... $ 10.17 $ 9.39 $ 10.24
======= ======= =======
Total return(a).......................... 13.84% (3.42)% 4.78%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted). $19,545 $12,887 $10,643
======= ======= =======
Ratio of expenses to average net assets.. 1.19%(b) 0.95%(c) 1.00%(c)
======= ======= =======
Ratio of net investment income to average
net assets.............................. 5.78%(b) 5.51%(d) 4.74%(d)
======= ======= =======
Portfolio turnover rate.................. 41% 29% 0%
======= ======= =======
</TABLE>
- -------
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are annualized and based on average net assets of $15,535,425.
(c) Ratios of expenses to average net assets prior to waiver of advisory fees
and/or expense reimbursements are 1.10% and 1.80% (annualized) for
January, 1995 and 1994, respectively.
(d) Ratios of net investment income to average net assets prior to waiver of
advisory fees and/or expense reimbursements are 5.35% and 3.94%
(annualized) for January, 1995 and 1994, respectively.
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
January 31,
December 31, -----------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period...... $ 10.71 $ 11.59 $ 10.00
-------- ------- -------
Income from investment operations:
Net investment income................... 0.09 0.06 0.02
Net gains (losses) on securities (both
realized and unrealized)............... 3.65 (0.88) 1.59
-------- ------- -------
Total from investment operations...... 3.74 (0.82) 1.61
-------- ------- -------
Less distributions:
Dividends from net investment income.... (0.01) (0.06) (0.02)
-------- ------- -------
Net asset value, end of period............ $ 14.44 $ 10.71 $ 11.59
======== ======= =======
Total return.............................. 34.89%(a) (7.11)% 16.07%(a)
======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).. $102,600 $45,497 $25,115
======== ======= =======
Ratio of expenses to average net assets... 0.84%(b) 0.95% 0.85%(c)
======== ======= =======
Ratio of net investment income to average
net assets............................... 0.95%(b) 0.71% 0.51%(c)
======== ======= =======
Portfolio turnover rate................... 125% 179% 99%
======== ======= =======
</TABLE>
- -------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net assets of $73,070,671.
(c) Ratios are annualized and based on average net assets of $9,997,693.
Annualized ratios of expenses and net investment income (loss) to average
net assets prior to waiver of advisory fees are 1.50% and (0.14)%,
respectively.
5
<PAGE>
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
December 31, January 31,
1995 1995
------------ -----------
<S> <C> <C>
Net asset value, beginning of period............. $ 9.98 $10.00
------- ------
Income from investment operations:
Net investment income.......................... 0.14 0.11
Net gains (losses) on securities (both realized
and unrealized)............................... 3.11 (0.02)
------- ------
Total from investment operations............. 3.25 0.09
------- ------
Less distributions:
Dividends from net investment income........... (0.14) (0.11)
Distributions from capital gains............... (0.41) --
------- ------
Total distributions........................ (0.55) (0.11)
------- ------
Net asset value, end of period................... $ 12.68 $ 9.98
======= ======
Total return(a).................................. 32.65% 0.90%
======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $38,567 $7,380
======= ======
Ratio of expenses to average net assets.......... 0.78%(b) 1.07%(c)(d)
======= ======
Ratio of net investment income to average net
assets.......................................... 1.92%(b) 1.95%(c)(d)
======= ======
Portfolio turnover rate.......................... 145% 96%
======= ======
</TABLE>
- --------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net assets of $19,135,889.
Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 1.17% and 1.53%, respectively.
(c) Annualized.
(d) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 1.72% and 1.30%, respectively.
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
January 31,
December 31, -------------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period. $ 11.03 $ 12.49 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income.............. 0.07 0.06 --
Net gains (losses) on securities
(both realized and unrealized).... 2.58 (1.49) 2.49
------- ------- -------
Total from investment operations. 2.65 (1.43) 2.49
------- ------- -------
Less distributions:
Dividends from net investment
income............................ (0.02) (0.03) --
------- ------- -------
Net asset value, end of period....... $ 13.66 $ 11.03 $ 12.49
======= ======= =======
Total return......................... 24.04%(a) (11.48)% 24.90%(a)
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $82,257 $55,019 $23,533
======= ======= =======
Ratio of expenses to average net
assets.............................. 1.15%(b) 1.27%(c) 1.98%(d)(e)
======= ======= =======
Ratio of net investment income to
average net assets.................. 0.75%(b) 0.60%(c) (0.15)%(d)(e)
======= ======= =======
Portfolio turnover rate.............. 67% 64% 26%
======= ======= =======
</TABLE>
- --------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net assets of $66,670,268.
(c) Ratios of expenses and net investment income to average net assets prior to
waiver of advisory fees are 1.28% and 0.59%, respectively.
(d) Annualized.
(e) Annualized ratios of expenses and net investment income (loss) to average
net assets prior to waiver of advisory fees are 3.06% and (1.23)%,
respectively.
6
<PAGE>
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
January 31,
December 31, -------------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations:
Net investment income............... 0.05 0.04 0.02
------- ------- -------
Less distributions:
Dividends from net investment
income............................. (0.05) (0.04) (0.02)
------- ------- -------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return.......................... 5.69%(a) 3.98% 2.27%(a)
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $65,506 $31,017 $13,891
======= ======= =======
Ratio of expenses to average net
assets............................... 0.53%(b) 0.63%(c) 0.95%(a)(d)
======= ======= =======
Ratio of net investment income to
average net assets................... 5.40%(b) 4.14%(c) 2.29%(a)(d)
======= ======= =======
</TABLE>
- --------
(a) Annualized.
(b) Ratios are annualized and based on average net assets of $46,144,418.
(c) Ratios of expenses and net investment income to average net assets prior to
waiver of advisory fees are 0.70% and 4.07%, respectively.
(d) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 1.53% and 1.70%, respectively.
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
January 31,
December 31, ------------------
1995 1995 1994
------------ -------- -------
<S> <C> <C> <C>
Net asset value, beginning of period..... $ 11.83 $ 12.17 $ 10.00
-------- -------- -------
Income from investment operations:
Net investment income.................. 0.11 0.10 0.02
Net gains (losses) on securities (both
realized and unrealized).............. 4.18 (0.35) 2.17
-------- -------- -------
Total from investment operations..... 4.29 (0.25) 2.19
-------- -------- -------
Less distributions:
Dividends from net investment income... (0.01) (0.09) (0.02)
-------- -------- -------
Net asset value, end of period........... $ 16.11 $ 11.83 $ 12.17
======== ======== =======
Total return(a).......................... 36.25% (2.03)% 21.94%
======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted). $257,212 $109,257 $38,255
======== ======== =======
Ratio of expenses to average net assets.. 0.75%(b) 0.82% 1.00%(c)
======== ======== =======
Ratio of net investment income to average
net assets.............................. 1.11%(b) 1.17% 0.51%(c)
======== ======== =======
Portfolio turnover rate.................. 145% 143% 87%
======== ======== =======
</TABLE>
- --------
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are annualized and based on average net assets of $181,240,121.
(c) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees and/or expense reimbursements were
1.35% and 0.16%, respectively.
7
<PAGE>
- -------------------------------------------------------------------------------
PERFORMANCE
Each Fund's performance may be quoted in advertising in terms of yield or
total return. See the Statement of Additional Information for further details
concerning performance comparisons used in advertisements by the Funds.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. Total return is computed in accordance with a
standardized formula described in the Statement of Additional Information. A
cumulative total return reflects the Fund's performance over a stated period
of time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Fund's performance had been constant over the entire period. Because
average annual total returns tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual year-
by-year results. To illustrate the components of overall performance, a Fund
may separate its cumulative and average annual total returns into income
results and capital gain or loss.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information and can be expected to fluctuate from time
to time. Accordingly, the yield information may not provide a basis for
comparison with investments which pay a fixed rate of interest for a stated
period of time. Yield is the annualized percentage rate of net income
(exclusive of capital changes) earned by a Fund over a specified period. It is
a function of the type and quality of a Fund's investments, its maturity and
its operating expense ratio. A shareholder's investment in a Fund is not
insured or guaranteed. These factors should be carefully considered by the
investor before making an investment in a Fund.
From time to time and in its discretion, AIM may waive all or a portion of
its advisory fees and/or assume certain expenses of any Fund. Such a practice
will have the effect of increasing the Fund's yield and total return.
The performance of each Fund will vary from time to time and past results
are not necessarily indicative of future results. A Fund's performance is a
function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. Quotations of a Fund's performance will not reflect charges
levied at the separate account level.
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND PROGRAMS
Set forth in this section is a statement of each Fund's investment objective
along with a description of the investment policies, strategies and practices
of each Fund. The investment objective of each Fund is deemed to be a
fundamental policy and, therefore, unless permitted by law, may not be changed
without the approval of a majority of that Fund's outstanding shares (within
the meaning of the 1940 Act). Each Fund's investment policies, strategies and
practices are not fundamental. The Board of Directors of the Company reserves
the right to change any of these non-fundamental investment policies,
strategies or practices without shareholder approval. Each Fund has adopted
investment restrictions, some of which are fundamental and cannot be changed
without shareholder approval. See "Investment Restrictions" in the Statement
of Additional Information. Individuals considering the purchase of shares of
any Fund should recognize that there are risks in the ownership of any
security and that no assurance can be given that any particular Fund will
achieve its investment objective(s).
AIM V.I. CAPITAL APPRECIATION FUND. The Fund's investment objective is to
seek capital appreciation through investments in common stocks, with emphasis
on medium-sized and smaller emerging growth companies. AIM will be
particularly interested in companies that are likely to benefit from new or
innovative products, services or processes that should enhance such companies'
prospects for future growth in earnings. As a result of this policy, the
market prices of many of the securities purchased and held by the Fund may
fluctuate widely. Any income received from securities held by the Fund will be
incidental, and an investor should not consider a purchase of shares of the
Fund as equivalent to a complete investment program. The Capital Appreciation
Fund's portfolio is primarily comprised of securities of two basic categories
of companies: (1) "core" companies, which AIM considers to have experienced
above-average and consistent long-term growth in earnings and to have
excellent prospects for outstanding future growth, and (2) "earnings
acceleration" companies which AIM believes are currently enjoying a dramatic
increase in profits.
AIM V.I. DIVERSIFIED INCOME FUND. The Fund's investment objective is to seek
to achieve a high level of current income. The Fund will seek to achieve its
investment objective by investing primarily in: (i) foreign government
securities, (ii) foreign and domestic corporate debt securities, (iii) U.S.
Government securities, including U.S. Government Agency Mortgage-Backed
Securities and (iv) lower-rated or unrated high yield debt securities
(commonly known as "junk bonds") of U.S. and foreign companies. Under normal
circumstances, the Fund's assets will be invested in each of these four
sectors. The Fund may invest up to 10% of its total assets in common stocks,
preferred stocks, convertible securities and similar equity securities of U.S.
and foreign companies. The Fund does not intend to invest more than 50% of its
total assets in lower-rated or unrated high yield securities or more than 50%
of its total assets in foreign debt securities. (For a description of the
various rating categories of corporate debt securities in which the Fund may
invest, see Appendix A to this Prospectus. For a description of U.S.
Government Agency Mortgage-Backed Securities, see Appendix B to this
Prospectus.) However, the Fund may from time to time invest up to 100% of its
total assets in U.S. Government securities and, as a defensive measure, may
invest up to 100% of its total assets in money market securities. For a
discussion of the investment risks associated with investments in high yield
securities and foreign securities, see "Risk Factors" in this Prospectus. For
further discussion of the extent of the Fund's intended investment, see
"Certain Investment Strategies and Techniques" in this Prospectus.
8
<PAGE>
During the eleven months ended December 31, 1995, the percentage of average
annual assets of the Portfolio calculated on a dollar weighted basis, which
was invested in securities within the various rating categories (based on the
higher of Standard and Poor's Corporation and Moody's Investors Service, Inc.
ratings as described in Appendix A), and in unrated securities determined by
AIM to be of comparable quality, was as follows:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
AAA/Aaa........................................................ 36.13%
AA/Aa.......................................................... 7.93%
A/A............................................................ 10.09%
BBB/Baa........................................................ 11.09%
BB/Ba.......................................................... 6.86%
B/B............................................................ 24.88%
CCC/Caa........................................................ 2.35%
Unrated........................................................ 0.67%
------
Total Average Annual Assets.................................. 100%
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND. The Fund's investment objective is to
achieve a high level of current income, and as a secondary objective the Fund
seeks to achieve capital appreciation, by investing primarily in the common
and preferred stocks of public utility companies (either domestic or foreign).
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in securities of public utility companies (either domestic or
foreign). Public utility companies include companies that provide electricity,
natural gas or water and other sanitary services to the public, and telephone
or telegraph companies and other companies providing public communications
services. The Fund may also invest in developing utility technology companies
and in holding companies which derive a substantial portion of their revenues
from utility-related activities. Generally, a holding company will be
considered to derive a substantial portion of its revenues from utility-
related activities if such activities account for at least 40% of its
revenues. When AIM deems it appropriate, the Fund may also purchase the bonds
of such companies. Investments in bonds, however, will not exceed 25% of the
Fund's total assets. The Fund may invest up to 10% of its total assets in
lower-rated or unrated high yield securities. (For a description of the
various rating categories of corporate debt securities in which the Fund may
invest, see Appendix A to this Prospectus.) During the eleven months ended
December 31, 1995, the Fund invested less than 5% of its net assets in below
investment grade debt securities. The Fund may also invest up to 80% of its
total assets in securities of foreign companies, including investments in
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs")
and underlying securities of foreign issuers. For a discussion of the
investment risks associated with investments in non-investment grade debt
securities and foreign securities, see "Risk Factors" in this Prospectus. For
a further discussion of the Fund's intended investments, see "Certain
Investment Strategies and Techniques" in this Prospectus.
A portfolio of utility company securities is subject to a different degree
of volatility than a more broadly diversified portfolio. Economic, operational
or regulatory changes that affect utility companies will have a material
impact upon the value of the securities that the Fund owns. Events, such as
changing weather patterns, emergencies involving nuclear power plants, or
rapidly changing fuel prices that have no direct connection with companies
whose securities are owned by the Fund may affect the prices of those
securities.
Moreover, a portfolio of utilities industry securities is subject to the
risks unique to that industry, such as inflationary or other increases in fuel
and operating expenses, possible increases in the interest costs of loans
needed for capital construction programs, compliance with environmental
regulations, possible adverse changes in the regulatory climate and
availability of fuel sources.
A description of the utilities industry is contained in the Statement of
Additional Information.
AIM V.I. GOVERNMENT SECURITIES FUND. The Fund's investment objective is to
achieve a high level of current income consistent with reasonable concern for
safety of principal by investing in debt securities issued, guaranteed or
otherwise backed by the United States Government. The government securities
which may be purchased by the Fund include but are not limited to (1) U.S.
Treasury obligations such as Treasury Bills (maturities of one year or less),
Treasury Notes (maturities of one to ten years) and Treasury Bonds (generally
maturities of greater than ten years) and (2) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities ("Agency Securities") which
are supported by any of the following: (a) the full faith and credit of the
U.S. Treasury, such as obligations of the Government National Mortgage
Association ("GNMA"), (b) the right of the issuer to borrow an amount limited
to a specific line of credit from the U.S. Treasury, such as obligations of
the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Bank
and the U.S. Postal Service or (c) the credit of the agency or
instrumentality, such as obligations of the Federal Home Loan Mortgage
Corporation ("FHLMC") and Federal Farm Credit System. Although their close
relationship with the U.S. Government is believed to make them high-quality
securities with minimal credit risks, the U.S. Government is not required by
law to support the agencies and intrumentalities listed in (b) and (c), above.
Accordingly, such securities may involve risk of loss of principal and
interest; however, historically there have not been any defaults of such
issues. For a listing of some of the types of Agency Securities in which the
Fund may invest, see Appendix B to this Prospectus.
The Fund's investments include high coupon U.S. Government Agency Mortgage-
Backed Securities, which provide a higher coupon at the time of purchase than
the prevailing market rate yield. The prices of high coupon U.S. Government
Agency Mortgage-Backed Securities do not tend to rise as rapidly as those of
traditional fixed rate securities at times when interest rates are decreasing,
and tend to decline more slowly at times when interest rates are increasing.
The Fund may purchase such securities at a premium, which means that a faster
principal prepayment rate than expected will reduce the market value of and
income from such securities, while a slower prepayment rate will tend to
increase the market value of and income from such securities.
9
<PAGE>
The composition and weighted average maturity of the Fund's portfolio will
vary from time to time, based upon the determination of AIM of how best to
further the Fund's investment objective. The Fund may invest in government
securities of all maturities, short-term, intermediate-term and long-term. The
Fund intends to maintain a dollar-weighted average portfolio maturity of
between three and ten years. This policy regarding portfolio maturity is a
non-fundamental policy of the Fund.
AIM V.I. GROWTH FUND. The Fund's investment objective is to seek growth of
capital principally through investment in common stocks of seasoned and better
capitalized companies considered by AIM to have strong earnings momentum.
Current income will not be an important criterion of investment selection, and
any such income should be considered incidental. It is anticipated that common
stocks will be the principal form of investment by the Fund. For other types
of investments, see "Certain Investment Strategies and Techniques" in this
Prospectus. The Fund's portfolio is primarily comprised of securities of two
basic categories of companies: (1) "core" companies, which AIM considers to
have experienced above-average and consistent long-term growth in earnings and
to have excellent prospects for outstanding future growth, and (2) "earnings
acceleration" companies which Fund management believes are currently enjoying
a dramatic increase in profits.
AIM V.I. GROWTH AND INCOME FUND. The Fund's investment objective is to seek
growth of capital, with current income as a secondary objective. Although the
amount of the Fund's current income will vary from time to time, it is
anticipated that the current income realized by the Fund will generally be
greater than that realized by mutual funds whose sole objective is growth of
capital. The Fund seeks to achieve its objective by generally investing at
least 65% of its net assets in stocks of companies believed by management to
have the potential for above average growth in revenues and earnings. The Fund
generally will also invest at least 80% of its net assets in securities which
pay income to the Fund.
AIM V.I. INTERNATIONAL EQUITY FUND. The Fund's investment objective is to
seek to provide long-term growth of capital by investing in a diversified
portfolio of international equity securities the issuers of which are
considered by AIM to have strong earnings momentum. Any income realized by the
Fund will be incidental and will not be an important criterion in the
selection of portfolio securities.
In managing the Fund, AIM seeks to apply to a diversified portfolio of
international equity securities substantially the same investment strategy
which it applies to the Growth Fund with respect to that Fund's investment in
United States equities markets. The Fund will utilize to the extent
practicable a fully managed investment policy providing for the selection of
securities which meet certain quantitative standards determined by AIM. AIM
will review carefully the earnings history and prospects for growth of each
company considered for investment by the Fund. It is expected that the Fund's
portfolio, when fully invested, will generally be comprised of two basic
categories of foreign companies: (1) "core" companies, which AIM considers to
have experienced consistent long-term growth in earnings and to have strong
prospects for outstanding future growth, and (2) companies that AIM believes
are currently experiencing a greater than anticipated increase in earnings. If
a particular foreign company meets the quantitative standards determined by
AIM, its securities may be acquired by the Fund regardless of the location of
the company or the percentage of the Fund's investments in the company's
country or region. However, AIM will also consider other factors in making
investment decisions for the Fund, including such factors as the prospects for
relative economic growth among countries or regions, economic and political
conditions, currency exchange fluctuations, tax considerations and the
liquidity of a particular security. For a discussion of the investment risks
associated with investments in foreign securities, see "Risk Factors" in this
Prospectus. For a discussion of the extent of the Fund's intended investment
in foreign countries, see "Certain Investment Strategies and Techniques" in
this Prospectus.
AIM V.I. MONEY MARKET FUND. The Fund's investment objective is to seek to
provide as high a level of current income as is consistent with the
preservation of capital and liquidity. The Fund seeks to achieve its objective
by investing in a diversified portfolio of high quality U.S. dollar
denominated money market instruments and other similar instruments with
maturities of 397 days or less from the date of purchase, and will maintain a
dollar weighted-average portfolio maturity of 90 days or less. Securities
subject to repurchase agreements may bear longer maturities.
The Fund invests in a broad range of U.S. Government and foreign government
obligations, and bank and commercial instruments that may be available in the
money markets. Such obligations include U.S. Treasury obligations and
repurchase agreements secured by such obligations. The Money Market Fund
intends to invest in bankers' acceptances, certificates of deposit, repurchase
agreements, time deposits and commercial paper, and U.S. Government direct
obligations and U.S. Government agencies' securities. Bankers' acceptances,
certificates of deposit and time deposits may be purchased from U.S. or
foreign banks. All of these instruments, which are collectively referred to as
"Money Market Obligations," are briefly described in Appendix C to this
Prospectus and are described more fully in the Statement of Additional
Information.
The Fund will limit investments in Money Market Obligations to those which
are denominated in U.S. dollars and which at the date of purchase are "First
Tier" securities as defined in Rule 2a-7 under the 1940 Act, as such Rule may
be amended from time to time. Generally, "First Tier" securities are
securities that are rated in the highest rating category by two NRSROs, or, if
only rated by one NRSRO, are rated in the highest rating category by that
NRSRO, or, if unrated, are determined by AIM (under the supervision of and
pursuant to guidelines established by the Board of Directors) to be of
comparable quality to a rated security that meets the foregoing quality
standards. For a more complete definition of a "First Tier" security, see the
definition set forth in the Statement of Additional Information.
10
<PAGE>
The Money Market Fund may invest up to 100% of its total assets in
obligations issued by banks. While the Fund will limit its investments in bank
instruments to U.S. dollar denominated obligations, it may invest in
Eurodollar obligations (i.e., U.S. dollar-denominated obligations issued by a
foreign branch of a domestic bank), Yankee dollar obligations (i.e., U.S.
dollar-denominated obligations issued by a domestic branch of a foreign bank)
and obligations of foreign branches of foreign banks. The Money Market Fund
will limit its aggregate investments in foreign bank obligations, including
Eurodollar obligations and Yankee dollar obligations, to 25% of its total
assets at the time of purchase, provided that there is no limitation upon the
Fund's investments in (a) Eurodollar obligations, if the domestic parent of
the foreign branch issuing the obligation is unconditionally liable in the
event that the foreign branch for any reason fails to pay on the Eurodollar
obligation; and (b) Yankee dollar obligations, if the U.S. branch of the
foreign bank is subject to the same regulation as U.S. banks. Eurodollar,
Yankee dollar and other foreign bank obligations include time deposits, which
are non-negotiable deposits maintained in a bank for a specified period of
time at a stated interest rate. For a discussion of the risks pertaining to
investments in foreign securities, see "Risk Factors" in this Prospectus.
AIM V.I. VALUE FUND. The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in equity securities judged by AIM to
be undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative to current market values of assets owned
by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective and would be satisfied principally
from the income (interest and dividends) generated by the common stocks,
convertible bonds and convertible preferred stocks that make up the Fund's
portfolio. The Fund should not be purchased by those who seek income as their
primary investment objective.
In addition to the securities described above, the Fund may also acquire
preferred stocks and debt instruments having prospects for growth of capital.
Although these different types of securities can be expected to generate
amounts of income to satisfy the Fund's secondary objective, they will be
purchased for their potential for growth of capital.
The primary thrust of AIM's search for undervalued equity securities is in
four categories: (1) out-of-favor cyclical growth companies; (2) established
growth companies that are undervalued compared to historical relative
valuation parameters; (3) companies where there is early but tangible evidence
of improving prospects which are not yet reflected in the price of the
company's equity securities; and (4) companies whose equity securities are
selling at prices that do not reflect the current market value of its assets
and where there is reason to expect realization of this potential in the form
of increased equity values.
CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES. Each of the Funds has the
flexibility to invest, to the extent described below, in a variety of
instruments designed to enhance its investment capabilities. Each of the Funds
may invest in money market obligations, foreign securities (including ADRs and
EDRs), repurchase agreements, reverse repurchase agreements, illiquid
securities and Rule 144A securities; the Diversified Income Fund and the
Government Fund may invest in U.S. Government Agency Mortgage-Backed
Securities; each of the Funds may purchase or sell securities on a delayed
delivery or when-issued basis and may borrow money; each of the Funds, other
than the Money Market Fund, may lend portfolio securities and make short sales
"against the box." A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain securities identical to
those sold short without payment of any further consideration.
Each of the Funds, other than the Money Market Fund, may write (i.e., sell)
"covered" put and call options and buy put and call options on domestic and
foreign securities, securities indices and currencies. Each of the Funds,
other than the Money Market Fund, may use exchange-traded financial futures
contracts, options thereon, and forward contracts as a hedge to protect
against possible changes in market values. A brief description of these
investment instruments and their risks appears below. See "Hedging and Other
Investment Techniques" in the Statement of Additional Information for more
detailed information.
Money Market Obligations. When deemed appropriate for temporary or defensive
purposes, each of the Funds may hold cash or cash equivalent Money Market
Obligations. Of course, the Money Market Fund invests exclusively in Money
Market Obligations. While none of the Funds other than the Money Market Fund
is required by regulation or fundamental policy to limit such investments to
those which, at the date of purchase, are "First Tier" securities as that term
is defined in Rule 2a-7 under the 1940 Act, it is the current intention of AIM
to limit such investments to those securities which, at the time of purchase,
are considered "First Tier" securities or securities which AIM has determined
to be of comparable credit quality.
In addition to the Money Market Obligations described above, as a temporary
or defensive measure, and without regard to their respective investment
objectives, AIM may invest all or substantially all of the assets of the
Diversified Income Fund, the Global Utilities Fund and the International Fund
in cash or Money Market Obligations, including repurchase agreements,
denominated in foreign currencies.
U.S. Government Agency Mortgage-Backed Securities. The Diversified Income
Fund and the Government Fund may invest in U.S. Government Agency Mortgage-
Backed Securities. These securities are obligations issued or guaranteed by
the United States Government or by one of its agencies or instrumentalities,
including but not limited to GNMA, FNMA, or FHLMC. U.S. Government Agency
Mortgage-Backed Certificates provide for the pass-through to investors of
their pro-rata share of monthly payments (including any principal prepayments)
made by the individual borrowers on the pooled mortgage loans, net of any fees
paid to the guarantor of such securities and the servicers of the underlying
mortgage loans. GNMA, FNMA and FHLMC each guarantee timely distributions of
interest to certificate holders. GNMA and FNMA guarantee timely distributions
of scheduled principal. FHLMC has in the past guaranteed
11
<PAGE>
only the ultimate collection of principal of the underlying mortgage loan;
however, FHLMC Gold Participation Certificates now guarantee timely payment of
monthly principal reductions. Although their close relationship with the U.S.
Government is believed to make them high-quality securities with minimal
credit risks, the U.S. Government is not obligated by law to support either
FNMA or FHLMC. However, historically there have not been any defaults of FNMA
or FHLMC issues. See Appendix B for a more complete description of GNMA
securities.
Mortgage-backed securities consist of interests in underlying mortgages
generally with maturities of up to thirty years. However, due to early
unscheduled payments of principal on the underlying mortgages, the securities
have a shorter average life and, therefore, less volatility than a comparable
thirty-year bond. The value of U.S. Government Agency Mortgage-Backed
Securities, like other traditional debt instruments, will tend to move in the
opposite direction compared to interest rates.
Foreign Securities. To the extent consistent with their respective
investment objectives, each of the Funds may invest in foreign securities. It
is not anticipated that such foreign securities will constitute more than: (i)
20% of the value of the total assets of each Fund (except the Value Fund, the
Diversified Income Fund, the Global Utilities Fund and, the International Fund
); (ii) 25% of the value of the total assets of the Value Fund; (iii) 50% of
the value of the total assets of the Diversified Income Fund; and (iv) 80% of
the value of the total assets of the Global Utilities Fund.
The Diversified Income Fund may invest in debt obligations which may be
denominated in the U.S. dollar or in other currencies issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank,
Asian Development Bank and European Economic Community), and foreign
governments (including political subdivisions having taxing authority) or
their agencies or instrumentalities. The Diversified Income Fund may also
invest in debt obligations issued by U.S. corporations denominated in non-U.S.
dollar currencies. No more than 25% of the Diversified Income Fund's total
assets, at the time of purchase, will be invested in government securities of
any one foreign country. At the present time, AIM does not intend to invest
more than 10% of the Diversified Income Fund's total assets in securities
issued by foreign governments or foreign companies located in developing
countries in various regions of the world. A "developing country" is a country
in the initial stages of its industrial cycle. Investments in emerging markets
or developing countries involve exposure to economic structures that are
generally less diverse and mature and to political systems which can be
expected to have less stability than those of more developed countries. Such
countries may have relatively unstable governments, economies based on only a
few industries, and securities markets which trade only a small number of
securities. Historical experience indicates that emerging markets have been
more volatile than the markets of more mature economies; such markets have
also from time to time provided higher rates of return and greater risks to
investors. AIM believes that these characteristics of emerging markets can be
expected to continue in the future.
The Global Utilities Fund may invest up to 80% of its total assets in
securities of foreign companies, including investments in ADRs, EDRs and other
securities representing underlying securities of foreign issuers. Under normal
market conditions, the Global Utilities Fund will be invested in securities of
issuers located in at least four countries, one of which will be the United
States, although for defensive purposes, it may invest 100% of its total
assets in securities of U.S. issuers. In some foreign countries, utility
companies are partially owned by government agencies. In some cases, foreign
government agencies may have significant investments in businesses other than
utility companies. Also, investments in securities of foreign issuers may
involve other risks which are not ordinarily associated with investments in
domestic issuers. See "Risk Factors" in this Prospectus. In addition,
investors should also be aware that the Global Utilities Fund may invest in
companies located within emerging or developing countries.
Under normal market conditions the International Fund will invest at least
80% of its total assets in marketable equity securities (including common and
preferred stock, depositary receipts for stock and securities exchangeable for
or convertible into stock) of foreign companies which, with their
predecessors, have been in continuous operation for three years or more and
(except in the case of ADRs, EDRs and other securities representing underlying
securities of foreign issuers) which are listed on a recognized foreign
securities exchange or traded in a foreign over-the-counter market.
Under normal market conditions, the International Fund intends to invest in
the securities of foreign companies located in at least four countries outside
the United States. The International Fund will emphasize investment in foreign
companies in the developed countries of Western Europe and the Pacific Basin,
but the Fund may also invest to a lesser extent in the securities of companies
located in developing countries in various regions of the world. At the
present time, AIM does not intend to invest more than 20% of the International
Fund's total assets in securities issued by foreign governments or foreign
companies located in developing countries. For a discussion of the risks
pertaining to investments in foreign obligations, see "Risk Factors" in this
Prospectus.
ADRs and EDRs. To the extent consistent with their respective investment
objectives each of the Funds (except the International Fund which is discussed
separately below) may also invest in securities which are in the form of ADRs,
EDRs or other securities representing underlying securities of foreign
issuers. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. ADRs, EDRs and other securities representing underlying
securities of foreign issuers are treated as foreign securities for purposes
of determining the applicable limitation on investment in foreign securities.
12
<PAGE>
The International Fund normally will invest at least 80% of its total assets
in marketable equity securities, including common and preferred stock and
other securities having the characteristics of stock (such as an equity or
ownership interest in a company). The International Fund may satisfy the
foregoing requirement in part through the ownership of securities which are
convertible into, or exchangeable for, common stocks, or by investment in the
securities of foreign issuers which are in the form of ADRs, EDRs and other
securities representing underlying securities of foreign issuers.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with institutions believed by the Company's Board of Directors to
present minimal credit risk. A repurchase agreement is an instrument under
which the Fund acquires ownership of a debt security and the seller agrees, at
the time of the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during the Fund's holding
period. With regard to repurchase transactions, in the event of a bankruptcy
or other default of a seller of a repurchase agreement (such as the sellers'
failure to repurchase the obligation in accordance with the terms of the
agreement), a Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) a possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights.
Repurchase agreements are considered to be loans by the Fund under the 1940
Act. Repurchase agreements will be secured by U.S. Treasury securities, U.S.
Government agency securities (including, but not limited to, those which have
been stripped of their interest payments and mortgage-backed securities) and
commercial paper. For additional information on the use of repurchase
agreements, see the Statement of Additional Information.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale by the Fund of a portfolio security at an agreed upon price, date and
interest payment. The Funds will each enter into reverse repurchase agreements
solely for temporary or defensive purposes to facilitate the orderly sale of
portfolio securities to accommodate abnormally heavy redemption requests
should they occur. The Funds will use reverse repurchase agreements when the
interest income to be earned from the securities that would otherwise have to
be liquidated to meet redemption requests is greater than the interest expense
of the reverse repurchase transaction. Each of the Funds may enter into
reverse repurchase agreements in amounts not exceeding 33 1/3% of the value of
their respective total assets. To comply with certain state law requirements,
the Capital Appreciation Fund has no current intention of entering into
reverse repurchase agreements in amounts in excess of 25% of the value of the
Fund's total assets. Reverse repurchase agreements involve the risk that the
market value of securities retained by the Fund in lieu of liquidation may
decline below the repurchase price of the securities sold by the Fund which it
is obligated to repurchase. This risk, if encountered, could cause a reduction
in the net asset value of the Fund's shares. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act. See "Borrowing" in this
Prospectus for percentage limitations on borrowings.
Delayed Delivery Agreements and When-Issued Securities. Each Fund may enter
into delayed delivery agreements and may purchase securities on a "when-
issued" basis.
Delayed delivery agreements are commitments by a Fund to dealers or issuers
to acquire securities beyond the customary settlement date for such
securities. These commitments fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, the Fund's
investment adviser can anticipate that cash for investment purposes will
result from scheduled maturities of existing portfolio instruments or from net
sales of shares of the Fund and may enter into delayed delivery agreements to
assure that the Fund will be as fully invested as possible in instruments
meeting its investment objective.
Debt securities are sometimes offered on a "when-issued" basis; that is, the
date for delivery of and payment for the securities is not fixed at the date
of purchase, but is set after the securities are issued (normally within
forty-five days after the date of the transaction). The payment obligation and
the interest rate that will be received on the securities are fixed at the
time the buyer enters into the commitment. The Funds will only make
commitments to purchase such debt securities with the intention of actually
acquiring the securities, but a Fund may sell these securities before the
settlement date if it is deemed advisable.
If a Fund enters into a delayed delivery agreement or purchases a when-
issued security, the Fund will direct its custodian bank to segregate cash or
other high grade securities (including Money Market Obligations) in an amount
equal to its delayed delivery agreements or when-issued commitments. If the
market value of such securities declines, additional cash or securities will
be segregated on a daily basis so that the market value of the account will
equal the amount of such Fund's delayed delivery agreements and when-issued
commitments. To the extent that funds are segregated, they will not be
available for new investment or to meet redemptions. Investment in securities
on a when-issued basis and use of delayed delivery agreements may increase the
Fund's exposure to market fluctuation, or may increase the possibility that
the Fund will incur a short-term loss, if the Fund must engage in portfolio
transactions in order to honor a when-issued commitment or accept delivery of
a security under a delayed delivery agreement. The Fund will employ techniques
designed to minimize these risks. No additional delayed delivery agreements or
when-issued commitments will be made by a Fund if, as a result, more than 25%
of the Fund's net assets would become so committed.
Dollar Roll Transactions. In order to enhance portfolio returns and manage
prepayment risks, the Diversified Income Fund and the Government Fund may
engage in dollar roll transactions with respect to mortgage securities issued
by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a
mortgage security held in the portfolio to a financial institution such as a
bank or broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage securities that are
repurchased will bear the same interest rate as
13
<PAGE>
those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be
invested in short-term instruments, and the income from these investments,
together with any additional fee income received on the sale, could generate
income for the Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. See "Borrowing," below for the applicable
limitation on dollar roll transactions.
Borrowing. Each of the Funds may borrow money to a limited extent from banks
(including the Funds' custodian bank) for temporary or emergency purposes
subject to the limitations under the 1940 Act. Each Fund will restrict
borrowings, reverse repurchase agreements and dollar roll transactions to an
aggregate of 33 1/3% of the Fund's total assets at the time of the
transaction. To comply with certain state law requirements, the Capital
Appreciation Fund will restrict borrowings, reverse repurchase agreements and
dollar roll transactions not to exceed 25% of the value of the Fund's total
assets. No Fund will purchase additional securities when any borrowings from
banks exceed 5% of the Fund's total assets.
Illiquid Securities. None of the Funds will invest more than 15% of their
respective net assets in illiquid securities, including restricted securities
which are illiquid. The Money Market Fund will not invest more than 10% of its
net assets in illiquid securities.
Rule 144A Securities. Each of the Funds may invest in securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). These securities are sometimes
referred to as private placements. Although securities which may be resold
only to "qualified institutional buyers" in accordance with the provisions of
Rule 144A under the 1933 Act are technically considered "restricted
securities," the Funds may each purchase Rule 144A securities without regard
to the limitation on investments in illiquid securities described above under
"Illiquid Securities," provided that a determination is made that such
securities have a readily available trading market. AIM will determine the
liquidity of Rule 144A securities under the supervision of the Company's Board
of Directors. The liquidity of Rule 144A securities will be monitored by AIM
and, if as a result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities will
be reviewed to determine what, if any, action is required to assure that the
Fund does not exceed its applicable percentage limitation for investments in
illiquid securities.
Lending of Portfolio Securities. Each Fund (except the Money Market Fund)
may, from time to time, lend securities from their respective portfolios, with
a value not exceeding 33 1/3% of their respective total assets, to banks,
brokers and other financial institutions, and receive in return collateral in
the form of cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. During the period of the
loan, the applicable Fund receives the income on both the loaned securities
and the collateral (or a fee) and thereby increases its yield. In the event
that the borrower defaults on its obligation to return loaned securities
because of insolvency or otherwise, the Fund could experience delays and costs
in gaining access to the collateral and could suffer a loss to the extent that
the value of the collateral falls below the market value of the loaned
securities.
Short Sales. Each Fund (except the Money Market Fund), may make short sales
"against the box." A short sale is a transaction in which a party sells a
security it does not own in anticipation of a decline in the market value of
that security. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain securities identical to
those sold short without payment of any further consideration. The Funds will
enter into such transactions only to the extent the aggregate value of all
securities sold short does not represent more than 10% of the applicable
Fund's total assets at any given time.
Options. Each of the Funds, other than the Money Market Fund, may write
(sell) "covered" put and call options and buy put and call options, including
securities index and foreign currency options. A call option is a contract
that gives to the holder the right to buy a specified amount of the underlying
security at a fixed or determinable price (called the exercise or strike
price) upon exercise of the option. A put option is a contract that gives the
holder the right to sell a specified amount of the underlying security at a
fixed or determinable price upon exercise of the option. In the case of index
options, exercises are settled through the payment of cash rather than the
delivery of property. A call option is covered if, for example, the Fund owns
the underlying security covered by the call or, in the case of a call option
on an index, holds securities the price changes of which are expected to
substantially replicate the movement of the index. A put option is covered if,
for example, the Fund maintains in a segregated account with its custodian
cash, U.S. Treasury bills or other high-grade short-term debt obligations with
a value equal to the exercise price of the put option.
These Funds may write call options on securities or securities indexes for
the purpose of increasing their return (through receipt of premiums) or to
provide a partial hedge against a decline in the value of their portfolio
securities or both. These Funds may write put options on securities or
securities indexes in order to earn additional income or (in the case of put
options written on individual securities) to purchase the underlying security
at a price below the current market price. If a Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain
all or part of the premium received for the option, which will increase its
gross income. If the price of the underlying security moves adversely to the
Fund's position, the option may be exercised and the Fund will be required to
sell or purchase the underlying security at a disadvantageous price, or, in
the case of index options, deliver an amount of cash, which loss may only be
partially offset by the amount of premium received.
14
<PAGE>
Each of the Funds noted above may also purchase put or call options on
securities and securities indexes in order to hedge against changes in
interest rates or stock prices which may adversely affect the prices of
securities that the Fund wants to purchase at a later date, to hedge its
existing investments against a decline in value, or to attempt to reduce the
risk of missing a market or industry segment advance. In the event that the
expected changes in interest rates or stock prices occur, the Fund may be able
to offset the resulting adverse effect on the Fund by exercising or selling
the options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option. Unless the price of the underlying
security or level of the securities index changes by an amount in excess of
the premium paid, the option may expire without value to the Fund.
These Funds may also purchase and write options in combination with each
other to adjust the risk and return characteristics of certain portfolio
security positions. This technique is commonly referred to as a "straddle."
Options purchased or written by a Fund may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the over-
the-counter market may not be as actively traded as those on an exchange, so
it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options.
Such options and the securities used as "cover" for such options, unless
otherwise indicated, would be considered illiquid securities.
In instances in which a Fund has entered into agreements with primary
dealers with respect to the over-the-counter options it has written, and such
agreements would enable the Fund to have an absolute right to repurchase at a
pre-established formula price the over-the-counter option written by it, the
Fund would treat as illiquid only securities equal in amount to the formula
price described above less the amount by which the option is "in-the-money,"
i.e., the price of the option exceeds the exercise price.
Each of the Funds, except the Money Market Fund, may purchase put and call
options and write covered put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. Such investment strategies will be used as a hedge and not for
speculation. As in the case of other types of options, the writing of an
option on foreign currency will constitute a hedge, however it differs in that
it is only a partial hedge, up to the amount of the premium received.
Moreover, the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies may be
traded on the national securities exchanges or in the over-the-counter market.
As described above, options traded in the over-the-market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to options traded over-the-counter.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the applicable Fund's other investments and
the risk that there may not be a liquid secondary market for the option when
the Fund seeks to hedge against adverse market movements. This may cause the
Fund to lose the entire premium on purchase options or reduce its ability to
effect closing transactions at favorable prices.
The Funds will not write options if, immediately after such sale, the
aggregate value of the securities or obligations underlying the outstanding
options exceeds 25% of the applicable Fund's total assets. The Funds will not
purchase options if, at the time of the investment, the aggregate premiums
paid for outstanding options will exceed 5% of the applicable Fund's total
assets.
Futures and Forward Contracts. Each of the Funds, other than the Money
Market Fund, may purchase and sell futures contracts on debt securities and on
indexes of debt securities to hedge against anticipated changes in interest
rates that might otherwise have an adverse effect on the value of their assets
or assets they intend to acquire. In addition, they may purchase and sell
stock index futures contracts to hedge the equity portion of their assets or
equity assets they intend to acquire against changes in market conditions as
distinguished from stock-specific risk. These Funds may also purchase put and
call options on futures contracts and write "covered" put and call options on
futures contracts in order to hedge against changes in interest rates or stock
prices. Although the Funds are authorized to invest in futures contracts and
related options with respect to non-U.S. instruments, they will limit such
investments to those which have been approved by the Commodity Futures Trading
Commission ("CFTC") for investment by U.S. investors. These Funds may enter
into futures contracts and buy and sell related options, provided that the
futures contracts and related options investments are made for "bona fide
hedging" purposes, as defined under CFTC regulations. When a Fund purchases or
sells a futures contract or writes a put or call option on a futures contract,
the Fund will cover such positions by, for example, segregating with its
custodian cash or cash equivalents (less any related margin deposits) equal to
the cost of the futures contract it intends to sell or purchase. No more than
5% of a Fund's total assets will be committed to initial margin deposits
required pursuant to futures contracts. Percentage investment limitations on a
Fund's investment in options on futures contracts are set forth above under
"Options."
To the extent that any of the Funds invests in securities denominated in
foreign currencies (which is substantially all of the securities held by the
International Fund and a significant portion of securities held by the
Diversified Income Fund and the Global Utilities Fund), the value of the
Fund's portfolio will be affected by changes in exchange rates between
currencies (including the U.S. dollar), as well as by changes in the market
value of the securities themselves. In order to mitigate the effects of such
changes, each of the Funds, other than the Money Market Fund, may enter into
futures contracts on foreign currencies (and related options) and may
15
<PAGE>
enter into forward contracts for the purchase or sale of a specific currency
at a future date at a price set at the time of the contract. Forward contracts
are traded over-the-counter, and not on organized commodities or securities
exchanges. As a result, it may be more difficult to value such contracts, and
it may be difficult to enter into closing transactions with respect to them.
In managing their currency exposure, the Funds may each buy and sell
currencies either in the spot (cash) market or in the forward market (through
forward contracts generally expiring within one year). The Funds may each also
enter into forward contracts with respect to a specific purchase or sale of a
security, or with respect to its portfolio positions generally. When such a
Fund purchases a security denominated in a foreign currency for settlement in
the near future, it may immediately purchase in the forward market the
currency needed to pay for and settle the purchase. By entering into a forward
contract with respect to the specific purchase or sale of a security
denominated in a foreign currency, the applicable Fund can secure an exchange
rate between the trade and settlement dates for that purchase or sale
transaction. This practice is sometimes referred to as "transaction hedging."
Position hedging is the purchase or sale of foreign currency with respect to
portfolio security positions denominated or quoted in a foreign currency.
Unlike futures contracts, forward contracts are generally individually
negotiated and privately traded. A forward contract obligates the seller to
sell a specific security or currency at a specified price on a future date,
which may be any fixed number of days from the date of the contract.
The Global Utilities Fund and the International Fund may enter into forward
contracts for transaction hedging purposes with respect to all or a
substantial portion of their trades. The other Funds will commit no more than
their respective portfolio investments in foreign securities to foreign
exchange hedges.
There are risks associated with hedging transactions. During certain market
conditions, a hedging transaction may not completely offset a decline or rise
in the value of the Fund's portfolio securities or currency being hedged. In
addition, changes in the market value of securities or currencies may differ
substantially from the changes anticipated by the Fund when hedged positions
were established. Successful use of hedging transactions is dependent upon
AIM's ability to predict correctly movements in the direction of the
applicable markets. No assurance can be given that AIM's judgment in this
respect will be correct. Accordingly, a Fund may lose the expected benefit of
hedging if markets move in an unanticipated manner. Moreover, in the futures
and options on futures markets, it may not always be possible to execute a put
or sell at the desired price, or to close out an open position due to market
conditions, limits on open positions, and/or daily price fluctuations.
INVESTMENT RESTRICTIONS. Each of the Funds has adopted a number of
investment restrictions, as set forth in the Statement of Additional
Information, some of which restrictions may not be changed without shareholder
approval.
PORTFOLIO TURNOVER. (All Funds except the Money Market Fund.) Any particular
security will be sold, and the proceeds reinvested, whenever such action is
deemed prudent from the viewpoint of a Fund's investment objective(s), without
regard to the impact on the portfolio turnover rate. Each Fund's historical
portfolio turnover rates are included in the Financial Highlights tables
above. A higher rate of portfolio turnover may result in higher transaction
costs, including brokerage commissions. Also, to the extent that higher
portfolio turnover results in a higher rate of net realized capital gains to a
Fund, the portion of the Fund's distributions constituting taxable capital
gains may increase. See "Dividends, Distributions and Tax Matters."
- -------------------------------------------------------------------------------
RISK FACTORS
Investors should consider carefully the following special factors before
investing in any of the Funds.
NON-INVESTMENT GRADE DEBT SECURITIES. The Diversified Income Fund, and to a
lesser extent the Global Utilities Fund, seek to meet their respective
investment objectives by investing in non-investment grade debt securities,
commonly known as "junk bonds." While generally providing greater income and
opportunity for gain, non-investment grade debt securities may be subject to
greater risks than higher-rated securities. Economic downturns tend to disrupt
the market for junk bonds and adversely affect their values. Such economic
downturns may be expected to result in increased price volatility for junk
bonds and of the value of shares of the above-named Funds, and increased
issuer defaults on junk bonds.
In addition, many issuers of junk bonds are substantially leveraged, which
may impair their ability to meet their obligations. In some cases, junk bonds
are subordinated to the prior payment of senior indebtedness, which
potentially limits a Fund's ability to fully recover principal or to receive
payments when senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its market
value risk, and ratings may from time to time change to reflect developments
regarding the issuer's financial condition. Junk bonds have speculative
characteristics which are likely to increase in number and significance with
each successive lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the
relative lack of reliable objective data makes it more difficult for the
Company's directors to value a Fund's securities, and judgment plays a more
important role in determining such valuations. Increased illiquidity in the
junk bond market also may affect a Fund's ability to dispose of such
securities at desirable prices.
In the event a Fund experiences an unexpected level of net redemptions, the
Fund could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can
be spread and possibly
16
<PAGE>
reducing the Fund's rate of return. Prices of junk bonds have been found to be
less sensitive to fluctuations in interest rates, and more sensitive to
adverse economic changes and individual corporate developments, than those of
higher-rated debt securities.
FOREIGN SECURITIES. Investments by a Fund in foreign securities whether
denominated in U.S. dollars or foreign currencies, may entail the following
risks set forth below. Investments by a Fund in ADRs, EDRs or similar
securities also may entail some or all of the risks described below.
Currency Risk. The value of the Fund's foreign investments may be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security generally decreases when the value of the U.S. dollar
rises against the foreign currency in which the security is denominated,
and tends to increase when the value of the U.S. dollar falls against such
currency.
Political and Economic Risk. The economies of many of the countries in
which the Fund may invest are not as developed as the United States economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of
the Fund's investments.
Regulatory Risk. Foreign companies are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign
securities than is available about domestic securities. Foreign companies
are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to
domestic companies. Income from foreign securities owned by the Fund may be
reduced by a withholding tax at the source, which tax would reduce dividend
income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the
Fund invests will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign
companies and governments may be less liquid and experience more price
volatility than comparable domestic securities. Increased custodian costs
as well as administrative difficulties (such as the need to use foreign
custodians) may be associated with the maintenance of assets in foreign
jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction
costs in foreign securities markets are likely to be higher, since
brokerage commission rates in foreign countries are likely to be higher
than in the United States.
In addition, there are risks associated with certain investment strategies
employed by the Funds as discussed in the previous section.
NON-DIVERSIFIED PORTFOLIO (GLOBAL UTILITIES FUND ONLY). The Global Utilities
Fund is a non-diversified portfolio, which means that it may invest a greater
proportion of its assets in the securities of a smaller number of issuers and
therefore may be subject to greater market and credit risk than a more broadly
diversified portfolio. (A diversified portfolio may not invest more than 5% of
its assets in obligations of one issuer, with respect to 75% of its total
assets.)
- -------------------------------------------------------------------------------
MANAGEMENT
The overall management of the business and affairs of the Funds is vested
with the Company's Board of Directors. The Board of Directors approves all
significant agreements between each of the Funds and persons or companies
furnishing services to a Fund or the Company, including the Master Advisory
Agreement with AIM, the Master Distribution Agreement with A I M Distributors,
Inc. ("AIM Distributors"), the Custodian Agreement with State Street Bank and
Trust Company (the "Custodian"), and the Transfer Agency Agreement with State
Street Bank and Trust Company (the "Transfer Agent"). The day-to-day
operations of each Fund are delegated to its officers and to AIM, subject
always to the objectives and policies of the Fund and to the general
supervision of the Company's Board of Directors. Certain directors and
officers of the Company are affiliated with AIM and A I M Management Group
Inc. ("AIM Management"), the parent of AIM. Information concerning the Board
of Directors may be found in the Statement of Additional Information.
INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919,
Houston, TX 77046-1173, serves as the investment advisor to each Fund pursuant
to a new master investment advisory agreement (the "Advisory Agreement"),
dated October 18, 1993, as amended April 28, 1994 to include the Global
Utilities Fund and the Growth & Income Fund. AIM was organized in 1976, and,
together with its affiliates, manages or advises 43 investment company
portfolios (including the Funds). As of April 1, 1996, the total assets of the
mutual funds advised or managed by AIM and its affiliates were approximately
$48.2 billion. AIM is a wholly-owned subsidiary of AIM Management, a holding
company.
Under the terms of the Funds' Advisory Agreement, AIM supervises all aspects
of each Fund's operations and provides investment advisory services to the
Fund. The Advisory Agreement also provides that, upon the request of the
Company's Board of Directors, AIM may perform or arrange for the provision of
certain accounting and other administrative services to each Fund which are
not required to be performed by AIM under the Advisory Agreement. Pursuant to
a master administrative services agreement (the "Administrative Services
Agreement") between the Company and AIM with respect to each Fund dated
October 18, 1993, as amended April 28, 1994 to include the Global Utilities
Fund and the Growth & Income Fund, AIM provides the services of the Company's
principal financial
17
<PAGE>
officer (including related office, facilities and equipment) and may provide
other administrative services requested by the Company's Board of Directors
from time to time. AIM is entitled to receive from each Fund reimbursement of
its costs or such reasonable compensation as may be approved by the Company's
Board of Directors.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information. In accordance with policies established by the directors, AIM may
pay brokerage commissions to broker-dealers that may be affiliated with the
Company and may take into account sales of shares of the Funds and other funds
advised by AIM in selecting broker-dealers to effect portfolio transactions on
behalf of the Funds.
PORTFOLIO MANAGEMENT. AIM uses a team approach and a disciplined investment
process in providing investment advisory services to all its accounts,
including the Funds. AIM's investment staff consists of 85 individuals. While
individual members of AIM's investment staff are assigned primary
responsibility for the day-to-day management of each of AIM's accounts, all
accounts are reviewed on a regular basis by AIM's Investment Policy Committee
to ensure that they are being invested in accordance with the account's and
AIM's investment policies. The individuals who are primarily responsible for
the day-to-day management of the Funds (except the Money Market Fund, for
which no such disclosure is required) and their titles, if any, with AIM or
its affiliates and the Fund, the length of time they have been responsible for
the management, their years of investment experience and prior experience (if
they have been with AIM for less than five years) are shown below:
Robert M. Kippes, Jonathan C. Schoolar and David P. Barnard are responsible
for the day-to-day management of the CAPITAL APPRECIATION FUND'S portfolio
securities. Mr. Kippes is Vice President of A I M Capital Management, Inc.
("AIM Capital"), a wholly-owned subsidiary of AIM, and has been responsible
for the Fund since its inception in 1993. Mr. Kippes has been associated with
AIM and/or its affiliates since 1989 and has over 6 years of experience as an
investment professional. Mr. Schoolar is Senior Vice President and Director of
AIM Capital, Vice President of AIM and Vice President of the Company and has
been responsible for the Fund since its inception in 1993. He has been with
AIM and/or its affiliates since 1986 and has 12 years of experience as an
investment professional. Mr. Barnard is Vice President of AIM Capital and has
been responsible for the Fund since 1993. Mr. Barnard has been associated with
AIM and/or its affiliates since 1982 and has 21 years of experience as an
investment professional.
Robert G. Alley, John L. Pessarra and Carolyn L. Gibbs are responsible for
day-to-day management of the DIVERSIFIED INCOME FUND'S portfolio securities.
Mr. Alley is Senior Vice President of AIM Capital, Vice President of AIM and
Vice President of the Company, and has been affiliated with AIM and/or its
affiliates since 1992. Prior to that, Mr. Alley was Senior Fixed Income Money
Manager for Waddell and Reed, Inc. Mr. Alley has been responsible for the Fund
since its inception in 1993, and has 24 years of experience as an investment
professional. Mr. Pessarra is currently Vice President of AIM Capital and has
been associated with AIM and/or its affiliates since 1990. Mr. Pessarra has
been responsible for the Fund since its inception in 1993, and has 12 years of
experience as an investment professional. Ms. Gibbs is currently Assistant
Vice President of AIM Capital and has been associated with AIM and/or its
affiliates since 1992 and has 11 years of experience as an investment
professional. Ms. Gibbs has been responsible for the Fund since 1995. Prior to
joining AIM, she was a financial analyst for Northwest Airlines.
Claude C. Cody IV, Robert G. Alley and Craig A. Smith are responsible for
day-to-day management of the GLOBAL UTILITIES FUND'S portfolio securities. Mr.
Cody is Vice President of AIM Capital and has been responsible for the Fund
since its inception in 1994. Mr. Cody has been associated with AIM and/or its
affiliates since 1992 and has 20 years of experience as an investment
professional. Prior to that Mr. Cody was associated with Kinder-Care
Corporation where he established an investment management operation and
managed three portfolios. Mr. Alley has been responsible for the Fund since
its inception in 1994. Mr. Alley's background is discussed above with respect
to the management of the Diversified Income Fund. Mr. Smith is Vice President
of AIM Capital and has been responsible for the Fund since 1996. Mr. Smith has
been associated with AIM since 1989, and has 6 years of experience as an
investment professional.
Karen Dunn Kelley and Meggan M. Walsh are responsible for day-to-day
management of the GOVERNMENT FUND'S portfolio securities. Ms. Kelley is Senior
Vice President of AIM Capital, Vice President of AIM and Vice President of the
Company and has been responsible for the Fund since its inception in 1993. Ms.
Kelley has been associated with AIM and/or its affiliates since 1989 and has
13 years of experience as an investment professional. Ms. Walsh is Vice
President of AIM Capital and has been responsible for the Fund since its
inception in 1993. Ms. Walsh has been associated with AIM and/or its
affiliates since 1991 and has 8 years of experience as an investment
professional. Prior thereto, Ms. Walsh was Manager of Short-Term U.S.
Commercial Paper and Euro-Commercial Paper Programs at Nationale-Nederlanden
North America Corporation.
Jonathan C. Schoolar, Robert M. Kippes and David P. Barnard are primarily
responsible for day-to-day management of the GROWTH FUND'S portfolio
securities. Mr. Schoolar's background is discussed above with respect to the
management of the Capital Appreciation Fund. Mr. Schoolar has been responsible
for the Fund since its inception in 1993. Mr. Kippes' background is discussed
above with respect to the management of the Capital Appreciation Fund. Mr.
Kippes has been responsible for the Fund since its inception in 1993. Mr.
Barnard is Vice President of AIM Capital and has been responsible for the Fund
since its inception in 1993. Mr. Barnard has been associated with AIM and/or
its affiliates since 1982 and has 21 years experience as an investment
professional.
Lanny H. Sachnowitz and Joel E. Dobberpuhl are primarily responsible for
day-to-day management of the GROWTH & INCOME FUND'S portfolio securities. Mr.
Sachnowitz is Vice President of AIM Capital and has been responsible for the
Fund since its inception
18
<PAGE>
in 1994. Mr. Sachnowitz has 8 years of experience as an investment
professional and has been associated with AIM and/or its affiliates since
1987. Mr. Dobberpuhl is Vice President of AIM Capital and has been responsible
for the Fund since 1995. Mr. Dobberpuhl has 7 years of experience as an
investment professional and has been associated with AIM and/or its affiliates
since 1990.
A. Dale Griffin III, Paul A. Rogge, Barrett K. Sides and Dominic H. R.
Moross are responsible for day-to-day management of the INTERNATIONAL FUND'S
portfolio securities. Mr. Griffin is Vice President of AIM Capital and has
been responsible for the Fund since its inception in 1993. Mr. Griffin has
been associated with AIM and/or its affiliates since 1989 and has 9 years
experience as an investment professional. Mr. Rogge is Vice President of AIM
Capital and has been associated with AIM and/or its affiliates since 1991. Mr.
Rogge has been responsible for the Fund since its inception in 1993 and has 5
years of experience as an investment professional. Prior to joining AIM, Mr.
Rogge served as an Assistant Portfolio Manager at Commerce Investment
Management and a Global Strategy Analyst for UBS--Philips & Drew. Mr. Sides is
Assistant Vice President of AIM Capital and has been associated with AIM
and/or its affiliates since 1990. Mr. Sides has been responsible for the Fund
since 1995 and has 6 years of experience as an investment professional. Mr.
Moross is Assistant Vice President of AIM Capital and has been associated with
AIM and/or its affiliates since 1993. Mr. Moross has been responsible for the
Fund since 1995 and has 2 years of experience as an investment professional.
Prior to joining AIM, he was a management graduate trainee with Maxwell
Communications PLC.
Joel E. Dobberpuhl and Claude Cody IV are responsible for day-to-day
management of the VALUE FUND'S portfolio securities. Mr. Dobberpuhl's
background is discussed above with respect to the management of the Growth &
Income Fund. Mr. Dobberpuhl has been responsible for the Fund since its
inception in 1993. Mr. Cody's background is discussed above with respect to
the management of the Global Utilities Fund. Mr. Cody has been responsible for
the Fund since its inception in 1993.
ADVISORY FEES. As compensation for its services AIM is paid an investment
advisory fee, which is calculated separately for each Fund at an annual rate
of the applicable Fund's average daily net assets. For the eleven months ended
December 31, 1995, compensation paid to AIM pursuant to the Advisory Agreement
and the total expenses of each Fund (annualized) stated as a percentage of
each Fund's average daily net assets, were as follows:
<TABLE>
<CAPTION>
COMPENSATION EXPENSE COMPENSATION EXPENSE
TO AIM RATIO TO AIM RATIO
(AFTER WAIVER AND (AFTER WAIVER AND (BEFORE WAIVER AND (BEFORE WAIVER AND
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation Fund...... 0.65% 0.75% 0.65% 0.75%
AIM V.I. Diversified
Income Fund............ 0.60% 0.88% 0.60% 0.88%
AIM V.I. Global
Utilities Fund......... 0.00% 1.47% 0.65% 2.44%
AIM V.I. Government
Securities Fund........ 0.50% 1.19% 0.50% 1.19%
AIM V.I. Growth Fund.... 0.65% 0.84% 0.65% 0.84%
AIM V.I. Growth and
Income Fund............ 0.26% 0.78% 0.65% 1.17%
AIM V.I. International
Equity Fund............ 0.75% 1.15% 0.75% 1.15%
AIM V.I. Money Market
Fund................... 0.40% 0.53% 0.40% 0.53%
AIM V.I. Value Fund..... 0.65% 0.75% 0.65% 0.75%
</TABLE>
AIM may from time to time voluntarily waive or reduce their respective fees.
Fee waivers or reductions, other than those contained in the Advisory
Agreement, may be modified or terminated at any time.
ADMINISTRATOR. The Company has entered into an Administrative Services
Agreement, with AIM, pursuant to which AIM has agreed to provide certain
accounting and other administrative services to the Funds, including the
services of a principal financial officer of the Funds and related staff. As
compensation to AIM for its services under the Administrative Services
Agreement, the Funds reimburse AIM for expenses incurred by AIM or its
affiliates in connection with such services.
AIM received reimbursement of administrative services costs from the Company
on behalf of each of the Funds, pursuant to the Administrative Services
Agreement for the eleven months ended December 31, 1995, as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF AVERAGE
NET ASSETS*
-----------
<S> <C>
AIM V.I. Capital Appreciation Fund............................ 0.02%
AIM V.I. Diversified Income Fund.............................. 0.11%
AIM V.I. Global Utilities Fund................................ 0.70%
AIM V.I. Government Securities Fund........................... 0.22%
AIM V.I. Growth Fund.......................................... 0.05%
AIM V.I. Growth and Income Fund............................... 0.18%
AIM V.I. International Equity Fund............................ 0.03%
AIM V.I. Money Market Fund.................................... 0.05%
AIM V.I. Value Fund........................................... 0.02%
</TABLE>
* Annualized
19
<PAGE>
DISTRIBUTOR. The Company has entered into a master distribution agreement
(the "Distribution Agreement"), dated October 18, 1993, as amended April 28,
1994 to include the Global Utilities Fund and the Growth & Income Fund, with
AIM Distributors, a registered broker-dealer and a wholly-owned subsidiary of
AIM, to act as the distributor of the shares of the Funds. The address of AIM
Distributors is 11 Greenway Plaza, Suite 1919, Houston, TX 77046-1173. Certain
directors and officers of the Company are affiliated with AIM Distributors and
AIM Management. The Distribution Agreement provides that AIM Distributors has
the exclusive right to distribute shares of the Funds to insurance company
separate accounts.
- -------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
The Company offers the shares of the Funds, on a continuous basis, to both
registered and unregistered separate accounts of affiliated and unaffiliated
life insurance companies to fund variable annuity contracts (the "Contracts")
and variable life insurance policies ("Policies"). Each separate account
contains divisions, each of which corresponds to a Fund in the Company. Net
purchase payments under the Contracts are placed in one or more of the
divisions of the relevant separate account and the assets of each division are
invested in the shares of the Fund which corresponds to that division. Each
separate account purchases and redeems shares of these Funds for its divisions
at net asset value without sales or redemption charges. Currently more than
one insurance company separate account invests in the Funds.
For each day on which a Fund's net asset value is calculated, each separate
account transmits to the Company any orders to purchase or redeem shares of
such Fund based on the purchase payments, redemption (surrender) requests, and
transfer requests from Contract owners, annuitants and beneficiaries which the
separate account processes on that day. The separate accounts purchase and
redeem shares of each Fund at the applicable Fund's net asset value per share
calculated as of the previous business day. Any orders to purchase or redeem
Fund shares that are not based on actions by Contract owners, annuitants, and
beneficiaries will be effected at the Fund's net asset value per share next
computed after the order is placed.
Please refer to the appropriate separate account prospectus related to your
Contract for more information regarding the Contract.
The Company, in the future, may offer the shares of its Funds to certain
pension and retirement plans ("Plans") qualified under the Internal Revenue
Code. The relationships of Plans and Plan participants to the Fund would be
subject, in part, to the provisions of the individual plans and applicable
law. Accordingly, such relationships could be different from those described
in this Prospectus for separate accounts and owners of Contracts and Policies,
in such areas, for example, as tax matters and voting privileges. The Company
does not foresee any disadvantage to purchasers of Contracts or Policies or to
Plan participants arising out of these arrangements. Nevertheless, differences
in treatment under tax and other laws, as well as other considerations, could
cause the interests of various purchasers of Contracts and Policies (and the
interests of any Plan participants) to conflict. For example, violation of the
federal tax laws by one separate account investing in the Company could cause
the Contracts and Policies funded through another separate account to lose
their tax-deferred status, unless remedial action were taken. At the same
time, the Company and the separate accounts (and any Plans investing in the
Company) are subject to conditions imposed by the Securities and Exchange
Commission and designed to prevent or remedy any conflict of interest. In this
connection, the Board of Directors has the obligation to monitor events for
any material irreconcilable conflict that may possibly arise and to determine
what action, if any, should be taken to remedy or eliminate the conflict.
- -------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each of the Funds will be
determined as of the close of regular trading of the New York Stock Exchange
(generally 4:00 p.m. Eastern Time) on each "business day of the Fund." For
purposes of determining net asset value per share, futures and options
contracts generally will be valued 15 minutes after the close of trading of
the New York Stock Exchange. A "business day of a Fund" is any day on which
the New York Stock Exchange is open for business. It is expected that the New
York Stock Exchange will be closed during the next twelve months on Saturdays
and Sundays and on the observed holidays of New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of a Fund is determined by
subtracting the liabilities (e.g., the expenses) of the Fund from the assets
of the Fund and dividing the result by the total number of shares outstanding
of such Fund. The determination of a Fund's net asset value per share is made
in accordance with generally accepted accounting principles.
VALUATION OF INVESTMENTS OF ALL FUNDS EXCEPT THE MONEY MARKET FUND. Among
other items, a Fund's liabilities include accrued expenses and dividends
payable, and its total assets include portfolio securities valued at their
market value as well as income accrued but not received. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Company's officers
and in accordance with methods which are specifically authorized by the Board
of Directors of the Company. Short-term obligations with maturities of 60 days
or less are valued at amortized cost as reflecting fair value.
VALUATION OF THE MONEY MARKET FUND'S INVESTMENTS. The Money Market Fund uses
the amortized cost method of valuing the securities held by the Fund and
rounds the Fund's per share net asset value to the nearest whole cent;
therefore, it is anticipated
20
<PAGE>
that the net asset value of the shares of the Fund will remain constant at
$1.00 per share. However, the Company can give no assurance that the Fund can
maintain a $1.00 net asset value per share.
FUTURES CONTRACTS. Initial margin deposits made upon entering into futures
contracts are recognized as assets due from the broker (the Fund's agent in
acquiring the futures position). During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking-to-market" on a daily basis to reflect the market value
of the contract at the end of each day's trading. Variation margin payments
are made or received depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund that has entered into the
futures contract records a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract.
- -------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS. The Funds declare and distribute dividends
representing substantially all net investment income as follows:
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
DECLARED PAID
---------- ----------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund................... annually annually
AIM V.I. Diversified Income Fund..................... annually annually
AIM V.I. Global Utilities Fund....................... annually annually
AIM V.I. Government Securities Fund.................. annually annually
AIM V.I. Growth Fund................................. annually annually
AIM V.I. Growth and Income Fund...................... annually annually
AIM V.I. International Equity Fund................... annually annually
AIM V.I. Money Market Fund........................... daily daily
AIM V.I. Value Fund.................................. annually annually
</TABLE>
Substantially all net realized capital gains, if any, are distributed on an
annual basis, except for the Money Market Fund, which may distribute net
realized short-term gains more frequently.
All such distributions will be automatically reinvested, at the election of
Participating Insurance Companies in shares of the Fund issuing the
distribution at the net asset value determined on the reinvestment date.
TAX MATTERS. Each series of shares of the Company is treated as a separate
association taxable as a corporation. Each Fund intends to qualify under the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company ("RIC") for each taxable year. As a RIC, a Fund will not be
subject to federal income tax to the extent it distributes to its shareholders
its net investment income and net capital gains.
In order to qualify as a regulated investment company, each Fund must
satisfy certain requirements concerning the nature of its income,
diversification of its assets and distribution of its income to shareholders.
In order to ensure that individuals holding the Contracts whose assets are
invested in a Fund will not be subject to federal income tax on distributions
made by the Fund prior to the receipt of payments under the Contracts, each
Fund intends to comply with additional requirements of Section 817(h) of the
Code relating to both diversification of its assets and eligibility of an
investor to be its shareholder. Certain of these requirements in the aggregate
may limit the ability of a Fund to engage in transactions involving options,
futures contracts, forward contracts and foreign currency and related
deposits.
Any Fund's transactions in non-equity options, forward contracts, futures
contracts and foreign currency will be subject to special tax rules, the
effect of which may be to accelerate income to the Fund, defer Fund losses,
cause adjustments in the holding periods of fund securities and convert short-
term capital losses into long-term capital losses. These losses could
therefore affect the amount, timing and character of distributions.
The holding of the foreign currencies and investments by a Fund in certain
"passive foreign investment companies" may be limited in order to avoid
imposition of a tax on such Fund.
Each Fund investing in foreign securities may be subject to foreign
withholding taxes on income from its investments. In any year in which more
than 50% in value of a Fund's total assets at the close of the taxable year
consists of securities of foreign corporations, the Fund may elect to treat
any foreign taxes paid by it as if they had been paid by its shareholders. The
insurance company segregated asset accounts holding Fund shares should
consider the impact of this election.
Holders of Contracts under which assets are invested in the Funds should
refer to the prospectus for the Contracts for information regarding the tax
aspects of ownership of such Contracts.
21
<PAGE>
- -------------------------------------------------------------------------------
GENERAL INFORMATION
ORGANIZATION OF THE COMPANY. The Company was organized on January 22, 1993
as a Maryland corporation, and is registered with the Securities and Exchange
Commission as a diversified, open-end, series, management investment company.
The Company currently consists of nine separate portfolios (i.e., the Funds).
The authorized capital stock of the Company consists of 2,500,000,000 shares
of common stock with a par value of $.001 per share, of which 250,000,000
shares are classified AIM V.I. CAPITAL APPRECIATION FUND shares, 250,000,000
shares are classified AIM V.I. DIVERSIFIED INCOME FUND shares, 250,000,000
shares are classified AIM V.I. GLOBAL UTILITIES FUND shares, 250,000,000
shares are classified AIM V.I. GOVERNMENT SECURITIES FUND shares, 250,000,000
are classified AIM V.I. GROWTH FUND shares, 250,000,000 shares are classified
AIM V.I. GROWTH AND INCOME FUND shares, 250,000,000 shares are classified AIM
V.I. INTERNATIONAL EQUITY FUND shares, 250,000,000 shares are classified AIM
V.I. MONEY MARKET FUND shares, 250,000,000 shares are classified AIM V.I.
VALUE FUND shares, and the balance of which are unclassified.
The shares of each Fund have equal rights with respect to voting, except
that (i) the holders of shares of all classes of a particular Fund voting
together will have the exclusive right to vote on matters (such as advisory
fees) pertaining solely to that Fund, and (ii) the holders of shares of a
particular class will have the exclusive right to vote on matters pertaining
to distribution plans, if any such plans are adopted, relating solely to such
class. Shareholders of the Funds do not have cumulative voting rights.
The Company understands that insurance company separate accounts owning
shares of the Funds will vote their shares in accordance with instructions
received from Contract owners, annuitants and beneficiaries. Fund shares held
by a registered separate account as to which no instructions have been
received will be voted for or against any proposition, or in abstention, in
the same proportion as the shares of that separate account as to which
instructions have been received. Fund shares held by a registered separate
account that are not attributable to Contracts will also be voted for or
against any proposition in the same proportion as the shares for which voting
instructions are received by that separate account. If an insurance company
determines, however, that it is permitted to vote any such shares of the Funds
in its own right, it may elect to do so, subject to the then current
interpretation of the 1940 Act and the rules thereunder.
Under Maryland law and the Company's By-Laws, the Company need not hold an
annual meeting of shareholders unless a meeting is required under the 1940 Act
to elect directors. Shareholders may remove directors from office, and a
meeting of shareholders may be called at the request of the holders of 10% or
more of the Company's outstanding shares.
There are no preemptive or conversion rights applicable to any of the
Company's shares. Each Fund's shares, when issued, are fully paid and non-
assessable.
As of April 1, 1996, Connecticut General Life Insurance Company owned more
than 25 percent of the shares of one or more of the Funds and, therefore,
could be deemed to "control" such Fund, as that term is defined in the
Investment Company Act of 1940. As explained above, however, insurance company
separate accounts vote their shares of a Fund in accordance with instructions
received from Contract owners, annuitants and beneficiaries and, in this
sense, would not "control" such Fund.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02110, serves as custodian for the Funds'
portfolio securities and cash and also serves as the transfer agent and as
dividend paying agent.
LEGAL COUNSEL. Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised
the Company on certain federal securities law matters.
OTHER INFORMATION. This Prospectus sets forth basic information that
investors should know about the Funds prior to investing. A Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is available upon request and without charge by writing or
calling AIM Distributors. This Prospectus omits certain information contained
in the registration statement filed with the Securities and Exchange
Commission. Copies of the registration statement, including items omitted from
this Prospectus, may be obtained from the Securities and Exchange Commission
by paying the charges prescribed under its rules and regulations.
22
<PAGE>
APPENDIX A
- -------------------------------------------------------------------------------
DESCRIPTION OF CORPORATE BOND RATINGS
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
Moody's Investors Service, Inc.'s corporate bond ratings are as follows:
*Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
*Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
*A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
*Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Standard and Poor's Corporation classifications are as follows:
*AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
*AA -- Debt rated "AA" has a very stong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
*A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
*BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.
BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-1
<PAGE>
BB -- Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB --" rating.
B -- Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB --" rating.
CCC -- Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
assigned an actual or implied "B" or "B --" rating.
CC -- The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.dinated to senior debt
which is assigned an actual or implied "CCC--' debt rating. The "C' rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 -- The rating "C1" is reserved for income bonds on which no interest is
D -- Debt rated "D" is in payment default. The "D" rating category is usede
date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The "D"
service payments are jeopardized.
Plus (+) or Minus (-): The rating from "AA" to "CCC" may be modified by the
categories.
Duff & Phelps fixed-income ratings are as follows:
*AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
*AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
*A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
*BBB+, BBB, BBB- -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in quality rating within this category
or into a higher or lower quality rating grade.
CCC -- Well below investment grade securities. May be in default or have
considerable uncertainty as to timely payment of interest, preferred dividends
and/or principal. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
Fitch Investors Service, Inc.'s bond ratings are as follows:
*AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
*AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
A-2
<PAGE>
*A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
*BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D -- Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA", "DDD", "DD", or "D"
categories.
A-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX B
- -------------------------------------------------------------------------------
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES
The following list includes certain common Agency Securities, as defined in
the Prospectus, and does not purport to be exhaustive.
EXPORT-IMPORT BANK CERTIFICATES -- are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the United States.
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS -- are bonds issued by a
cooperatively owned, nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U. S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS -- are notes and bonds issued by the
Federal Home Loan Bank System.
FHA DEBENTURES -- are debentures issued by the Federal Housing Authority of
the U. S. Government.
FHA INSURED NOTES -- are bonds issued by the Farmers Home Administration of
the U. S. Government.
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS -- are bonds issued
and guaranteed by FHLMC, a corporate instrumentality of the U.S. Government.
The Federal Home Loan Banks own all the capital stock of FHLMC, which obtains
its funds by selling mortgages (as well as participation interests in the
mortgages) and by borrowing funds through the issuance of debentures and
otherwise.
FHLMC PARTICIPATION CERTIFICATES OR "FREDDIE MACS" -- represent undivided
interests in specified groups of conventional mortgage loans (and/or
participation interests in those loans) underwritten and owned by FHLMC. At
least 95% of the aggregate principal balance of the whole mortgage loans
and/or participations in a group formed by FHLMC typically consists of single-
family mortgage loans, and not more than 5% consists of multi-family loans.
FHLMC Participation Certificates are not guaranteed by, and do not constitute
a debt or obligation of, the U.S. Government or any Federal Home Loan Bank.
FHLMC Participation Certificates are issued in fully registered form only, in
original unpaid principal balances of $25,000, $100,000, $200,000, $500,000,
$1 million and $5 million. FHLMC guarantees to each registered holder of a
Participation Certificate, to the extent of such holder's pro rata share (i)
the timely payment of interest accruing at the applicable certificate rate on
the unpaid principal balance outstanding on the mortgage loans, and (ii)
collection of all principal on the mortgage loans without any offset or
deductions. Pursuant to these guaranties, FHLMC indemnifies holders of
Participation Certificates against any reduction in principal by reason of
charges for property repairs, maintenance, and foreclosure.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS -- are bonds issued and
guaranteed by FNMA, a federally chartered and privately-owned corporation.
FNMA PASS-THROUGH CERTIFICATES OR "FANNIE MAES" -- are mortgage pass-through
certificates issued and guaranteed by FNMA. FNMA Certificates represent a
fractional undivided ownership interest in a pool of mortgage loans either
provided from FNMA's own portfolio or purchased from primary lenders. The
mortgage loans included in the pool are conventional, insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. FNMA
Certificates are not backed by, nor entitled to, the full faith and credit of
the U.S. Government.
Loans not provided from FNMA's own portfolio are purchased only from primary
lenders that satisfy certain criteria developed by FNMA, including depth of
mortgage origination experience, servicing experience and financial capacity.
FNMA may purchase an entire loan pool from a single lender, and issue
Certificates backed by that loan pool alone, or may package a pool made up of
loans purchased from various lenders.
Various types of mortgage loans, and loans with varying interest rates, may
be included in a single pool, although each pool will consist of mortgage
loans related to one-family or two-to-four family residential properties.
Substantially all FNMA mortgage pools currently consist of fixed interest rate
and growing equity mortgage loans, although FNMA mortgage pools may also
consist of adjustable interest rate mortgage loans or other types of mortgage
loans. Each mortgage loan must conform to FNMA's published requirements or
guidelines with respect to maximum principal amount, loan-to-value ratio, loan
term, underwriting standards and insurance coverage.
All mortgage loans are held by FNMA as trustee pursuant to a trust indenture
for the benefit of Certificate holders. The trust indenture gives FNMA
responsibility for servicing and administering the loans in a pool. FNMA
contracts with the lenders or other servicing institutions to perform all
services and duties customary to the servicing of mortgages, as well as duties
specifically prescribed by FNMA, all under FNMA supervision. FNMA may remove
service providers for cause.
The pass-through rate on FNMA Certificates is the lowest annual interest
rate borne by an underlying mortgage loan in the pool, less a fee to FNMA as
compensation for servicing and for FNMA's guarantee. Lenders servicing the
underlying mortgage loans receive as compensation a portion of the fee paid to
FNMA, the excess yields on pooled loans with coupon rates above the lowest
rate borne by any mortgage loan in the pool and certain other amounts
collected, such as late charges.
B-1
<PAGE>
The minimum size of a FNMA pool is $1 million of mortgage loans. Registered
holders purchase Certificates in amounts not less than $25,000.
FNMA Certificates are marketed by the servicing lender banks, usually
through securities dealers. The lender of a single lender pool typically
markets all Certificates based on that pool, and lenders of multiple lender
pools market Certificates based on a pro rata interest in the aggregate pool.
The amount of FNMA Certificates currently outstanding is limited.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR "GINNIE
MAES" -- are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations. Each mortgage
loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A "pool" or group
of such mortgages is assembled, and, after being approved by GNMA, is offered
to investors through securities dealers. GNMA is a U.S. Government corporation
within the Department of Housing and Urban Development.
GNMA Certificates differ from bonds in that the principal is paid back
monthly by the borrower over the term of the loan rather than returned in a
lump sum at maturity. GNMA Certificates are called "modified pass-through"
securities because they entitle the holder to receive its proportionate share
of all interest and principal payments owed on the mortgage pool, net of fees
paid to the issuer and GNMA, regardless of whether or not the mortgagor
actually makes the payment. Payment of principal of and interest on GNMA
Certificates of the "modified pass-through" type is guaranteed by GNMA and
backed by the full faith and credit of the U.S. Government.
The average life of a GNMA Certificate is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance
of the maturity of the mortgages in the pool. Foreclosures impose little risk
to principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is
not possible to accurately predict the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with 25- to 30-year
maturity, the type of mortgage which backs the vast majority of GNMA
Certificates, is approximately 12 years. It is therefore customary practice to
treat GNMA Certificates as 30-year mortgage-backed securities which prepay
fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA
Certificates, the coupon rate of interest of GNMA Certificates is lower than
the interest paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates.
The yield which will be earned on GNMA Certificates may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each
Certificate is affected by the prepayment of mortgages included in the
mortgage pool underlying the Certificates and the rate at which principal so
prepaid is reinvested. In addition, prepayment of mortgages included in the
mortgage pool underlying a GNMA Certificate purchased at a premium may result
in a loss to the Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors,
GNMA Certificates are highly liquid instruments. Prices of GNMA Certificates
are readily available from securities dealers and depend on, among other
things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
GENERAL SERVICES ADMINISTRATION ("GSA") PARTICIPATION CERTIFICATES -- are
participation certificates issued by the General Services Administration of
the U.S. Government.
MARITIME ADMINISTRATION BONDS -- are bonds issued and provided by the
Department of Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development
Act of 1970, the payment of which is guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS -- are short-term project notes and long-
term bonds issued by public housing and urban renewal agencies in connection
with programs administered by the Department of Housing and Urban Development
of the U.S. Government, the payment of which is secured by the U.S.
Government.
SBA DEBENTURES -- are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing
Association.
TITLE XI BONDS -- are bonds issued in accordance with the provisions of
Title XI of the Merchant Marine Act of 1936, as amended, the payment of which
is guaranteed by the U.S. Government.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by
the Washington Metropolitan Area Transit Authority and are guaranteed by the
Secretary of Transportation of the U.S. Government.
B-2
<PAGE>
APPENDIX C
- -------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET OBLIGATIONS
The following list does not purport to be an exhaustive list of all Money
Market Obligations, and the Funds reserve the right to invest in Money Market
Obligations other than those listed below:
1. GOVERNMENT OBLIGATIONS.
U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes, and bonds issued by the
U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES -- Certain federal agencies such as the
Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain
types of activities. Issues of these agencies, while not direct obligations of
the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury.
FOREIGN GOVERNMENT OBLIGATIONS -- These are U.S. dollar denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are
determined by the Fund's investment advisor to be of comparable quality to the
other obligations in which the Fund may invest. Such securities also include
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities
to promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of the Fund's assets invested
in securities issued by foreign governments will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.
2. BANK INSTRUMENTS.
BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange for
the deposit of funds. Like a certificate of deposit, it earns a specified rate
of interest over a definite period of time; however, it cannot be traded in
the secondary market.
EURODOLLAR OBLIGATIONS -- A Eurodollar obligation is a U.S. dollar-
denominated obligation issued by a foreign branch of a domestic bank.
YANKEE DOLLAR OBLIGATIONS -- A Yankee dollar obligation is a U.S. dollar-
denominated obligation issued by a domestic branch of a foreign bank.
3. COMMERCIAL INSTRUMENTS.
COMMERCIAL PAPER -- The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months.
VARIABLE RATE MASTER DEMAND NOTES -- Variable rate master demand notes are
unsecured demand notes that permit investment of fluctuating amounts of money
at variable rates of interest pursuant to arrangements with issuers who meet
the foregoing quality criteria as discussed in the Statement of Additional
Information under "Investment Programs." The interest rate on a variable
amount master demand note is periodically redetermined according to a
prescribed formula. Although there is no secondary market in master demand
notes, the payee may demand payment of the principal amount of the note on
relatively short notice. All variable rate master demand notes acquired by the
Money Market Fund will be payable within a prescribed notice period not to
exceed seven days.
4. REPURCHASE AGREEMENTS -- A repurchase agreement is a contractual
undertaking whereby the seller of securities (limited to U.S. Government
securities, including securities issued or guaranteed by the U.S. Treasury or
the various agencies and instrumentalities of the U.S. Government) agrees to
repurchase the securities at a specified price on a future date determined by
negotiations.
C-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
A I M V A R I A B L E I N S U R A N C E F U N D S, I N C.
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TX 77046-1173
(713) 626-1919
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH FUND AIM V.I. GROWTH AND INCOME FUND
AIM V.I. INTERNATIONAL EQUITY FUND AIM V.I. MONEY MARKET FUND
AIM V.I. VALUE FUND
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH
MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P. O. BOX 4739,
HOUSTON, TX 77210-4739
OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS)
OR (800) 347-1919 (ALL OTHERS).
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 1996
RELATING TO PROSPECTUS DATED: MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION......................................................... 1
GENERAL INFORMATION ABOUT THE FUNDS.................................. 1
The Company and Its Shares......................................... 1
PERFORMANCE.......................................................... 1
Total Return Calculations.......................................... 1
Historical Portfolio Results....................................... 2
Yield Information.................................................. 3
PORTFOLIO TRANSACTIONS AND BROKERAGE................................. 4
General Brokerage Policy........................................... 4
Section 28(e) Standards............................................ 5
Portfolio Turnover................................................. 6
Brokerage Commissions Paid......................................... 7
INVESTMENT PROGRAMS.................................................. 7
Money Market Obligations........................................... 7
Repurchase Agreements.............................................. 8
Lending of Portfolio Securities.................................... 8
Reverse Repurchase Agreements...................................... 9
Delayed Delivery Agreements........................................ 9
When-Issued Securities............................................. 9
Special Situations................................................. 10
Warrants........................................................... 10
Short Sales........................................................ 11
Rule 144A Securities............................................... 11
Utilities Industry................................................. 11
HEDGING AND OTHER INVESTMENT TECHNIQUES.............................. 12
INVESTMENT RESTRICTIONS.............................................. 14
Fundamental Restrictions........................................... 14
Non-fundamental Restrictions....................................... 15
MANAGEMENT........................................................... 16
Directors and Officers............................................. 16
Remuneration of Directors........................................ 19
AIM Funds Retirement Plan for Eligible Directors/Trustees........ 20
Deferred Compensation Agreements................................. 21
Investment Advisory and Administrative Services Agreements......... 22
The Distribution Agreement......................................... 25
DETERMINATION OF NET ASSET VALUE..................................... 25
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS............................. 28
MISCELLANEOUS INFORMATION............................................ 29
Audit Reports...................................................... 29
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Legal Matters..................................................... 29
Custodian and Transfer Agent...................................... 29
Principal Holders of Securities................................... 29
Other Information................................................. 32
FINANCIAL STATEMENTS................................................ FS
</TABLE>
ii
<PAGE>
INTRODUCTION
AIM Variable Insurance Funds, Inc. (the "Company") is a mutual fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
certain information concerning the activities of the fund being considered for
investment. This information is included in Prospectuses dated May 1, 1996,
which relate respectively to each of the nine series portfolios of the Company
(referred to collectively as the "Funds" and separately as a "Fund"). One or
more of the Company's nine Funds may not be available under a particular
variable annuity contract or variable life insurance policy. To the extent, this
Statement of Additional Information may contain information that is not relevant
to the investment options under such a contract or policy. Additional copies of
the Prospectuses of Funds available under a contract or policy and this
Statement of Additional Information may be obtained without charge by writing
the principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM
Distributors"), P. O. Box 4739, Houston, TX 77210-4739 or by calling (713) 626-
1919. Investors must receive a Prospectus before they invest. To the extent that
this Statement of Additional Information contains information concerning a Fund
that is not available under a contract or policy, the Statement of Additional
Information does not constitute the offer of the shares of that Fund.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Funds' current Prospectus; and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement filed with the SEC. Copies
of the Registration Statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized on January 22, 1993, as a Maryland
corporation, and is registered with the SEC as an open-end, series, management
investment company. The Company currently consists of nine separate portfolios
(i.e., the "Funds") as follows: the AIM V.I. Capital Appreciation Fund ("Capital
Appreciation Fund"), the AIM V.I. Diversified Income Fund ("Diversified Income
Fund"), the AIM V.I. Global Utilities Fund ("Global Utilities Fund") (formerly
known as the AIM V.I. Utilities Fund), the AIM V.I. Government Securities Fund
("Government Fund"), the AIM V.I. Growth Fund ("Growth Fund"), the AIM V.I.
Growth and Income Fund ("Growth & Income Fund"), the AIM V.I. International
Equity Fund ("International Fund"), the AIM V.I. Money Market Fund ("Money
Market Fund"), and the AIM V.I. Value Fund ("Value Fund").
Each share of a Fund is entitled to one vote, to participate equally
in dividends and distributions declared by the Board of Directors with respect
to the Fund and, upon liquidation of the Fund, to participate in its
proportionate share of the net assets allocable to the Fund remaining after
satisfaction of outstanding liabilities of the Fund. Fund shares are fully paid,
non-assessable and fully transferable when issued and have no preemptive,
conversion or exchange rights. Fractional shares have proportionately the same
rights, including voting rights, as are provided for a full share.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company. See "General Information" in the Prospectus.
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share (NAV) over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical investment in a
particular Fund over a stated period, and then calculating the annually
1
<PAGE>
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that a Fund's performance is not constant over time,
but changes from year to year, and that average annual returns do not represent
the actual year-to-year performance of such Fund.
In addition to average annual returns, each Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, and/or a series of redemptions, over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The Funds' average annual and cumulative total return for the eleven
months ended December 31, 1995 and average annual and cumulative total returns
for the period May 5, 1993 (commencement of operations) through December 31,
1995, were as follows:
<TABLE>
<CAPTION>
Since
Inception
-------------------
Eleven Average
Month Annual Cumulative
Period Return Return
------ ------ ---------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 37.38% 21.04% 66.18%
AIM V.I. Diversified Income Fund 18.11% 7.04% 19.82%
AIM V.I. Global Utilities Fund* 23.73% 13.30% 23.03%
AIM V.I. Government Securities Fund 13.84% 5.46% 15.20%
AIM V.I. Growth Fund 34.89% 15.12% 45.44%
AIM V.I. Growth and Income Fund* 32.65% 19.20% 33.85%
AIM V.I. International Equity Fund 24.04% 12.61% 37.14%
AIM V.I. Money Market Fund 5.21% 4.06% 11.18%
AIM V.I. Value Fund 36.25% 20.10% 62.76%
</TABLE>
* The inception date of the AIM V.I. Global Utilities Fund and the AIM V.I.
Growth and Income Fund was May 2, 1994.
The total returns quoted above do not reflect charges levied at the
insurance company separate account level. For a complete description of the
applicable charges, see the fee table in the prospectus for the appropriate
insurance company separate account.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and other
independent services which monitor the performance of mutual funds. The Funds
may also advertise mutual fund performance rankings which have been assigned to
each respective Fund by such monitoring services.
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
2
<PAGE>
The International Fund's performance may also be compared in
advertising to performance of comparative benchmarks such as The Financial
Times-Actuaries World Indices (a wide range of comprehensive measures of stock
price performance for the major stock markets and regional areas), Morgan
Stanley Capital International Indices, including the EAFE Index, Pacific Basin
Index and Pacific Ex Japan Index (a widely recognized series of indices in
international market performance), and indices of stocks comparable to those in
which the Fund invests.
Each Fund's advertising may from time to time include historical
discussions of general economic conditions such as inflation rates and changes
in the stock market, foreign and domestic interest rates and foreign and
domestic political circumstances and events.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money
markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning and inflation.
YIELD INFORMATION
Quotations of yield on the Money Market Fund may appear from time to
time in the financial press and in advertisements.
The Money Market Fund's yield is its investment income, less expenses,
expressed as a percentage of assets on an annualized basis for an identified
period, usually seven days. The yield is expressed as a simple annualized yield
and as a compounded effective yield. The yield does not reflect the fees and
charges imposed on the assets of the insurance company separate account.
The standard formulas prescribed by the SEC for calculating yield and
effective yield for the Money Market Fund are described below:
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical pre-
existing account having a balance of one share at the beginning of the period,
dividing the net change in account value by the value of the account at the
beginning of the period, and annualizing the resulting quotient (base period
return) on a 365-day basis. The net change in account value reflects the value
of additional shares purchased with dividends from the original shares in the
account during the period, dividends declared on such additional shares during
the period, and expenses accrued during the period.
The compounded effective yield is computed by determining the
unannualized base period return, adding one to the base period return, raising
the sum to a power equal to 365 divided by the number of days in the period, and
subtracting one from the result. Historical yields are not necessarily
indicative of future yields. Rates of return will vary as interest rates and
other conditions affecting money market instruments change. Yields also depend
on the quality, length of maturity and type of instruments in the Fund's
portfolio and the Fund's operating expenses. Quotations of yield will be
accompanied by information concerning the average weighted maturity of the Fund.
Comparison of the quoted yields of various investments is valid only if yields
are calculated in the same manner and for identical limited periods. When
comparing the yield for a Fund with yields quoted with respect to other
investments, shareholders should consider (a) possible differences in time
periods, (b) the effect of the methods used to calculate quoted yields, (c) the
quality and average-weighted maturity of portfolio investments, expenses,
convenience, liquidity and other important factors, and (d) the taxable or tax-
exempt character of all or part of dividends received.
3
<PAGE>
The simple annualized yield and compounded effective yield for the
Money Market Fund for the 7 days ended December 31, 1995 were 5.12% and 5.25%,
respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the
Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and
sell securities for each Fund, for the selection of broker-dealers, for the
execution of the Fund's investment portfolio transactions, for the allocation of
brokerage fees in connection with such transactions and, where applicable, for
the negotiation of commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain the best net
price and the most favorable execution of the order. While AIM generally seeks
reasonably competitive commission rates, each Fund does not necessarily pay the
lowest commission or spread available.
Purchases and sales of portfolio securities for the Diversified Income
Fund, the Money Market Fund and the Government Fund are generally transacted
with the issuer or a primary market maker. In addition, a portion of the
securities in which the Funds invest may be traded in over-the-counter ("OTC")
markets. In such transactions, the Fund deals directly with the dealers who make
markets in the securities involved, except in those circumstances where better
prices and executions are available elsewhere. Portfolio transactions placed
through dealers serving as primary market makers are effected at net prices,
without commissions as such, but which include compensation to the dealer in the
form of mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. In recent years, however, an increasing
number of overseas stock markets have adopted a system of negotiated rates,
although a number of markets continue to be subject to an established schedule
of minimum commission rates.
Foreign equity securities may be held by the Fund in the form of
American Depositary Receipts ("ADRs") or European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers, or
securities convertible into foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Generally, ADRs, in registered form, are designed
for use in the United States securities markets, and EDRs, in bearer form, are
designed for use in European securities markets. ADRs and EDRs may be listed on
stock exchanges, or traded in OTC markets in the United States or Europe, as the
case may be. ADRs, like other securities traded in the United States, will be
subject to negotiated commission rates.
The Funds are not under any obligation to deal with any broker or
group of brokers in the execution of transactions in portfolio securities.
Brokers who provide supplemental investment research to AIM may receive orders
for transactions by a Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by AIM under its agreements
with the Fund, and the expenses of AIM will not necessarily be reduced as a
result of the receipt of such supplemental information. Certain research
services furnished by broker-dealers may be useful to AIM in connection with its
services to other advisory clients, including the other AIM Funds. Also, a Fund
may pay a higher price for securities or higher commissions in recognition of
research services furnished by broker-dealers.
AIM may from time to time determine target levels of commission
business for AIM to transact with various brokers on behalf of its clients
(including the Funds) over a certain time period. The target levels will be
determined based upon the following factors, among others: (1) the execution
services provided by the broker; (2) the research services provided by the
broker; and (3) the broker's attitude toward and interest in mutual funds in
general and in the Funds and other mutual funds advised by AIM (collectively,
the "AIM Funds")
4
<PAGE>
in particular. No specific formula will be used in connection with any of the
foregoing considerations in determining the target levels. However, if a broker
has indicated a certain level of desired commissions in return for certain
research services provided by the broker, this factor will be taken into
consideration by AIM.
Subject to the overall objective of obtaining best price and execution
for the Funds, AIM may also consider sales of shares of each Fund and of the
other AIM Funds as well as sales of variable annuity contracts ("Contracts") and
variable life insurance policies ("Policies") funded through the Funds, as a
factor in the selection of broker-dealers to execute portfolio transactions for
a Fund.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which may be recaptured are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
AIM and its affiliates manage several other investment accounts, some
of which may have investment objectives similar to those of the Funds. It is
possible that, at times, identical securities will be appropriate for investment
by one or more of such investment accounts. The position of each account,
however, in the securities of the same issue may vary and the length of time
that each account may choose to hold its investment in the securities of the
same issue may likewise vary. The timing and amount of purchases by each account
will also be determined by its cash position. If the purchase or sale of
securities is consistent with the investment policies of a Fund(s) and one or
more of these accounts is considered at or about the same time. AIM may combine
such transactions, in accordance with applicable laws and regulations, in order
to obtain the best net price and most favorable execution. Simultaneous
transactions could, however, adversely affect the ability of a Fund to obtain or
dispose of the full amount of a security which it seeks to purchase or sell.
These combined transactions, and related brokerage charges, will be
allocated among the Fund(s) and such accounts in a manner consistent with
guidelines and procedures approved by the Company's Board of Directors that are
designed to achieve an equitable manner of allocation. In some cases the
procedure for allocating portfolio transactions among the various investment
accounts advised by AIM could have an adverse effect on the price or amount of
securities available to a Fund. In making such allocations, the main factors
considered by AIM are the respective investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the judgments of the persons
responsible for recommending the investment.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another investment account
advised by AIM or AIM Capital, when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment objective(s)
and policies of the investment accounts advised by AIM or AIM Capital.
Procedures pursuant to Rule 17a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") regarding transactions between investment accounts
advised by AIM or AIM Capital have been adopted by the Boards of
Directors/Trustees of the various AIM Funds, including the Company. Although
such transactions may result in custodian, tax or other related expenses, no
brokerage commissions or other direct transaction costs are generated by
transactions among the investment accounts advised by AIM or AIM Capital.
SECTION 28(e) STANDARDS
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
AIM may cause a Fund to pay a broker that provides brokerage and research
services to AIM an amount of commission for effecting a securities transaction
for the Fund in excess of the commission another broker would have charged for
effecting that transaction. To obtain the benefit of Section 28(e), AIM must
make a good faith determination that the commissions paid are "reasonable in
relation to the value of the brokerage and research services provided . . .
viewed in terms of either that particular transaction or [its] overall
responsibilities with respect to the accounts as to which [it] exercises
investment discretion" and that the services provided by a broker provide AIM
with lawful and appropriate assistance in the performance of its investment
decision-making responsibilities. Accordingly, the price to a Fund in any
transaction may be less favorable than that available
5
<PAGE>
from another broker-dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered. The Funds will not
knowingly pay a higher spread than the lowest available in principal
transactions as a result of its receipt of research services from a dealer.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM to be beneficial to the
Funds' investment programs. Research services received from brokers supplement
AIM's own research (and the research of sub-advisors to other clients of AIM)
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to AIM and to the Company's directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the brokers
utilized by AIM as a group tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, this research provides
AIM with a diverse perspective on financial markets. Research services which are
provided to AIM by brokers are available for the benefit of all accounts managed
or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM is of the opinion that
because the broker research supplements rather than replaces its research, the
receipt of such research does not tend to decrease its expenses, but tends to
improve the quality of its investment advice. However, to the extent that AIM
would have purchased any such research services had such services not been
provided by brokers, the expenses of such services to AIM could be considered to
have been reduced accordingly.
For the eleven months ended December 31, 1995, certain Funds paid
brokerage commissions to certain brokers for research services. The amount of
such transactions and related commissions paid by each Fund were as follows:
<TABLE>
<CAPTION>
Commissions Transactions
----------- ------------
<S> <C> <C>
AIM V. I. Capital Appreciation Fund $13,683 $ 8,049,497
AIM V. I. Global Utilities Fund $ 285 $ 156,059
AIM V. I. Growth Fund $15,209 $10,270,040
AIM V. I. Growth & Income Fund $ 4,368 $ 3,298,290
AIM V. I. International Equity Fund $ 455 $ 262,696
AIM V. I. Value Fund $44,261 $29,219,088
</TABLE>
The following information regarding securities acquired by the Funds
of their regular bankers, as defined in Rule 10b-1 under the 1940 Act, is as of
December 31, 1995. AIM V.I. Diversified Income Fund had entered into a
repurchase agreement with Daiwa Securities America, Inc. having a market value
of $1,348,008. AIM V.I. Government Securities Fund had entered into a repurchase
agreement with Daiwa Securities America, Inc. having a market value of
$1,231,821. AIM V.I. Money Market Fund had entered into repurchase agreements
with Daiwa Securities America, Inc. and Goldman, Sachs & Co. having a market
value of $8,519,331 and $15,000,000, respectively. AIM V.I. Money Market Fund
held an amount of common stock issued by The Goldman Sachs Group, L.P. having a
market value of $2,994,958. AIM V.I. Growth Fund held an amount of common stock
issued by Morgan Stanley Group Inc. and PaineWebber Group, Inc. having a market
value of $241,875 and $302,000, respectively. AIM V.I. Growth and Income Fund
held an amount of common stock issued by Merrill Lynch & Co., Inc. having a
market value of $204,000.
PORTFOLIO TURNOVER
The portfolio turnover rate of each Fund is shown under "Financial
Highlights" in the Prospectus. In any particular year, however, market
conditions could result in portfolio activity at a rate greater or lesser than
anticipated. Higher portfolio turnover increases transaction costs to the Fund.
6
<PAGE>
BROKERAGE COMMISSIONS PAID
Brokerage commissions paid by each of the Funds listed below were as
follows for the eleven months ended December 31, 1995, the fiscal year ended
January 31, 1995 and for the period May 5, 1993 (date operations commenced)
through January 31, 1994.
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $400,895 $161,528 $48,753
AIM V.I. Diversified Income Fund $ 74,475 $ 17,471 $ -0-
AIM V.I. Global Utilities Fund $ 24,107 $ 9,280* N/A
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $315,627 $173,691 $54,735
AIM V.I. Growth and Income Fund $177,420 $ 20,436* N/A
AIM V.I. International Equity Fund $312,071 $ 89,187 $85,606
AIM V.I. Money Market Fund $ -0- $ -0- $ -0-
AIM V.I. Value Fund $862,938 $362,162 $76,623
</TABLE>
* Commissions paid are for the period May 2, 1994 (date operations commenced)
through January 31, 1995.
INVESTMENT PROGRAMS
Information concerning each Fund's fundamental investment objective is
set forth in the Prospectus under the heading "Investment Objectives and
Programs." There can be no assurance that any Fund will achieve its objective.
The principal features of each Fund's investment program and the primary risks
associated with that investment program are discussed in the Prospectus under
the heading "Investment Objectives and Programs--Certain Investment Strategies
and Techniques." The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the
Prospectus.
MONEY MARKET OBLIGATIONS
As set forth in the Prospectus, the Money Market Fund will limit its
purchases of Money Market Obligations to U.S. dollar denominated securities
which are
(i) "First Tier" securities, as such term is defined from time to
time in Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), or
(ii) securities guaranteed as to payment of principal and interest by
the U.S. Government.
As of the date of this Statement of Additional Information, Rule 2a-7
defines a "First Tier Security" as any "Eligible Security" (as defined in Rule
2a-7 and set forth in this Statement of Additional Information under
"Determination of Net Asset Value") that:
(i) is rated (or that has been issued by an issuer that is rated with
respect to a class of short-term debt obligations, or any security within that
class, that is comparable in priority and security with
7
<PAGE>
the security) by the Requisite NRSROs(*) in the highest rating category for
short-term debt obligations (within which there may be sub-categories or
gradations indicating relative standing); or
(ii) is a security described in paragraph (a)(5)(ii) of Rule 2a-7
(i.e. a security that at the time of issuance was a long-term security but that
has a remaining maturity of 397 days or less) whose issuer has received from the
Requisite NRSROs a rating, with respect to a class of short-term debt
obligations (or any security within that class) that now is comparable in
priority and security with the security, in the highest rating category for
short-term debt obligations (within which there may be sub-categories or
gradations indicating relative standing); or
(iii) is an Unrated Security that is of comparable quality to a
security meeting the requirements of clauses (i) and (ii) above, as determined
by the Company's Board of Directors.
Subsequent to its purchase by the Fund, an issue of Money Market
Obligations may cease to be a First Tier security. Subject to certain
exceptions set forth in Rule 2a-7, such an event will not require the
elimination of the security from the Fund, but AIM will consider such an event
to be relevant in its determination of whether the Fund should continue to hold
the security. To the extent that the ratings applied by an NRSRO to Money
Market Obligations may change as a result of changes in these rating systems,
the Fund will attempt to use comparable ratings as standards for its investments
in Money Market Obligations in accordance with the investment policies described
herein.
REPURCHASE AGREEMENTS
The Funds may each enter into repurchase agreements. A repurchase
agreement is an instrument under which a Fund acquires ownership of a debt
security and the seller (usually a broker or bank) agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the Fund's holding period.
Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, the Funds will not enter into repurchase
agreements expiring in more than seven days. The Fund may, however, enter into a
"continuing contract" or "open" repurchase agreement under which the seller is
under a continuing obligation to repurchase the underlying obligation from the
Fund on demand and the effective interest rate is negotiated on a daily basis.
Repurchase agreements are considered to be loans by the Fund under the 1940 Act.
Securities subject to repurchase agreements will be held in the custodian's
account with the Federal Book-Entry System on behalf of the Fund.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund (except the
Money Market Fund) may lend portfolio securities in amounts not to exceed
33-1/3% of a Fund's total assets. Securities loans are made to banks, brokers
and other financial institutions pursuant to agreements requiring that the loans
be continuously secured by collateral at least equal at all times to the value
of the securities lent, marked to market on a daily basis. The collateral
received will consist of cash, U.S. Government securities, letters of credit or
such other collateral as may be permitted under each such Fund's investment
program. While the securities are being lent, a Fund will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
- ---------------------------
(1) "Requisite NRSRO" shall mean (a) any two nationally recognized statistical
rating organizations that have issued a rating with respect to a security or
class of debt obligations of an issuer, or (b) if only one NRSRO has issued
a rating with respect to such security or issuer at security, that NRSRO. At
present the NRSROs are: Standard & Poor's Corp., Moody's Investors Service,
Inc., Duff and Phelps, Inc., Fitch Investors Services, Inc. and, with
respect to certain types of securities, IBCA Inc. Subcategories or
gradations in ratings (such as a "+" or "-") do not count as rating
categories.
8
<PAGE>
securities, as well as interest on the investment of the collateral or a fee
from the borrower. A Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. A Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons deemed
by AIM to be of good standing and will not be made unless, in the judgment of
AIM, the consideration to be earned from such loans would justify the risk.
REVERSE REPURCHASE AGREEMENTS
Each of the Funds may enter into reverse repurchase agreements, which
involve the sale of securities (i.e., money market instruments in the case of
the Money Market Fund) held by the Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. The Funds may employ
reverse repurchase agreements when necessary to meet unanticipated net
redemptions so as to avoid liquidating other portfolio securities during
unfavorable market conditions and only in amounts up to 33-1/3% of the value of
each Fund's total assets at the time any such Fund enters into a reverse
repurchase agreement. At the time it enters into a reverse repurchase agreement,
a Fund will segregate high-quality debt securities having a dollar value equal
to the repurchase price. The segregated securities will be marked-to-market, and
additional securities will be segregated if necessary to maintain adequate
coverage. The Funds will utilize reverse repurchase agreements when the
interest income to be earned from portfolio investments which would otherwise
have to be liquidated to meet redemptions is greater than the interest expense
incurred as a result of the reverse repurchase transactions.
DELAYED DELIVERY AGREEMENTS
Each of the Funds may enter into delayed delivery agreements, which
involve commitments by each such Fund to dealers or issuers to acquire
securities or instruments at a specified future date beyond the customary
settlement date for such securities. These commitments fix the payment price and
interest rate to be received on the investment. Delayed delivery agreements will
not be used as a speculative or leverage technique. Rather, from time to time,
AIM can anticipate that cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net sales of shares of the
Fund. Until the settlement date, the Fund will segregate cash or other high-
quality debt securities of a dollar value sufficient at all times to make
payment for the delayed delivery securities. The delayed delivery securities,
which will not begin to accrue interest until the settlement date, will be
recorded as an asset of the Fund and will be subject to the risks of market
fluctuation. The purchase price of the delayed delivery securities is a
liability of the Fund until settlement. If cash is not available to the Fund at
the time of settlement, the Fund may be required to dispose of portfolio
securities that it would otherwise hold to maturity in order to meet its
obligation to accept delivery under a delayed delivery agreement. The Board of
Directors has determined that entering into delayed delivery agreements does not
present a materially increased risk of loss to shareholders, but the Board of
Directors may restrict the use of delayed delivery agreements if the risk of
loss is determined to be material or if it affects the constant net asset value
of the Money Market Fund.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" basis.
Many new issues of debt securities are offered on a "when-issued" basis, that
is, the date for delivery of and payment for the securities is not fixed at the
date of purchase, but is set after the securities are issued (normally within
forty-five days after the date of the transaction). The payment obligation and
the interest rate that will be received on the securities are fixed at the time
the buyer enters into the commitment. The Funds will only make commitments to
purchase such debt securities with the intention of actually acquiring such
securities, but the Funds may each sell these securities before the settlement
date if it is deemed advisable. The Fund holds, and maintains until the
9
<PAGE>
settlement date segregated cash or other high quality debt securities of a
dollar value sufficient at all times to make payment for the when-issued
securities. The securities will be marked-to-market and additional cash or
securities will be segregated if necessary to maintain adequate coverage of the
when-issued commitments.
Securities purchased on a when-issued basis and the securities held in
the Funds' portfolios are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Fund is to remain substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will be
a possibility that the market value of the Fund's assets will fluctuate to a
greater degree. Furthermore, when the time comes for the Fund to meet its
obligations under when-issued commitments, the Fund will do so by using then-
available cash flow, by sale of the segregated securities, by the sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the when-issued securities themselves (which may have a market value
greater or less than the applicable Fund's payment obligation).
A sale of securities to meet such obligations carries with it a
greater potential for the realization of net short-term capital gains, which are
not exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
SPECIAL SITUATIONS
Although the Capital Appreciation Fund does not currently intend to do
so, it may invest in "special situations." A special situation arises when, in
the opinion of the Fund's management, the securities of a particular company
will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or movements of
the market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs and new management or management
policies. Although large and well known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities. The Capital
Appreciation Fund will not, however, purchase securities of any company with a
record of less than three years' continuous operation (including that of
predecessors) if such purchase would cause the Fund's investment in all such
companies, taken at cost, to exceed 5% of the value of the Fund's total assets.
WARRANTS
The Growth & Income Fund may, from time to time, invest in warrants.
Warrants are, in effect, longer-term call options. They give the holder the
right to purchase a given number of shares of a particular company at specified
prices within certain periods of time. The purchaser of a warrant expects that
the market price of the security will exceed the purchase price of the warrant
plus the exercise price of the warrant, thus giving him a profit. Of course,
since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form
with other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of a warrant, the current market value of
the underlying security, the life of the warrant and various other investment
factors. The investment in warrants by the Fund, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets and not more than 2% of
such value may be warrants which are not listed on the New York or American
Stock Exchanges.
10
<PAGE>
SHORT SALES
Each of the Funds (except the Money Market Fund) may enter into short
sales transactions from time to time. None of these Funds will make short sales
of securities nor maintain a short position unless at all times when a short
position is open, the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to, the securities sold
short. This is a technique known as selling short "against the box." Such short
sales will be used by each of the Funds for the purpose of deferring recognition
of gain or loss for federal income tax purposes. In no event may more than 10%
of the value of any such Fund's total assets be deposited or pledged as
collateral for such sales at any time.
RULE 144A SECURITIES
Each of the Funds may purchase securities which, while privately
placed, are eligible for purchase and sale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified
institutional buyers, such as the Funds, to trade in privately placed securities
even though such securities are not registered under the 1933 Act. AIM, under
the supervision of the Company's Board of Directors, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the Fund's
restriction of investing no more than 15% of its assets (10% in the case of the
Money Market Fund) in illiquid securities. Determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination
AIM will consider the trading markets for the specific security taking into
account the unregistered nature of a Rule 144A security. In addition, AIM could
consider the (i) frequency of trades and quotes, (ii) number of dealers and
potential purchasers, (iii) dealer undertakings to make a market, and (iv)
nature of the security and of market place trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities will also be monitored by AIM
and, if as a result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities will be
reviewed to determine what, if any, action is required to assure that the Fund
does not invest more than 15% of its assets (10% in the case of the Money Market
Fund) in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of each Fund's investments in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities. At the present time, it is not possible to predict with certainty
how the market for Rule 144A securities will develop.
UTILITIES INDUSTRY
The following is a general description of the particular types of
utilities industries in which the Global Utilities Fund may invest.
Electric Utility Industry. Electric utilities are heavily regulated.
Local rates are subject to the review of state commissions, and sales either
between companies or that cross state lines are subject to review by the Federal
Energy Regulatory Commission. The industry is also subject to regulation by the
SEC under the Public Utility Holding Company Act of 1935. In addition,
companies constructing or operating nuclear powered generating stations are
subject to extensive regulation by the Nuclear Regulatory Commission.
Electric utility companies are also subject to extensive local
regulation in environmental and site location matters. Future legislation with
regard to the issues of acid rain and toxic and radioactive wastes could have a
significant impact on the manner in which utility companies conduct their
business, and the costs that they incur. Since the late 1970s, investor-owned
utilities have experienced a number of unfavorable regulatory trends, including
increased regulatory resistance to price increases and new legislation
encouraging competition.
Natural Gas Industry. The natural gas industry is comprised primarily
of many small distribution companies and a few large interstate pipeline
companies. The Public Utility Holding Company Act of 1935 has generally acted
as a bar to the consolidation of pipeline and distribution companies.
Regulation of these
11
<PAGE>
companies is similar to that of electric companies. The performance of natural
gas utilities may also be substantially affected by fluctuations in energy
prices.
Communications Industry. Most of the communications industry capacity
is concentrated in the hands of a few very large publicly-held companies, unlike
the situation in the electric and gas industries. Significant risks for the
investor to overcome still exist, however, including risk relating to pricing at
marginal versus embedded cost. New entrants may have lower costs of material
due to newer technologies or lower standards of reliability than those
heretofore imposed by American Telephone & Telegraph ("AT&T") on the industry.
Accordingly, the marginal cost of incremental service is much lower than the
costs embedded in an existing network. Communications companies are not subject
to the Public Utility Holding Company Act of 1935.
Interstate communications service may be subject to Federal
Communications Commission regulation. Local service may be regulated by the
states. In addition, AT&T and its former subsidiaries are still subject to
judicial review pursuant to the settlement of the antitrust case brought against
them by the Department of Justice.
Water Utility Industry. The water utility industry is composed of
regulated public utilities that are involved in the distribution of drinking
water to densely populated areas. The industry is geographically diverse and
subject to the same rate base and rate of return regulations as are other public
utilities. Demand for water is most heavily influenced by the local weather,
population growth in the service area and new construction. Supplies of clean,
drinkable water are limited and are primarily a function of the amount of past
rainfall.
Other. In addition to the particular types of utilities industries
described above, the Fund may invest in developing utility technology companies
(such as cellular telephone, fiber optics and satellite communications firms)
and in holding companies which derive a substantial portion of their revenues
from utility-related activities.
HEDGING AND OTHER INVESTMENT TECHNIQUES
As described in the Prospectus under "Certain Investment Strategies
and Techniques," each of the Funds, other than the Money Market Fund, may enter
into transactions in options, futures and forward contracts on a variety of
instruments and indexes, in order to protect against declines in the value of
portfolio securities and increases in the cost of securities to be acquired as
well as to increase a Fund's return. The discussion below supplements the
discussion in the Prospectus.
Options. A Fund may write covered call options both to reduce the
risks associated with certain of its investments and to increase total
investment return through the receipt of premiums. In return for the premium
income, the Fund loses any opportunity to profit from an increase in the market
price of the underlying securities, above the exercise price, while the contract
is outstanding, except to the extent the premium represents a profit. The Fund
also retains the risk of loss if the price of the security declines, although
the premium is intended to offset that loss in whole or in part. As long as its
obligations under the option continue, a Fund must assume that the call may be
exercised at any time and that the net proceeds realized from the sale of the
underlying securities pursuant to the call may be substantially below the
prevailing market price.
A Fund may enter into a "closing purchase transaction", by purchasing
an option identical to the one it has written, and terminate its obligations
under the covered call. The Fund will realize a gain (or loss) from a closing
purchase transaction if the amount paid to purchase a call option is less (or
more) than the premium received upon writing the corresponding call option. Any
loss resulting from the exercise or closing out of a call option is likely to be
offset in whole or in part by unrealized appreciation of the underlying security
owned by the Fund primarily because a price increase of a call option generally
reflects an increase in the market price of the securities on which the option
is based. In order to sell portfolio securities that cover a call option, a Fund
will effect a closing purchase transaction so as to close out any existing
covered call option on those securities. A closing purchase transaction for
exchange-traded options may be made only on a national securities
12
<PAGE>
exchange. A liquid secondary market on an exchange may not always exist for any
particular option, or at any particular time, and, for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Fund is unable to effect a closing purchase transaction, the Fund will not sell
the underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
A Fund may write put options to earn additional income in the form of
option premiums if it expects the price of the underlying securities to remain
stable or rise during the option period so that the option will not be
exercised. A Fund may also write put options if it expects a decline in the
price of the underlying securities and intends to exercise the option at a price
which, offset by the option premium, is less than the current price. The risk of
either strategy is that the price of the underlying securities may decline by an
amount greater than the premium received.
A Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option or to prevent an outstanding put option from being
exercised. If a Fund is able to enter into a closing purchase transaction, the
Fund will realize a profit (or loss) from that transaction if the cost of the
transaction is less (or more) than the premium received from the writing of the
option. After writing a put option, a Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying securities plus the premiums received from the sale of
the option.
The purchase of put options on securities enables a Fund to preserve,
at least partially, unrealized gains in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund may continue to
receive interest or dividend income on the security.
An option on a securities index, unlike a stock option (which gives
the holder the right to purchase or sell a specified stock at a specified price)
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier." A securities index fluctuates with changes in the market
values of the securities included in the index. For example, some securities
index options are based on a broad market index such as the S&P 500 or the NYSE
Composite Index, or a narrower market index such as the S&P 100. Indexes may
also be based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indexes are
currently traded on the following exchanges, among others: The Chicago Board
Options Exchange, New York Stock Exchange, and American Stock Exchange. Options
on indexes of debt securities and other types of securities indexes are not
currently available. If such options are introduced and traded on exchanges in
the future, the Funds may use them.
The value of securities index options in any investment strategy
depends upon the extent to which price movements in the portion of the
underlying securities correlate with price movements in the selected securities
index. Perfect correlation is not possible because the securities held or to be
acquired by a Fund will not exactly match the composition of the securities
indexes on which options are written. In the purchase of securities index
options the principal risk is that the premium and transaction costs paid by a
Fund in purchasing an option will be lost if the changes (increase in the case
of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option. In writing securities index options, the
principal risk is that a Fund could bear a loss on the options that would be
only partially offset (or not offset at all) by the increased value or reduced
cost of the hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities used
as cover.
Futures Contracts. A futures contract is a bilateral agreement to
buy or sell a security (or deliver a cash settlement price, in the case of an
index future) for a set price in the future. When the contract is entered into a
good faith deposit, known as initial margin, is made with the broker. Subsequent
daily payments, known as variation margin, are made to and by the broker
reflecting changes in the value of the security or level of the index. Futures
contracts are authorized by boards of trade designated as "contracts markets" by
the Commodity Futures Trading Commission ("CFTC"). Certain results may be
accomplished more quickly, and with lower transaction costs, in the futures
market (because of its greater liquidity) than in the cash market.
13
<PAGE>
A Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits. Positions taken
in the futures markets are typically liquidated through offsetting transactions,
which may result in a gain or a loss, before delivery or cash settlement is
required. However, a Fund may close out a position by making or taking delivery
of the underlying securities wherever it appears economically advantageous to do
so.
Purchases of options on futures contracts may present less risk than
the purchase and sale of the underlying futures contracts, since the potential
loss is limited to the amount of the premium plus related transaction costs. A
call option on a futures contract gives the purchaser the right, in return for
the premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.
Positions in futures contracts may be closed out only on an exchange
or a board of trade which provides the market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active market, there may not always be a liquid
market, and it may not be possible to close a futures position at that time; in
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments of maintenance margin. Whenever futures positions are
used to hedge portfolio securities, however, any increase in the price of the
underlying securities held by the Fund may partially or completely offset losses
on the futures contracts.
If a broker or clearing member of an options or futures clearing
corporation were to become insolvent, the Funds could experience delays and
might not be able to trade or exercise options or futures purchased through that
broker. In addition, the Funds could have some or all of their positions closed
out without their consent. If substantial and widespread, these insolvencies
could ultimately impair the ability of the clearing corporations themselves.
While the principal purpose of engaging in these transactions is to limit the
effects of adverse market movements, the attendant expense may cause the Funds'
returns to be less than if the transactions had not occurred. Their overall
effectiveness, therefore, depends on AIM's accuracy in predicting future changes
in interest rate levels or securities price movements, as well as on the expense
of engaging in these transactions.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The following restrictions apply to all of the Funds and are
fundamental. Unless permitted by law, they will not be changed for any Fund
without approval of that Fund's voting securities.
None of the Funds will:
(1) invest for the purpose of exercising control over or management
over a company;
(2) act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the fund may be deemed to be an
underwriter for purposes of the 1933 Act;
(3) purchase or sell real estate or any interest therein, except that
each Fund may, as appropriate and consistent with its investment policies and
other investment restrictions, invest in securities of corporate or governmental
entities secured by real estate or marketable interests therein or securities of
issuers that engage in real estate operations or interests therein, and may hold
and sell real estate acquired as a result of ownership in such securities;
(4) purchase or sell commodity contracts, except that each Fund may,
as appropriate and consistent with its investment policies and other investment
restrictions, enter into futures contracts on securities,
14
<PAGE>
securities indices and currency, options on such futures contracts, forward
foreign currency exchange contracts, forward commitments and repurchase
agreements;
(5) make loans, except for collateralized loans of portfolio
securities in an amount not exceeding 33-1/3% of the applicable Fund's total
assets. This restriction does not prevent a Fund from purchasing government
obligations, short-term commercial paper, or publicly traded debt, including
bonds, notes, debentures, certificates of deposit, bankers acceptances and
equipment trust certificates, nor does this restriction apply to loans made
under insurance policies, or through entry into repurchase agreements, to the
extent they may be viewed as loans;
(6) invest in securities of any other investment company except as
part of a merger, consolidation or acquisition of assets and except for the
investment in such securities of funds representing compensation otherwise
payable to Directors of the Company pursuant to any deferred compensation plan
existing at any time between the Company and one or more of its Directors.
Additionally, the International Fund may purchase such securities of investment
companies, provided that such purchase does not cause the Fund (i) to have more
than 5% of the Fund's total assets, taken at market value, invested in any one
such company, (ii) to have an aggregate investment in such companies of more
than 10% of its total assets, taken at market value, or (iii) to own more than
3% of the total outstanding voting stock of any such company;
(7) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total assets
at market value at the time of each investment, except that the Money Market
Fund may invest up to 100% of its assets in obligations issued by banks. This
limitation does not apply to the Global Utilities Fund or to investments in
obligations of the U.S. Government or any of its agencies or instrumentalities
but will apply to foreign government obligations unless the Securities and
Exchange Commission permits their exclusion;
(8) issue senior securities, except to the extent permitted by the
1940 Act, including permitted borrowings;
(9) purchase securities of an issuer (other than investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities), if as a result with respect to 75% of the value of the
Fund's total assets, taken at market value, (i) more than 5% of the Fund's total
assets taken at market value would be invested in the securities of such issuer,
except that up to 25% of the Fund's total assets may be invested in securities
issued or guaranteed by any foreign government or its agencies or
instrumentalities, or (ii) such purchase would at the time result in more than
10% of the outstanding voting securities of such issuer being held by the Fund.
As a matter of operating policy, the Money Market Fund will invest no more than
5% of the value of that Fund's total assets in securities, other than U.S.
Government securities of any one issuer, except that the Money Market Fund may
invest up to 25% of its total assets in First Tier Securities (as defined in
Rule 2a-7 under the 1940 Act) of a single issuer for a period of up to three
business days after the purchase of such security. This restriction does not
apply to the Global Utilities Fund; and
(10) Each Fund may, not withstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as that Fund.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Funds but
are not fundamental. They may be changed for any Fund without approval of that
Fund's voting securities.
(1) None of the Funds will invest more than 15% (10% for the Money
Market Fund) of its assets in securities restricted as to disposition under
federal securities laws, or securities otherwise considered illiquid or not
readily marketable, including repurchase agreements having a maturity of more
than seven days.
15
<PAGE>
(2) None of the Funds will purchase or retain the securities of any
issuer if, to the knowledge of AIM, those officers and Directors of the Company,
its adviser or distributor owning individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer.
(3) The Company does not currently intend to invest all of the assets
of any Fund in the securities of a single open-end management investment company
with the same fundamental investment objectives, policies and limitations as
that Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each director and officer is 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173.
*CHARLES T. BAUER, Director and Chairman (77)
Director and Chairman and Chief Executive Officer, A I M Management
Group Inc.; Chairman of the Board of Directors, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc.,
A I M Institutional Fund Services, Inc. and Fund Management Company.
BRUCE L. CROCKETT, Director (52)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Director, President and Chief Executive Officer, COMSAT Corporation
(includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video
Enterprises, COMSAT RSI and COMSAT International Ventures.) Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT, (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services company).
OWEN DALY II, Director (71)
Six Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly,
Director, CF & I Steel Corp., Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the Board of Equitable
Bancorporation.
*CARL FRISCHLING, Director (59)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis, Nessan, Kamin & Frankel (law firm).
Formerly, Partner, Reid & Priest (law firm); and, prior thereto, Partner,
Spengler Carlson Gubar Brodsky & Frischling (law firm).
- ---------------------
* A director who is an "interested person" of the Company as defined in the
1940 Act.
16
<PAGE>
**ROBERT H. GRAHAM, Director and President (49)
Director, President and Chief Operating Officer, A I M Management
Group Inc.; Director and President, A I M Advisors, Inc.; Director and Senior
Vice President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Institutional Fund Services, Inc., A I M Fund Services, Inc. and Fund Management
Company.
JOHN F. KROEGER, Director (71)
37 Pippins Way
Morristown, NJ 07960
Director, Flag Investors International Trust, Flag Investors Emerging
Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc., Flag
Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund, Inc.,
Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc.,
Alex. Brown Cash Reserve Fund, Inc. and North American Government Bond Fund,
Inc. (investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (53)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (73)
183 Rivers Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR, Director (56)
Transco Tower, 50th Floor
2800 Post Oak Road
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasure (51)
Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice
President and Treasurer, A I M Management Group Inc., A I M Distributors, Inc.,
A I M Capital Management, Inc., A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc., and Fund Management Company.
- ------------------------
** A director who is an "interested person" of the Company and AIM as defined
in the 1940 Act.
*** Mr. Arthur and Ms. Relihan are married to each other.
17
<PAGE>
GARY T. CRUM, Senior Vice President (48)
Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc., A I M Advisors, Inc., and
Director, A I M Distributors, Inc.
SCOTT G. LUCAS, Senior Vice President (36)
Director and Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Management Group Inc. and A I M Advisors, Inc.
***CAROL F. RELIHAN, Secretary and Senior Vice President (41)
Senior Vice President, General Counsel and Secretary, A I M Advisors,
Inc.; Vice President, General Counsel and Secretary, A I M Management Group
Inc.; Vice President and General Counsel, Fund Management Company; Vice
President, A I M Distributors, Inc.; and Vice President, A I M Capital
Management, Inc., A I M Fund Services, Inc. and A I M Institutional Fund
Services, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (37)
Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
ROBERT G. ALLEY, Vice President (47)
Senior Vice President, A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc. Formerly, Senior Fixed Income Money Manager,
Waddell and Reed, Inc.
STUART W. COCO, Vice President (40)
Senior Vice President, A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
MELVILLE B. COX, Vice President (52)
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc.,
A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and
Assistant Vice President, A I M Distributors, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance Officer,
Charles Schwab Investment Management, Inc.; and Vice President, Integrated
Resources Life Insurance Co. and Capitol Life Insurance Co.
KAREN DUNN KELLEY, Vice President (35)
Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
JONATHAN C. SCHOOLAR, Vice President (34)
Director and Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
- ------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
18
<PAGE>
The members of the Audit Committee are Messrs. Daly, Kroeger
(Chairman), Pennock and Robinson. The Audit Committee is responsible for meeting
with the Company's auditors to review audit procedures and results and to
consider any matters arising from an audit to be brought to the attention of the
directors as a whole with respect to the Company's fund accounting or its
internal accounting controls, or for considering such matters as may from time
to time be set forth in a charter adopted by the Board of Directors and such
Committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Kroeger and Pennock. The Investments Committee is responsible
for reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, or considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such Committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating individuals
to stand for election as directors who are not interested persons, reviewing
from time to time the compensation payable to the disinterested directors, or
considering such matters as may from time to time be set forth in a charter
adopted by the Board of Directors of such Committee.
All of the Company's directors also serve as directors or trustees of
some or all of the other mutual funds advised or managed by AIM. All of the
Company's executive officers hold similar offices with some or all of such
mutual funds.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any Committee attended. The directors
of the Company who do not serve as officers of the Company are compensated for
their services according to a fee schedule which recognizes the fact that they
also serve as directors or trustees of certain other investment companies
advised or managed by AIM. Each such director receives a fee, allocated among
the AIM Funds for which he serves as a director or trustee, which consists of an
annual retainer component and a meeting fee component.
19
<PAGE>
Set forth below is information regarding compensation paid or accrued
during the eleven months ended December 31, 1995 for each director of the
Company:
<TABLE>
<CAPTION>
RETIREMENT
BENEFITS
AGGREGATE ACCRUED TOTAL
COMPENSATION BY ALL AIM COMPENSATION
DIRECTOR FROM COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------
Bruce L. Crockett 7,154 3,655 57,750
- ---------------------------------------------------------------------------
Owen Daly II 8,091 18,662 58,125
- ---------------------------------------------------------------------------
Carl Frischling 8,051 11,323 57,250
- ---------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ---------------------------------------------------------------------------
John F. Kroeger 7,691 22,313 58,125
- ---------------------------------------------------------------------------
Lewis F. Pennock 7,014 5,067 58,125
- ---------------------------------------------------------------------------
Ian W. Robinson 7,090 15,381 56,750
- ---------------------------------------------------------------------------
Louis S. Sklar 8,121 6,632 57,250
- ---------------------------------------------------------------------------
</TABLE>
- --------------------------
(1) The total amount of compensation deferred by all Directors of the Company
during the eleven months ended December 31, 1995, including interest earned
thereon, was $29,920.
(2) During the eleven months ended December 31, 1995, the total amount of
expenses allocated to the Company in respect of such retirement benefits
was $1,293. Data reflects compensation estimated for the calendar year
ended December 31, 1995.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a Director
or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling,
Robinson and Sklar each serves as a Director or Trustee of a total of 10
AIM Funds. Data reflects compensation estimated for the calendar year
ended December 31, 1995.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "AIM Funds").
Each eligible director is entitled to receive an annual benefit from the AIM
Funds commencing on the first day of the calendar quarter coincident with or
following his date of retirement equal to 75% of the retainer paid or accrued by
the AIM Funds for such director during the twelve-month period immediately
preceding the director's retirement (including amounts deferred under a separate
agreement between the AIM Funds and the director) for the number of such
director's years of service (not in excess of 10 years of service) completed
with respect to any of the AIM Funds. Such benefit
20
<PAGE>
is payable to each eligible director in quarterly installments. If an eligible
director dies after attaining the normal retirement date but before receipt of
any benefits under the Plan commences, the director's surviving spouse (if any)
shall receive a quarterly survivor's benefit equal to 50% of the amount payable
to the deceased director, for no more than ten years beginning the first day of
the calendar quarter following the date of the director's death. Payments under
the Plan are not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming various compensation
and years of service classifications. The estimated credited years of service
as of December 31, 1995 for Messrs. Crockett, Daly, Frischling, Kroeger,
Pennock, Robinson and Sklar are 8, 9, 18, 18, 14, 8 and 6 years, respectively.
<TABLE>
<CAPTION>
Number of Annual Compensation
Years of Paid By All AIM Funds
Service With
the AIM Funds $55,000 $60,000 $65,000
- ----------------------------------------------------------------------
<S> <C> <C> <C>
10 $41,250 $45,000 $48,750
- ----------------------------------------------------------------------
9 $37,125 $40,500 $43,875
- ----------------------------------------------------------------------
8 $33,000 $36,000 $39,000
- ----------------------------------------------------------------------
7 $28,875 $31,500 $34,125
- ----------------------------------------------------------------------
6 $24,750 $27,000 $29,250
- ----------------------------------------------------------------------
5 $20,625 $22,500 $24,375
- ----------------------------------------------------------------------
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Company, and such amounts are placed into a deferral
account. Currently, the deferring directors may select various AIM Funds in
which all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring directors' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of ten years
beginning on the date the deferring director's retirement benefits commence
under the Plan. The Company's Board of Directors, in its sole discretion, may
accelerate or extend the distribution of such deferral accounts after the
deferring director's termination of service as a director of the Company. If a
deferring director dies prior to the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a single lump sum payment as soon as practicable after
such deferring director's death. The Agreements are not funded and, with
respect to the payments of amounts held in the deferral accounts, the deferring
directors have the status of unsecured creditors of the Company and of each
other AIM Fund from which they are deferring compensation.
During the eleven months ended December 31, 1995, AIM V.I. Capital
Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Global Utilities
Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. Growth
and Income Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund
and AIM V.I. Value Fund each paid $2,703, $2,435, $2,355, $1,602, $2,229,
$2,379, $2,241, $2,457 and $2,788, respectively, in legal fees to Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, the law firm in which Mr. Frischling, a
director of the Company, is a partner, as counsel to the Board of Directors.
21
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
Each Fund has entered into a master investment advisory agreement (the
"Advisory Agreement") and a master administrative services agreement (the
"Administrative Services Agreement") with AIM. See "Management" in the
Prospectus.
AIM was organized in 1976, and along with its affiliates, manages or
advises 43 investment company portfolios. As of April 1, 1996, the total assets
advised or managed by AIM and its affiliates were approximately $48.2 billion.
AIM and the Company have adopted a Code of Ethics (the "Code") which
requires investment personnel and certain other employees (a) to pre-clear
personal securities transactions subject to the Code, (b) to file reports
regarding such transactions, (c) to refrain from personally engaging in (i)
short-term trading of a security, (ii) transactions involving a security within
seven days of an AIM Fund transaction involving the same security, and (iii)
transactions involving securities being considered for investment by an AIM Fund
and (d) abide by certain other provisions under the Code. The Code also
prohibits investment personnel and other employees from purchasing securities in
an initial public offering. Personal trading reports are reviewed periodically
by AIM, and the Board of Directors reviews quarterly and annual reports
(including information on any substantial violations of the Code). Violations
of the Code may result in censure, monetary penalties, suspension or termination
of employment.
The Advisory Agreement for the Funds provides that each Fund will pay
all expenses of the Fund, including, without limitation: brokerage commissions,
taxes, legal, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to directors and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Company on behalf of
the Funds in connection with membership in investment company organizations, the
cost of printing copies of prospectuses and statements of additional information
distributed to the Fund's shareholders; and all other charges and costs of the
Fund's operations unless otherwise explicitly provided.
The Advisory Agreement for the Funds provides that the agreement will
remain in effect for the initial term and continue in effect from year to year
thereafter only if such continuance is specifically approved at least annually
(i) by the Company's Board of Directors or by the vote of a majority of the
outstanding voting securities of the Funds (as defined in the 1940 Act); and
(ii) by the affirmative vote of a majority of the directors who are not parties
to the agreement or "interested persons" of any such party (the "Non-Interested
Directors") by votes cast in person at a meeting called for such purpose. The
Advisory Agreement was initially approved by the Company's Board of Directors
(including the affirmative vote of all of the Non-Interested Directors) on July
19, 1993. The Board of Directors of the Company approved the continuance of the
Agreement until June 30, 1996. The Advisory Agreement became effective on
October 18, 1993 and was amended April 28, 1994 to include the Global Utilities
Fund and the Growth & Income Fund. The Advisory Agreement provides that the
Company or AIM may terminate such agreement with respect to any Fund(s) on sixty
(60) days' written notice without penalty. The Advisory Agreement terminates
automatically in the event of its assignment.
Pursuant to the Advisory Agreement, AIM receives a fee from each of
AIM V.I. Capital Appreciation Fund, AIM V.I. Global Utilities Fund, AIM V.I.
Growth Fund, AIM V.I. Growth and Income Fund and AIM V.I. Value Fund calculated
at the following annual rate, based on the average daily net assets of the Fund
during the year:
Net Assets Annual Rate
---------- -----------
First $250,000,000 0.65%
Over $250,000,000 0.60%
22
<PAGE>
Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I.
Diversified Income Fund calculated at the following annual rate, based on the
average daily net assets of the Fund during the year:
Net Assets Annual Rate
---------- -----------
First $250,000,000 0.60%
Over $250,000,000 0.55%
Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I.
Government Securities Fund calculated at the following annual rate, based on the
average daily net assets of the Fund during the year:
Net Assets Annual Rate
---------- -----------
First $250,000,000 0.50%
Over $250,000,000 0.45%
Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I.
International Equity Fund calculated at the following annual rate, based on the
average daily net assets of the Fund during the year:
Net Assets Annual Rate
---------- -----------
First $250,000,000 0.75%
Over $250,000,000 0.70%
Pursuant to the Advisory Agreement, AIM receives a fee from AIM V.I. Money
Market Fund calculated at the following annual rate, based on the average daily
net assets of the Fund during the year:
Net Assets Annual Rate
---------- -----------
First $250,000,000 0.40%
Over $250,000,000 0.35%
Each Fund paid to AIM a management fee (net of fee waivers) for the eleven
months ended December 31, 1995, the fiscal year ended January 31, 1995 and for
the period May 5, 1993 (date operations commenced) through January 31, 1994,
under the Advisory Agreement and a prior, substantially identical advisory
agreement, as follows:
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1995 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ 882,870 $402,307 $23,119
AIM V.I. Diversified Income Fund $ 193,008 $ 98,044 $ -0-
AIM V.I. Global Utilities Fund $ -0- $ -0-* $ N/A
AIM V.I. Government Securities Fund $ 71,080 $ 42,430 $ -0-
AIM V.I. Growth Fund $ 434,620 $231,152 $ -0-
AIM V.I. Growth and Income Fund $ 46,017 $ -0-* $ N/A
AIM V.I. International Equity Fund $ 457,559 $317,747 $ -0-
AIM V.I. Money Market Fund $ 168,901 $ 85,967 $ -0-
AIM V.I. Value Fund $1,078,007 $489,030 $27,729
</TABLE>
* Fees paid were for the period May 2, 1994 (date operations commenced) through
January 31, 1995.
23
<PAGE>
For the eleven months ended December 31, 1995, the fiscal year ended
January 31, 1995 and for the period May 5, 1993 (date operations commenced)
through January 31, 1994, AIM waived management fees for each Fund as follows:
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $35,486
AIM V.I. Diversified Income Fund $ -0- $25,046 $28,217
AIM V.I. Global Utilities Fund $32,703 $ 9,264* N/A
AIM V.I. Government Securities Fund $ -0- $18,907 $16,775
AIM V.I. Growth Fund $ -0- $ -0- $48,427
AIM V.I. Growth and Income Fund $67,802 $20,806* N/A
AIM V.I. International Equity Fund $ -0- $ 5,010 $39,537
AIM V.I. Money Market Fund $ -0- $18,531 $19,489
AIM V.I. Value Fund $ -0- $ -0- $31,977
</TABLE>
* Fees waived were for the period May 2, 1994 (date operations commenced)
through January 31, 1995.
In addition to the management fees paid by each Fund for the eleven
months ended December 31, 1995, the fiscal year ended January 31, 1995 and for
the period May 5, 1993 (date operations commenced) through January 31, 1994, AIM
absorbed other expenses, as follows:
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0-
AIM V.I. Diversified Income Fund $ -0- $ -0- $ 2,000
AIM V.I. Global Utilities Fund $13,800 $12,000* N/A
AIM V.I. Government Securities Fund $ -0- $ -0- $10,000
AIM V.I. Growth Fund $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0-* N/A
AIM V.I. International Equity Fund $ -0- $ -0- $17,600
AIM V.I. Money Market Fund $ -0- $ -0- $ 8,800
AIM V.I. Value Fund $ -0- $ -0- $ -0-
</TABLE>
* Fee amounts are for the period May 2, 1994 (date operations commenced) through
January 31, 1995.
The Administrative Services Agreement for the Funds provides that AIM
may perform certain accounting and other administrative services to each Fund
which are not required to be performed by AIM under the Advisory Agreement. For
such services, AIM would be entitled to receive from each Fund reimbursement of
its expenses.
The Administrative Services Agreement for the Funds provides that the
agreement will remain in effect for the initial term and continue in effect from
year to year thereafter only if such continuance is specifically approved at
least annually (i) by the Company's Board of Directors or by the vote of a
majority of the outstanding voting securities of the Funds (as defined in the
1940 Act); and (ii) by the affirmative vote of a majority of the Non-Interested
Directors, by votes cast in person at a meeting called for such purpose. The
Board of Directors of the Company approved the continuance of the Agreement
until June 30, 1996. The Administrative Services Agreement was initially
approved by the Company's Board of Directors (including the
24
<PAGE>
Non-Interested Directors) on July 19, 1993. The agreement terminates
automatically in the event of its assignment.
For the eleven months ended December 31, 1995, the fiscal year ended
January 31, 1995 and for the period May 5, 1993 (date operations commenced)
through January 31, 1994, AIM received reimbursement of administrative services
costs from each of the Funds pursuant the Administrative Services Agreement and
a prior, substantially identical administrative services agreement, as follows:
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $33,560 $23,992 $12,770
AIM V.I. Diversified Income Fund $36,406 $35,441 $12,736
AIM V.I. Global Utilities Fund $33,582 $13,577* N/A
AIM V.I. Government Securities Fund $30,769 $23,230 $10,458
AIM V.I. Growth Fund $32,425 $23,537 $12,766
AIM V.I. Growth and Income Fund $31,484 $13,596* N/A
AIM V.I. International Equity Fund $21,068 $12,000 $ 7,000
AIM V.I. Money Market Fund $22,997 $21,019 $11,288
AIM V.I. Value Fund $35,540 $21,568 $13,572
</TABLE>
* Fees paid were for the period May 2, 1994 (date operations commenced) through
January 31, 1995.
THE DISTRIBUTION AGREEMENT
The Funds have entered into a master distribution agreement (the
"Distribution Agreement") with AIM Distributors, dated October 18, 1993 and was
amended April 28, 1994. The Distribution Agreement was amended on April 28,
1994 to include the Global Utilities Fund and the Growth & Income Fund.
Information concerning AIM Distributors and the continuous offering of the
Funds' shares is set forth in the Prospectus under the heading "Management."
The Distribution Agreement was initially approved by the Board of Directors
(including the affirmative vote of all the directors who were not parties to the
Distribution Agreement or "interested persons" of any such party) of the Company
on July 19, 1993. The Distribution Agreement provides that AIM Distributors
will bear the expenses of printing from the final proof and distributing
prospectuses and statements of additional information of the Funds relating to
the sale of Fund shares. The Distribution Agreement provides that the Funds
shall bear the expenses of qualification of shares of the Fund for sale in
connection with the public offering in any jurisdictions where qualification is
required by law. AIM Distributors has not undertaken to sell any specified
number of shares of the Funds.
The Distribution Agreement for the Funds provides that it will
continue in effect until June 30, 1996, and from year to year thereafter only if
such continuance is specifically approved at least annually (i) by the Company's
Board of Directors or by the vote of a majority of the outstanding voting
securities of the Funds (as defined in the 1940 Act); and (ii) by the
affirmative vote of a majority of the directors who are not parties to the
agreement or "interested persons" of any such party (the "Non-Interested
Directors") by votes cast in person at a meeting called for such purpose. The
Company or AIM Distributors may terminate its Distribution Agreement on sixty
(60) days' written notice without penalty. The Distribution Agreement will
terminate automatically in the event of its assignment.
DETERMINATION OF NET ASSET VALUE
For the Money Market Fund: The net asset value per share of the Fund
is determined daily as of the close of trading of the New York Stock Exchange
("NYSE") (generally 4:00 p.m. Eastern time) on each
25
<PAGE>
business day of the Fund. Net asset value per share is determined by dividing
the value of the Fund's securities, cash and other assets (including interest
accrued but not collected), less all its liabilities (including accrued expenses
and dividends payable), by the number of shares outstanding of the Fund and
rounding the resulting per share net asset value to the nearest one cent.
Determination of the Fund's net asset value per share is made in accordance with
generally accepted accounting principles.
The securities of the Fund are valued on the basis of amortized cost.
This method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if the security were sold. During
such periods, the daily yield on shares of the Fund computed as described under
"Yield Information" may differ somewhat from an identical computation made by
another investment company with identical investments utilizing available
indications as to the market value of its portfolio securities.
The valuation of the portfolio instruments based upon their amortized
cost and the concomitant maintenance of the net asset value per share of $1.00
for the Fund is permitted in accordance with applicable rules and regulations of
the SEC which require the Fund to adhere to certain conditions. These rules
require, among other things, that the Fund maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 calendar days or less and invest only in securities
determined by the Board of Directors to be "Eligible Securities" and to present
minimal credit risk to the Fund.
Rule 2a-7, promulgated under the 1940 Act, which governs the operation
of money market funds, defines an "Eligible Security" as follows:
(i)a security with a remaining maturity of 397 days or less that is rated
(or that has been issued by an issuer that is rated with respect to a class
of short-term debt obligations, or any security within that class, that is
comparable in priority and security with the security) by the Requisite
NRSROs in one of the two highest rating categories for short-term debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(ii)a security:
(A)that at the time of issuance was a long-term security but that has a
remaining maturity of 397 calendar days or less; and
(B)whose issuer has received from the Requisite NRSROs a rating, with
respect to a class of short-term debt obligations (or any security within
that class) that is now comparable in priority and security with the
security, in one of the two highest rating categories for short-term debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(iii)an unrated security that is of comparable quality to a security
meeting the requirements of paragraphs (a)(5)(i) or (ii) of this section,
as determined by the money market fund's board of directors; provided,
however, that:
(A)the board of directors may base its determination that a standby
commitment is an Eligible Security upon a finding that the issuer of the
commitment presents a minimal risk of default; and
26
<PAGE>
(B)a security that at the time of issuance was a long-term security but
that has a remaining maturity of 397 calendar days or less and that is an
unrated security(1) is not an Eligible Security if the security has a long-
term rating from any NRSRO that is not within the NRSRO's two highest
categories (within which there may be sub-categories or gradations
indicating relative standing).
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share at
$1.00 for the Fund as computed for the purpose of sales and redemptions. Such
procedures include review of the Fund's holdings by the Board of Directors at
such intervals as they may deem appropriate, to determine whether the net asset
value calculated by using available market quotations or other reputable sources
for the Fund deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing holders of
the Fund's shares. In the event the Board of Directors determines that such a
deviation exists for the Fund, it will take such corrective action as the Board
of Directors deems necessary and appropriate with respect to the Fund, including
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; the withholding of
dividends; redemption of shares in kind; or the establishment of a net asset
value per share by using available market quotations.
The Fund intends to comply with any amendments made to Rule 2a-7 which may
require corresponding changes in the Fund's procedures which are designed to
stabilize the Fund's price per share at $1.00.
For All Other Funds: The net asset value per share of each Fund is
normally determined daily as of the close of trading of the NYSE (generally 4:00
p.m. Eastern time) on each business day of the Company. Net asset value per
share is determined by dividing the value of the Fund's securities, cash and
other assets (including interest accrued but not collected), less all its
liabilities (including accrued expenses and dividends payable), by the total
number of shares outstanding. Determination of the Fund's net asset value per
share is made in accordance with generally accepted accounting principles.
Each equity security held by the Fund is valued at its last sales price on
the exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices on that day. Exchange listed convertible debt securities are
valued at the mean between the last bid and asked prices obtained from broker-
dealers or a comparable alternative, such as Bloomberg or Telerate. Each
security traded in the over-the-counter market (but not including securities
reported on the NASDAQ National Market System) is valued at the mean between the
last bid and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean between the closing bid and asked prices on that day. Non-
convertible debt securities are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics and other
market data. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or
- -------------------------
(1) An "unrated security" is a security (i) issued by an issuer that does
not have a current short-term rating from any NRSRO, either as to the
particular security or as to any other short-term obligations of comparable
priority and security; (ii) that was a long-term security at the time of
issuance and whose issuer has not received from any NRSRO a rating with
respect to a class of short-term debt obligations now comparable in
priority and security; or (iii) a security that is rated but which is the
subject of an external credit support agreement not in effect when the
security was assigned its rating, provided that a security is not an
unrated security if any short-term debt obligation issued by the issuer and
comparable in priority and security is rated by any NRSRO.
27
<PAGE>
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having 60 days or less to maturity are valued on the basis of amortized cost.
For purposes of determining net asset value per share, futures and options
contracts generally will be valued 15 minutes after the close of trading of the
NYSE.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such foreign
securities used in computing the net asset value of each Fund's shares are
determined at such times as trading is completed. Foreign currency exchange
rates are also generally determined prior the close of the NYSE. Occasionally,
events affecting the values of such foreign securities and such foreign
securities exchange rates may occur after the time at which such values are
determined and prior to the close of the NYSE that will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
Each Fund is treated as a separate association taxable as a corporation.
Each Fund intends to qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), as a regulated investment company ("RIC") for each taxable
year. Accordingly, each Fund must, among other things, meet the following
requirements: A. Each Fund must generally derive (i) at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies and (ii) less than 30% of its gross income
from the sale or disposition, generally, of (a) stocks or securities, (b)
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) and (c) foreign
currencies (or options, futures or forward contracts on foreign currencies) that
are not directly related to the Company's business of investing in stock or
securities. B. Each Fund must diversify its holdings so that, at the end of each
fiscal quarter or within 30 days thereafter: (i) at least 50% of the market
value of the Fund's assets is represented by cash, cash items (including
receivables), U.S. Government securities, securities of other RICs, and other
securities, with such other securities limited, with respect to any one issuer,
to an amount not greater than 5% of the Fund's assets and not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities).
As a RIC, each Fund will not be subject to federal income tax on its income
and gains distributed to shareholders if it distributes at least (i) 90% of its
investment company taxable income for the taxable year; and (ii) 90% of the
excess of its tax-exempt interest income under Code Section 103(a) over its
deductions disallowed under Code Sections 265 and 171(a)(2).
Each Fund intends to comply with the diversification requirements imposed
by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on each Fund by the 1940 Act and Subchapter M of the Code, place certain
limitations on (i) the assets of the insurance company separate accounts that
may be invested in securities of a single issuer and (ii) eligible investors.
Because section 817(h) and those regulations treat the assets of each Fund as
assets of the corresponding division of the insurance company separate accounts,
each Fund intends to comply with these diversification requirements.
Specifically, the regulations provide that, except as permitted by the "safe
harbor" described below, as of the end of each calendar quarter or within 30
days thereafter no more than 55% of a Fund's total assets may be represented by
any one investment, no more than 70% by any two investments, no more than 80% by
any three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered the same
issuer. The regulations also provide that a Fund's shareholders are limited,
generally, to life insurance company separate accounts, general accounts of the
same life insurance company, an investment adviser or affiliate in connection
with the creation or management of a Fund or the trustee of a qualified pension
plan. Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of a Fund to satisfy the section 817(h)
requirements would
28
<PAGE>
result in taxation of and treatment of the Contract holders investing in a
corresponding division other than as described in the applicable prospectuses of
the various insurance company separate accounts.
MISCELLANEOUS INFORMATION
AUDIT REPORTS
The Company furnishes semi-annual reports containing information about the
Funds and their operations, including a list of the investments held in each
Fund's portfolio and their respective financial statements. Financial
statements, audited by independent auditors, will be issued annually. The firm
of Tait, Weller & Baker, Two Penn Center Plaza, Philadelphia, PA 19102, serves
as the auditors of each Fund.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C. has advised the Company
on certain federal securities law matters.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, MA 02110, is custodian of all securities and cash of the Funds. The
custodian attends to the collection of principal and income, pays and collects
all monies for securities bought and sold by the Portfolios, and performs
certain other ministerial duties. State Street also acts as transfer and
dividend disbursing agent for the Funds. These services do not include any
supervisory function over management or provide any protection against any
possible depreciation of assets. The Funds pay State Street such compensation
as may be agreed upon from time to time.
PRINCIPAL HOLDERS OF SECURITIES
To the best of the knowledge of each Fund, the names of the record holders
of 5% or more of the outstanding shares of the Fund as of April 1, 1996, and the
percentage of the outstanding shares of such Fund owned by such shareholders as
of such date are set out below. The address of A I M Advisors, Inc. is 11
Greenway Plaza, Suite 1919, Houston TX, 77046. The address of Connecticut
General Life Insurance Company and CG Variable Annuity Separate Account is 900
Cottage Grove Road, Bloomfield, CT:
29
<PAGE>
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- --------------------- ---------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 97.93%*
Separate Account
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------- ---------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 96.60%*
Separate Account
AIM V.I. GLOBAL UTILITIES FUND
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- ------------- ---------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 87.40%*
Separate Account
Connecticut General Life 5.97% -0- -0-
Insurance Company
A I M Advisors, Inc. 5.78% -0- -0-
</TABLE>
- -----------------------------
* A shareholder who beneficially owns more than 25% of the voting securities of
a Fund may be presumed to "control" the Fund. The Funds understand that
insurance company separate accounts owning shares of the Funds will vote their
shares in accordance with instructions received from Contract owners,
annuitants and beneficiaries. If an insurance company determines, however,
that it is permitted to vote any such shares of the Funds in its own right, it
may elect to do so, subject to the then current interpretation of the 1940 Act
and the rules thereunder.
30
<PAGE>
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------------------------------- ----------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 93.99%*
Separate Account
Connecticut General Life 5.71% -0- -0-
Insurance Company
</TABLE>
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------------------------------- ----------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 98.47%*
Separate Account
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------------------------------- ----------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 91.35%*
Separate Account
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------------------------------- ----------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 99.12%*
Separate Account
</TABLE>
- -----------------------------
* A shareholder who beneficially owns more than 25% of the voting securities of
a Fund may be presumed to "control" the Fund. The Funds understand that
insurance company separate accounts owning shares of the Funds will vote their
shares in accordance with instructions received from Contract owners,
annuitants and beneficiaries. If an insurance company determines, however,
that it is permitted to vote any such shares of the Funds in its own right, it
may elect to do so, subject to the then current interpretation of the 1940 Act
and the rules thereunder.
31
<PAGE>
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------------------------------- ----------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 98.14%*
Separate Account
</TABLE>
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- -------------------------------------- ----------------- ------------ --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 99.02%*
Separate Account
</TABLE>
As of April 1, 1996, the directors and officers of the Company as a
group owned beneficially less than 1% of the outstanding shares of the Company.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Funds have
filed with the Securities and Exchange Commission under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Funds and the securities offered hereby. The
Registration Statement is available for inspection by the public at the
Securities and Exchange Commission in Washington, D.C.
- -----------------------------
* A shareholder who beneficially owns more than 25% of the voting securities of
a Fund may be presumed to "control" the Fund. The Funds understand that
insurance company separate accounts owning shares of the Funds will vote their
shares in accordance with instructions received from Contract owners,
annuitants and beneficiaries. If an insurance company determines, however,
that it is permitted to vote any such shares of the Funds in its own right, it
may elect to do so, subject to the then current interpretation of the 1940 Act
and the rules thereunder.
32
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED
PUBLIC ACCOUNTANTS We have audited the accompanying statement of assets
and liabilities of AIM V.I. Capital Appreciation Fund,
a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments
as of December 31, 1995, the related statement of
operations for the eleven month period then ended, the
statement of changes in net assets for the eleven month
period then ended and the year ended January 31, 1995 and
the financial highlights for the eleven month period then
ended, the year ended January 31, 1995, and the period May
5, 1993 (commencement of operations) through January 31,
1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence
with the custodian and brokers. Where brokers did not reply
to our confirmation requests, we carried out other
appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM V.I.
Capital Appreciation Fund, as of December 31, 1995, the
results of its operations for the eleven month period then
ended, the changes in its net assets for the eleven month
period then ended and the year ended January 31, 1995 and
the financial highlights for the eleven month period then
ended, the year ended January 31, 1995, and the period May
5, 1993 (commencement of operations) through January 31,
1994, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
FS-1
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S> <C>
AIM V.I. CAPITAL MARKET
APPRECIATION FUND SHARES VALUE
SCHEDULE OF ------ ------
INVESTMENTS COMMON STOCKS - 85.08%
December 31, 1995
ADVERTISING/BROADCASTING - 0.31%
17,500 Infinity Broadcasting Corp. - Class A(a)................. $ 651,875
-----------
AUTOMOBILE/TRUCK PARTS & TIRES - 0.34%
11,400 Echlin Inc. ............................................. 416,100
15,400 Mark IV Industries, Inc. ................................ 304,150
-----------
720,250
-----------
BEVERAGES - 0.13%
8,600 Canandaigua Wine Co., Inc. - Class A(a).................. 280,575
-----------
BUSINESS SERVICES - 1.10%
6,800 Equifax, Inc. ........................................... 145,350
18,400 Healthcare COMPARE Corp.(a).............................. 800,400
2,000 Interim Services Inc.(a)................................. 69,500
10,000 Manpower Inc. ........................................... 281,250
18,700 Olsten Corp. ............................................ 738,650
11,126 Value Health, Inc(a)..................................... 305,965
-----------
2,341,115
-----------
CHEMICALS (SPECIALTY) - 0.40%
25,200 Airgas Inc.(a)........................................... 837,900
-----------
COMPUTER MINI/PCS - 2.68%
12,500 CDW Computer Centers Inc.(a)............................. 506,250
28,300 COMPAQ Computer Corp.(a)................................. 1,358,400
57,600 Dell Computer Corp.(a)................................... 1,994,400
40,000 Sun Microsystems, Inc.(a)................................ 1,825,000
-----------
5,684,050
-----------
COMPUTER NETWORKING - 7.31%
13,000 ALANTEC Corp.(a)......................................... 757,250
14,700 Ascend Communications, Inc.(a)........................... 1,192,538
43,800 Bay Networks, Inc.(a).................................... 1,801,275
14,000 Cabletron Systems, Inc.(a)............................... 1,134,000
14,500 Cascade Communications Corp.(a).......................... 1,236,125
23,400 Cheyenne Software, Inc.(a)............................... 611,325
15,000 Cidco, Inc.(a)........................................... 382,500
31,900 Cisco Systems, Inc.(a)................................... 2,380,538
22,300 Fore Systems, Inc.(a).................................... 1,326,850
13,637 Madge N.V. .............................................. 610,256
16,600 Network Equipment Technologies, Inc.(a).................. 454,425
13,000 Newbridge Networks Corp.(a).............................. 537,875
13,900 Optical Data Systems, Inc.(a) ........................... 350,975
10,500 Sync Research, Inc.(a)................................... 475,125
48,400 3Com Corp.(a)............................................ 2,256,650
-----------
15,507,707
-----------
COMPUTER PERIPHERALS - 3.28%
20,000 Adaptec, Inc.(a)......................................... 820,000
17,850 Alliance Semiconductor Corp.(a).......................... 207,506
21,200 Cerner Corp.(a).......................................... 434,600
11,100 Digi International, Inc.(a).............................. 210,900
55,000 EMC Corp.(a)............................................. 845,625
6,900 Filenet Corp.(a)......................................... 324,300
6,500 Komag Inc.(a)............................................ 299,812
27,500 Microchip Technology, Inc.(a)............................ 1,003,750
</TABLE>
FS-2
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMPUTER PERIPHERALS - (CONTINUED)
8,400 Oak Technology, Inc.(a).................................. $ 354,900
17,100 Read-Rite Corp.(a)....................................... 397,575
15,900 Seagate Technology, Inc.(a).............................. 755,250
14,800 U.S. Robotics Corp.(a)................................... 1,298,700
-----------
6,952,918
-----------
COMPUTER SOFTWARE & SERVICES - 11.97%
12,700 Adobe Systems, Inc....................................... 787,400
25,800 BMC Software, Inc.(a).................................... 1,102,950
20,800 Broderbund Software Inc.(a).............................. 1,263,600
33,700 Cadence Design Systems, Inc.(a).......................... 1,415,400
19,400 Ceridian Corp.(a)........................................ 800,250
27,000 Computer Associates International, Inc. ................. 1,535,625
55,200 Computervision Corp.(a).................................. 848,700
21,200 Corel Corp.(a)........................................... 275,600
5,400 Cycare Systems, Inc.(a).................................. 138,375
27,800 DST Systems, Inc.(a)..................................... 792,300
14,900 Electronic Arts, Inc.(a)................................. 389,262
11,100 Fiserv, Inc.(a).......................................... 333,000
17,900 FTP Software, Inc.(a).................................... 519,100
16,000 HBO & Co. ............................................... 1,226,000
9,800 Hyperion Software Corp.(a)............................... 208,250
5,500 IDX Systems Corp.(a)..................................... 191,125
32,400 Informix Corp.(a)........................................ 972,000
17,300 Microsoft Corp.(a)....................................... 1,518,075
15,200 Network General Corp.(a)................................. 507,300
48,850 Oracle Systems Corp.(a).................................. 2,070,019
19,500 Pairgain Technologies Inc.(a)............................ 1,067,625
27,900 Parametric Technology Corp.(a)........................... 1,855,350
6,200 Platinum Technology, Inc.(a)............................. 113,925
15,000 Policy Management Systems Corp.(a)....................... 714,375
12,300 Rational Software Corp.(a)............................... 275,212
24,300 SoftKey International Inc.(a)............................ 561,938
11,800 Sterling Software, Inc.(a)............................... 736,025
15,000 Sybase Inc.(a)........................................... 540,000
34,600 Symantec Corp.(a)........................................ 804,450
42,000 Synopsys, Inc.(a)........................................ 1,596,000
14,000 S3 Incorporated(a)....................................... 246,750
-----------
25,405,981
-----------
CONGLOMERATES - 0.24%
13,968 Tyco Laboratories, Inc. ................................. 497,610
-----------
CONSUMER NONDURABLES - 0.12%
6,400 Department 56, Inc.(a)................................... 245,600
-----------
COSMETICS & TOILETRIES - 0.44%
40,800 General Nutrition Co.(a)................................. 938,400
-----------
</TABLE>
FS-3
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
ELECTRONIC COMPONENTS - 2.15%
4,000 Ametek Inc. ............................................. $ 75,000
16,000 Amphenol Corp.(a)........................................ 388,000
23,200 Anixter International Inc.(a)............................ 432,100
3,700 AVX Corp. ............................................... 98,050
9,150 Methode Electronics, Inc. ............................... 130,388
1,562 Molex Inc. .............................................. 49,594
3,906 Molex Inc. - Class A..................................... 119,621
3,750 Parker-Hannifin Corp. ................................... 128,437
4,800 Recoton Corp.(a)......................................... 90,000
20,000 Symbol Technologies, Inc.(a)............................. 790,000
12,500 Tektronix Inc. .......................................... 614,062
66,100 Teradyne Inc.(a)......................................... 1,652,500
-----------
4,567,752
-----------
ELECTRONIC/PC DISTRIBUTORS - 0.81%
17,000 Arrow Electronics, Inc.(a)............................... 733,125
22,200 Avnet, Inc. ............................................. 993,450
-----------
1,726,575
-----------
FINANCE (CONSUMER CREDIT) - 4.64%
12,900 ADVANTA Corp. - Class A.................................. 469,238
13,300 ADVANTA Corp. - Class B.................................. 508,725
36,200 Credit Acceptance Corp.(a) .............................. 751,150
17,300 First USA, Inc. ......................................... 767,687
43,500 Green Tree Financial Corp. .............................. 1,147,313
16,600 Household International, Inc. ........................... 981,475
56,700 MBNA Corp. .............................................. 2,090,812
32,500 Medaphis Corp.(a)........................................ 1,202,500
111,800 Mercury Finance Co. ..................................... 1,481,350
16,900 United Companies Financial Corp. ........................ 445,737
-----------
9,845,987
-----------
FUNERAL SERVICES - 1.39%
27,300 Loewen Group, Inc. ...................................... 691,031
40,200 Service Corp. International.............................. 1,768,800
13,500 Stewart Enterprises Inc. - Class A....................... 499,500
-----------
2,959,331
-----------
GAMING - 0.61%
26,000 Mirage Resorts, Inc.(a).................................. 897,000
14,100 Players International, Inc.(a)........................... 150,694
11,900 Trump Hotels & Casino Resort(a).......................... 255,850
-----------
1,303,544
-----------
HOMEBUILDING - 0.26%
21,875 Clayton Homes, Inc....................................... 467,578
2,000 Oakwood Homes Corp....................................... 76,750
-----------
544,328
-----------
HOTEL/MOTELS - 0.84%
3,500 Doubletree Corp.(a)...................................... 91,875
13,000 Hospitality Franchise System, Inc.(a).................... 1,062,750
20,000 La Quinta Motor Inns, Inc. .............................. 547,500
3,750 Promus Hotel Corp.(a).................................... 83,437
-----------
1,785,562
-----------
INSURANCE (LIFE & HEALTH) - 0.09%
6,000 Equitable of Iowa Companies.............................. 192,750
-----------
</TABLE>
FS-4
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
LEISURE & RECREATION - 0.20%
13,500 Mattel, Inc. ............................................ $ 415,125
-----------
MACHINE TOOLS - 0.12%
8,000 Kennametal Inc. ......................................... 254,000
-----------
MACHINERY (HEAVY) - 0.07%
2,800 AGCO Corp. .............................................. 142,800
-----------
MACHINERY (MISCELLANEOUS) - 0.38%
15,600 Thermo Electron Corp.(a)................................. 811,200
-----------
MEDICAL (DRUGS) - 1.59%
34,850 Cardinal Health, Inc. ................................... 1,908,038
4,500 Elan Corp. PLC-ADR(a).................................... 218,812
25,700 Mylan Laboratories, Inc. ................................ 603,950
5,300 Teva Pharmaceutical Industries Ltd.-ADR.................. 245,788
8,000 Watson Pharmaceuticals Inc.(a)........................... 392,000
-----------
3,368,588
-----------
MEDICAL INSTRUMENTS/PRODUCTS - 2.72%
26,300 Biomet, Inc.(a).......................................... 470,113
26,800 Boston Scientific Corp.(a)............................... 1,313,200
9,600 Heart Technology, Inc.(a)................................ 315,600
13,100 Idexx Laboratories Inc.(a)............................... 615,700
16,200 Invacare Corp. .......................................... 409,050
10,900 Medtronic, Inc. ......................................... 609,037
12,000 Nellcor Inc.(a).......................................... 696,000
27,600 St. Jude Medical, Inc.(a)................................ 1,186,800
2,800 Stryker Corp. ........................................... 147,000
-----------
5,762,500
-----------
MEDICAL SERVICES -10.92%
10,800 American Medical Response(a)............................. 351,000
43,900 Apria Healthcare Group Inc.(a)........................... 1,240,175
29,880 Columbia\HCA Healthcare Corp. ........................... 1,516,410
24,400 Community Health Systems Inc.(a)......................... 869,250
27,500 Foundation Health Corp.(a)............................... 1,182,500
17,200 Genesis Health Ventures, Inc.(a)......................... 627,800
44,600 Health Care & Retirement Corp.(a)........................ 1,561,000
45,675 Health Management Associates, Inc.(a).................... 1,193,259
39,800 Healthsource, Inc.(a).................................... 1,432,800
73,100 Healthsouth Corp.(a)..................................... 2,129,038
32,700 Horizon Healthcare Corp.(a).............................. 825,675
25,200 Integrated Health Services, Inc. ........................ 630,000
33,900 Lincare Holdings, Inc.(a)................................ 847,500
14,800 Living Centers of America Inc.(a)........................ 518,000
37,300 Manor Care, Inc. ........................................ 1,305,500
16,000 Omnicare, Inc. .......................................... 716,000
40,000 OrNda HealthCorp(a)...................................... 930,000
18,000 Oxford Health Plans, Inc.(a)............................. 1,329,750
3,000 Pacificare Health Systems, Inc. - Class A(a)............. 261,000
3,100 Pacificare Health Systems, Inc. - Class B(a)............. 269,700
9,000 Phycor Inc.(a)........................................... 455,062
13,000 Quorum Health Group, Inc.(a)............................. 286,000
47,200 Sybron International Corp.(a)............................ 1,121,000
10,000 Theratx, Inc.(a)......................................... 120,000
44,700 Vencor, Inc.(a).......................................... 1,452,750
-----------
23,171,169
-----------
</TABLE>
FS-5
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
OFFICE AUTOMATION - 0.83%
18,800 Corporate Express Inc.(a)................................ $ 566,350
32,400 Danka Business Systems PLC-ADR........................... 1,198,800
-----------
1,765,150
-----------
OFFICE PRODUCTS - 0.45%
7,100 Avery Dennison Corp. .................................... 355,888
15,400 Reynolds & Reynolds Co. - Class A........................ 598,675
-----------
954,563
-----------
OIL EQUIPMENT & SUPPLIES - 0.10%
9,300 Smith International, Inc.(a)............................. 218,550
-----------
POLLUTION CONTROL - 0.27%
5,900 Asyst Technologies, Inc.(a).............................. 207,975
19,400 USA Waste Services, Inc.(a).............................. 366,175
-----------
574,150
-----------
RESTAURANTS - 0.72%
11,900 Applebee's International, Inc. .......................... 270,725
14,500 Lone Star Steakhouse & Saloon(a)......................... 556,437
19,600 Outback Steakhouse, Inc.(a).............................. 703,150
-----------
1,530,312
-----------
RETAIL (FOOD & DRUG) - 1.46%
6,400 Casey's General Stores, Inc.............................. 140,000
19,300 Eckerd (Jack) Corp.(a)................................... 861,263
27,400 Kroger Co. (The)(a)...................................... 1,027,500
20,800 Safeway, Inc.(a)......................................... 1,071,200
-----------
3,099,963
-----------
RETAIL STORES - 7.23%
17,500 AutoZone, Inc.(a)........................................ 505,313
10,900 Baby Superstore, Inc.(a)................................. 621,300
25,500 Bed Bath & Beyond, Inc.(a)............................... 989,719
5,600 Boise Cascade Office Products Corp.(a)................... 239,400
6,700 Circuit City Stores, Inc................................. 185,088
26,200 Consolidated Stores Corp.(a)............................. 569,850
41,950 Dollar General Corp...................................... 870,462
10,900 Gap Inc. (The)........................................... 457,800
24,200 Gymboree Corp(a)......................................... 499,125
17,300 Kohls' Corp.(a).......................................... 908,250
8,500 Mac Frugal's Bargains Close-Outs Inc.(a)................. 119,000
24,600 Micro Warehouse, Inc.(a)................................. 1,063,950
7,100 Oakley, Inc.(a).......................................... 241,400
41,200 Office Depot, Inc.(a).................................... 813,700
7,400 Petco Animal Supplies, Inc.(a)........................... 216,450
16,600 PetSmart Inc.(a)......................................... 514,600
55,050 Staples, Inc.(a)......................................... 1,341,844
46,800 Sunglass Hut International, Inc.(a)...................... 1,111,500
21,400 Talbots, Inc............................................. 615,250
6,800 Tandy Corp............................................... 282,200
14,200 Tech Data Corp.(a)....................................... 213,000
22,650 Men's Wearhouse (The) Inc.(a)............................ 583,238
33,500 Sports Authority (The) Inc.(a)........................... 682,562
36,600 Viking Office Products Inc.(a)........................... 1,701,900
-----------
15,346,901
-----------
</TABLE>
FS-6
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
SCIENTIFIC INSTRUMENTS - 0.73%
20,000 Millipore Corp.......................................... $ 822,500
15,000 Varian Associates, Inc.................................. 716,250
-----------
1,538,750
-----------
SEMICONDUCTORS - 12.33%
32,000 Altera Corp.(a)......................................... 1,592,000
42,150 Analog Devices, Inc.(a)................................. 1,491,056
51,800 Applied Materials, Inc.(a).............................. 2,039,625
9,400 ASM Lithography Holding N.V.(a)......................... 312,550
67,200 Atmel Corp.(a).......................................... 1,503,600
12,450 Credence Systems Corp.(a)............................... 284,794
54,900 Cypress Semiconductor Corp.(a).......................... 699,975
14,000 Electroglas, Inc.(a).................................... 343,000
6,300 Gasonics International Corp.(a)......................... 85,050
56,200 Integrated Device Technology, Inc.(a)................... 723,576
15,500 Intel Corp.............................................. 879,625
51,600 International Rectifier Corp.(a)........................ 1,290,000
21,700 KLA Instruments Corp.(a)................................ 565,556
25,300 LAM Research Corp.(a)................................... 1,157,475
25,300 Lattice Semiconductor Corp.(a).......................... 825,412
34,100 Linear Technology Corp.................................. 1,338,425
55,500 LSI Logic Corp.(a)...................................... 1,817,625
25,400 Maxim Integrated Products, Inc.(a)...................... 977,900
26,100 MEMC Electronic Materials, Inc.(a)...................... 851,512
17,000 Novellus Systems, Inc.(a)............................... 918,000
14,000 SCI Systems, Inc.(a).................................... 434,000
35,200 Sierra Semiconductor Corp.(a)........................... 488,400
10,900 Silicon Valley Group, Inc.(a)........................... 275,225
30,000 Solectron Corp.(a)...................................... 1,323,750
7,800 Tencor Instruments(a)................................... 190,125
6,600 Texas Instruments Inc................................... 341,550
17,100 Ultratech Stepper, Inc.(a).............................. 440,325
13,700 Vishay Intertechnology, Inc.(a)......................... 431,550
43,800 VLSI Technology Inc.(a)................................. 793,875
41,500 Xilinx, Inc.(a)......................................... 1,265,750
13,200 Zilog Inc.(a)........................................... 483,450
-----------
26,164,756
-----------
SHOES & RELATED APPAREL - 0.31%
12,500 Nine West Group, Inc.(a)................................ 468,750
6,000 Wolverine World Wide, Inc............................... 189,000
-----------
657,750
-----------
TELECOMMUNICATIONS - 4.89%
9,800 ADC Telecommunications, Inc.(a)......................... 357,700
22,400 Allen Group, Inc. ...................................... 501,200
26,875 Andrew Corp.(a)......................................... 1,027,969
18,600 Aspect Telecommunications Corp.(a)...................... 623,100
15,550 Glenayre Technologies, Inc.(a).......................... 967,987
8,200 Nokia Corp.-ADR......................................... 318,775
13,600 Octel Communications Corp.(a)........................... 438,600
29,200 Premisys Communications, Inc.(a)........................ 1,635,200
14,300 Scientific-Atlanta, Inc................................. 214,500
16,300 Stratacom, Inc.(a)...................................... 1,198,050
</TABLE>
FS-7
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
TELECOMMUNICATIONS - (CONTINUED)
500 Tekelec(a)...................................... $ 5,250
73,320 Telefonaktiebolaget L.M. Ericsson-ADR........... 1,429,740
18,300 Tellabs, Inc.(a)................................ 677,100
2,600 Transpro, Inc................................... 27,625
9,300 U.S. Long Distance Corp.(a)..................... 130,200
23,400 Worldcom, Inc.(a)............................... 824,850
------------
10,377,846
------------
TELEPHONE - 0.02%
1,000 Century Telephone Enterprises, Inc.............. 31,750
------------
TEXTILES - 0.55%
13,950 Nautica Enterprises, Inc.(a).................... 610,312
12,900 Tommy Hilfiger Corp.(a)......................... 546,638
------------
1,156,950
------------
TRUCKING - 0.08%
8,400 TNT Freightways Corp............................ 169,050
------------
Total Common Stocks............................. 180,501,633
------------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
U.S. TREASURY SECURITIES - 5.58%
U.S. TREASURY BILL(b)
$12,000,000(c) 5.32%, 04/11/96................................. 11,838,360
------------
REPURCHASE AGREEMENT - 9.17%(d)
Daiwa Securities America, Inc., 5.92%,
19,442,968 01/02/96(e).................................... 19,442,968
------------
TOTAL INVESTMENT SECURITIES - 99.83%............ 211,782,961
OTHER ASSETS LESS LIABILITIES - 0.17%........... 369,462
------------
NET ASSETS - 100.00%............................ $212,152,423
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal amount was pledged as collateral for open
futures contracts at 12/31/95. See Note 6 to Financial Statements.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(e) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
Abbreviations:
ADR - American Depositary Receipt
See Notes to Financial Statements.
</TABLE>
FS-8
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. CAPITAL ASSETS:
APPRECIATION FUND
STATEMENT OF ASSETS Investments, at market value (cost $172,435,151).................. $211,782,961
AND LIABILITIES Receivables for:
December 31, 1995 Investments sold................................................ 289,100
Capital stock sold.............................................. 274,270
Dividends and interest.......................................... 47,007
Variation margin................................................ 13,300
Investment for deferred compensation plan......................... 8,220
Organizational costs, net......................................... 6,749
Other assets...................................................... 788
------------
Total assets.................................................. 212,422,395
------------
LIABILITIES:
Payables for:
Investments purchased........................................... 126,516
Deferred compensation plan...................................... 8,220
Accrued advisory fees............................................. 114,542
Accrued directors' fees........................................... 1,790
Accrued administrative services fees.............................. 2,997
Accrued operating expenses........................................ 15,907
------------
Total liabilities............................................. 269,972
------------
Net assets applicable to shares outstanding....................... $212,152,423
============
Capital shares, $.001 par value per share:
Authorized...................................................... 250,000,000
============
Outstanding..................................................... 12,822,408
============
Net asset value, offering and redemption price per share.......... $ 16.55
============
</TABLE>
See Notes to Financial Statements.
FS-9
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
AIM V.I. CAPITAL INVESTMENT INCOME:
APPRECIATION FUND
STATEMENT OF Dividends (net of $1,304 foreign withholding tax).............. $ 286,021
OPERATIONS Interest....................................................... 1,270,163
For the eleven -----------
months ended Total investment income....................................... 1,556,184
December 31, 1995 -----------
EXPENSES:
Advisory fees.................................................. 882,870
Custodian fees................................................. 50,526
Administrative services fees................................... 33,560
Directors' fees and expenses................................... 6,477
Organizational costs........................................... 2,651
Other.......................................................... 47,497
-----------
Total expenses................................................ 1,023,581
-----------
Net investment income............................................ 532,603
-----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities.......................................... 926,418
Futures contracts.............................................. 2,594,825
-----------
3,521,243
-----------
Unrealized appreciation (depreciation) of:
Investment securities.......................................... 33,768,471
Futures contracts.............................................. (564,483)
-----------
33,203,988
-----------
Net gain on investment securities and futures contracts.......... 36,725,231
-----------
Net increase in net assets resulting from operations............. $37,257,834
===========
DECEMBER 31, JANUARY 31,
AIM V.I. CAPITAL 1995 1995
APPRECIATION FUND ------------ -----------
STATEMENT OF CHANGES <S> <C> <C>
IN NET ASSETS OPERATIONS:
For the eleven
months ended Net investment income............................. $ 532,603 $ 285,894
December 31, 1995 Net realized gain (loss) from investment
and the year ended securities and futures contracts................. 3,521,243 (3,834,141)
January 31, 1995 Net unrealized appreciation of investment
securities and futures contracts................. 33,203,988 2,142,566
------------ -----------
Net increase (decrease) in net assets resulting
from operations................................. 37,257,834 (1,405,681)
Net increase from capital stock transactions........ 86,762,686 54,473,386
Distributions to shareholders from net investment
income............................................. (45,369) (244,886)
------------ -----------
Net increase in net assets....................... 123,975,151 52,822,819
NET ASSETS:
Beginning of period............................... 88,177,272 35,354,453
------------ -----------
End of period..................................... $212,152,423 $88,177,272
============ ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)........ $172,910,083 $86,147,397
Undistributed net investment income............... 516,011 28,777
Undistributed net realized gain (loss) from
investment securities and futures contracts ..... (491,023) (4,012,266)
Unrealized appreciation of investment securities
and futures contracts............................ 39,217,352 6,013,364
------------ -----------
$212,152,423 $88,177,272
============ ===========
</TABLE>
See Notes to Financial Statements.
FS-10
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
AIM V.I. CAPITAL NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
APPRECIATION FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a
NOTES TO FINANCIAL Maryland corporation organized on January 22, 1993, and is
STATEMENTS registered under the Investment Company Act of 1940 (the
December 31, 1995 "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters
affecting each portfolio are voted on exclusively by the
shareholders of such portfolio. The assets, liabilities and
operations of each portfolio are accounted for separately.
Effective December 31, 1995, the Company's fiscal year was
changed from January 31 to December 31. Information
presented in these financial statements pertains only to
the AIM V.I. Capital Appreciation Fund (the "Fund"). The
Fund's investment objective is to seek capital appreciation
through investments in common stocks, with emphasis on
medium-sized and smaller emerging growth companies.
Currently, shares of the Fund are sold only to insurance
company separate accounts to fund the benefits of variable
annuity contracts.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The following is a summary of the significant accounting
policies followed by the Fund in the presentation of its
financial statements.
A. Security Valuations - Equity securities, including
warrants, that are traded on a national securities
exchange or NASDAQ National Market System are valued at
the last reported sales price or, in the case of over-
the-counter securities or if there has been no sale that
day, at the mean between the closing bid and asked
prices on that day. Securities traded in the over-the-
counter market, except (i) securities for which
representative exchange prices are available, and (ii)
securities reported in the NASDAQ National Market
System, are valued at the mean between representative
last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are
available, or from established market makers. Short-term
investments with remaining maturities of up to and
including 60 days are valued at amortized cost which
approximates market value. Short-term securities that
mature in more than 60 days are valued at current market
quotations. Securities for which market quotations are
either not readily available or are questionable are
valued at fair value as determined in good faith by, or
under the authority of, the Board of Directors.
B. Securities Transactions, Investment Income and
Distributions - Securities transactions are accounted
for on a trade date basis. Interest income is recorded
as earned from settlement date and is recorded on the
accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Realized gains or losses from securities transactions
are recorded on the identified cost basis.
C. Federal Income Taxes - It is the Fund's policy to
continue to comply with the requirements of the Internal
Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income
and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the
financial statements. The Fund had capital loss
carryforwards (which may be carried forward to offset
future taxable capital gains, if any) of $232,410, which
expires, if not previously utilized, through the year
2003.
D. Stock Index Futures Contracts - The Fund may purchase or
sell stock index futures contracts as a hedge against
changes in market conditions. Initial margin deposits
required upon entering into futures contracts are
satisfied by the segregation of specific securities as
collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the
period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized
gains or losses by "marking to market" on a daily basis
to reflect the market value of the contracts at the end
of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed,
the Fund recognizes a realized gain or loss equal to the
difference between the proceeds from, or cost of, the
closing transaction and the Fund's basis in the
contract. Risks include the possibility of an illiquid
market and the change in the value of the contracts may
not correlate with changes in the value of the
securities being hedged.
E. Organizational Costs - Organizational costs for the Fund
of $14,461 are being amortized over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
The Company has entered into a master investment advisory
agreement with A I M Advisors, Inc. ("AIM"). Under the
terms of the master investment advisory agreement, the Fund
pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net
assets, plus 0.60% of the Fund's average daily net assets
in excess of $250 million. This agreement requires AIM to
reduce its fees or, if
FS-11
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
necessary, make payments to the Fund to the extent
required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in
which the Fund's shares are qualified for sale.
Pursuant to a master administrative services agreement
between the Company and AIM, with respect to the Fund, the
Company has agreed to reimburse certain administrative
costs incurred in providing accounting services to the
Fund. During the eleven months ended December 31, 1995, AIM
was reimbursed $33,560 for such services.
The Company has entered into a master distribution
agreement with A I M Distributors, Inc. ("AIM
Distributors") to serve as the distributor for the Fund.
Certain officers and directors of the Company are officers
of AIM and AIM Distributors.
During the eleven months ended December 31, 1995, the Fund
incurred legal fees of $2,703 for services rendered by
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as counsel
to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to
each director who is not an "interested person" of AIM. The
Company may invest directors' fees, if so elected by a
director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than
short-term securities) purchased and sold by the Fund
during the eleven months ended December 31, 1995 was
$125,715,589 and $46,151,022, respectively.
The amount of unrealized appreciation (depreciation) of
investment securities, on a tax basis, as of December 31,
1995 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation
of investment securities......... $44,147,361
Aggregate unrealized (depreciation)
of investment securities......... (5,188,622)
-----------
Net unrealized appreciation of
investment securities............ $38,958,739
===========
</TABLE>
Cost of investments for tax purposes is $172,824,222.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven
months ended December 31, 1995 and the year ended January
31, 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
---------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold........................... 6,155,688 $96,675,587 4,817,657 $58,178,417
Issued as reinvestment of
distributions................. 2,823 45,369 20,683 244,886
Reacquired..................... (654,458) (9,958,270) (330,372) (3,949,917)
--------- ----------- --------- -----------
5,504,053 $86,762,686 4,507,968 $54,473,386
========= =========== ========= ===========
</TABLE>
NOTE 6 - OPEN FUTURES CONTRACTS
On December 31, 1995 $417,036 principal amount of U.S.
Treasury Bills were pledged as collateral to cover margin
requirements for open futures contracts:
Open futures contracts at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF APPRECIATION
CONTRACT CONTRACTS/MONTH/COMMITMENT (DEPRECIATION)
<S> <C> <C>
S&P 500 Index 38 contracts/March 96/Buy $(130,458)
</TABLE>
FS-12
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a
share outstanding of the Fund during the eleven months
ended December 31, 1995, the year ended January 31, 1995,
and the period May 5, 1993 (date operations commenced)
through January 31, 1994.
<TABLE>
<CAPTION>
January 31,
-----------------
December 31,
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period...... $ 12.05 $ 12.58 $ 10.00
-------- ------- -------
Income from investment operations:
Net investment income................... 0.04 0.05 --
Net gains (losses) on securities (both
realized and unrealized)............... 4.46 (0.54) 2.59
-------- ------- -------
Total from investment operations....... 4.50 (0.49) 2.59
-------- ------- -------
Less distributions:
Dividends from net investment income.... -- (0.04) (0.01)
-------- ------- -------
Net asset value, end of period............ $16.55 $12.05 $12.58
======== ======= =======
Total return(a)........................... 37.38% (3.91)% 25.90%
======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).. $212,152 $88,177 $35,354
======== ======= =======
Ratio of expenses to average net assets... 0.75%(b) 0.84% 1.06%(c)
======== ======= =======
Ratio of net investment income to average
net assets............................... 0.39%(b) 0.46% 0.07%(c)
======== ======= =======
Portfolio turnover rate................... 37% 81% 34%
======== ======= =======
</TABLE>
------
(a) Total returns are not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets
of $148,432,750.
(c) Annualized.
FS-13
AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Diversified Income Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1995, the related statement of operations for the eleven month
period then ended, the statement of changes in net assets for the eleven month
period then ended and the year ended January 31, 1995 and the financial
highlights for the eleven month period then ended, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. Where
brokers did not reply to our confirmation requests, we carried out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Diversified Income Fund, as of December 31, 1995, the results of its
operations for the eleven month period then ended, the changes in its net
assets for the eleven month period then ended and the year ended January 31,
1995 and the financial highlights for the eleven month period then ended, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-14
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. DIVERSIFIED PRINCIPAL MARKET
INCOME FUND AMOUNT(a) VALUE
SCHEDULE OF --------- ------
INVESTMENTS U.S. DOLLAR DENOMINATED NON-CONVERTIBLE
December 31, 1995 BONDS & NOTES - 46.56%
AUTOMOBILE/TRUCK PARTS & TIRES - 0.23%
$ 100,000 Harvard Industries, Sr. Notes, 11.125%, 08/01/05..... $ 100,000
-----------
AUTOMOBILE (MANUFACTURERS) - 1.11%
400,000 General Motors Corp., Deb., 8.80%, 03/01/21 ......... 493,012
-----------
BANKING - 0.68%
300,000 Mercantile Bank, Sub. Notes, 6.375%, 01/15/04 ....... 300,936
-----------
CABLE TELEVISION - 3.85%
160,000 CAI Wireless Systems Inc., Sr. Notes, 12.25%,
09/15/02............................................ 170,800
700,000 Marcus Cable Operating Co., Sr. Disc. Notes, 13.50%,
08/01/04(b)......................................... 526,750
500,000 Viacom Inc., Sr. Notes, 7.75%, 06/01/05.............. 530,985
490,000 Videotron Ltd., Sr. Disc. Notes, 11.125%,
07/01/04(b)......................................... 341,775
140,000 Wireless One Inc., Units, 13.00%, 10/15/03(c)........ 147,700
-----------
1,718,010
-----------
CHEMICALS - 0.74%
180,000 Crain Industries, Sr. Sub. Notes, 13.50%, 08/15/05
(acquired 08/22/95; cost $180,000)(d)............... 182,700
150,000 RBX Corp., Sr. Sub. Notes, 11.25%, 10/15/05
(acquired 01/06/95-10/12/95; cost $151,113)(d)...... 147,375
-----------
330,075
-----------
CONGLOMERATES - 1.74%
750,000 ITT Corp., Gtd. Deb., 7.375%, 11/15/15............... 774,845
-----------
CONTAINERS - 1.17%
Ivex Packaging Corp., Sr. Sub. Notes, 12.50%,
390,000 12/15/02............................................ 413,400
100,000 Owens-Illinois Inc., Sr. Sub. Notes, 10.50%,
06/15/02............................................ 106,250
-----------
519,650
-----------
CONSUMER NON-DURABLES - 0.33%
140,000 Hines Horticulture, Sr. Sub. Notes, 11.75%, 10/15/05
(acquired 10/16/95-10/20/95; cost $141,425)(d)...... 146,300
-----------
FINANCE (CONSUMER CREDIT) - 6.57%
750,000 Associates Corp., Deb., 7.95%, 02/15/10.............. 853,553
750,000 GMAC, Notes, 9.00%, 10/15/02......................... 867,397
370,000 GPA Delaware Inc., Deb., 8.75%, 12/15/98............. 347,800
300,000 Loehmann's Holdings, Inc., Sr. Sub. Notes, 13.75%,
02/15/99............................................ 282,000
150,000 Olympic Financial Ltd., Deb., 13.00%, 05/01/00....... 163,875
400,000 Sea Containers, Sr. Sub. Deb., 12.50%, 12/01/04...... 418,000
-----------
2,932,625
-----------
FOOD PROCESSING - 0.91%
300,000 American Rice Inc., Sec. Notes, 13.00%, 07/31/02..... 283,500
120,000 Curtice-Burns Foods Inc., Sr. Sub. Notes, 12.25%,
02/01/05............................................ 123,600
-----------
407,100
-----------
FOREIGN GOVERNMENT - 2.77%
700,000 Province of Manitoba, Yankee Bond, 7.75%, 07/17/16... 777,329
450,000 United Mexican States, Deb., 11.187%, 07/21/97
(acquired 07/12/95; cost $450,000)(d)............... 460,971
-----------
1,238,300
-----------
GAMING - 0.90%
110,000 Aztar Corp., Sr. Sub. Notes, 11.00%, 10/01/02........ 110,000
260,000 Showboat, Inc., Sr. Sub. Notes, 13.00%, 08/01/09..... 292,500
-----------
402,500
-----------
</TABLE>
FS-15
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
--------- ------
<C> <S> <C>
HOTELS/MOTELS - 1.24%
$ 550,000 John Q. Hammons Hotels Inc., Gtd. First Mortgage
Notes, 9.75%, 10/01/05 (acquired 10/06/95-11/16/95;
cost $550,938)(d)................................... $ 554,125
-----------
INSURANCE (LIFE & HEALTH) - 0.63%
200,000 American Life Holdings Co., Sr. Sub. Notes, 11.25%,
09/15/04............................................ 210,000
75,000 Americo Life Inc., Sr. Sub. Notes, 9.25%, 06/01/05... 71,438
-----------
281,438
-----------
LEISURE & RECREATION - 0.36%
150,000 Icon Health & Fitness Inc., Sr. Sub. Notes, 13.00%,
07/15/02............................................ 162,375
-----------
MACHINERY (HEAVY) - 0.33%
100,000 Fairfield Manufacturing, Sr. Sub. Notes, 11.375%,
07/01/01............................................ 97,500
50,000 Primeco Inc., Sr. Sub. Notes, 12.75%, 03/01/05....... 51,500
-----------
149,000
-----------
MACHINERY (MISCELLANEOUS) - 1.35%
210,000 AM General Corp., Sr. Notes, 12.875%, 05/01/02....... 210,525
200,000 Interlake Corp., Sr. Notes, 12.00%, 11/15/01......... 202,000
190,000 MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02........... 190,475
-----------
603,000
-----------
MEDICAL INSTRUMENTS/PRODUCTS - 0.21%
90,000 Graphic Controls Corp., Sr. Sub. Notes, 12.00%,
09/15/05 (acquired 09/21/95; cost $90,000)(d)....... 93,600
-----------
MEDICAL (PATIENT SERVICES) - 1.26%
500,000 OrNda Healthcorp., Sr. Sub. Notes, 11.375%, 08/15/04. 562,500
-----------
METALS (MISCELLANEOUS) - 0.84%
370,000 Rio Algom Ltd., Yankee Deb., 7.05%, 11/01/05......... 376,549
-----------
NATURAL GAS PIPELINE - 2.21%
450,000 Enron Corp., Sr. Sub. Deb., 6.75%, 07/01/05.......... 459,886
500,000 Talisman Energy Inc., Yankee Deb., 7.125%, 06/01/07.. 524,680
-----------
984,566
-----------
OIL & GAS - 0.69%
190,000 HS Resources Inc., Sr. Sub. Notes, 9.875%, 12/01/03.. 187,625
40,000 United Meridian Corp., Gtd. Sr. Sub. Notes, 10.375%,
10/15/05............................................ 42,300
80,000 Wainoco Oil Corp., Sr. Notes, 12.00%, 08/01/02....... 77,200
-----------
307,125
-----------
OIL EQUIPMENT & SUPPLIES - 0.14%
60,000 Falcon Drilling Co. Inc., Sr. Notes, 9.75%, 01/15/01. 61,650
-----------
PAPER & FOREST PRODUCTS - 0.52%
90,000 Pacific Lumber Co., Sr. Notes, 10.50%, 03/01/03...... 85,275
150,000 Rapp International Finance, Gtd. Yankee Sec. Notes,
11.50%, 12/15/00.................................... 149,437
-----------
234,712
-----------
PUBLISHING - 3.78%
750,000 News America Holdings, Gtd. Sr. Deb., 9.25%,
02/01/13............................................ 883,380
750,000 Time Warner Inc., Notes, 8.18%, 08/15/07............. 805,598
-----------
1,688,978
-----------
RAILROADS - 0.37%
180,000 Johnstown America Industries Inc., Sr. Sub. Notes,
11.75%, 08/15/05.................................... 163,800
-----------
</TABLE>
FS-16
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL MARKET
AMOUNT(a) VALUE
--------- ------
RETAIL (FOOD & DRUG) - 2.80%
$ 200,000 Grand Union Co., Sr. Notes, 12.00%, 09/01/04......... $ 173,000
500,000 Great Atlantic & Pacific, Yankee Notes, 7.78%,
11/01/00 (acquired 10/18/95; cost $500,000)(d)...... 507,005
390,000 Penn Traffic Co., Sr. Notes, 10.65%, 11/01/04........ 372,450
200,000 Ralph's Grocery Co., Sr. Notes, 11.00%, 06/15/05..... 198,000
-----------
1,250,455
-----------
RETAIL (STORES) - 2.67%
400,000 Apparel Retailer Inc., Sr. Disc. Deb., 12.75%,
08/15/05(b)......................................... 244,000
200,000 County Seat Stores, Sr. Sub. Notes, 12.00%, 10/01/02. 150,000
175,000 Fleming Companies Inc., Sr. Notes, 10.625%, 12/15/01. 169,750
150,000 Pamida Inc., Sr. Sub. Notes, 11.75%, 03/15/03........ 115,500
150,000 Samsonite Corp., Sr. Sub. Notes, 11.125%, 07/15/05... 144,000
275,000 Specialty Retailers, Inc., Sr. Sub. Notes, 11.00%,
08/15/03............................................ 250,250
110,000 United Stationer Supply, Sr. Sub. Notes, 12.75%,
05/01/05............................................ 120,175
-----------
1,193,675
-----------
SCHOOLS - 0.12%
50,000 Herff Jones Inc., Sr. Sub. Notes, 11.00%, 08/15/05... 53,625
-----------
STEEL - 0.79%
185,000 GS Technologies Inc., Sr. Notes, 12.00%, 09/01/04.... 183,613
190,000 Gulf States Steel Corp., First Mortgage Notes,
13.50%, 04/15/03.................................... 171,000
-----------
354,613
-----------
TELECOMMUNICATIONS - 3.27%
140,000 A+ Network Inc., Sr., Sub. Notes, 11.875%, 11/01/05.. 141,750
70,000 Cellular Inc., Sr. Sub. Notes, 11.75%, 09/01/03(b)... 55,650
110,000 Clearnet Communications, Yankee Units, 14.75%,
12/15/05(b)(e)...................................... 57,200
100,000 Dictaphone Corp., Gtd. Sr. Sub. Notes, 11.75%,
08/01/05............................................ 99,000
100,000 Northern Telecom, Notes, 6.00%, 09/01/03............. 99,540
850,000 TCI Communications Inc., Sr. Notes, 8.00%, 08/01/05.. 902,266
170,000 Telewest PLC, Yankee Sr. Disc. Deb., 11.00%,
10/01/07(b)......................................... 102,638
-----------
1,458,044
-----------
TEXTILES - 0.71%
350,000 Consoltex Group, Sr. Sub. Notes, 11.00%, 10/01/03.... 315,875
-----------
TRANSPORTATION (MISCELLANEOUS) - 1.27%
230,000 Stena AB, Yankee Sr. Notes, 10.50%, 12/15/05......... 235,462
320,000 Trans Ocean Container, Sr. Sub. Notes, 12.25%,
07/01/04............................................ 332,800
-----------
568,262
-----------
Total U.S. Dollar Denominated Non-Convertible Bonds
& Notes............................................. 20,781,320
-----------
U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES -
0.69%
FINANCE (CONSUMER CREDIT) - 0.69%
300,000 Henderson Capital, Conv. Bonds, 4.50%, 10/27/96...... 308,250
-----------
Total U.S. Dollar Denominated Convertible Bonds &
Notes............................................... 308,250
-----------
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES(f) - 6.86%
CANADA - 2.62%
CAD 735,000 Bell Canada (Telecommunications), Deb., 13.875%,
05/01/00............................................. 562,486
300,000 Canadian Oil Debco Inc. (Oil & Gas), Deb., 11.00%,
10/31/00............................................. 251,161
250,000 IPL Energy Inc. (Oil Equipment & Supplies), Series A
Deb., 9.67%, 02/23/00................................ 200,247
250,000 Rogers Cablesystem, Inc. (Cable Television), Sr. Sec.
2nd Priority Deb., 9.65%, 01/15/14................... 154,705
---------
1,168,599
---------
</TABLE>
FS-17
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL MARKET
AMOUNT(a) VALUE
--------- ------
GERMANY - 2.77%
International Bank for Reconstruction &
Development (Supranational Organization),
DEM 1,000,000 Unsub. Global Bonds, 5.875%, 11/10/03........ $ 700,279
725,000 Unsub. Global Bonds, 7.125%, 04/12/05........ 538,380
-----------
1,238,659
-----------
ITALY - 1.47%
ITL 1,000,000,000 KFW International Finance Inc. (Finance-
Consumer Credit) Gtd. Notes, 11.625%,
11/27/98..................................... 654,703
-----------
Total Non-U.S. Dollar Denominated Non-
Convertible Bonds & Notes.................... 3,061,961
-----------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS
& NOTES(f) - 3.90%
CANADA - 1.14%
CAD 700,000 Repap Enterprises, Inc. (Paper & Forest
Products), Conv. Deb., 9.00%, 06/30/98....... 510,070
-----------
FRANCE - 0.71%
FRF 1,419,000 Societe Generale (Banking), Conv. Deb., 3.50%,
01/01/00..................................... 314,484
-----------
UNITED KINGDOM - 2.05%
BPS 320,000 ELF Enterprise Finance PLC (Finance-Consumer
Credit), Gtd. Conv. Bonds, 8.75%, 06/27/06... 494,487
300,000 Lasmo PLC (Oil Equipment & Supplies), Conv.
Deb., 7.75%, 10/04/05........................ 421,067
-----------
915,554
-----------
Total Non-U.S. Dollar Denominated Convertible
Bonds & Notes................................ 1,740,108
-----------
NON-U.S. DOLLAR DENOMINATED GOVERNMENT BONDS &
NOTES(f) - 20.99%
AUSTRALIA - 7.12%
AUD 1,600,000 Australian Government, Gtd. Deb., 9.00%,
09/15/04..................................... 1,252,671
Queensland Treasury Corp.,
820,000 Gtd. Notes, 8.875%, 11/08/96................. 616,889
1,000,000 Gtd. Notes, 6.50%, 06/14/05.................. 652,542
850,000 Western Australia Treasury Corp., Gtd. Notes,
9.00%, 04/15/99.............................. 657,654
-----------
3,179,756
-----------
CANADA - 2.48%
CAD 500,000 British Columbia Municipal Finance Authority,
Deb., 7.75%, 12/01/05........................ 377,517
850,000 New Brunswick (Province of), Deb., 8.94%,
01/15/05..................................... 646,604
100,000 Quebec (Province of), Sr. Deb., 9.375%,
01/16/23..................................... 81,490
-----------
1,105,611
-----------
DENMARK - 2.70%
DKK 6,250,000 Kingdom of Denmark, Deb., 8.00%, 11/15/01..... 1,206,551
-----------
GERMANY - 4.12%
Bundesrepublik Deutschland,
DEM 1,500,000 Deb., 6.75%, 07/15/04........................ 1,098,989
1,000,000 Deb., 6.875%, 05/12/05....................... 738,341
-----------
1,837,330
-----------
FRANCE - 3.01%
FRF 6,500,000 French Treasury Bill, Notes, 5.75%, 11/12/98.. 1,341,015
-----------
</TABLE>
FS-18
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL MARKET
AMOUNT(a) VALUE
--------- ------
UNITED KINGDOM - 1.56%
BPS 465,000 Ontario Province, Sr. Unsub. Notes, 6.875%,
09/15/00........................................ 694,756
-----------
Total Non-U.S. Dollar Denominated Government
Bonds & Notes................................... 9,365,019
-----------
SHARES
------
WARRANTS - 0.01%
LEISURE & RECREATION - 0.01%
150 Boomtown Inc., - Wt., expiring 11/01/98(g)
(acquired 11/03/93; cost $150)(d)............... 225
150 IHF Holdings, - Wt., expiring 11/14/99(g)........ 3,750
-----------
3,975
-----------
RETAIL (STORES) - 0.00%
200 County Seat, Inc. - Wt., expiring 10/01/01(g).... 1,000
-----------
STEEL - 0.00%
190 Gulf States Steel Corp. - Wt., expiring
04/15/03(g)..................................... 950
-----------
Total Warrants................................. 5,925
-----------
PRINCIPAL
AMOUNT
---------
U.S. TREASURY SECURITIES - 15.76%
$2,300,000 Notes, 7.50%, 02/15/05........................... 2,610,201
3,000,000 Notes, 6.50%, 08/15/05........................... 3,199,440
1,000,000 Bonds, 7.625%, 02/15/25.......................... 1,222,300
-----------
Total U.S. Treasury Securities................. 7,031,941
-----------
REPURCHASE AGREEMENT(h) - 3.02%
1,348,008 Daiwa Securities America, Inc.
5.92%, 01/02/96(i).............................. 1,348,008
-----------
TOTAL INVESTMENTS - 97.79%....................... 43,642,532
OTHER ASSETS LESS LIABILITIES - 2.21%............ 987,613
-----------
NET ASSETS - 100.00%............................. $44,630,145
===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Principal amount is in U.S. Dollars, except as indicated by note (f).
(b) Discounted bond at purchase. Interest rate represents coupon rate at which
the bond will accrue at a specified future date.
(c) Issued as a unit. This unit consists of $1,000,000 Sr. Notes plus 3
warrants to purchase one share of common stock at $11.55 per share per
warrant.
(d) Restricted securities. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at December 31, 1995 was
$2,092,301 which represented 4.69% of the Fund's net assets.
(e) Issued as a unit. This unit consists of ten $1,000,000 Sr. Disc. Notes plus
33 warrants to purchase shares of common stock.
(f) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(g) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(h) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(i) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
Abbreviations:
AUD - Australian Dollar Disc. -Discounted Sr. - Senior
BPS - British Pound Sterling DKK - Danish Krone Sub. - Subordinated
CAD - Canadian Dollar FRF - French Franc Unsub. - Unsubordinated
Conv.- Convertible Gtd. - Guaranteed Wt. - Warrant
Deb. - Debentures ITL - Italian Lire
DEM - German Deutschemark Sec. - Secured
See Notes to Financial Statements.
</TABLE>
FS-19
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. DIVERSIFIED ASSETS:
INCOME FUND
STATEMENT OF Investments, at market value (cost $42,232,557).................... $43,642,532
ASSETS AND Foreign currencies, at value (cost $22,000)........................ 21,896
LIABILITIES Receivables for:
December 31, 1995 Forward contracts................................................ 25,045
Interest......................................................... 985,728
Investment for deferred compensation plan.......................... 7,721
Organizational costs, net.......................................... 6,749
Other assets....................................................... 578
-----------
Total assets................................................... 44,690,249
-----------
LIABILITIES:
Payables for:
Capital stock redeemed........................................... 17,298
Deferred compensation plan....................................... 7,721
Accrued advisory fees.............................................. 22,049
Accrued administrative service fees................................ 2,031
Accrued directors' fees............................................ 1,054
Accrued operating expenses......................................... 9,951
-----------
Total liabilities.............................................. 60,104
-----------
Net assets applicable to shares outstanding........................ $44,630,145
===========
Capital shares, $.001 par value per share:
Authorized....................................................... 250,000,000
===========
Outstanding...................................................... 4,461,727
===========
Net asset value, offering and redemption price per share........... $ 10.00
===========
</TABLE>
See Notes to Financial Statements.
FS-20
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. DIVERSIFIED INVESTMENT INCOME:
INCOME FUND
STATEMENT OF Interest........................................................ $2,745,013
OPERATIONS ----------
For the eleven months EXPENSES:
ended December 31, 1995
Advisory fees................................................... 193,008
Custodian fees.................................................. 16,422
Administrative service fees..................................... 36,406
Directors' fees and expenses.................................... 4,800
Organizational costs............................................ 2,651
Other........................................................... 31,317
----------
Total expenses................................................. 284,604
----------
Net investment income............................................. 2,460,409
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FORWARD CONTRACTS TRANSACTIONS:
Net realized gain (loss) from:
Investment securities........................................... 407,035
Foreign currencies.............................................. 302,188
Forward contracts............................................... (33,329)
----------
675,894
----------
Unrealized appreciation (depreciation) of:
Investment securities........................................... 2,405,295
Foreign currencies.............................................. 44,280
Forward contracts............................................... (8,795)
----------
2,440,780
----------
Net gain on investment securities, foreign currencies and forward
contract transactions............................................ 3,116,674
----------
Net increase in net assets resulting from operations.............. $5,577,083
==========
AIM V.I. DIVERSIFIED DECEMBER 31, JANUARY 31,
INCOME FUND 1995 1995
STATEMENT OF ------------ -----------
CHANGES IN NET ASSETS OPERATIONS:
For the eleven months
ended December 31, 1995 Net investment income.............................. $ 2,460,409 $ 1,655,141
and the year ended Net realized gain (loss) from investment
January 31, 1995 securities, foreign currencies, and forward
contracts......................................... 675,894 (1,542,084)
Net unrealized appreciation (depreciation) of
investment securities, foreign currencies, and
forward contracts................................. 2,440,780 (1,156,094)
----------- -----------
Net increase (decrease) in net assets resulting
from operations.................................. 5,577,083 (1,043,037)
Net equalization credits............................. 653,844 286,609
Net increase from capital stock transactions......... 16,007,644 12,953,629
Distributions to shareholders from net investment
income.............................................. (2,879,611) (1,455,969)
----------- -----------
Net increase in net assets........................ 19,358,960 10,741,232
NET ASSETS:
Beginning of period................................ 25,271,185 14,529,953
----------- -----------
End of period...................................... $44,630,145 $25,271,185
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)......... $43,080,526 $27,072,882
Undistributed net investment income................ 987,410 752,768
Undistributed net realized gain (loss) on
investment securities, foreign currencies and
forward contract transactions..................... (871,395) (1,547,289)
Unrealized appreciation (depreciation) of
investment securities, foreign currencies and
forward contracts................................. 1,433,604 (1,007,176)
----------- -----------
$44,630,145 $25,271,185
=========== ===========
</TABLE>
See Notes to Financial Statements.
FS-21
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. DIVERSIFIED NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
INCOME FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
NOTES TO organized on January 22, 1993, and is registered under the Investment Company
FINANCIAL STATEMENTS Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
December 31, 1995 investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Effective December 31, 1995, the Company's fiscal year was changed
from January 31 to December 31. Information presented in these financial
statements pertains only to the AIM V.I. Diversified Income Fund (the "Fund").
The Fund's investment objective is to seek to achieve a high level of current
income. The Fund will seek to achieve its objective by investing primarily in a
diversified portfolio of foreign and U.S. government and corporate debt
securities, including lower rated high yield debt securities (commonly known as
"junk bonds"). These high yield bonds may involve special risks in addition to
the risks associated with investment in higher rated debt securities. High
yield bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--Non-convertible bonds and notes are valued on the basis
of prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as institution-size trading
in similar groups of securities, developments related to special securities,
yield, quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which
prices are not provided by the pricing service and which are listed or
traded on an exchange are valued at the last sales price on the exchange
where the security is principally traded or, lacking any sales on a
particular day, at the mean between the closing bid and asked prices on that
day unless the Board of Directors, or persons designated by the Board of
Directors, determines that the over-the-counter quotations more closely
reflect the current market value of the security. Convertible bonds are
valued at the mean between the closing bid and asked prices obtained from a
broker-dealer. Securities traded in the over-the-counter market, except (i)
securities priced by the pricing service, (ii) securities for which
representative exchange prices are available, and (iii) securities reported
in the NASDAQ National Market System, are valued at the mean between
representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from
established market makers. Each security reported in the NASDAQ National
Market System is valued at the last sales price on the valuation date.
Securities for which market quotations are either not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Fund's officers in accordance with methods
which are specifically authorized by the Board of Directors. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Directors.
B. Foreign Currency Translation - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Forward Currency Contracts - A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between
currencies. The Fund
</TABLE>
FS-22
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
may also enter into a currency contract for the amount of a purchase or sale
of a security denominated in a foreign currency in order to "lock-in" the U.S.
dollar price of that security. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
D. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. It is the policy of the Fund not to amortize market
discounts and premiums on bonds for financial reporting purposes. Realized
gains or losses from securities transactions are recorded on the identified
cost basis.
E. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $1,025,093, which expires,
if not previously utilized, through the year 2003.
F. Equalization - The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and the costs of
repurchases of fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
net income when the transaction is recorded so that undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares.
G. Organizational Costs - Organizational costs of the Fund of $14,461 are being
amortized over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of
the first $250 million of the Fund's average daily net assets, plus 0.55% of
such Fund's average daily net assets in excess of $250 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $36,406
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $2,435 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the eleven months ended
December 31, 1995 was $39,826,472 and $24,192,267, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1995 is as follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities.......... $1,783,025
Aggregate unrealized (depreciation) of investment securities........ (373,050)
----------
Net unrealized appreciation of investment securities................ $1,409,975
==========
Investments have the same cost for tax and financial statement purposes.
</TABLE>
FS-23
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 5 - OPEN FORWARD CURRENCY CONTRACTS
Outstanding contracts at December 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
Contract to Unrealized
Settlement Date Deliver Receive Value Appreciation
--------------- ------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
01/25/96........ DEM 1,860,000 $1,297,951 $1,322,996 $25,045
========== ========== =======
</TABLE>
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months
ended December 31, 1995 and the year ended January 31, 1995
were as follows:
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
---------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold........................... 1,807,566 $17,087,317 1,633,696 $15,317,067
Issued as reinvestment of
distributions................. 293,522 2,823,374 155,537 1,431,155
Reacquired..................... (409,796) (3,903,047) (408,146) (3,794,593)
--------- ----------- --------- -----------
1,691,292 $16,007,644 1,381,087 $12,953,629
========= =========== ========= ===========
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a
share outstanding of the Fund during the eleven months ended
December 31, 1995, the year ended January 31, 1995, and the
period May 5, 1993 (date operations commenced) through January
31, 1994.
<TABLE>
<CAPTION>
January 31,
December 31, -----------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period....... $ 9.12 $ 10.46 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income.................... 0.69 0.76 0.54
Net gains (losses) on securities (both
realized and unrealized)................ 0.94 (1.42) 0.29
------- ------- -------
Total from investment operations........ 1.63 (0.66) 0.83
------- ------- -------
Less distributions:
Dividends from net investment income..... (0.75) (0.68) (0.35)
Distributions from net realized capital
gains................................... -- -- (0.02)
------- ------- -------
Total distributions..................... (0.75) (0.68) (0.37)
------- ------- -------
Net asset value, end of period............. $ 10.00 $ 9.12 $ 10.46
======= ======= =======
Total return(a)............................ 18.11% (6.35)% 8.33%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)... $44,630 $25,271 $14,530
======= ======= =======
Ratio of expenses to average net assets(c). 0.88%(b) 0.91% 1.05%(e)
======= ======= =======
Ratio of net investment income to average
net assets(d)............................. 7.65%(b) 8.07% 6.78%(e)
======= ======= =======
Portfolio turnover rate.................... 72% 100% 57%
======= ======= =======
------
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are annualized and based on average net assets of $35,153,645.
(c) After waiver of advisory fee and expense reimbursement. Ratios of expenses
to average net assets prior to waiver of advisory fees and/or expense
reimbursements are 1.03% and 1.69% (annualized) for January 31, 1995 and
1994, respectively.
(d) After waiver of advisory fee and expense reimbursement. Ratios of net
investment income to average net assets prior to waiver of advisory fees
and/or expense reimbursements are 7.95% and 6.14% (annualized) for January
31, 1995 and 1994, respectively.
(e) Annualized.
</TABLE>
FS-24
AIM V.I. DIVERSIFIED INCOME FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Global Utilities Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1995, the related statement of operations for the eleven month period then
ended and the statement of changes in net assets and financial highlights for
the eleven month period then ended and the period May 2, 1994 (commencement of
operations) through January 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. Where
brokers did not reply to our confirmation requests, we carried out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Global Utilities Fund, as of December 31, 1995, the results of operations
for the eleven month period then ended and the changes in its net assets and
the financial highlights for the eleven month period then ended and the period
May 2, 1994 through January 31, 1995, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-25
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
AIM V.I. GLOBAL MARKET
UTILITIES FUND SHARES VALUE
SCHEDULE OF ------ ------
INVESTMENTS
December 31, 1995 DOMESTIC COMMON STOCKS - 53.53%
COMPUTER NETWORKING - 0.64%
500 Ascend Communications, Inc.(a)........................... $ 40,563
476 Network Equipment Technologies, Inc.(a).................. 13,035
-----------
53,598
-----------
COMPUTER SOFTWARE/SERVICES - 0.46%
700 Objective Systems Integrators, Inc.(a)................... 38,325
-----------
CONGLOMERATES - 0.41%
700 Tenneco Inc. ............................................ 34,737
-----------
ELECTRIC SERVICES - 26.99%
1,500 Allegheny Power System, Inc. ............................ 42,938
1,900 Boston Edison Co. ....................................... 56,050
1,200 Carolina Power & Light Co. .............................. 41,400
500 CMS Energy Corp. ........................................ 14,938
1,200 Consolidated Edison Co. of New York, Inc. ............... 38,400
1,800 Detroit Edison Co. ...................................... 62,100
5,700 DPL, Inc. ............................................... 141,077
4,400 DQE, Inc. ............................................... 135,302
3,200 Duke Power Co. .......................................... 151,600
4,400 FPL Group, Inc. ......................................... 204,050
4,600 General Public Utilities Corp. .......................... 156,400
8,500 Houston Industries, Inc. ................................ 206,125
5,500 Illinova Corp. .......................................... 165,000
400 LG & E Energy Corp. ..................................... 16,900
3,200 NIPSCO Industries, Inc. ................................. 122,400
4,500 Northern States Power Co. ............................... 221,062
4,800 Pinnacle West Capital Corp. ............................. 138,000
6,000 Southern Co. (The)....................................... 147,750
3,200 Teco Energy, Inc. ....................................... 82,000
2,600 Unicom Corp. ............................................ 85,150
1,200 Wisconsin Energy Corp. .................................. 36,752
-----------
2,265,394
-----------
GAS DISTRIBUTION - 1.35%
3,200 Public Service Co. of Colorado........................... 113,200
-----------
NATURAL GAS PIPELINE - 5.87%
1,100 Columbia Gas System, Inc.(a)............................. 48,262
3,500 Enron Corp. ............................................. 133,437
1,000 KN Energy, Inc. ......................................... 29,125
600 Pacific Enterprises...................................... 16,950
3,100 Panhandle Eastern Corp. ................................. 86,414
1,200 Sonat Inc. .............................................. 42,750
3,100 Williams Companies Inc. (The)............................ 136,014
-----------
492,952
-----------
REAL ESTATE INVESTMENTS TRUSTS - 1.81%
1,500 Bay Apartment Communities................................ 36,375
600 Meditrust................................................ 20,925
500 National Health Investors, Inc. ......................... 16,562
200 Nationwide Health Properties, Inc. ...................... 8,400
900 Oasis Residential Inc. .................................. 20,475
1,000 Patriot American Hospitality, Inc. ...................... 25,750
900 Public Storage, Inc. .................................... 17,100
400 RFS Hotel Investors Inc. ................................ 6,150
-----------
151,737
-----------
</TABLE>
FS-26
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
TELECOMMUNICATIONS - 2.46%
1,800 A T & T Corp. .......................................... $ 116,550
2,900 Frontier Corp. ......................................... 87,000
200 Tel-Save Holdings, Inc.(a).............................. 2,775
-----------
206,325
-----------
TELEPHONE - 13.54%
4,600 Ameritech Corp. ........................................ 271,400
700 Bell Atlantic Corp. .................................... 46,812
4,900 BellSouth Corp. ........................................ 213,150
2,300 Century Telephone Enterprises, Inc. .................... 73,025
3,900 Cincinnati Bell, Inc. .................................. 135,525
800 GTE Corp. .............................................. 35,200
1,600 NYNEX Corp. ............................................ 86,402
3,100 SBC Communications, Inc. ............................... 178,250
1,000 Southern New England Telecommunications Corp. .......... 39,750
1,600 US West, Inc. .......................................... 57,200
-----------
1,136,714
-----------
Total Domestic Common Stocks.......................... 4,492,982
-----------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.17%
OIL & GAS-SERVICES - 0.71%
2,500 Enron Corp.-$1.36 Conv. Pfd. ........................... 60,000
-----------
TELECOMMUNICATIONS - 0.46%
800 MFS Communications Co., Inc.-$2.68 Conv. Pfd. .......... 38,950
-----------
Total Domestic Convertible Preferred Stocks........... 98,950
-----------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 16.70%
ARGENTINA - 0.74%
7,700 Central Costanera S.A. - Class B (Electric Services).... 23,711
2,200 Central Puerto S.A. - Class B (Electric Services)....... 8,358
1,100 Telefonica de Argentina-ADR (Telephone)................. 29,975
-----------
62,044
-----------
AUSTRIA - 0.19%
270 Oesterreichisch Elektrizitatswirtschafts-AG
(Verbundgesellschaft) Class A (Electric Services)...... 16,234
-----------
BRAZIL - 0.45%
800 Telecommunicacoes Brasileiras S/A Telebras-ADR
(Telecommunications)................................... 37,900
-----------
CANADA - 0.38%
2,200 Westcoast Energy, Inc. (Natural Gas Pipeline)........... 32,175
-----------
CHILE - 0.90%
500 Compania de Telecomunicaciones de Chile S.A.-ADR
(Telecommunications)................................... 41,437
1,200 Enersis S.A.-ADR (Electric Services).................... 34,200
-----------
75,637
-----------
DENMARK - 0.30%
900 Tele Danmark A/S-ADR (Telephone)........................ 24,862
-----------
GERMANY - 0.55%
1,060 Veba A.G. (Electric Services)........................... 45,001
-----------
</TABLE>
FS-27
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
HONG KONG - 0.13%
600 Hong Kong Telecom Ltd.-ADR (Telephone).................. $ 10,650
-----------
INDONESIA - 0.30%
700 PT Indostat-ADR(a) (Telephone).......................... 25,550
-----------
ISRAEL - 0.19%
700 ECI Telecom Ltd. (Telecommunications)................... 15,968
-----------
ITALY - 0.61%
15,325 Telecom Italia Mobile S.p.A. (Telephone)................ 26,922
15,825 Telecom Italia S.p.A. (Telephone)....................... 24,542
-----------
51,464
-----------
KOREA - 0.38%
1,200 Korea Electric Power Corp.-ADR (Electric Services)...... 32,100
-----------
NETHERLANDS - 0.98%
700 Elsag Baily Process Automation N.V.-ADR $2.75 Conv. Pfd.
TOPRS(b)
(Acquired 12/14/95; cost $35,000) (Electronic
Components - Miscellaneous)............................ 35,087
995 Royal PTT Nederland N.V.-ADR(b) (Acquired 06/13/94-
10/23/95; cost $32,569) (Telecommunications)........... 36,068
270 Royal PTT Nederland N.V. - Class B (Telecommunications). 9,809
-----------
80,964
-----------
NEW ZEALAND - 1.07%
1,300 Telecom Corp. of New Zealand Ltd.-ADR (Telephone)....... 90,187
-----------
NORWAY - 0.46%
1,200 Nera AS-ADR(a) (Telecommunications)..................... 39,000
-----------
PERU - 0.61%
24,000 CPT Telefonica Del Peru - Class B (Telephone)........... 51,406
-----------
PORTUGAL - 0.38%
1,700 Portugal Telecom S.A.-ADR(a) (Telecommunications)....... 32,300
-----------
SPAIN - 2.06%
2,175 Amper S.A. (Electrical Equipment)(a).................... 25,730
600 Empresa Nacional de Electricidad S.A. (Electric
Services).............................................. 34,350
700 Empresa Nacional de Electricidad S.A.-ADR (Electric
Services).............................................. 15,925
250 Gas Natural SDG-E S.A. (Natural Gas Pipeline)........... 38,953
3,600 Iberdrola S.A. ......................................... 32,943
600 Telefonica de Espana, S.A. (Telecommunications)......... 25,125
-----------
173,026
-----------
SWEDEN - 1.34%
28 Telefonaktiebolaget L.M. Ericsson (Telecommunications).. 548
5,720 Telefonaktiebolaget L.M. Ericsson-ADR
(Telecommunications)................................... 111,540
-----------
112,088
-----------
UNITED KINGDOM - 4.68%
5,700 British Gas PLC (National Gas Pipeline)................. 22,486
300 British Sky Broadcasting Group PLC-ADR
(Advertising/Broadcasting)............................. 11,287
1,400 London Electricity PLC (Electric Services).............. 12,469
2,350 Midlands Electricity PLC (Electric Services)............ 27,739
5,969 National Grid Group PLC (Electric Services)............. 18,496
5,950 National Power PLC (Electric Services).................. 41,536
900 National Power PLC-ADR (Electric Services).............. 8,325
4,725 North West Water PLC(a) (Water Supply).................. 45,203
</TABLE>
FS-28
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
UNITED KINGDOM--(CONTINUED)
1,200 NYNEX CableComms Group(a) (Telecommunications)........ $ 20,850
2,850 PowerGen PLC (Electric Services)...................... 23,569
1,100 PowerGen PLC-ADR (Electric Services).................. 14,437
2,950 Scottish Power PLC (Electric Services)................ 16,951
1,150 Seeboard PLC (Electric Services)...................... 9,394
1,550 South Wales Electricity PLC (Electric Services)....... 22,459
1,200 Southern Electric PLC (Electric Services)............. 16,847
700 Vodafone Group PLC-ADR (Telecommunications)........... 24,675
1,750 Wessex Water PLC (Water Supply)....................... 9,485
2,100 Wessex Water PLC - Preference Shares (Water Supply)... 1,663
1,200 Yorkshire Electricity PLC (Electric Services)......... 12,449
3,500 Yorkshire Water PLC (Water Supply).................... 32,178
-----------
392,498
-----------
Total Foreign Stocks & Other Equity Interests....... 1,401,054
-----------
PRINCIPAL
AMOUNT
---------
DOMESTIC CONVERTIBLE BONDS - 2.37%
COMPUTER SOFTWARE/SERVICES - 0.17%
$14,000 Network Equipment Technologies, Conv. Sub. Deb.,
7.25%, 05/15/14...................................... 14,338
-----------
ELECTRIC SERVICES - 0.30%
25,000 California Energy Co., Inc., Conv. Sub. Deb., 5.00%,
07/31/00(b)
(Acquired 04/26/95; cost $22,745).................... 25,195
-----------
ELECTRONIC COMPONENTS/MISCELLANEOUS - 0.42%
30,000 Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02(b)
(Acquired 06/16/95-12/13/95; cost $31,700)........... 34,950
-----------
SEMICONDUCTORS - 0.70%
25,000 Analog Devices, Conv. Sub. Notes, 3.50%, 12/01/00..... 26,625
35,000 Xilinx Inc., Conv. Sub. Notes, 5.25%, 11/01/02(b)
(Acquired 11/07/95; cost $35,000).................... 31,850
-----------
58,475
-----------
TELECOMMUNICATIONS - 0.78%
80,000 United States Cellular Corp., Conv. Liquid Yield
Option Notes, 6.00%, 06/15/15(c)..................... 28,500
35,000 World Communications, Conv. Sub. Notes, 5.00%,
08/15/03............................................. 37,275
-----------
65,775
-----------
Total Domestic Convertible Bonds.................... 198,733
-----------
DOMESTIC NON-CONVERTIBLE BONDS - 5.52%
ADVERTISING/BROADCASTING - 0.96%
75,000 Time Warner Inc., Notes, 8.18%, 08/15/07.............. 80,559
-----------
ELECTRIC SERVICES - 0.93%
75,000 Arizona Public Service, Deb., 8.00%, 12/30/15......... 77,780
-----------
FINANCE (CONSUMER CREDIT) - 1.03%
75,000 General Motors Acceptance Corp., Putable Step Up
Notes, 9.00%, 10/15/02............................... 86,739
-----------
NATURAL GAS PIPELINE - 0.59%
45,000 Panhandle Eastern Pipeline, Deb., 7.875%, 08/15/04.... 49,631
-----------
</TABLE>
FS-29
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
TELECOMMUNICATIONS - 2.01%
$150,000 A T & T Corp., Sr. Notes, 7.75%, 03/01/07............ $ 168,579
-----------
Total Domestic Non-Convertible Bonds............... 463,288
-----------
FOREIGN NON-CONVERTIBLE BONDS - 2.08%
CANADA - 1.47%
CAD 50,000 Bell Canada, Deb. (Telecommunications), 8.80%,
08/17/05............................................ 39,660
CAD 50,000 Bell Canada, Deb. (Telecommunications), 10.875%,
10/11/04............................................ 43,755
CAD 50,000 IPL Energy, Deb. (Oil & Gas-Services), 9.67%,
02/23/00............................................ 40,049
-----------
123,464
-----------
MEXICO - 0.61%
50,000 United Mexican States, Deb. (Foreign Government
Securities), 11.1875%, 07/21/97(b) (Acquired
07/12/95; cost $50,000)............................. 51,219
-----------
Total Foreign Non-Convertible Bonds................ 174,683
-----------
U.S. TREASURY SECURITIES - 10.15%
U.S. TREASURY BONDS - 1.89%
130,000 7.625%, 02/15/25..................................... 158,899
-----------
U.S. TREASURY NOTES - 8.26%
650,000 6.50%, 08/15/05...................................... 693,214
-----------
Total U.S. Treasury Securities..................... 852,113
-----------
REPURCHASE AGREEMENT - 7.47%(d)
627,267 Daiwa Securities America Inc., 5.92%, 01/02/96(e).... 627,267
-----------
TOTAL INVESTMENTS - 98.99%........................... 8,309,070
OTHER ASSETS LESS LIABILITIES - 1.01%................ 84,897
-----------
NET ASSETS - 100.00%................................. $ 8,393,967
===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The aggregate
market value of these securities at December 31, 1995 was $214,369, which
represented 2.55% of net assets.
(c) Zero coupon bond. The interest rate shown represents the rate of the original
issue discount.
(d) Collateral on repurchase agreement, including the Fund's pro-rata interest in
joint repurchase agreements, is taken into possession by the Fund upon entering
into the repurchase agreement. The collateral is marked to market daily to ensure
its market value as being 102 percent of the sales price of the repurchase
agreement. The investments in some repurchase agreements are through participation
in joint accounts with other mutual funds managed by the investment advisor.
(e) Joint repurchase agreement entered into 12/29/95 with a maturing value of $646,679,181.
Collateralized by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due
11/15/07 to 02/15/15.
Abbreviations:
ADR - American Depositary Receipt
CAD - Canadian dollars
Conv. - Convertible
Deb. - Debentures
Sr. - Senior
Sub. - Subordinated
TOPRS - Trust Originated Preferred Securities
See Notes to Financial Statements.
</TABLE>
FS-30
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GLOBAL ASSETS:
UTILITIES FUND
STATEMENT OF Investments, at value (cost $7,345,626)............................ $ 8,309,070
ASSETS AND Foreign currencies, at value (cost $20,237)........................ 20,328
LIABILITIES Receivables for:
December 31, 1995 Capital stock sold............................................... 31,966
Investments sold................................................. 650
Dividends and interest........................................... 61,034
Reimbursement from advisor....................................... 5,000
Investment for deferred compensation plan.......................... 5,158
Other assets....................................................... 23
-----------
Total assets................................................... 8,433,229
-----------
LIABILITIES:
Payables for:
Investments purchased............................................ 21,873
Deferred compensation plan....................................... 5,158
Accrued directors' fees............................................ 1,551
Accrued administrative services fees............................... 3,496
Accrued operating expenses......................................... 7,184
-----------
Total liabilities.............................................. 39,262
-----------
Net assets applicable to shares outstanding........................ $ 8,393,967
===========
Capital shares, $.001 par value per share:
Authorized....................................................... 250,000,000
===========
Outstanding...................................................... 721,345
===========
Net asset value, offering and redemption price per share........... $11.64
======
See Notes to Financial Statements.
</TABLE>
FS-31
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GLOBAL INVESTMENT INCOME:
UTILITIES FUND
STATEMENT OF Dividends (net of $3,639 foreign withholding tax)............... $ 170,888
OPERATIONS Interest........................................................ 80,845
For the eleven months ----------
ended December 31, 1995 Total investment income....................................... 251,733
----------
EXPENSES:
Advisory fees................................................... 32,703
Custodian fees.................................................. 21,094
Administrative services fees.................................... 33,582
Directors' fees and expenses.................................... 5,083
Professional fees............................................... 22,514
Other........................................................... 2,315
----------
Total expenses................................................. 117,291
Less expenses assumed by advisor................................ (46,503)
----------
Net expenses................................................... 70,788
----------
Net investment income............................................. 180,945
----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment securities........................................... 82,163
Foreign currency transactions................................... (2,067)
----------
80,096
----------
Unrealized appreciation of:
Investment securities........................................... 928,908
Foreign currencies.............................................. 475
----------
929,383
----------
Net gain on investment securities and foreign currencies.......... 1,009,479
----------
Net increase in net assets resulting from operations.............. $1,190,424
==========
AIM V.I. GLOBAL 1995 1995
UTILITIES FUND ------------ -----------
STATEMENT
OF CHANGES OPERATIONS:
IN NET ASSETS
For the eleven months ended Net investment income.............................. $ 180,945 $ 62,600
December 31, 1995 and the Net realized gain (loss) from investment securities
period May 2, 1994 and foreign currency transactions................. 80,096 (63,919)
(date operations commenced) Net unrealized appreciation of investment
through January 31, 1995 securities and foreign currencies................. 929,383 33,906
---------- -----------
Net increase in net assets resulting from
operations....................................... 1,190,424 32,587
Net increase from capital stock transactions....... 4,441,375 2,981,631
Distributions to shareholders from net investment
income............................................ (186,096) (56,551)
Distributions from net realized capital gains...... (9,403) --
---------- -----------
Net increase in net assets........................ 5,436,300 2,957,667
NET ASSETS:
Beginning of period................................ 2,957,667 --
---------- -----------
End of period...................................... $8,393,967 $ 2,957,667
========== ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)......... $7,423,006 $ 2,981,631
Undistributed net investment income................ (769) 6,049
Undistributed net realized gain (loss) from
investment securities and foreign currency
transactions...................................... 8,441 (63,919)
Unrealized appreciation of investment securities
and foreign currencies............................ 963,289 33,906
---------- -----------
$8,393,967 $ 2,957,667
========== ===========
See Notes to Financial Statements.
</TABLE>
FS-32
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. GLOBAL NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
UTILITIES FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
NOTES TO organized on January 22, 1993, and is registered under the Investment Company
FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
STATEMENTS investment company consisting of nine portfolios. Matters affecting each
December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Effective December 31, 1995, the Company's fiscal year was changed
from January 31 to December 31. Information presented in these financial
statements pertains only to the AIM V.I. Global Utilities Fund (the "Fund").
The Fund's investment objective is to achieve a high level of current income,
and as a secondary objective the Fund seeks to achieve capital appreciation, by
investing primarily in the common and preferred stocks of public utility
companies (either domestic or foreign). Currently, shares of the Fund are sold
only to insurance company separate accounts to fund the benefits of variable
annuity contracts.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Security Valuations - Equity securities, including warrants, that are listed
on a national securities exchange or part of the NASDAQ National Market
System are valued at the last reported sales price or if there has been no
sale that day, at the mean between the closing bid and asked prices on that
day. If a mean is not available, as is the case in some foreign markets, the
closing bid will be used absent a last sales price. Non-convertible debt
securities are valued on the basis of valuations furnished by a pricing
service, which determines valuations for normal, institutional-size trading
units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Securities traded in the
over-the-counter market, except (i) securities priced by the pricing
service, (ii) securities for which representative exchange prices are
available, and (iii) securities reported in the NASDAQ National Market
System, are valued at the mean between representative last bid and asked
prices obtained from an electronic quotation reporting system, if such
prices are available, or from established market makers. Exchange listed
convertible debt securities are valued at the mean between the closing bid
and asked prices obtained from a broker-dealer. Short-term investments with
remaining maturities of up to and including 60 days are valued at amortized
cost which approximates market value. Short-term securities that mature in
more than 60 days are valued at current market quotations. Securities for
which market quotations either are not readily available or are questionable
are valued at fair value as determined in good faith by, or under the
authority of, the Board of Directors. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior
to the close of the New York Stock Exchange. Occasionally, events affecting
the values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Directors.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Realized gains or losses from securities transactions are
recorded on the identified cost basis. On December 31, 1995, undistributed
net realized gain (loss) was increased and undistributed net investment
income reduced by $1,667 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position 93-
2. Net assets of the Fund were unaffected by the reclassification discussed
above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and capital
gains to its shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
D. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
</TABLE>
FS-33
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <S>
E. Forward Currency Contracts - A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between
currencies. The Fund may also enter into a currency contract for the amount
of a purchase or sale of a security denominated in a foreign currency in
order to "lock-in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale. During the eleven months ended December 31,
1995, AIM waived advisory fees of $32,703 and reimbursed expenses of $13,800
with respect to the Fund.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $33,582
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $2,355 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the eleven months ended
December 31, 1995 was $6,844,524 and $2,777,535, respectively.
The amount of unrealized appreciation of investment securities, on a tax
basis, as of December 31, 1995 is as follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities.......... $1,001,165
Aggregate unrealized (depreciation) of investment securities........ (40,407)
----------
Net unrealized appreciation of investment securities................ $ 960,758
==========
Cost of investments for tax purposes is $7,348,312.
</TABLE>
FS-34
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months ended December
31, 1995 and the period May 2, 1994 (date operations commenced) through January
31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
-------------------- -------------------
Shares Amount Shares Amount
-------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Sold................................ 535,828 $5,682,400 303,347 $2,952,131
Issued as reinvestment of
distributions...................... 17,742 195,499 5,893 56,551
Reacquired.......................... (134,462) (1,436,524) (4,003) (27,051)
-------- ---------- ------- ----------
419,108 $4,441,375 305,237 $2,981,631
======== ========== ======= ==========
</TABLE>
<TABLE>
<C> <S>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding of
the Fund during the eleven months ended July 31, 1995 and the period May 2,
1994 (date operations commenced) through January 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
December 31, January 31,
1995 1995
------------ -----------
<S> <C> <C>
Net asset value, beginning of period............ $9.69 $10.00
------ ------
Income from investment operations:
Net investment income......................... 0.29 0.27
Net gains (losses) on securities (both
realized and unrealized)..................... 1.98 (0.33)
------ ------
Total from investment operations............. 2.27 (0.06)
------ ------
Less distributions:
Dividends from net investment income.......... (0.31) (0.25)
Distributions from capital gain............... (0.01) --
------ ------
Total distributions........................... (0.32) (0.25)
------ ------
Net asset value, end of period.................. $11.64 $ 9.69
====== ======
Total return(a)................................. 23.73% (0.56)%
====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........ $8,394 $2,958
====== ======
Ratio of expenses to average net assets......... 1.47%(b) 1.31%(c)(d)
====== ======
Ratio of net investment income to average net
assets......................................... 3.76%(b) 4.39%(c)(d)
====== ======
Portfolio turnover rate......................... 58% 69%
====== ======
------------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net assets of $5,261,394.
Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees and expense reimbursements
are 2.44% and 2.79%, respectively.
(c) Annualized.
(d) Annualized ratios of expenses and net investment income to average
net assets prior to waiver of advisory fees and expense
reimbursements are 2.80% and 2.90%, respectively.
</TABLE>
FS-35
AIM V.I. GLOBAL UTILITIES FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Government Securities Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1995, the related statement of operations for the eleven month
period then ended, the statement of changes in net assets for the eleven month
period then ended and the year ended January 31, 1995 and the financial
highlights for the eleven month period then ended, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Government Securities Fund, as of December 31, 1995, the results of its
operations for the eleven month period then ended, the changes in its net
assets for the eleven month period then ended and the year ended January 31,
1995 and the financial highlights for the eleven month period then ended, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-36
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
AIM V.I. GOVERNMENT PRINCIPAL MARKET
SECURITIES FUND AMOUNT VALUE
SCHEDULE OF --------- ------
INVESTMENTS U.S. GOVERNMENT AGENCIES - 72.04%
December 31, 1995
FEDERAL FARM CREDIT BANK - 1.03%
$ 200,000 Medium term notes
5.96%, 07/14/03....................................... $ 201,970
-----------
FEDERAL HOME LOAN BANK - 7.58%
Debentures
150,000 8.375%, 10/25/99...................................... 164,798
500,000 7.31%, 07/06/01....................................... 538,025
285,000 7.78%, 10/19/01....................................... 315,307
400,000 8.17%, 12/16/04....................................... 463,744
-----------
1,481,874
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 22.88%
Debentures
150,000 6.13%, 08/19/99....................................... 153,264
500,000 7.90%, 09/19/01....................................... 553,680
300,000 6.185%, 11/26/03...................................... 296,649
500,000 8.00%, 01/26/05....................................... 574,260
500,000 8.115%, 01/31/05...................................... 578,230
Pass through certificates
1,021,304 6.00%, 11/01/08 to 08/01/10........................... 1,011,397
559,598 6.50%, 12/01/08 to 07/01/23........................... 557,290
405,179 10.50%, 08/01/19...................................... 443,412
291,121 8.50%, 08/01/24....................................... 303,946
-----------
4,472,128
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 26.49%
Debentures
400,000 7.55%, 04/22/02....................................... 438,232
500,000 8.50%, 02/01/05....................................... 547,420
Medium term notes
400,000 7.68%, 12/01/97....................................... 416,480
500,000 5.42%, 06/02/99....................................... 497,640
300,000 7.375%, 03/28/05...................................... 331,758
Pass through certificates
580,790 7.50%, 11/01/09 to 06/01/25........................... 596,569
672,426 6.50%, 10/01/10 to 06/01/23........................... 673,716
677,662 8.25%, 04/01/22....................................... 704,653
448,199 8.50%, 09/01/24....................................... 467,799
498,729 7.00%, 09/01/25....................................... 503,082
-----------
5,177,349
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.62%
Pass through certificates
111,258 9.50%, 08/15/03 to 09/15/16........................... 119,421
277,816 9.00%, 09/15/08 to 10/15/16........................... 297,346
52,159 11.00%, 10/15/15...................................... 58,564
87,599 10.50%, 09/15/17 to 11/15/19.......................... 97,233
530,467 6.50%, 12/15/23....................................... 526,647
-----------
1,099,211
-----------
PRIVATE EXPORT FUNDING COMPANY - 1.66%
300,000 Debentures
7.30%, 01/31/02....................................... 323,766
-----------
STUDENT LOAN MARKETING ASSOCIATION - 4.12%
Debentures
500,000 5.65%, 02/22/99....................................... 499,215
150,000 5.55%, 12/15/99....................................... 150,329
150,000 6.50%, 08/01/02....................................... 156,290
-----------
805,834
-----------
TENNESSEE VALLEY AUTHORITY - 2.66%
500,000 Debentures
6.375%, 06/15/05...................................... 518,985
-----------
Total U.S. Government Agencies..................... 14,081,117
-----------
</TABLE>
FS-37
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
U.S. TREASURY SECURITIES - 20.54%
U.S. TREASURY NOTES & BONDS - 20.23%
$ 300,000 6.875%, 08/31/99..................................... $ 315,327
1,750,000 6.25%, 05/31/00 to 08/15/23.......................... 1,809,497
500,000 7.50%, 02/15/05...................................... 567,435
1,100,000 7.25%, 05/15/16 to 08/15/22.......................... 1,261,852
-----------
3,954,111
-----------
U.S. TREASURY STRIPS - 0.31%
250,000 6.80%(a), 11/15/18................................... 60,250
-----------
Total U.S. Treasury Securities.................... 4,014,361
-----------
REPURCHASE AGREEMENT - 6.30%(b)
1,231,821 Daiwa Securities America, Inc., 5.92%, 01/02/96(c).... 1,231,821
-----------
TOTAL INVESTMENTS - 98.88%............................ 19,327,299
OTHER ASSETS LESS LIABILITIES - 1.12%................. 218,092
-----------
NET ASSETS - 100.00%.................................. $19,545,391
===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) U.S. Treasury STRIPS are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(c) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
See Notes to Financial Statements.
</TABLE>
FS-38
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GOVERNMENT ASSETS:
SECURITIES FUND
STATEMENT OF Investments, at market value (cost $18,692,275).................... $19,327,299
ASSETS AND Interest receivable................................................ 235,597
LIABILITIES Investment for deferred compensation plan.......................... 7,626
December 31, 1995 Organizational costs, net.......................................... 6,773
Other assets....................................................... 9,465
-----------
Total assets................................................... 19,586,760
-----------
LIABILITIES:
Payable for capital stock purchased................................ 8,670
Payable for deferred compensation.................................. 7,626
Accrued advisory fees.............................................. 8,040
Accrued directors' fees............................................ 1,398
Accrued administrative service fees................................ 1,831
Accrued operating expenses......................................... 13,804
-----------
Total liabilities.............................................. 41,369
-----------
Net assets applicable to shares outstanding........................ $19,545,391
===========
Capital shares, $.001 par value per share:
Authorized....................................................... 250,000,000
===========
Outstanding...................................................... 1,921,357
===========
Net asset value, offering and redemption price per share........... $10.17
===========
</TABLE>
See Notes to Financial Statements.
FS-39
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GOVERNMENT INVESTMENT INCOME:
SECURITIES FUND
STATEMENT OF Interest.......................................................... $ 990,824
OPERATIONS ----------
For the eleven months EXPENSES:
ended December 31, 1995
Advisory fees..................................................... 71,080
Custodian fees.................................................... 13,735
Administrative service fees....................................... 30,769
Directors' fees and expenses...................................... 5,567
Professional fees................................................. 27,942
Organizational costs.............................................. 2,541
Other............................................................. 17,950
----------
Total expenses.................................................. 169,584
----------
Net investment income............................................... 821,240
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Net realized gain (loss) on sales of investment securities.......... (148,986)
Unrealized appreciation of investment securities.................... 1,343,577
----------
Net gain on investment securities................................... 1,194,591
----------
Net increase in net assets resulting from operations................ $2,015,831
==========
AIM V.I. GOVERNMENT December 31, January 31,
SECURITIES FUND 1995 1995
STATEMENT ------------ -----------
OF CHANGES OPERATIONS:
IN NET ASSETS <S> <C> <C>
For the eleven months Net investment income.............................. $ 821,240 $ 675,548
ended December 31, 1995 Net realized gain (loss) on sales of investment
and the year ended securities........................................ (148,986) (282,363)
January 31, 1995 Net unrealized appreciation (depreciation) of
investment securities............................. 1,343,577 (760,122)
----------- -----------
Net increase (decrease) in net assets resulting
from operations................................. 2,015,831 (366,937)
Net equalization credits............................. 199,339 46,268
Net increase from capital stock transactions......... 5,295,385 3,196,439
Distributions to shareholders from net investment
income.............................................. (852,380) (631,778)
----------- -----------
Net increase in net assets....................... 6,658,175 2,243,992
NET ASSETS:
Beginning of period................................ 12,887,216 10,643,224
----------- -----------
End of period...................................... $19,545,391 $12,887,216
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)......... $18,951,306 $13,655,921
Undistributed net investment income................ 409,777 241,578
Undistributed net realized gain (loss) on sales of
investment securities............................. (450,716) (301,730)
Unrealized appreciation (depreciation) of
investment securities............................. 635,024 (708,553)
----------- -----------
$19,545,391 $12,887,216
=========== ===========
</TABLE>
See Notes to Financial Statements.
FS-40
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. GOVERNMENT NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
SECURITIES FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
NOTES TO organized on January 22, 1993, and is registered under the Investment Company
FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
STATEMENTS investment company consisting of nine portfolios. Matters affecting each
December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Effective December 31, 1995, the Company's fiscal year end was
changed from January 31 to December 31. Information presented in these
financial statements pertains only to the AIM V.I. Government Securities Fund
(the "Fund"). The Fund's investment objective is to achieve a high level of
current income consistent with reasonable concern for safety of principal by
investing in debt securities issued, guaranteed or otherwise backed by the U.S.
Government. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - Debt obligations that are issued or guaranteed by the
U.S. Government, its agencies, authorities, and instrumentalities are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate, maturity and seasoning differential. Securities for
which market prices are not provided by the pricing service are valued at
the mean between last bid and asked prices based upon quotes furnished by
independent sources. Securities for which market quotations are either not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Distributions to shareholders are recorded on the ex-dividend date.
Realized gains or losses from securities transactions are recorded on the
identified cost basis.
C. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $399,008, which expires, if
not previously utilized, through the year 2003.
D. Equalization - The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and the costs of
repurchases of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
net income when the transaction is recorded so that undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares.
E. Organizational Costs - Organizational costs for the Fund of $14,461 are
being amortized over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% of
the first $250 million of the Fund's average daily net assets, plus 0.45% of
the Fund's average daily net assets in excess of $250 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $30,769
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
</TABLE>
FS-41
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <S>
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $1,602 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees, if
so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the eleven months ended
December 31, 1995 was $10,613,846 and $5,500,354, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of December 31, 1995 is as follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities............ $675,091
Aggregate unrealized (depreciation) of investment securities.......... (40,067)
--------
Net unrealized appreciation of investment securities.................. $635,024
========
Investments have the same cost for tax and financial statement purposes.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months ended December
31, 1995 and the year ended January 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
-------------------- ---------------------
Shares Amount Shares Amount
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sold.............................. 693,583 $6,660,171 500,188 $ 4,784,080
Issued as reinvestment of
distributions.................... 85,675 852,380 66,676 631,778
Reacquired........................ (229,935) (2,217,166) (234,604) (2,219,419)
-------- ---------- -------- -----------
549,323 $5,295,385 332,260 $ 3,196,439
======== ========== ======== ===========
</TABLE>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a
share outstanding of the Fund during the eleven months
ended December 31, 1995, the year ended January 31, 1995,
and the period May 5, 1993 (date operations commenced)
through January 31, 1994.
<TABLE>
<CAPTION>
January 31,
December 31, -------------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period..... $ 9.39 $ 10.24 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income.................. 0.54 0.53 0.38
Net gains (losses) on securities (both
realized and unrealized).............. 0.74 (0.88) 0.10
------- ------- -------
Total from investment operations.. 1.28 (0.35) 0.48
------- ------- -------
Less distributions:
Dividends from net investment income... (0.50) (0.50) (0.24)
------- ------- -------
Total distributions............... (0.50) (0.50) (0.24)
------- ------- -------
Net asset value, end of period........... $ 10.17 $ 9.39 $ 10.24
======= ======= =======
Total return(a).......................... 13.84% (3.42)% 4.78%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted). $19,545 $12,887 $10,643
======= ======= =======
Ratio of expenses to average net assets.. 1.19%(b) 0.95%(c) 1.00%(c)
======= ======= =======
Ratio of net investment income to average
net assets.............................. 5.78%(b) 5.51%(d) 4.74%(d)
======= ======= =======
Portfolio turnover rate.................. 41% 29% 0%
======= ======= =======
------
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are annualized and are based on average net assets of $15,535,425.
(c) Ratios of expenses to average net assets prior to waiver of advisory fees
and/or expense reimbursements are 1.10% and 1.80% (annualized) for January,
1995 and 1994, respectively.
(d) Ratios of net investment income to average net assets prior to waiver of
advisory fees and/or expense reimbursements are 5.35% and 3.94%
(annualized) for January, 1995 and 1994, respectively.
</TABLE>
FS-42
AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1995, the
related statement of operations for the eleven month period then ended, the
statement of changes in net assets for the eleven month period then ended and
the year ended January 31, 1995 and the financial highlights for the eleven
month period then ended, the year ended January 31, 1995 and the period May 5,
1993 (commencement of operations) through January 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amount and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. Where
brokers did not reply to our confirmation requests, we carried out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund, as of December 31, 1995, the results of its operations for
the eleven month period then ended, the changes in its net assets for the
eleven month period then ended and the year ended January 31, 1995 and the
financial highlights for the eleven month period then ended, the year ended
January 31, 1995 and the period May 5, 1993 through January 31, 1994, in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-43
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
AIM V.I. GROWTH MARKET
FUND SHARES VALUE
SCHEDULE OF ------ ------
INVESTMENTS
December 31, 1995 COMMON STOCKS - 80.43%
AEROSPACE/DEFENSE - 1.06%
6,000 Boeing Co. .............................................. $ 470,258
2,200 Raytheon Co. ............................................ 103,950
5,000 Rockwell International Co. .............................. 264,375
2,600 United Technologies Corp. ............................... 246,675
-----------
1,085,258
-----------
APPLIANCES - 0.75%
20,000 Newell Co. .............................................. 517,500
5,000 Premark International Inc. .............................. 253,125
-----------
770,625
-----------
AUTOMOBILE/TRUCK PARTS & TIRES - 0.51%
14,400 Echlin Inc. ............................................. 525,600
-----------
AUTOMOBILE (MANUFACTURERS) - 0.24%
4,500 Chrysler Corp. .......................................... 249,187
-----------
BANKING - 0.83%
6,500 Corestates Financial Corp. .............................. 246,187
7,000 Norwest Bank Corp. ...................................... 231,000
14,200 Southern National Corp. ................................. 372,750
-----------
849,937
-----------
BANKING (MONEY CENTER) - 0.66%
4,000 BankAmerica Corp. ....................................... 259,000
6,900 Chase Manhattan Corp. ................................... 418,312
-----------
677,312
-----------
BEVERAGES (ALCOHOLIC) - 1.06%
97,800 Bass PLC-ADR............................................. 1,091,307
-----------
BEVERAGES - 0.71%
13,000 PepsiCo Inc. ............................................ 726,375
-----------
BIOTECHNOLOGY - 0.06%
1,400 Guidant Corp. ........................................... 59,150
-----------
BUSINESS SERVICES - 1.22%
10,800 Equifax Inc. ............................................ 230,850
5,500 Healthcare COMPARE Corp.(a).............................. 239,250
11,000 Olsten Corp. (The)....................................... 434,500
11,500 Servicemaster L.P. ...................................... 347,875
-----------
1,252,475
-----------
CHEMICALS (SPECIALTY) - 0.97%
13,000 Cabot Corp. ............................................. 700,375
5,000 W.R. Grace & Co. ........................................ 295,625
-----------
996,000
-----------
COMPUTER MINI/PCS - 3.23%
20,000 COMPAQ Computer Corp.(a)................................. 960,000
26,600 Dell Computer Corp.(a)................................... 921,025
9,000 Digital Equipment Corp.(a)............................... 577,125
6,500 Hewlett-Packard Co. ..................................... 544,375
6,800 Sun Microsystems, Inc.(a)................................ 310,250
-----------
3,312,775
-----------
</TABLE>
FS-44
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S> <C>
MARKET
SHARES VALUE
------ ------
COMPUTER NETWORKING - 3.77%
21,000 Bay Network, Inc.(a)..................................... $ 863,625
3,750 Cabletron Systems, Inc.(a)............................... 303,750
14,000 Cisco Systems, Inc.(a)................................... 1,044,750
23,700 ECI Telecommunications Limited Designs................... 540,656
9,700 Madge Networks N.V.(a)................................... 434,075
14,600 3Com Corp.(a)............................................ 680,725
-----------
3,867,581
-----------
COMPUTER PERIPHERALS - 1.58%
9,500 Adaptec, Inc.(a)......................................... 389,500
15,000 EMC Corp.(a)............................................. 230,625
16,500 Seagate Technology Inc.(a)............................... 783,750
2,500 U.S. Robotics Corp.(a)................................... 219,375
-----------
1,623,250
-----------
COMPUTER SOFTWARE & SERVICES - 4.44%
5,300 Adobe Systems, Inc. ..................................... 328,600
12,700 BMC Software, Inc.(a).................................... 542,925
15,000 Cadence Design Systems, Inc.(a).......................... 630,000
17,600 Computer Associates International, Inc. ................. 1,001,000
11,000 FTP Software, Inc.(a).................................... 319,000
10,000 Mentor Graphics Corp.(a)................................. 182,500
5,500 Microsoft Corp.(a)....................................... 482,625
11,900 SoftKey International Inc.(a)............................ 275,188
4,500 Sterling Software, Inc.(a)............................... 280,687
21,000 Symantec Corp.(a)........................................ 488,250
600 Synopsys, Inc.(a)........................................ 22,800
-----------
4,553,575
-----------
CONGLOMERATES - 1.57%
10,000 Dial Corp. (The)......................................... 296,250
13,000 Loews Corp. ............................................. 1,018,875
8,200 Tyco International Ltd. ................................. 292,125
-----------
1,607,250
-----------
CONTAINERS - 0.55%
10,300 Ball Corp. .............................................. 283,250
6,000 First Brands Corp. ...................................... 285,750
-----------
569,000
-----------
COSMETICS & TOILETRIES - 0.45%
3,800 Alberto-Culver Co. - Class A............................. 115,900
2,000 Gillette Co. (The)....................................... 104,250
3,000 Procter & Gamble Co. .................................... 249,000
-----------
469,150
-----------
ELECTRONIC COMPONENTS - 2.19%
13,000 Amphenol Corp.(a)........................................ 315,250
9,800 Anixter International Inc.(a)............................ 182,525
900 AVX Corp. ............................................... 23,850
10,000 Elsag Bailey Process Automation N.V.(a).................. 268,750
9,200 Tektronix, Inc. ......................................... 451,950
40,000 Teradyne, Inc.(a)........................................ 1,000,000
-----------
2,242,325
-----------
</TABLE>
FS-45
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
ELECTRONIC/PC DISTRIBUTORS - 1.52%
17,000 Arrow Electronics, Inc.(a)............................... $ 733,125
18,500 Avnet, Inc. ............................................. 827,875
-----------
1,561,000
-----------
ELECTRONICS/DEFENSE - 0.21%
3,000 Sundstrand Corp. ........................................ 211,125
-----------
FINANCE (ASSET MANAGEMENT) - 1.52%
25,000 Bear Stearns Companies, Inc. (The)....................... 496,875
10,800 Finova Group, Inc. ...................................... 521,100
3,000 Morgan Stanley Group, Inc. .............................. 241,875
15,100 PaineWebber Group, Inc. ................................. 302,000
-----------
1,561,850
-----------
FINANCE (CONSUMER CREDIT) - 5.07%
28,000 Countrywide Credit Industries, Inc. ..................... 609,000
10,000 Dean Witter Discover & Co. .............................. 470,000
9,000 Federal Home Loan Mortgage Corp. ........................ 751,500
3,000 Federal National Mortgage Association.................... 372,375
9,500 First USA, Inc. ......................................... 421,562
17,000 Green Tree Acceptance, Inc. ............................. 448,375
4,500 Household International, Inc. ........................... 266,063
25,000 MBNA Corp. .............................................. 921,875
12,000 Mercury Finance Co. ..................................... 159,000
4,100 PMI Group, Inc. (The).................................... 185,525
5,900 Student Loan Marketing Association....................... 388,662
8,000 United Companies Financial Corp. ........................ 211,000
-----------
5,204,937
-----------
FINANCE (SAVINGS & LOAN) - 0.32%
12,100 Greenpoint Financial Corp. .............................. 323,675
-----------
FOOD PROCESSING - 0.59%
4,500 ConAgra, Inc. ........................................... 185,625
11,700 Hudson Foods, Inc. ...................................... 201,825
5,966 Lancaster Colony Corp. .................................. 222,233
-----------
609,683
-----------
FUNERAL SERVICES - 0.61%
14,200 Service Corp. International.............................. 624,800
-----------
HOTELS/MOTELS - 0.92%
4,600 Hospitality Franchise Systems, Inc.(a)................... 376,050
20,900 La Quinta Inns, Inc. .................................... 572,137
-----------
948,187
-----------
INSURANCE (LIFE & HEALTH) - 0.67%
2,200 Conseco, Inc. ........................................... 137,775
10,000 First Colony Corp. ...................................... 253,750
5,500 Lincoln National Corp. .................................. 295,625
-----------
687,150
-----------
</TABLE>
FS-46
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
INSURANCE (MULTI-LINE PROPERTY) - 1.50%
13,000 Ace, Ltd. ............................................... $ 516,750
4,500 CIGNA Corp. ............................................. 464,625
1,100 General Re Corp. ........................................ 170,500
4,500 Mid Ocean Ltd. .......................................... 167,062
9,400 Prudential Reinsurance Holdings, Inc. ................... 219,725
-----------
1,538,662
-----------
LEISURE & RECREATION - 1.39%
24,000 Brunswick Corp. ......................................... 576,000
19,000 Carnival Cruise Lines, Inc. - Class A.................... 463,125
4,500 Coleman Company, Inc. (The)(a)........................... 158,063
7,400 Mattel, Inc. ............................................ 227,550
-----------
1,424,738
-----------
MACHINERY (HEAVY) - 0.27%
8,000 Deere & Co. ............................................. 282,000
-----------
MACHINERY (MISCELLANEOUS) - 1.45%
30,000 American Standard Companies(a)........................... 840,000
12,400 Thermo Electron Corp.(a)................................. 644,800
-----------
1,484,800
-----------
MEDICAL (DRUGS) - 8.96%
35,000 Abbott Laboratories...................................... 1,461,251
7,500 American Home Products Corp. ............................ 727,500
10,000 AmeriSource Health Corp.(a).............................. 330,000
9,000 Cardinal Health, Inc. ................................... 492,750
1,200 Ciba-Geigy AG-ADR........................................ 1,055,916
5,000 Johnson & Johnson........................................ 428,125
8,100 Merck & Co., Inc. ....................................... 532,575
12,800 Mylan Laboratories, Inc. ................................ 300,800
6,800 Pfizer Inc. ............................................. 428,400
26,000 Pharmacia & Upjohn, Inc. ................................ 1,007,500
1,600 Roussel Uclaf-ADR........................................ 271,186
24,700 Schering-Plough Corp. ................................... 1,352,325
12,000 Teva Pharmaceutical Industries Ltd.-ADR.................. 556,500
5,000 Watson Pharmaceuticals, Inc.(a).......................... 245,000
-----------
9,189,828
-----------
MEDICAL (INSTRUMENTS/PRODUCTS) - 2.27%
11,000 Baxter International Inc. ............................... 460,625
3,600 Becton, Dickinson & Co. ................................. 270,000
11,000 Biomet, Inc.(a).......................................... 196,625
5,400 Boston Scientific Corp.(a)............................... 264,600
8,400 Heart Technology, Inc.(a)................................ 276,150
4,000 Medtronic, Inc. ......................................... 223,500
13,000 St. Jude Medical, Inc.(a)................................ 559,000
1,500 Stryker Corp. ........................................... 78,750
-----------
2,329,250
-----------
</TABLE>
FS-47
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
MEDICAL (PATIENT SERVICES) - 3.33%
12,000 Foundation Health Corp.(a)............................... $ 516,000
8,850 Health Management Associates, Inc.(a).................... 231,206
17,400 Healthsource, Inc.(a).................................... 626,400
38,300 Healthsouth Corp.(a)..................................... 1,115,487
3,400 Lincare Holdings, Inc.(a)................................ 85,000
15,000 Sybron International Corp.(a)............................ 356,250
14,900 Vencor, Inc.(a).......................................... 484,250
-----------
3,414,593
-----------
OFFICE AUTOMATION - 0.57%
2,800 Danka Business Systems PLC-ADR........................... 103,600
3,500 Xerox Corp. ............................................. 479,500
-----------
583,100
-----------
OFFICE PRODUCTS - 0.51%
5,000 Avery Dennison Corp. .................................... 250,625
7,000 Reynolds & Reynolds Co. - Class A........................ 272,125
-----------
522,750
-----------
OIL & GAS SERVICES - 0.44%
10,100 Sonat Offshore Drilling Inc. ............................ 451,975
-----------
OIL EQUIPMENT & SUPPLIES - 0.30%
6,000 Halliburton Co. ......................................... 303,750
-----------
RESTAURANTS -- 0.64%
12,000 Applebee's International, Inc. .......................... 273,000
8,000 Outback Steakhouse, Inc.(a).............................. 287,000
4,700 Wendy's International, Inc. ............................. 99,875
-----------
659,875
-----------
RETAIL (FOOD & DRUGS) - 1.53%
13,700 Hannaford Bros. Co. ..................................... 337,362
12,300 Kroger Co.(a)............................................ 461,250
14,900 Safeway Inc.(a).......................................... 767,350
-----------
1,565,962
-----------
RETAIL (STORES) - 3.81%
9,600 AutoZone, Inc. (a)....................................... 277,200
9,000 Circuit City Stores, Inc. ............................... 248,625
19,000 Consolidated Stores Corp.(a)............................. 413,250
3,000 Fila Holding S.p.A. ..................................... 136,500
6,000 Gap, Inc. (The).......................................... 252,000
30,000 Intimate Brands, Inc. ................................... 450,000
16,000 Office Depot, Inc.(a).................................... 316,000
30,000 Price/Costco, Inc.(a).................................... 457,500
6,500 Sears Roebuck & Co. ..................................... 253,500
5,850 Staples, Inc.(a)......................................... 142,593
4,700 Tandy Corp. ............................................. 195,050
11,900 Viking Office Products Inc.(a)........................... 553,350
11,600 Waban Inc.(a)............................................ 217,500
-----------
3,913,068
-----------
SCIENTIFIC INSTRUMENTS - 0.79%
17,000 Varian Associates, Inc. ................................. 811,750
-----------
</TABLE>
FS-48
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
SEMICONDUCTORS - 8.24%
7,500 Altera Corp.(a)......................................... $ 373,125
18,800 Analog Devices, Inc.(a)................................. 665,050
25,000 Applied Materials, Inc.(a).............................. 984,375
30,000 Atmel Corp.(a).......................................... 671,250
19,900 Cypress Semiconductor Corp.(a).......................... 253,725
7,100 Integrated Device Technology, Inc.(a)................... 91,413
7,300 Intel Corp. ............................................ 414,275
18,000 KLA Instruments Corp.(a)................................ 469,125
25,000 LAM Research Corp.(a)................................... 1,143,750
12,000 Linear Technology Corp. ................................ 471,000
6,600 LSI Logic Corp.(a)...................................... 216,150
4,800 Novellus Systems, Inc.(a)............................... 259,200
15,500 SGS Thompson Microelectronics N.V.-New York Shares-
ADR(a)................................................. 623,875
10,500 Solectron Corp.(a)...................................... 463,312
7,000 Texas Instruments Inc. ................................. 362,250
26,470 Vishay Intertechnology, Inc.(a)......................... 833,805
9,000 VLSI Technology, Inc.(a)................................ 163,125
-----------
8,458,805
-----------
SHOES & RELATED APPAREL - 0.68%
10,000 Nike, Inc. - Class B.................................... 696,250
-----------
TELECOMMUNICATIONS - 4.34%
15,000 A T & T Corp............................................ 971,250
9,000 Glenayre Technologies, Inc.(a).......................... 560,250
13,900 Northern Telcom LTD..................................... 597,700
12,500 Sprint Corp............................................. 498,437
7,000 Telecomunicacoes Brasileiras S.A. - Telebras-ADR........ 331,625
52,000 Telefonaktiebolaget L.M. Ericsson-ADR................... 1,014,000
13,000 Tellabs, Inc.(a)........................................ 481,000
-----------
4,454,262
-----------
TOBACCO - 1.90%
21,500 Philip Morris Companies, Inc. .......................... 1,945,750
-----------
TRANSPORTATION (MISCELLANEOUS) - 0.23%
8,000 Stolt-Nielsen S.A....................................... 231,000
-----------
Total Common Stocks................................... 82,522,707
-----------
CONVERTIBLE CORPORATE BONDS - 0.60%
COMPUTER NETWORKING - 0.19%
125,000 3Com Corp., Sub. Notes, 10.25%, 11/01/01................ 200,625
-----------
OFFICE AUTOMATION - 0.41%
300,000 Danka Business Systems PLC-ADR, 6.75%, 04/01/02......... 419,250
-----------
Total Convertible Corporate Bonds .................... 619,875
-----------
CONVERTIBLE PREFERRED STOCK - 0.17%
FINANCE (CONSUMER CREDIT) - 0.17%
2,600 SunAmerica Inc. - Series E, $3.10 Conv. Pfd............. 170,300
-----------
</TABLE>
FS-49
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL
AMOUNT MARKET VALUE
--------- ------------
U.S. TREASURY SECURITIES - 16.50%
U.S. Treasury Bills - 16.01%(b)
$ 3,000,000(c) 5.27%, 03/28/96.................................. $ 2,966,377
6,000,000(c) 5.38%, 04/04/96.................................. 5,925,630
710,000(c) 5.32%, 04/11/96.................................. 700,641
7,000,000 5.22%, 06/27/96.................................. 6,833,615
------------
16,426,263
------------
U.S. Treasury Notes - 0.49%
500,000 4.625%, 02/29/96................................. 499,760
------------
Total U.S. Treasury Securities................... 16,926,023
------------
REPURCHASE AGREEMENT - 2.19%(d)
Daiwa Securities America, Inc.
2,245,485 5.92%, 01/02/96(e)............................... 2,245,485
------------
TOTAL INVESTMENTS - 99.89%....................... 102,484,390
OTHER ASSETS LESS LIABILITIES - 0.11%............ 115,722
------------
NET ASSETS -- 100.00%............................ $102,600,112
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis.
In such cases the interest rate shown represents the
rate of discount paid or received at the time of
purchase by the Fund.
(c) A portion of the principal balance was pledged as
collateral to cover margin requirements for open
futures contracts. See Note 6.
(d) Collateral on repurchase agreements, including the
Fund's pro-rata interest in joint repurchase
agreements, is taken into possession by the Fund upon
entering into the repurchase agreements. The
collateral is marked to market daily to ensure its
market value as being 102 percent of the sales price
of the repurchase agreement. The investments in some
repurchase agreements are through participation in
joint accounts with other mutual funds managed by the
investment advisor.
(e) Joint repurchase agreement entered into on 12/29/95
with a maturing value of $646,679,181. Collateralized
by $537,995,000 U.S. Treasury obligations, 7.875% to
11.25% due 11/15/07 to 02/15/15.
INVESTMENT ABBREVIATIONS:
ADR-American Depositary Receipts
Conv.-Convertible
Pfd.-Preferred
Sub.-Subordinated
See Notes to Financial Statements.
</TABLE>
FS-50
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GROWTH ASSETS:
FUND
STATEMENT OF Investments, at market value (cost $92,358,116)................... $102,484,390
ASSETS AND Foreign currencies, at market value (cost $641,265)............... 648,559
LIABILITIES Receivables for:
December 31, 1995 Capital stock sold.............................................. 88,795
Investments sold................................................ 683,945
Dividends and interest.......................................... 137,105
Variation margin................................................ 19,250
Organizational costs, net......................................... 6,749
Investment for deferred compensation plan......................... 7,898
Other assets...................................................... 525
------------
Total assets.................................................. 104,077,216
------------
LIABILITIES:
Payables for:
Investments purchased........................................... 1,387,014
Deferred compensation plan...................................... 7,898
Accrued advisory fees............................................. 55,433
Accrued directors' fees........................................... 1,660
Accrued administrative services fees.............................. 2,845
Accrued operating expenses........................................ 22,254
------------
Total liabilities............................................. 1,477,104
------------
Net assets applicable to shares outstanding....................... $102,600,112
============
Capital shares, $.001 par value per share:
Authorized...................................................... 250,000,000
============
Outstanding..................................................... 7,107,114
============
Net asset value, offering and redemption price per share.......... $14.44
======
See Notes to Financial Statements.
</TABLE>
FS-51
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GROWTH INVESTMENT INCOME:
FUND
STATEMENT OF Dividends...................................................... $ 564,913
OPERATIONS Interest....................................................... 635,065
For the eleven months ended -----------
December 31, 1995 Total investment income....................................... 1,199,978
-----------
EXPENSES:
Advisory fees.................................................. 434,620
Custodian fees................................................. 49,398
Professional fees.............................................. 33,773
Administrative services fees................................... 32,425
Directors' fees and expenses................................... 5,595
Organizational costs........................................... 2,651
Other.......................................................... 4,081
-----------
Total expenses................................................ 562,543
-----------
Net investment income............................................ 637,435
-----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities.......................................... 7,894,383
Foreign currency transactions.................................. 3,644
Futures contracts.............................................. 1,622,546
Options contracts.............................................. (9,468)
-----------
9,511,105
-----------
Unrealized appreciation (depreciation) of:
Investment securities.......................................... 8,377,556
Foreign currencies............................................. 4,245
Futures contracts.............................................. (18,501)
Options contracts.............................................. (5,395)
-----------
8,357,905
-----------
Net gain on investment securities, foreign currencies, futures
and options contracts........................................... 17,869,010
-----------
Net increase in net assets resulting from operations............. $18,506,445
===========
</TABLE>
<TABLE>
DECEMBER 31, JANUARY 31,
1995 1995
AIM V.I. GROWTH ------------ -----------
FUND <S> <C> <C>
STATEMENT OPERATIONS:
OF CHANGES
IN NET ASSETS Net investment income............................. $ 637,435 $ 251,660
For the eleven months ended Net realized gain (loss) from investment
December 31, 1995 and for the securities, foreign currency transactions,
year ended January 31, 1995 futures and options contracts.................... 9,511,105 (1,983,553)
Net unrealized appreciation (depreciation) of
investment securities, futures and options
contracts........................................ 8,357,905 (134,010)
------------ -----------
Net increase (decrease) in net assets resulting
from operations................................. 18,506,445 (1,865,903)
Net increase from capital stock transactions...... 38,645,259 22,469,536
Distributions to shareholders from net investment
income........................................... (48,608) (221,516)
------------ -----------
Net increase in net assets....................... 57,103,096 20,382,117
NET ASSETS:
Beginning of period............................... 45,497,016 25,114,899
------------ -----------
End of period..................................... $102,600,112 $45,497,016
============ ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)........ $ 84,619,787 $45,974,528
Undistributed net investment income............... 628,628 39,801
Undistributed net realized gain (loss) from
investment securities, foreign currency
transactions, futures and options contracts ..... 7,067,210 (2,443,895)
Unrealized appreciation of investment securities,
futures and options contracts.................... 10,284,487 1,926,582
------------ -----------
$102,600,112 $45,497,016
============ ===========
See Notes to Financial Statements.
</TABLE>
FS-52
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. GROWTH NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
NOTES TO organized on January 22, 1993, and is registered under the Investment Company
FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
STATEMENTS investment company consisting of nine portfolios. Matters affecting each
December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Effective December 31, 1995, the Company's fiscal year end was
changed from January 31 to December 31. Information presented in these
financial statements pertains only to the AIM V.I. Growth Fund (the "Fund").
The Fund's investment objective is to seek growth of capital principally
through investment in common stocks of seasoned and better capitalized
companies considered by AIM to have strong earnings momentum. Currently, shares
of the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Security Valuations - Equity securities, including warrants, that are listed
on a national securities exchange or part of the NASDAQ National Market
System are valued at the last reported sales price or, in the case of over-
the-counter securities or if there has been no sale that day, at the mean
between the closing bid and asked prices on that day. Securities traded in
the over-the-counter market, except (i) securities for which representative
exchange prices are available, and (ii) securities reported in the NASDAQ
National Market System, are valued at the mean between representative last
bid and asked prices obtained from an electronic quotation reporting system,
if such prices are available, or from established market makers. If no mean
is available, as is the case in some foreign market, the closing bid will be
used absent a last sales price. Exchange listed convertible debt is valued
at the mean between the closing bid and asked prices obtained from a broker-
dealer. Short-term investments with remaining maturities of up to and
including 60 days are valued at amortized cost which approximates market
value. Short-term securities that mature in more than 60 days are valued at
current market quotations. Securities for which market quotations either are
not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith by
or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Realized gains or losses from securities transactions are
recorded on the identified cost basis. On December 31, 1995, undistributed
net investment income was increased and undistributed net realized gains
reduced by $3,644 in order to comply with the requirements of the American
Institute of Certified Public Accountants Statement of Position 93-2. Net
assets of the Fund were unaffected by the reclassification discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and capital
gains to its shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
D. Organizational Costs - Organizational costs of $14,461 are being amortized
over five years.
E. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from,
</TABLE>
FS-53
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
or cost of, the closing transaction and the Fund's basis in the contract.
Risks include the possibility of an illiquid market and the change in the
value of the contracts may not correlate with changes in the value of the
securities being hedged.
F. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last
sale price, or in the absence of a sale, the mean between the last bid and
asked prices on that day. If a written call option expires on the stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or a loss if the closing purchase transaction
exceeds the premium received when the option was written) without regard to
any unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written. The Fund will
not write a covered call option if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 5% of the net assets of the
Fund.
G. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
H. Foreign Currency Contracts - A forward currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between
currencies. The Fund may also enter into a forward contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts or if the value of the foreign currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million. This agreement
requires AIM to reduce its fee or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $32,425
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
</TABLE>
FS-54
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S>
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $2,229 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the eleven months ended
December 31, 1995 was $108,571,363 and $77,394,812, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1995 is as follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities......... $12,238,608
Aggregate unrealized (depreciation) of investment securities....... (2,339,385)
-----------
Net unrealized appreciation of investment securities............... $ 9,899,223
===========
</TABLE>
<TABLE>
<C> <S>
Cost of investments for tax purposes is $92,585,167.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months ended December
31, 1995 and the year ended January 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
---------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold........................... 3,110,541 $41,750,413 2,275,155 $24,585,827
Issued as reinvestment of
distributions................. 3,426 48,608 21,037 221,516
Reacquired..................... (255,480) (3,153,762) (215,349) (2,337,807)
--------- ----------- --------- -----------
2,858,487 $38,645,259 2,080,843 $22,469,536
========= =========== ========= ===========
</TABLE>
<TABLE>
<C> <S>
NOTE 6 - OPEN FUTURES CONTRACTS
On December 31, 1995, $612,000 principal amount of U.S. Treasury Bills were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts at December 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Contract No. of Contracts/Month/Commitment Appreciation
-------- --------------------------------- ------------
<S> <C> <C>
S&P 500 index.................... 55 contracts/March 96/Buy $153,968
</TABLE>
<TABLE>
<C> <S>
NOTE 7 - OPEN COVERED CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the eleven months ended December
31, 1995 are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
Options Contracts
-------------------------
Number of Premiums
Contracts Received
---------- ------------
<S> <C> <C>
Beginning of period......................................... 66 $ 9,120
Written..................................................... 45 8,866
Exercised................................................... (33) (5,079)
Expired..................................................... (33) (4,041)
Closed...................................................... (45) (8,866)
--- -------
End of period............................................... 0 $ 0
=== =======
</TABLE>
FS-55
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding of
the Fund during the eleven months ended December 31, 1995, the year ended
January 31, 1995 and the period May 5, 1993 (date operations commenced) through
January 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
January 31,
December 31, -----------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period...... $ 10.71 $ 11.59 $ 10.00
-------- ------- -------
Income from investment operations:
Net investment income................... 0.09 0.06 0.02
Net gains (losses) on securities (both
realized and unrealized)............... 3.65 (0.88) 1.59
-------- ------- -------
Total from investment operations....... 3.74 (0.82) 1.61
-------- ------- -------
Less distributions:
Dividends from net investment income.... (0.01) (0.06) (0.02)
-------- ------- -------
Net asset value, end of period............ $ 14.44 $ 10.71 $ 11.59
======== ======= =======
Total return.............................. 34.89%(a) (7.11)% 16.07%(a)
======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).. $102,600 $45,497 $25,115
======== ======= =======
Ratio of expenses to average net assets... 0.84%(b) 0.95% 0.85%(c)
======== ======= =======
Ratio of net investment income to average
net assets............................... 0.95%(b) 0.71% 0.51%(c)
======== ======= =======
Portfolio turnover rate................... 125% 179% 99%
======== ======= =======
------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net assets
of $73,070,671.
(c) Ratios are annualized and based on average net assets
of $9,997,693. Annualized ratios of expenses and net
investment income (loss) to average net assets prior
to waiver of advisory fees are 1.50% and (0.14)%,
respectively.
</TABLE>
FS-56
AIM V.I. GROWTH FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth and Income Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1995, the related statement of operations for the eleven month period then
ended and the statement of changes in net assets and financial highlights for
the eleven month period then ended and the period May 2, 1994 (commencement of
operations) through January 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. Where
brokers did not reply to our confirmation requests, we carried out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth and Income Fund, as of December 31, 1995, the results of its
operations for the eleven month period then ended and the changes in its net
assets and the financial highlights for the eleven month period then ended and
the period May 2, 1994 through January 31, 1995, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-57
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GROWTH AND MARKET
INCOME FUND SHARES VALUE
SCHEDULE OF ------ ------
INVESTMENTS
December 31, 1995 COMMON STOCKS - 72.42%
ADVERTISING/BROADCASTING - 0.50%
5,000 CKS Group, Inc.(a)....................................... $ 195,000
-----------
AEROSPACE/DEFENSE - 1.43%
2,000 Boeing Co. (The)......................................... 156,750
3,000 Rockwell International Corp. ............................ 158,625
2,500 United Technologies Corp. ............................... 237,187
-----------
552,562
-----------
AUTOMOBILE (MANUFACTURERS) - 0.69%
3,000 Chrysler Corp. .......................................... 166,125
3,400 Ford Motor Co. .......................................... 98,600
-----------
264,725
-----------
BANKING - 1.09%
4,000 Bank of Boston Corp. .................................... 185,000
3,000 Fleet Financial Group, Inc. ............................. 122,250
3,400 Norwest Bank Corp. ...................................... 112,200
-----------
419,450
-----------
BANKING (MONEY CENTER) - 2.18%
3,000 BankAmerica Corp. ....................................... 194,250
3,000 Chemical Banking Corp. .................................. 176,250
7,000 Citicorp................................................. 470,750
-----------
841,250
-----------
BEVERAGES - 0.87%
6,000 PepsiCo Inc. ............................................ 335,250
-----------
BUILDING MATERIALS - 0.74%
2,800 Black & Decker Corp. (The)............................... 98,700
6,000 Masco Corp. ............................................. 188,250
-----------
286,950
-----------
BUSINESS SERVICES - 0.92%
3,000 Diebold, Inc. ........................................... 166,125
8,800 Equifax, Inc. ........................................... 188,100
-----------
354,225
-----------
CHEMICALS (SPECIALTY) - 0.53%
5,000 IMC Global, Inc. ........................................ 204,375
-----------
COMPUTER MAINFRAMES - 0.47%
2,000 International Business Machines Corp. ................... 183,500
-----------
COMPUTER MINI/PCS - 2.60%
5,500 COMPAQ Computer Corp.(a)................................. 264,000
5,000 Dell Computer Corp.(a)................................... 173,125
4,600 Hewlett-Packard Co. ..................................... 385,250
4,000 Sun Microsystems, Inc.(a)................................ 182,500
-----------
1,004,875
-----------
COMPUTER NETWORKING - 2.32%
2,400 Cabletron Systems, Inc.(a)............................... 194,400
4,000 Cisco Systems, Inc.(a)................................... 298,500
8,000 ECI Telecommunications Ltd. ............................. 182,500
4,000 Harris Corp. ............................................ 218,500
-----------
893,900
-----------
</TABLE>
FS-58
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
COMPUTER PERIPHERALS - 1.24%
2,000 Adaptec, Inc.(a)......................................... $ 82,000
5,000 Oracle Systems Corp.(a).................................. 211,875
2,000 Seagate Technology Inc.(a)............................... 95,000
1,000 U.S. Robotics Corp.(a)................................... 87,750
-----------
476,625
-----------
COMPUTER SOFTWARE/SERVICES - 2.52%
2,500 BMC Software, Inc.(a).................................... 106,875
6,900 Computer Associates International, Inc. ................. 392,437
2,000 Microsoft Corp.(a)....................................... 175,500
3,600 Shared Medical Systems Corp. ............................ 195,750
4,400 SoftKey International, Inc.(a)........................... 101,750
-----------
972,312
-----------
CONGLOMERATES - 1.10%
2,500 Allied-Signal Inc. ...................................... 118,750
3,500 Corning, Inc. ........................................... 112,000
6,500 Dial Corp. .............................................. 192,562
-----------
423,312
-----------
COSMETICS & TOILETRIES - 2.45%
3,400 Colgate-Palmolive Co. ................................... 238,850
3,000 Procter & Gamble Co. .................................... 249,000
3,500 Tambrands Inc. .......................................... 167,125
3,000 Warner-Lambert Co. ...................................... 291,375
-----------
946,350
-----------
ELECTRIC POWER - 2.59%
3,000 Baltimore Gas & Electric Co. ............................ 85,500
2,500 Carolina Power & Light Co. .............................. 86,250
2,000 Duke Power Co. .......................................... 94,750
2,200 FPL Group, Inc. ......................................... 102,025
3,500 General Public Utilities Corp. .......................... 119,000
4,000 Houston Industries, Inc. ................................ 97,000
2,000 Northern States Power Co. ............................... 98,250
4,000 NYNEX Corp. ............................................. 216,000
4,000 Southern Co. ............................................ 98,500
-----------
997,275
-----------
ELECTRONIC COMPONENTS/MISCELLANEOUS - 2.30%
3,000 AMP Inc. ................................................ 115,125
5,000 General Electric Co. .................................... 360,000
2,000 Honeywell, Inc. ......................................... 97,250
4,000 Parker-Hannifin Corp. ................................... 137,000
1,600 Tektronix, Inc. ......................................... 78,600
4,000 Teradyne, Inc.(a)........................................ 100,000
-----------
887,975
-----------
ELECTRONIC/DEFENSE - 0.79%
2,600 Loral Corp. ............................................. 91,975
3,000 Sundstrand Corp. ........................................ 211,125
-----------
303,100
-----------
ELECTRONIC/PC DISTRIBUTORS - 1.19%
3,000 Arrow Electronics, Inc.(a)............................... 129,375
5,000 Avnet, Inc. ............................................. 223,750
3,000 Wyle Electronics......................................... 105,375
-----------
458,500
-----------
</TABLE>
FS-59
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
FINANCE (ASSET MANAGEMENT) - 0.95%
4,000 Merrill Lynch & Co., Inc. ............................... $ 204,000
2,000 Morgan Stanley Group, Inc. .............................. 161,250
-----------
365,250
-----------
FINANCE (CONSUMER CREDIT) - 4.21%
3,500 American Express Co. .................................... 144,812
8,000 Countrywide Credit Industries, Inc. ..................... 174,000
2,200 Federal Home Loan Mortgage Corp. ........................ 183,700
2,000 Federal National Mortgage Association.................... 248,250
2,400 Firstar Corp. ........................................... 95,100
5,000 Green Tree Financial Corp. .............................. 131,875
5,000 Household International, Inc. ........................... 295,625
4,500 MBNA Corp. .............................................. 165,938
14,000 Mercury Finance Co. ..................................... 185,500
-----------
1,624,800
-----------
FOOD PROCESSING - 0.74%
3,500 Nabisco Holdings Corp. .................................. 114,187
5,000 Quaker Oats Co. ......................................... 172,500
-----------
286,687
-----------
INSURANCE (MULTI-LINE PROPERTY) - 3.04%
6,000 Aetna Life & Casualty Co. ............................... 415,500
5,000 Allstate Financial Corp. ................................ 205,625
3,500 CIGNA Corp. ............................................. 361,375
3,000 Travelers Group, Inc. ................................... 188,625
-----------
1,171,125
-----------
LEISURE & RECREATION - 0.28%
4,500 Carnival Cruise Lines, Inc. - Class A.................... 109,687
-----------
MACHINERY (HEAVY) - 0.24%
2,000 Case Corp. .............................................. 91,500
-----------
MEDICAL (DRUGS) - 7.53%
3,000 American Home Products Corp. ............................ 291,000
3,500 Glaxo Wellcome PLC-ADR................................... 98,875
4,000 Johnson & Johnson........................................ 342,500
4,000 Lilly (Eli) & Co. ....................................... 225,000
3,500 Merck & Co., Inc. ....................................... 230,125
4,000 Pfizer Inc. ............................................. 252,000
10,000 Pharmacia & Upjohn, Inc. ................................ 387,500
4,500 Rhone-Poulenc Rorer, Inc. ............................... 239,625
6,000 Schering-Plough Corp. ................................... 328,500
5,000 SmithKline Beecham PLC-ADR............................... 277,500
5,000 Teva Pharmaceuticals Industries Ltd.-ADR................. 231,875
-----------
2,904,500
-----------
MEDICAL (INSTRUMENTS/PRODUCTS) - 1.53%
9,000 Baxter International Inc. ............................... 376,875
5,000 St. Jude Medical Inc.(a)................................. 215,000
-----------
591,875
-----------
MEDICAL (PATIENT SERVICES) - 1.48%
2,500 Horizon Healthcare Corp.(a).............................. 63,125
6,000 Integrated Health Services, Inc.(a)...................... 150,000
3,500 U.S. Healthcare Corp. ................................... 162,750
3,000 United Healthcare Corp. ................................. 196,500
-----------
572,375
-----------
NATURAL GAS PIPELINE - 0.57%
5,000 Williams Companies, Inc. ................................ 219,375
-----------
</TABLE>
FS-60
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
OFFICE AUTOMATION - 1.42%
4,000 Xerox Corp. ............................................ $ 548,000
-----------
OFFICE PRODUCTS - 0.47%
4,000 Alco Standard Corp. .................................... 182,500
-----------
OIL & GAS SERVICES - 0.77%
1,500 Mapco, Inc. ............................................ 81,938
10,000 Occidental Petroleum Corp. ............................. 213,750
-----------
295,688
-----------
PAPER & FOREST PRODUCTS - 0.77%
5,000 Albany International Corp. - Class A.................... 90,625
2,500 Kimberly-Clark Corp. ................................... 206,876
-----------
297,501
-----------
REAL ESTATE INVESTMENT TRUSTS - 1.59%
6,000 Felcor Suite Hotels, Inc. .............................. 166,500
5,000 National Health Investors, Inc. ........................ 165,625
6,000 Patriot American Hospitality, Inc.(a)................... 154,500
5,000 Spieker Properties, Inc. ............................... 125,625
-----------
612,250
-----------
RESTAURANTS - 0.22%
4,000 Wendy's International, Inc. ............................ 85,000
-----------
RETAIL (FOOD & DRUGS) - 0.43%
3,200 Safeway Inc.(a)......................................... 164,800
-----------
RETAIL (STORES) - 1.88%
4,000 Dayton-Hudson Corp. .................................... 300,000
14,000 Intimate Brands, Inc.(a)................................ 210,000
5,500 Sears, Roebuck & Co. ................................... 214,500
-----------
724,500
-----------
SCIENTIFIC INSTRUMENTS - 0.56%
4,500 Varian Associates, Inc. ................................ 214,875
-----------
SEMICONDUCTORS - 3.95%
6,500 Applied Materials, Inc.(a).............................. 255,938
3,500 Intel Corp. ............................................ 198,626
4,000 Motorola Inc. .......................................... 228,000
4,000 SGS Thomson Microelectronics N.V.-New York Shares-
ADR(a)................................................. 161,000
11,000 Texas Instruments, Inc. ................................ 569,250
3,500 Vishay Intertechnology, Inc.(a)......................... 110,250
-----------
1,523,064
-----------
SHOES & RELATED APPAREL - 0.36%
2,000 NIKE, Inc. - Class B.................................... 139,250
-----------
TELECOMMUNICATIONS - 3.79%
8,000 A T & T Corp. .......................................... 518,000
4,000 Andrew Corp.(a)......................................... 153,000
18,000 Telefonaktiebolaget L.M. Ericsson-ADR................... 351,000
4,000 Tellabs, Inc.(a)........................................ 148,000
5,200 Westell Technologies, Inc.(a)........................... 130,650
4,600 Vodafone Group PLC-ADR.................................. 162,150
-----------
1,462,800
-----------
</TABLE>
FS-61
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
TELEPHONE - 3.38%
2,800 Ameritech Corp. ...................................... $ 165,200
5,700 BellSouth Corp. ...................................... 247,950
7,000 Cincinnati Bell, Inc. ................................ 243,250
7,000 GTE Corp. ............................................ 308,000
4,000 SBC Communications, Inc. ............................. 230,000
3,000 U S West Communications Group......................... 107,250
-----------
1,301,650
-----------
TEXTILES - 0.22%
3,000 Liz Claiborne, Inc. .................................. 83,250
-----------
TOBACCO - 3.52%
15,000 Philip Morris Companies Inc. ......................... 1,357,500
-----------
Total Common Stocks................................. 27,931,313
-----------
PRINCIPAL
AMOUNT
---------
CONVERTIBLE CORPORATE BONDS - 13.70%
AUTOMOBILE/TRUCKS PARTS & TIRES - 0.37%
$200,000 Exide Corp., Sr. Sub. Notes, 2.90%, 12/15/05(b)(c)
(Acquired 12/11/95; cost $144,658)................... 144,000
-----------
BUSINESS SERVICES - 0.60%
100,000 Career Horizons Inc., Conv. Bonds, 7.00%, 11/01/02(b)
(Acquired 11/27/95; cost $104,000)................... 112,000
100,000 Olsten Corp., Conv. Sub. Deb., 4.875%, 05/15/03....... 118,970
-----------
230,970
-----------
COMPUTER SOFTWARE/SERVICES - 1.83%
200,000 Automatic Data Processing, Conv. Liquid Yield Option
Notes, 5.25%, 02/20/12(c)............................ 95,500
200,000 Network Equipment Technology, Conv. Deb., 7.25%,
05/15/14............................................. 204,840
325,000 Silicon Graphics Inc., Conv. Sub. Deb., 4.15%,
11/02/13(b)(c) (Acquired 10/23/95 - 11/30/95;
cost $191,282)....................................... 167,336
100,000 SoftKey International, Inc., Sr. Conv. Notes, 5.50%,
11/01/00(b)(c) (Acquired 12/11/95;
cost $82,500)........................................ 75,500
75,000 Sterling Software Inc., Conv. Sub. Deb., 5.75%,
02/01/03............................................. 162,558
-----------
705,734
-----------
COMPUTER NETWORKING - 1.19%
200,000 Bay Networks, Inc., Conv. Sub. Deb., 5.25%,
05/15/03(b) (Acquired 10/23/95 - 11/14/95;
cost $226,750)....................................... 217,000
150,000 3Com Corp., Conv. Sub. Notes, 10.25%, 11/01/01(b)
(Acquired 11/14/95; cost $243,938)................... 240,750
-----------
457,750
-----------
COMPUTER PERIPHERALS - 0.39%
150,000 EMC Corp., Conv. Sub. Notes, 4.25%, 01/01/01.......... 151,500
-----------
ELECTRONIC COMPONENTS/MISCELLANEOUS - 1.19%
350,000 ADT Operations Inc., Conv. Sub. Liquid Yield Option
Notes,6.50%, 07/06/10(c)............................. 166,687
150,000 Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02(b)
(Acquired 11/21/95; cost $178,260)................... 174,750
100,000 Checkpoint Systems, Inc., Conv. Sub. Deb., 5.25%,
11/01/05(b) (Acquired 10/27/95; cost $100,750)....... 117,000
-----------
458,437
-----------
FINANCE (ASSET MANAGEMENT) - 0.42%
100,000 First Financial Management, Conv. Deb., 5.00%,
12/15/99............................................. 162,000
-----------
</TABLE>
FS-62
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
MACHINERY (MISCELLANEOUS) - 1.17%
$300,000 Thermo Electron Corp., Conv. Deb., 4.25%, 01/01/03(b)
(Acquired 11/28/95 - 11/29/95; cost $304,875)....... $ 328,500
50,000 Thermo Electron Corp., Conv. Deb., 4.625%,
08/01/97(b) (Acquired 10/23/95; cost $102,500)...... 120,895
-----------
449,395
-----------
MEDICAL (DRUGS) - 0.36%
125,000 ICN Pharmaceuticals, Inc., Conv. Sub. Notes, 8.50%,
11/15/99............................................ 139,688
-----------
MEDICAL (PATIENT SERVICES) - 1.33%
100,000 Healthsouth Rehabilitation Corp., Conv. Sub. Deb.,
5.00%, 04/01/01..................................... 161,630
200,000 Multicare Co., Conv. Sub. Deb., 7.00%, 03/15/03(b)
(Acquired 11/30/95; cost $207,000).................. 220,360
125,000 Prime Hospitality Corp., Conv. Sub. Notes, 7.00%,
04/15/02............................................ 130,625
-----------
512,615
-----------
OFFICE AUTOMATION - 0.72%
200,000 Danka Business Systems, Conv. Sub. Deb., 6.75%,
04/01/02............................................ 279,500
-----------
PUBLISHING - 0.36%
300,000 News America Holdings Inc., Conv. Liquid Yield Option
Notes, 5.50%, 03/11/13(c)........................... 138,751
-----------
RETAIL (STORES) - 0.84%
150,000 Federated Department Stores, Conv. Notes, 5.00%,
10/01/03............................................ 150,750
300,000 Office Depot Inc., Conv. Liquid Yield Option Notes,
4.00%, 11/01/08(c).................................. 172,500
-----------
323,250
-----------
SEMICONDUCTORS - 1.67%
100,000 LAM Research Corp., Conv. Sub. Deb., 6.00%, 05/01/03. 185,500
100,000 LSI Logic Corp., Conv. Sub. Notes, 5.50%, 03/15/01(b)
(Acquired 11/15/95 - 12/04/95; cost $375,691)....... 275,500
200,000 Solectron Corp., Conv. Liquid Yield Option Notes,
7.00%, 05/05/12(c).................................. 185,000
-----------
646,000
-----------
TELECOMMUNICATIONS - 0.85%
200,000 General Instrument Corp., Jr. Conv. Sub. Notes,
5.00%, 06/15/00..................................... 219,500
100,000 World Communications Corp., Conv. Sub. Notes, 5.00%,
08/15/03............................................ 106,500
-----------
326,000
-----------
TRANSPORTATION/MISCELLANEOUS - 0.41%
150,000 Telxon Corp., Conv. Deb., 5.75%, 01/01/03(b)
(Acquired 12/07/95; cost $150,000).................. 159,000
-----------
Total Convertible Corporate Bonds.................. 5,284,590
-----------
SHARES
------
CONVERTIBLE PREFERRED STOCKS - 5.88%
AUTOMOBILE (MANUFACTURERS) - 0.42%
2,200 General Motors Corp. - Class C, $3.25 Dep. Conv.
Pfd. ............................................... 161,150
-----------
CONGLOMERATES - 0.39%
3,000 Corning Delaware LP, $3.00 Conv. MIPS................ 151,125
-----------
ELECTRONIC COMPONENTS/MISCELLANEOUS - 0.52%
4,000 Elsag Bailey Process Automation N.V.-ADR - $2.75
Conv. TOPRS(b) (Acquired 12/14/95 - 12/15/95,
cost $200,050)...................................... 200,500
-----------
FINANCE (ASSET MANAGEMENT) - 0.39%
3,000 United Companies Finance LP - $2.97 Conv. Pfd.
PRIDES.............................................. 151,500
-----------
FINANCE (CONSUMER CREDIT) - 0.79%
1,500 Penncorp Financial Group - $3.375 Conv. Pfd. ........ 107,062
3,000 SunAmerica Inc. - Series E, $3.10 Dep. Conv. Pfd. ... 196,500
-----------
303,562
-----------
</TABLE>
FS-63
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
MARKET
SHARES VALUE
------ ------
FUNERAL SERVICES - 0.69%
3,600 SCI Financial LLC - Series A, $3.125 Conv. Pfd. ..... $ 266,400
-----------
INSURANCE (MULTI-LINE PROPERTY) - 0.21%
2,000 Allstate Inc. - $2.30 Conv. Pfd. .................... 82,000
-----------
LEISURE & RECREATION - 0.21%
6,000 Bally Entertainment Corp. - $0.89 Conv. Pfd. PRIDES.. 81,750
-----------
MEDICAL (PATIENT SERVICES) - 0.28%
4,000 FHP International Corp. - Series A, $1.25 Conv.
Pfd. ............................................... 106,500
-----------
OIL & GAS SERVICES - 0.50%
8,000 Enron Corp. - $1.359 Conv. Pfd. ACES................. 192,000
-----------
PUBLISHING - 0.28%
3,500 Time Warner Financing - $1.24 Conv. Pfd. PERCS....... 109,375
-----------
TELECOMMUNICATIONS - 0.50%
1,800 LCI International, Inc. - $1.25 Exch. Conv. Pfd. .... 96,300
2,000 MFS Communications - $2.68 Conv. Pfd. DECS........... 97,375
-----------
193,675
-----------
TRANSPORTATION/MISCELLANEOUS - 0.70%
5,000 Continental Air Finance Trust - $4.25 Conv. Pfd.
TOPRS(b) (Acquired 11/21/95 - 11/22/95;
cost $250,150)..................................... 268,125
-----------
Total Convertible Preferred Stocks................. 2,267,662
-----------
PRINCIPAL
AMOUNT
---------
U.S. TREASURY SECURITIES - 1.30%
U.S. TREASURY BILLS - 1.30%(d)
$ 500,000 5.365%, 01/11/96..................................... 499,765
-----------
REPURCHASE AGREEMENT - 7.17%(e)
2,765,865 Daiwa Securities America, Inc.(f)
5.92%, 01/02/96..................................... 2,765,865
-----------
TOTAL INVESTMENTS - 100.47%.......................... 38,749,195
LIABILITIES LESS OTHER ASSETS - (0.47)%.............. (181,983)
-----------
NET ASSETS - 100.00%................................. $38,567,212
===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of
Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been
determined in accordance with procedures established by the Board of Directors. The aggregate market
value of these securities at December 31, 1995 was $2,821,216, which represented 7.32% of the net assets.
(c) Zero coupon bond. The interest rate shown represents the rate of the original issue discount.
(d) U.S. Treasury bills are traded on a discount basis. In such cases the interest rate shown represents the
rate of discount paid or received at the time of purchase by the Fund.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase
agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The
collateral is marked to market daily to ensure its market value as being 102 percent of the sales price
of the repurchase agreement. The investments in some repurchase agreements are through participation in
joint accounts with other mutual funds managed by the investment advisor.
(f) Joint repurchase agreement entered into on 12/29/95 with a maturing value of $646,679,181. Collateralized
by $537,995,000 U.S. Treasury obligations, 7.875% to 11.25% due 11/15/07 to 02/15/15.
Abbreviations:
ACES - Automatic Common Exchangeable Securities MIPS - Monthly Income Preferred Securities
ADR - American Depositary Receipt Pfd. - Preferred
Conv. - Convertible PERCS - Preferred Equity Redemptive Cumulative Stock
Deb. - Debentures PRIDES - Preferred Redeemable Increased Dividend Equity
Securities
DECS - Dividend Enhanced Convertible Stock Sr. - Senior
Dep. - Depositary Sub. - Subordinated
Exch. - Exchangeable TOPRS - Trust Originated Preferred Securities
Jr. - Junior
See Notes to Financial Statements.
</TABLE>
FS-64
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GROWTH AND ASSETS:
INCOME FUND
STATEMENT OF Investments, at market value (cost $36,207,923).................... $38,749,195
ASSETS AND Receivables for:
LIABILITIES Investments sold................................................. 18,750
December 31, 1995 Capital stock sold............................................... 126,847
Dividends and interest........................................... 115,256
Investment for deferred compensation plan.......................... 5,206
Other assets....................................................... 46
-----------
Total assets................................................... 39,015,300
-----------
LIABILITIES:
Payables for:
Investments purchased............................................ 376,637
Deferred compensation plan....................................... 5,206
Accrued advisory fees.............................................. 46,017
Accrued administrative services fees............................... 2,762
Accrued directors' fees............................................ 1,569
Accrued operating expenses......................................... 15,897
-----------
Total liabilities.............................................. 448,088
-----------
Net assets applicable to shares outstanding........................ $38,567,212
===========
Capital shares, $.001 par value per share:
Authorized....................................................... 250,000,000
===========
Outstanding...................................................... 3,041,229
===========
Net asset value, offering and redemption price per share........... $12.68
======
See Notes to Financial Statements.
</TABLE>
FS-65
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. GROWTH AND INVESTMENT INCOME:
INCOME FUND
STATEMENT OF Dividends (net of $1,304 foreign withholding tax)............... $ 327,833
OPERATIONS Interest........................................................ 145,216
For the eleven months ended ----------
December 31, 1995 Total investment income........................................ 473,049
----------
EXPENSES:
Advisory fees................................................... 113,819
Custodian fees.................................................. 29,189
Administrative services fees.................................... 31,484
Directors' fees and expenses.................................... 5,245
Professional fees............................................... 21,265
Other........................................................... 3,478
----------
Total expenses................................................. 204,480
Less expenses assumed by advisor................................ (67,802)
----------
Net expenses................................................... 136,678
----------
Net investment income............................................. 336,371
----------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FUTURES CONTRACTS:
Net realized gain from:
Investment securities........................................... 1,365,916
Futures contracts............................................... 75,848
----------
1,441,764
----------
Unrealized appreciation of:
Investment securities........................................... 2,467,076
----------
Net gain on investment securities and futures contracts........... 3,908,840
----------
Net increase in net assets resulting from operations.............. $4,245,211
==========
AIM V.I. GROWTH AND DECEMBER 31, JANUARY 31,
INCOME FUND 1995 1995
STATEMENT OF CHANGES ------------ -----------
IN NET ASSETS OPERATIONS:
For the eleven months
ended December 31, 1995 Net investment income............................... $ 336,371 $ 62,491
and the period May 2, 1994 Net realized gain (loss) from investment securities
(date operations commenced) and futures contracts.............................. 1,441,764 (106,189)
through January 31, 1995 Net unrealized appreciation of investment securities
and futures contracts.............................. 2,467,076 74,196
----------- ----------
Net increase in net assets resulting from
operations........................................ 4,245,211 30,498
Net increase from capital stock transactions........ 28,382,638 7,412,315
Distributions to shareholders from net investment
income............................................. (325,888) (62,491)
Distributions in excess of net investment income.... -- (176)
Distributions from capital gains.................... (1,114,895) --
----------- ----------
Net increase in net assets......................... 31,187,066 7,380,146
NET ASSETS:
Beginning of period................................. 7,380,146 --
----------- ----------
End of period....................................... $38,567,212 $7,380,146
=========== ==========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in).......... $35,794,953 $7,412,315
Undistributed net investment income................. 10,307 (176)
Undistributed net realized gain (loss) from
investment securities and futures contracts ....... 220,680 (106,189)
Unrealized appreciation of investment securities and
futures contracts.................................. 2,541,272 74,196
----------- ----------
$38,567,212 $7,380,146
=========== ==========
See Notes to Financial Statements.
</TABLE>
FS-66
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. GROWTH AND NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
INCOME FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
NOTES TO organized on January 22, 1993, and is registered under the Investment Company
FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
STATEMENTS investment company consisting of nine portfolios. Matters affecting each
December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Effective December 31, 1995, the Company's fiscal year was changed
from January 31 to December 31. Information presented in these financial
statements pertains only to the AIM V.I. Growth and Income Fund (the "Fund").
The Fund's investment objective is to seek growth of capital, with current
income as a secondary objective. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Security Valuations - Equity securities, including warrants, that are listed
on a national securities exchange or part of the NASDAQ National Market
System are valued at the last reported sales price or if there has been no
sale that day, at the mean between the closing bid and asked prices on that
day. Securities traded in the over-the-counter market, except (i) securities
for which representative exchange prices are available, and (ii) securities
reported in the NASDAQ National Market System, are valued at the mean
between representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from
established market makers. Exchange listed convertible bonds are valued at
the mean between the closing bid and asked prices obtained from a broker-
dealer. Debt obligations that are issued or guaranteed by the U.S. Treasury
are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices,and may reflect appropriate factors such
as yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued at the
mean between last bid and asked prices based upon quotes furnished by
independent sources. Short-term investments with remaining maturities of up
to and including 60 days are valued at amortized cost which approximates
market value. Short-term securities that mature in more than 60 days are
valued at current market quotations. Securities for which market quotations
are not readily available are valued at fair value as determined in good
faith by, or under the authority of, the Board of Directors.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Realized gains or losses from securities transactions are
recorded on the identified cost basis.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and capital
gains to its shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
D. Stock Index Futures Contracts -- The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and the change in the value of the contracts may not correlate with
changes in the value of the securities being hedged.
</TABLE>
FS-67
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale. During the eleven months ended December 31,
1995, AIM waived advisory fees of $67,802 with respect to the Fund.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $31,484
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $2,379 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the eleven months ended
December 31, 1995 was $50,963,527 and $26,065,671, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1995 is as follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities.......... $3,260,575
Aggregate unrealized (depreciation) of investment securities........ (886,285)
----------
Net unrealized appreciation of investment securities................ $2,374,290
==========
Cost of investments for tax purposes is $36,374,905.
</TABLE>
<TABLE>
<C> <S>
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months ended December
31, 1995 and the period May 2, 1994 (date operations commenced) through January
31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
---------------------- -------------------
Shares Amount Shares Amount
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold.............................. 2,208,514 $27,189,904 777,143 $7,797,618
Issued as reinvestment of
distributions.................... 115,538 1,440,783 6,308 62,667
Reacquired........................ (22,290) (248,049) (43,984) (447,970)
--------- ----------- ------- ----------
2,301,762 $28,382,638 739,467 $7,412,315
========= =========== ======= ==========
</TABLE>
FS-68
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding of
the Fund during the eleven months ended December 31, 1995 and the period May 2,
1994 (date operations commenced) through January 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
December 31, January 31,
1995 1995
------------ -----------
<S> <C> <C>
Net asset value, beginning of period............ $ 9.98 $10.00
------- ------
Income from investment operations:
Net investment income......................... 0.14 0.11
Net gains (losses) on securities (both
realized and unrealized)..................... 3.11 (0.02)
------- ------
Total from investment operations............. 3.25 0.09
------- ------
Less distributions:
Dividends from net investment income.......... (0.14) (0.11)
Distributions from capital gains.............. (0.41) --
------- ------
Total distributions.......................... (0.55) (0.11)
------- ------
Net asset value, end of period.................. $ 12.68 $ 9.98
======= ======
Total return(a)................................. 32.65% 0.90%
======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........ $38,567 $7,380
======= ======
Ratio of expenses to average net assets......... 0.78%(b) 1.07%(c)(d)
======= ======
Ratio of net investment income to average net
assets......................................... 1.92%(b) 1.95%(c)(d)
======= ======
Portfolio turnover rate......................... 145% 96%
======= ======
</TABLE>
- ------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net assets of $19,135,889.
Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 1.17% and 1.53%, respectively.
(c) Annualized.
(d) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 1.72% and 1.30%, respectively.
FS-69
AIM V.I. GROWTH AND INCOME FUND
<PAGE>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and
liabilities of AIM V.I. International Equity Fund, a
series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of
investments as of December 31, 1995, the related
statement of operations for the eleven month period then
ended, the statement of changes in net assets for the
eleven month period then ended and the year ended January
31, 1995 and the financial highlights for the eleven
month period then ended, the year ended January 31, 1995
and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amount and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM V.I.
International Equity Fund, as of December 31, 1995, the
results of its operations for the eleven month period
then ended, the changes in its net assets for the eleven
month period then ended and the year ended January 31,
1995 and the financial highlights for the eleven month
period then ended, the year ended January 31, 1995 and
the period May 5, 1993 through January 31, 1994, in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
FS-70
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S> <C>
AIM V.I. INTERNATIONAL MARKET
EQUITY FUND SCHEDULE SHARES VALUE
OF INVESTMENTS --------- -----------
December 31, 1995 FOREIGN STOCKS & OTHER EQUITY INTERESTS - 89.34%
ARGENTINA - 0.33%
13,200 Buenos Aires Embotellado S.A. - Class B - ADR(a)
(Beverages - Soft Drinks)............................. $ 272,250
-----------
AUSTRALIA - 5.06%
127,792 Australia & New Zealand Banking Group Ltd. (Banking).. 599,352
41,831 Broken Hill Proprietary Co. Ltd. (Conglomerates)...... 590,745
52,700 National Australia Bank Ltd. (Banking)................ 473,964
30,700 News Corp. Ltd. (The) - ADR (Publishing).............. 590,975
129,177 QBE Insurance Group Ltd. (Insurance - Broker)......... 597,205
278,300 QNI Ltd. (Metals - Miscellaneous)..................... 587,462
112,600 Western Mining Corp. Holding Ltd. (Metals -
Miscellaneous)....................................... 723,104
-----------
4,162,807
-----------
AUSTRIA - 1.16%
4,700 Oesterreichische Elektrizitaetswirtschafts AG
(Verbundgesellschaft) - Class A (Electric Services).. 282,601
6,100 OMV AG (Oil & Gas - Exploration & Production)......... 529,592
700 Wienerberger Baustoffindustrie AG (Building
Materials)............................................ 138,910
-----------
951,103
-----------
BRAZIL - 0.81%
14,000 Telecomunicacoes Brasileiras S/A - Telebras ADR
(Telecommunications).................................. 663,250
-----------
CANADA - 2.33%
54,600 Bombardier, Inc. - Class B (Transportation -
Miscellaneous)....................................... 719,736
26,600 Imasco, Ltd. (Tobacco)................................ 516,222
9,700 Newbridge Networks Corp. (Computer Networking)........ 401,338
6,500 Northern Telecom Ltd. (Telecommunications)............ 279,500
-----------
1,916,796
-----------
CHILE - 0.66%
6,600 Compania de Telefonos de Chile S.A. - ADR
(Telecommunications).................................. 546,975
-----------
DENMARK - 1.33%
7,800 Danisco A/S (Food Processing)......................... 376,480
1,900 Danske Traelastkompagni (Building Materials).......... 128,320
4,300 Novo Nordisk A/S - Class B (Medical - Drugs).......... 588,563
-----------
1,093,363
-----------
FRANCE - 7.55%
2,400 Accor S.A. (Hotels/Motels)............................ 310,720
1,000 Carrefour Supermarche (Retail - Stores)............... 606,698
2,150 Castorama Dubois (Retail - Stores).................... 352,115
2,000 Christian Dior S.A. (Consumer Non-Durables)........... 215,644
6,300 Compagnie Francaise de Petroleum Total S.A. - Class B
(Oil & Gas - Exploration & Production)............... 425,189
3,050 Docks de France, S.A. (Retail - Food & Drug).......... 463,385
2,275 Essilor International - Compagnie Generale d'Optique
(Medical Instruments/Products)....................... 434,838
1,900 LVMH Moet Hennessy Louis Vuitton (Beverages -
Alcoholic)........................................... 395,753
3,560 Pinault - Printemps, S.A. (Retail - Food & Drug)...... 710,255
2,050 Promodes S.A. (Retail - Food & Drug).................. 481,835
1,000 Rexel S.A. (Transportation - Miscellaneous)........... 168,879
3,390 Roussel - Uclaf (Medical - Drugs)..................... 574,577
8,100 SGS - Thomson Microelectronics N.V.(a) (Electronic
Components/Miscellaneous)............................. 326,025
1,721 Sidel S.A. (Machinery - Miscellaneous)................ 536,296
700 Sodexho S.A. (Business Services)...................... 205,840
-----------
6,208,049
-----------
</TABLE>
FS-71
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
GERMANY - 3.12%
8,000 Adidas A.G.(a) (Shoes & Related Apparel).............. $ 423,283
650 Altana A.G. (Medical - Drugs)......................... 378,355
880 Gehe A.G. (Medical - Drugs)........................... 447,821
1,180 Mannesmann A.G. (Machinery - Miscellaneous)........... 375,675
370 Siemens A.G. (Electric Services)...................... 202,475
17,500 Veba A.G. (Electric Services)......................... 742,941
-----------
2,570,550
-----------
HONG KONG - 5.37%
90,000 Cheung Kong Holdings Ltd. (Real Estate)............... 548,205
653,368 First Pacific Co. (Conglomerates)..................... 726,670
54,000 Hang Seng Bank Ltd. (Banking)......................... 483,610
40,000 HSBC Holdings PLC (Banking)........................... 605,237
134,000 Hutchison Whampoa Ltd. (Conglomerates)................ 816,217
128,400 New World Infrastructure(a) (Conglomerates)........... 245,757
750,000 Shanghai Petrochemical Co., Ltd. (Chemicals).......... 215,810
66,600 Sun Hung Kai Properties Ltd. (Real Estate)............ 544,773
125,000 Vatronix International (Electronic
Components/Miscellaneous)............................. 231,975
-----------
4,418,254
-----------
INDIA - 0.12%
7,000 Reliance Industries Ltd.(a) (Conglomerates)........... 98,000
-----------
INDONESIA - 2.76%
259,000 PT Astra International (Automobile/Trucks Parts &
Tires)................................................ 538,050
165,000 PT Bank International Indonesia (Banking)............. 546,632
21,500 PT Gudang Garam (Tobacco)............................. 224,732
92,500 PT Hanjaya Mandala Sampoerna (Tobacco)................ 962,825
-----------
2,272,239
-----------
IRELAND - 0.47%
8,000 Elan Corp. PLC - ADR(a) (Medical - Drugs)............. 389,000
-----------
ISRAEL - 0.43%
7,600 Teva Pharmaceutical Industries Ltd. - ADR (Medical -
Drugs)............................................... 352,450
-----------
ITALY - 2.00%
525,000 Olivetti Group(a) (Computer Software/Services)........ 424,462
503,800 Telecom Italia Mobile S.p.A.(a) (Telecommunications).. 885,070
216,800 Telecom Italia S.p.A. (Telecommunications)............ 336,232
-----------
1,645,764
-----------
JAPAN - 17.84%
10,000 Advantest Corp. (Electronic Components/Miscellaneous). 513,318
14,000 Alpine Electronics (Electronic
Components/Miscellaneous)............................. 235,932
26,000 Bridgestone Corp. (Automobile/Trucks Parts & Tires)... 412,978
35,000 Canon, Inc. (Office Products)......................... 633,899
38 DDI Corp. (Telecommunications)........................ 294,430
9,900 Fanuc Ltd. (Machine Tools)............................ 428,600
46,000 Fujitsu Ltd. (Computer Mainframes).................... 512,348
63,000 Hitachi Ltd. (Electronic Components/Miscellaneous).... 634,576
17,000 Honda Motor Co. (Automobile Manufacturers)............ 350,702
20,000 Hoya Corp (Medical Instruments/Products).............. 687,652
37,000 Kajima Corp. (Engineering & Construction)............. 365,520
22,000 Koa Corp. (Electronic Components/Miscellaneous)....... 366,490
8,000 Kyocera Corp. (Electronic Components/Miscellaneous)... 594,285
16,000 Mitsumi Electric Co. Ltd. (Electronic
Components/Miscellaneous)............................. 385,860
</TABLE>
FS-72
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
JAPAN - (CONTINUED)
51,000 NEC Corp. (Semiconductors)............................ $ 622,372
2,200 Nemic-Lambda K.K. (Electronic
Components/Miscellaneous)............................. 102,277
4,000 Nichiei Co., Ltd. (Business Services)................. 298,305
47,000 Nikon Corp. (Conglomerates)........................... 637,290
1,770 Nippon Television Network (Advertising/Broadcasting).. 473,142
22 NTT Data Communications Systems Co. (Computer
Software/Services).................................... 739,370
27,000 Omron Corp. (Electronic Components/Miscellaneous)..... 622,373
5,000 Plenus Co., Ltd. (Restaurants)........................ 242,130
62,000 Ricoh Co., Ltd. (Office Products)..................... 678,548
12,000 Rohm Co., Ltd. (Electronic Components/Miscellaneous).. 677,580
8,200 SMC (Machinery - Miscellaneous)....................... 593,260
5,800 Sony Corp. (Electronic Components/Miscellaneous)...... 347,720
18,000 Tokyo Electron Ltd. (Electronic
Components/Miscellaneous)............................. 697,337
91,000 Toshiba Corp. (Electronic Components/Miscellaneous)... 713,017
45,000 Yamaha Corp. (Leisure & Recreation)................... 810,654
-----------
14,671,965
-----------
MALAYSIA - 2.23%
135,000 Bandar Raya Developments Berhad (Real Estate)......... 192,425
43,000 Edaran Otomobil Nasional Berhad (Retail - Stores)..... 323,384
70,000 Malayan Banking Berhad (Banking)...................... 589,833
114,000 United Engineers (Building Materials)................. 727,172
-----------
1,832,814
-----------
MEXICO - 0.81%
44,000 Kimberly-Clark de Mexico S.A. (Retail - Stores)....... 663,850
-----------
NETHERLANDS - 5.78%
58,000 Elsevier N.V. (Publishing)............................ 773,478
4,187 Heineken N.V. (Beverages - Alcoholic)................. 742,843
19,000 Koninklijke Ahold N.V. (Retail - Food & Drug)......... 775,535
6,300 Oce-Van Der Grinten N.V. (Office Automation).......... 383,175
2,850 Royal Dutch Petroleum Co. (Oil & Gas - Services)...... 398,186
12,800 Vendex International N.V. (Retail - Stores)........... 380,482
4,950 Ver Ned Uitgevuer Bezit N.V. (Publishing)............. 679,556
6,590 Wolters Kluwer N.V. (Publishing)...................... 623,395
-----------
4,756,650
-----------
NEW ZEALAND - 0.65%
128,400 Telecom Corp. of New Zealand Ltd.
(Telecommunications).................................. 538,918
-----------
NORWAY - 0.95%
8,400 Norsk Hydro A.S. (Chemicals).......................... 352,758
77,000 UNI Storebrand A.S.(a) (Insurance - Life & Health).... 425,475
-----------
778,233
-----------
PHILIPPINES - 1.65%
582,000 C&P Homes, Inc.(a) (Homebuilding)..................... 427,125
3,568,000 Metro Pacific Corp. (Conglomerates)................... 659,733
14,090 Metropolitan Banks & Trust Co. (Banking).............. 273,957
-----------
1,360,815
-----------
PORTUGAL - 0.43%
18,600 Portugal Telecom S.A.(a) (Telecommunications)......... 349,817
-----------
</TABLE>
FS-73
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
SINGAPORE - 2.33%
54,000 Cerebos Pacific Ltd. (Food/Processing)................ $ 374,125
117,000 City Developments Ltd. (Real Estate).................. 851,962
60,000 Overseas Union Bank Ltd. (Banking).................... 413,573
28,400 United OverSeas Bank Ltd. (Banking)................... 273,058
-----------
1,912,718
-----------
SPAIN - 3.15%
6,500 Corporacion Mapfre Compania Internacional de
Reaseguros S.A. (Insurance - Broker)................. 363,850
10,100 Empresa Nacional de Electricidad, S.A. (Telephone).... 572,028
4,750 Gas Natural SDG - E.S.A. (Natural Gas Pipeline)....... 740,108
12,000 Repsol S.A. (Oil & Gas - Services).................... 393,240
13,700 Tabacalera S.A. (Tobacco)............................. 519,538
-----------
2,588,764
-----------
SWEDEN - 2.82%
19,770 Astra AB (Medical - Drugs)............................ 783,094
6,000 Autoliv AB (Automobile/Trucks Parts & Tires).......... 350,618
9,300 Securitas AB - (Security & Safety Services)........... 441,210
15,700 Skandia Forsakrings AB (Insurance - Multi-Line
Property)............................................. 424,439
16,280 Telefonaktiebolaget L.M. Ericsson - ADR
(Telecommunications).................................. 317,460
-----------
2,316,821
-----------
SWITZERLAND - 3.23%
1,400 ADIA SA (Business Services)........................... 228,175
580 BBC Brown Boveri Ltd. (Engineering & Construction).... 673,775
590 Ciba-Geigy Ltd. (Chemicals)........................... 519,159
100 Roche Holdings A.G. (Medical - Drugs)................. 791,070
490 Sandoz A.G. (Chemicals)............................... 448,582
-----------
2,660,761
-----------
THAILAND - 2.32%
24,000 Advanced Information Service PLC (Telecommunications). 424,930
55,100 Bank of Ayudhya PLC (Banking)......................... 308,420
152,130 Krung Thai Bank PLC (Banking)......................... 622,048
15,300 Thai Farmers Bank (Banking)........................... 154,275
31,100 United Communication Industry (Telecommunications).... 397,547
-----------
1,907,220
-----------
UNITED KINGDOM - 11.65%
68,000 Argos PLC (Retail - Stores)........................... 628,887
51,500 Bank of Ireland (Banking)............................. 375,912
37,000 Bass PLC (Beverages - Alcoholic)...................... 412,867
43,000 B.A.T. Industries PLC (Tobacco)....................... 378,980
31,350 BOC Group PLC (Chemicals)............................. 438,677
56,900 British Petroleum PLC (Oil & Gas - Exploration &
Production)........................................... 475,860
367,200 Burton Group PLC (Retail - Stores).................... 767,020
53,000 Compass Group PLC (Food/Processing)................... 402,500
76,000 Cookson Group PLC (Conglomerates)..................... 361,175
73,000 Dixons Group PLC (Retail - Stores).................... 506,205
33,750 Farnell Electronics PLC (Electronic
Components/Miscellaneous)............................. 376,602
30,500 GKN PLC (Automobile/Trucks Parts & Tires)............. 368,993
35,400 Granada Group PLC (Leisure & Recreation).............. 354,605
147,000 Medeva PLC (Medical - Drugs).......................... 616,400
29,900 Provident Financial PLC (Finance - Consumer Credit)... 380,076
</TABLE>
FS-74
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
AIM V.I. INTERNATIONAL MARKET
EQUITY FUND SCHEDULE SHARES VALUE
OF INVESTMENTS --------- -----------
December 31, 1995 UNITED KINGDOM - (CONTINUED)
65,500 Rentokil Group PLC (Business Services)................ $ 340,774
63,100 Standard Chartered PLC (Banking)...................... 537,021
72,000 Storehouse PLC (Retail - Stores)...................... 373,474
31,300 Thorn EMI PLC (Leisure & Recreation).................. 737,171
86,000 Vickers PLC (Automobile Manufacturers)................ 339,245
160,000 WPP Group (Advertising/Broadcasting).................. 412,486
-----------
9,584,930
-----------
Total Foreign Stocks & Other Equity Interests......... 73,485,126
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
CONVERTIBLE BONDS - 0.69%
$ 490,000 MBL International Finance Bermuda, Convertible Bonds,
3.00%, 11/30/02....................................... 568,400
-----------
REPURCHASE AGREEMENT - 4.79%(b)
3,938,535 Daiwa Securities America Inc., 5.92%, 01/02/96(c)..... 3,938,535
-----------
TOTAL INVESTMENTS - 94.82%............................ 77,992,061
OTHER ASSETS LESS LIABILITIES - 5.18%................. 4,264,794
-----------
NET ASSETS - 100.00%.................................. $82,256,855
===========
</TABLE>
(a)Non-income producing security.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102 percent of the sales price of
the repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(c) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
See Notes to Financial Statements.
FS-75
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. INTERNATIONAL ASSETS:
EQUITY FUND
STATEMENT OF Investments, at market value (cost $66,760,505).................... $77,992,061
ASSETS AND Foreign currencies, at market value (cost $3,994,342).............. 3,986,961
LIABILITIES Receivables for:
December 31, 1995 Capital stock sold............................................... 136,070
Investments sold................................................. 1,452,460
Dividends and interest........................................... 116,534
Organizational costs, net.......................................... 6,748
Investment for deferred compensation plan.......................... 7,899
Other assets....................................................... 151
-----------
Total assets................................................... 83,698,884
-----------
LIABILITIES:
Payables for:
Investments purchased............................................ 1,280,092
Deferred compensation plan....................................... 7,899
Accrued advisory fees.............................................. 50,594
Accrued directors' fees............................................ 1,542
Accrued custodian fees............................................. 87,187
Accrued administrative services fees............................... 4,356
Accrued operating expenses......................................... 10,359
-----------
Total liabilities.............................................. 1,442,029
-----------
Net assets applicable to shares outstanding........................ $82,256,855
===========
Capital shares, $.001 par value per share:
Authorized....................................................... 250,000,000
===========
Outstanding...................................................... 6,020,540
===========
Net asset value, offering and redemption price per share........... $13.66
======
See Notes to Financial Statements.
</TABLE>
FS-76
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. INVESTMENT INCOME:
INTERNATIONAL
EQUITY FUND Dividends (net of $142,149 foreign withholding tax)............ $ 972,190
STATEMENT OF Interest....................................................... 184,428
OPERATIONS -----------
For the eleven months ended Total investment income...................................... 1,156,618
December 31, 1995 -----------
EXPENSES:
Advisory fees.................................................. 457,559
Custodian fees................................................. 156,614
Administrative services fees................................... 21,068
Professional fees.............................................. 42,011
Directors' fees and expenses................................... 5,469
Organizational costs........................................... 2,651
Other.......................................................... 13,722
-----------
Total expenses............................................... 699,094
-----------
Net investment income.............................................. 457,524
-----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment securities............................................ (2,985)
Foreign currency transactions.................................... (104,674)
-----------
(107,659)
-----------
Unrealized appreciation of:
Investment securities............................................ 13,447,127
Foreign currencies............................................... 7,177
-----------
13,454,304
-----------
Net gain on investment securities and foreign currencies........... 13,346,645
-----------
Net increase in net assets resulting from operations............... $13,804,169
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1995
------------ -----------
<C> <S> <C> <C>
AIM V.I. OPERATIONS:
INTERNATIONAL
EQUITY FUND Net investment income.............................. $ 457,524 $ 256,749
STATEMENT OF Net realized gain (loss) on sales of investment
OPERATIONS securities and foreign currency transactions...... (107,659) (983,419)
For the eleven months ended Net unrealized appreciation (depreciation) of
December 31, 1995 and the investment securities and foreign currencies...... 13,454,304 (4,821,033)
year ended January 31, 1995 ----------- -----------
Net increase (decrease) in net assets resulting
from operations.................................. 13,804,169 (5,547,703)
Net increase from capital stock transactions....... 13,556,877 37,165,081
Distributions to shareholders from net investment
income............................................ (123,270) (131,518)
----------- -----------
Net increase in net assets........................ 27,237,776 31,485,860
NET ASSETS:
Beginning of period................................ 55,019,079 23,533,219
----------- -----------
End of period...................................... $82,256,855 $55,019,079
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)......... $71,752,671 $58,203,064
Undistributed net investment income................ 374,899 127,710
Undistributed net realized gain (loss) from
investment securities and foreign currency
transactions...................................... (1,106,243) (1,092,919)
Unrealized appreciation (depreciation) of
investment securities and foreign currencies...... 11,235,528 (2,218,776)
----------- -----------
$82,256,855 $55,019,079
=========== ===========
</TABLE>
See Notes to Financial Statements.
FS-77
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
INTERNATIONAL AIM Variable Insurance Funds, Inc. (the "Company"), is a
EQUITY FUND Maryland corporation organized on January 22, 1993, and
NOTES TO is registered under the Investment Company Act of 1940
FINANCIAL (the "1940 Act"), as amended, as an open-end, series,
STATEMENTS management investment company consisting of nine
December 31, 1995 portfolios. Matters affecting each portfolio are voted on
exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are
accounted for separately. Effective December 31, 1995,
the Company's fiscal year was changed from January 31 to
December 31. Information presented in these financial
statements pertains only to AIM V.I. International Equity
Fund (the "Fund"). The Fund's investment objective is to
seek to provide long-term growth of capital by investing
in a diversified portfolio of international equity
securities the issuers of which are considered by AIM to
have strong earnings momentum. Currently, shares of the
Fund are sold only to insurance company separate accounts
to fund the benefits of variable annuity contracts.
The following is a summary of the significant accounting
policies followed by the Fund in the presentation of its
financial statements. The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
A. Security Valuations - A security listed or traded on an
exchange is valued at the last sales price on the
exchange on which the securities are traded or, lacking
any sales, at the mean between the closing bid and asked
prices on the day of valuation. If a mean is not
available, as is the case in some foreign markets, the
closing bid will be used absent a last sales prices.
Securities traded in the over-the-counter market are
valued at the mean between the closing bid and asked
prices on valuation date. Securities for which market
quotations are either not readily available or are
questionable are valued at fair value as determined in
good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board
of Directors. Investments with maturities of 60 days or
less are valued on the basis of amortized cost which
approximates market value. Generally, trading in foreign
securities is substantially completed each day at various
times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net
asset value of the Fund's shares are determined as of
such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the values
of such securities and such exchange rates may occur
between the times at which they are determined and the
close of the New York Stock Exchange which will not be
reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these
securities will be valued at their fair value as
determined in good faith by or under the supervision of
the Board of Directors.
B. Foreign Currency Translations - Portfolio securities and
other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at
date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
C. Foreign Currency Contracts - A forward currency contract
is an obligation to purchase or sell a specific currency
for an agreed-upon price at a future date. The Fund may
enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a
forward contract for the amount of a purchase or sale of
a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts
or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and
Distributions - Securities transactions are accounted for
on a trade date basis. Realized gains or losses are
computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned
from settlement date and is recorded on an accrual basis.
Dividend income and distributions to shareholders are
recorded on the ex-dividend date. On December 31, 1995,
undistributed net realized gain (loss) was increased by
$94,335, undistributed net investment income reduced by
$87,065 and paid-in capital reduced by $7,270 in order to
comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2.
Net assets of the Fund were unaffected by the
reclassification discussed above.
E. Federal Income Taxes - The Fund intends to comply with
the requirements of the Internal Revenue Code necessary
to qualify as a regulated investment company and, as
such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital
gains) which is distributed to shareholders. Therefore,
no provision for federal income taxes is recorded in the
financial statements.
F. Organizational Costs - Organizational costs of $14,461
are being amortized over five years.
</TABLE>
FS-78
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
The Company has entered into a master investment
advisory agreement with A I M Advisors, Inc. ("AIM").
Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an
annual rate of 0.75% of the first $250 million of the
Fund's average daily net assets, plus 0.70% of the Fund's
average daily net assets in excess of $250 million. This
agreement requires AIM to reduce its fees or, if
necessary, make payments to the Fund to the extent
required to satisfy any expense limitations imposed by
the securities laws or regulations thereunder of any
state in which the Fund's shares are qualified for sale.
Pursuant to a master administrative services agreement
between the Company and AIM, with respect to the Fund,
the Company has agreed to reimburse certain
administrative costs incurred in providing accounting
services to the Fund. During the eleven months ended
December 31, 1995, AIM was reimbursed $21,068 for such
services.
The Company has entered into a master distribution
agreement with A I M Distributors, Inc. ("AIM
Distributors") to serve as the distributor for the Fund.
Certain officers and directors of the Company are
officers of AIM and AIM Distributors.
During the eleven months ended December 31, 1995, the
Fund incurred legal fees of $2,241 for services rendered
by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as
counsel to the Board of Directors. A member of that firm
is a director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued
to each director who is not an "interested person" of
AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in
accordance with a deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other
than short-term securities) purchased and sold by the
Fund during the eleven months ended December 31, 1995 was
$54,598,136 and $40,670,084, respectively.
The amount of unrealized appreciation (depreciation) of
investment securities, on a tax basis, as of December 31,
1995 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation
of investment securities.................. $11,965,023
Aggregate unrealized (depreciation)
of investment securities.................. (734,166)
-----------
Net unrealized appreciation of
investment securities..................... $11,230,857
===========
</TABLE>
Cost of investments for tax purposes is $66,761,204.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven
months ended December 31, 1995 and the year ended January
31, 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
---------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Sold.......................... 1,612,585 $20,607,902 3,273,461 $ 39,114,516
Issued as reinvestment of
distributions................ 9,199 123,270 11,496 131,518
Reacquired.................... (591,239) (7,174,295) (179,533) (2,080,953)
--------- ----------- --------- ------------
1,030,545 $13,556,877 3,105,424 $ 37,165,081
========= =========== ========= ============
</TABLE>
FS-79
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a
share outstanding of the Fund during the eleven months
ended December 31, 1995, the year ended January 31, 1995
and the period May 5, 1993 (date operations commenced)
through January 31, 1994.
<TABLE>
<CAPTION>
January 31,
December 31, -------------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period. $ 11.03 $ 12.49 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income.............. 0.07 0.06 --
Net gains (losses) on securities
(both realized and unrealized).... 2.58 (1.49) 2.49
------- ------- -------
Total from investment operations.. 2.65 (1.43) 2.49
------- ------- -------
Less distributions:
Dividends from net investment
income............................ (0.02) (0.03) --
------- ------- -------
Net asset value, end of period....... $ 13.66 $ 11.03 $ 12.49
======= ======= =======
Total return......................... 24.04%(a) (11.48)% 24.90%(a)
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $82,257 $55,019 $23,533
======= ======= =======
Ratio of expenses to average net
assets.............................. 1.15%(b) 1.27%(c) 1.98%(d)(e)
======= ======= =======
Ratio of net investment income to
average net assets.................. 0.75%(b) 0.60%(c) (0.15)%(d)(e)
======= ======= =======
Portfolio turnover rate.............. 67% 64% 26%
======= ======= =======
</TABLE>
------
(a) Total return is not annualized.
(b) Ratios are annualized and based on average net
assets of $66,670,268.
(c) Ratios of expenses and net investment income to
average net assets prior to waiver of advisory fees
are 1.28% and 0.59%, respectively.
(d) Annualized.
(e) Annualized ratios of expenses and net investment
income (loss) to average net assets prior to waiver
of advisory fees are 3.06% and (1.23)%, respectively.
FS-80
AIM V.I. INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Money Market Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1995, the related statement of operations for the eleven month period then
ended, the statement of changes in net assets for the eleven month period then
ended and the year ended January 31, 1995 and the financial highlights for the
eleven month period then ended, the year ended January 31, 1995 and the period
May 5, 1993 (commencement of operations) through January 31, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amount and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Money Market Fund, as of December 31, 1995, the results of its operations
for the eleven month period then ended, the changes in its net assets for the
eleven month period then ended and the year ended January 31, 1995 and the
financial highlights for the eleven month period then ended, the year ended
January 31, 1995 and the period May 5, 1993 through January 31, 1994, in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-81
AIM V.I. MONEY MARKET FUND
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S> <C>
AIM V.I. MONEY PRINCIPAL
MARKET FUND AMOUNT VALUE
SHCEDULE OF ---------- -----------
INVESTMENTS COMMERCIAL PAPER - 52.93%(a)
December 31, 1995
ASSET-BACKED SECURITIES - 18.20%
$3,000,000 Asset Securitization Cooperative Corp., 5.65%,
02/08/96.......................................... $ 2,982,108
3,000,000 Delaware Funding Corp., 5.71%, 02/07/96........... 2,982,394
3,000,000 Eiger Capital Corp., 5.83%, 01/30/96.............. 2,985,911
3,000,000 Preferred Receivables Funding Corp., 5.65%,
02/26/96.......................................... 2,973,633
-----------
11,924,046
-----------
BROKER/DEALER - 4.57%
3,000,000 Goldman Sachs Group (The), L.P., 6.05%, 01/11/96.. 2,994,958
-----------
COMPUTERS & OFFICE EQUIPMENT - 3.71%
2,500,000 Xerox Credit Corp., 5.25%, 07/18/96............... 2,427,448
-----------
FINANCE (BUSINESS CREDIT) - 3.79%
2,500,000 General Electric Capital Corp., 5.53%, 02/12/96... 2,483,871
-----------
FINANCE (MISCELLANEOUS) - 10.62%
3,000,000 Associates Corp. of North America, 5.59%,
03/18/96.......................................... 2,964,131
2,000,000 Cargill Financial Services Corp., 5.47%, 01/08/96. 1,997,873
2,000,000 Transamerica Finance Corp., 5.52%, 01/31/96....... 1,990,801
-----------
6,952,805
-----------
INSURANCE - 1.50%
1,000,000 Marsh & McLennan Companies, Inc., 5.62%, 04/25/96. 982,047
-----------
OIL & GAS (INTEGRATED) - 4.52%
3,000,000 ARCO Coal Australia Inc., 5.60%, 03/18/96......... 2,964,067
-----------
POLLUTION CONTROL - 1.49%
1,000,000 WMX Technologies Inc., 5.51%, 06/11/96............ 975,205
-----------
TELEPHONE - 4.53%
3,000,000 AT&T Corp., 5.60%, 03/12/96....................... 2,966,867
-----------
Total Commercial Paper.......................... 34,671,314
-----------
U.S. GOVERNMENT AGENCY SECURITIES - 3.81%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.05%
2,000,000 5.26%, 06/02/99(b)................................ 2,000,000
-----------
STUDENT LOAN MARKETING ASSOCIATION - 0.76%
500,000 5.24%, 08/20/98(b)................................ 499,907
-----------
Total U.S. Government Agency Securities......... 2,499,907
-----------
U.S. TREASURY BILLS - 2.98%(c)
2,000,000 5.04%, 06/27/96................................... 1,950,160
-----------
MASTER NOTE AGREEMENT - 3.82%
2,500,000 Citicorp Securities, Inc., 6.25%, 03/11/96(d)..... 2,500,000
-----------
Total Investments, excluding Repurchase
Agreements...................................... 41,621,381
-----------
REPURCHASE AGREEMENTS - 35.90%(e)
8,519,331 Daiwa Securities America Inc., 5.92%, 01/02/96(f). 8,519,331
15,000,000 Goldman, Sachs & Co., 5.92%, 01/02/96(g).......... 15,000,000
-----------
Total Repurchase Agreements..................... 23,519,331
-----------
TOTAL INVESTMENTS - 99.44%........................ 65,140,712(h)
OTHER ASSETS LESS LIABILITIES - 0.56%............. 365,042
-----------
NET ASSETS - 100.00%.............................. $65,505,754
===========
</TABLE>
FS-82
AIM V.I. MONEY MARKET FUND
<PAGE>
<TABLE>
<C> <S>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Some commercial paper is traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) Interest rates are redetermined weekly. Rates shown are the rates in effect
on December 31, 1995.
(c) U.S. Treasury Bills are traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(d) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon notice to the issuer. Interest rates are
redetermined periodically. Rate shown is the rate in effect on December 31,
1995.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102 percent of the sales price of
the repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(f) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
(g) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$1,195,786,044. Collateralized by $1,106,121,000 U.S. Treasury obligations,
5.50% to 11.25% due 01/31/98 to 02/15/23.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
FS-83
AIM V.I. MONEY MARKET FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. MONEY ASSETS:
MARKET FUND
STATEMENT OF Investments, excluding repurchase agreements, at value (amortized
ASSETS AMD cost)............................................................. $41,621,381
LIABILITIES Repurchase agreements.............................................. 23,519,331
December 31, 1995 Receivables for:
Capital stock sold............................................... 347,290
Interest receivable.............................................. 36,602
Organizational costs, net.......................................... 6,748
Investment for deferred compensation plan.......................... 7,775
Other assets....................................................... 393
-----------
Total assets................................................... 65,539,520
-----------
LIABILITIES:
Payable for deferred compensation plan............................. 7,775
Accrued advisory fees.............................................. 21,647
Accrued administrative service fees................................ 2,222
Accrued directors' fees............................................ 296
Accrued operating expenses......................................... 1,826
-----------
Total liabilities.............................................. 33,766
-----------
Net assets applicable to shares outstanding........................ $65,505,754
===========
Capital shares, $.001 par value per share:
Authorized....................................................... 250,000,000
===========
Outstanding...................................................... 65,521,991
===========
Net asset value, offering and redemption price per share........... $1.00
=====
</TABLE>
<TABLE>
<C> <S> <C>
AIM V.I. MONEY INVESTMENT INCOME:
MARKET FUND
STATEMENT OF Interest.......................................................... $2,503,796
OPERATIONS ----------
For the eleven EXPENSES:
months ended
December 31, 1995 Advisory fees..................................................... 168,901
Custodian fees.................................................... 10,196
Administrative services fees...................................... 22,997
Directors' fees and expenses...................................... 4,709
Organizational costs.............................................. 2,651
Other............................................................. 16,100
----------
Total expenses................................................... 225,554
----------
Net investment income............................................... 2,278,242
----------
Net realized gain (loss) on sales of investment securities.......... (17,141)
----------
Net increase in net assets resulting from operations................ $2,261,101
==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1995
------------ -----------
<C> <S> <C> <C>
AIM V.I. MONEY OPERATIONS:
MARKET FUND
STATEMENT Net investment income.............................. $ 2,278,242 $ 1,082,131
OF CHANGES Net realized gain (loss) on sales of investment
IN NET ASSETS securities........................................ (17,141) 904
For the eleven ----------- -----------
months ended Net increase in net assets resulting from
December 31, 1995 operations....................................... 2,261,101 1,083,035
and the year ended Net increase from capital stock transactions....... 34,506,043 17,124,934
January 31, 1995 Distributions to shareholders from net investment
income............................................ (2,278,242) (1,082,131)
----------- -----------
Net increase in net assets........................ 34,488,902 17,125,838
NET ASSETS:
Beginning of period................................ 31,016,852 13,891,014
----------- -----------
End of period...................................... $65,505,754 $31,016,852
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)......... $65,521,991 $31,015,948
Undistributed net realized gain (loss) on sales of
investment securities............................. (16,237) 904
----------- -----------
$65,505,754 $31,016,852
=========== ===========
</TABLE>
See Notes to Financial Statements.
FS-84
AIM V.I. MONEY MARKET FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. MONEY NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
MARKET FUND
FINANCIAL AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
STATEMENTS organized on January 22, 1993, and is registered under the Investment Company
December 31, 1995 Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of nine portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Effective December 31, 1995, the Company's fiscal year was changed
from January 31 to December 31. Information presented in these financial
statements pertains only to the AIM V.I. Money Market Fund (the "Fund"). The
Fund's investment objective is to seek to provide as high a level of current
income as is consistent with the preservation of capital and liquidity.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Security Valuations - The Fund invests only in securities which have
maturities of 397 days or less from the date of purchase. The securities are
valued on the basis of amortized cost which approximates market value. This
method values a security at its cost on the date of purchase and thereafter,
assumes a constant amortization to maturity of any discount or premiums.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income,
adjusted for amortization of premiums and discounts on investments, is
recorded as earned from settlement date and is recorded on the accrual
basis. Distributions to shareholders are declared and paid daily. Realized
gains or losses from securities transactions are recorded on the identified
cost basis.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and capital
gains to its shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward (which may be carried forward to offset future taxable gains,
if any) of $17,143 which expires, if not previously utilized, in the year
2003.
D. Organizational Costs - Organizational costs of $14,461 are being amortized
over five years.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.40% of
the first $250 million of the Fund's average daily net assets, plus 0.35% of
the Fund's average daily net assets in excess of $250 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $22,997
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $2,457 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
</TABLE>
FS-85
AIM V.I. MONEY MARKET FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 4 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months ended December
31, 1995 and the year ended January 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold..................... 80,119,672 $ 80,119,672 53,878,101 $ 53,878,101
Issued as reinvestment of
distributions........... 2,278,242 2,278,242 1,082,131 1,082,131
Reacquired............... (47,891,871) (47,891,871) (37,835,298) (37,835,298)
----------- ------------ ----------- ------------
34,506,043 $ 34,506,043 17,124,934 $ 17,124,934
=========== ============ =========== ============
</TABLE>
<TABLE>
<C> <S>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding of
the Fund during the eleven months ended December 31, 1995, the year ended
January 31, 1995 and the period May 5, 1993 (date operations commenced) through
January 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
DECEMBER 31, -------------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations:
Net investment income............... 0.05 0.04 0.02
------- ------- -------
Less distributions:
Dividends from net investment
income............................. (0.05) (0.04) (0.02)
------- ------- -------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return.......................... 5.69%(a) 3.98% 2.27%(a)
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $65,506 $31,017 $13,891
======= ======= =======
Ratio of expenses to average net
assets............................... 0.53%(b) 0.63%(c) 0.95%(a)(d)
======= ======= =======
Ratio of net investment income to
average net assets................... 5.40%(b) 4.14%(c) 2.29%(a)(d)
======= ======= =======
------
(a) Annualized.
(b) Ratios are annualized and based on average net assets of $46,144,418.
(c) Ratios of expenses and net investment income to average net assets prior to
waiver of advisory fees are 0.70% and 4.07%, respectively.
(d) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 1.53% and 1.70%, respectively.
</TABLE>
FS-86
AIM V.I. MONEY MARKET FUND
<PAGE>
<TABLE>
<C> <S>
REPORT OF To the Shareholders and Board of Directors
INDEPENDENT AIM Variable Insurance Funds, Inc.
CERTIFIED PUBLIC
ACCOUNTANTS We have audited the accompanying statement of assets and liabilities of AIM
V.I. Value Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1995, the
related statement of operations for the eleven month period then ended, the
statement of changes in net assets for the eleven month period then ended and
the year ended January 31, 1995 and the financial highlights for the eleven
month period then ended, the year ended January 31, 1995, and the period May 5,
1993 (commencement of operations) through January 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. Where
brokers did not reply to our confirmation requests, we carried out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Value Fund, as of December 31, 1995, the results of its operations for the
eleven month period then ended, the changes in its net assets for the eleven
month period then ended and the year ended January 31, 1995 and the financial
highlights for the eleven month period then ended, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 26, 1996
</TABLE>
FS-87
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<C> <C> <S> <C>
AIM V.I. VALUE MARKET
FUND SHARES VALUE
SCHEDULE OF ------ ------------
INVESTMENTS DOMESTIC COMMON STOCKS - 64.88%
December 31, 1995
ADVERTISING/BROADCASTING - 0.10%
10,000 Heritage Media Corp.(a)............................. $ 256,250
------------
AEROSPACE/DEFENSE - 1.70%
33,600 Boeing Co........................................... 2,633,400
12,000 General Dynamics Corp............................... 709,500
11,000 United Technologies Corp............................ 1,043,625
------------
4,386,525
------------
APPLIANCES - 0.13%
6,600 Premark International Inc........................... 334,125
------------
AUTOMOBILE/TRUCK PARTS & TIRES - 0.50%
40,000 Borg-Warner Automotive.............................. 1,280,000
------------
BANKING - 2.39%
17,000 BankAmerica Corp.................................... 1,100,750
75,000 Citicorp............................................ 5,043,750
------------
6,144,500
------------
BIOTECHNOLOGY - 0.34%
21,000 Guidant Corp........................................ 887,250
------------
BUILDING MATERIALS - 0.27%
15,200 Snap-On, Inc........................................ 687,800
------------
CHEMICALS - 0.22%
40,000 Terra Industries, Inc. ............................. 565,000
------------
CHEMICALS (SPECIALTY) - 1.54%
18,000 Cabot Corp.......................................... 969,750
33,000 IMC Global, Inc..................................... 1,348,875
16,000 OM Group Inc........................................ 530,000
33,400 Praxair, Inc........................................ 1,123,075
------------
3,971,700
------------
COMPUTER MINI/PCS - 3.50%
82,000 COMPAQ Computer Corp.(a)............................ 3,936,000
38,000 Dell Computer Corp.(a).............................. 1,315,750
20,000 Digital Equipment Corp.(a).......................... 1,282,500
21,000 Hewlett-Packard Co.................................. 1,758,750
42,000 Wang Laboratories, Inc.(a).......................... 698,250
------------
8,991,250
------------
COMPUTER NETWORKING - 2.53%
14,850 Bay Networks, Inc.(a)............................... 610,706
24,000 Belden Inc.......................................... 618,000
57,000 Cheyenne Software, Inc.(a).......................... 1,489,125
25,000 Cisco Systems, Inc.(a).............................. 1,865,625
18,000 Comverse Technology, Inc............................ 360,000
21,000 Network Equipment Technology, Inc.(a)............... 574,875
21,000 3Com Corp.(a)....................................... 979,125
------------
6,497,456
------------
COMPUTER PERIPHERALS - 3.24%
58,000 Adaptec, Inc.(a).................................... 2,378,000
7,800 Alliance Semiconductor Corp.(a)..................... 90,675
57,000 EMC Corp.(a)........................................ 876,375
12,000 Lexmark International Group, Inc.(a)................ 219,000
17,000 Read-Rite Corp. - Class A(a)........................ 395,250
</TABLE>
FS-88
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<C> <S> <C>
COMPUTER PERIPHERALS - (CONTINUED)
67,000 Seagate Technology(a)............................... $ 3,182,500
8,000 U.S. Robotics, Inc.(a).............................. 702,000
28,000 Western Digital Corp.(a)............................ 500,500
------------
8,344,300
------------
COMPUTER SOFTWARE & SERVICES - 4.89%
9,000 Adobe Systems, Inc.................................. 558,000
17,000 BMC Software, Inc.(a)............................... 726,750
103,000 Computer Associates International, Inc.............. 5,858,125
21,000 Computervision Corp.(a)............................. 322,875
4,000 Electronics for Imaging, Inc.(a).................... 175,000
15,000 First Data Corp..................................... 1,003,125
15,500 FTP Software, Inc.(a)............................... 449,500
21,000 National Data Corp.................................. 519,750
21,000 NetManage, Inc.(a).................................. 488,250
17,000 Network General Corp.(a)............................ 567,375
28,000 SoftKey International, Inc.(a)...................... 647,500
6,000 Sterling Software, Inc.(a).......................... 374,250
50,000 S3, Inc.(a)......................................... 881,250
------------
12,571,750
------------
CONGLOMERATES - 0.58%
10,000 Allied Products Corp................................ 240,000
16,000 Loews Corp.......................................... 1,254,000
------------
1,494,000
------------
COSMETICS & TOILETRIES - 0.50%
12,200 McKesson Corp....................................... 617,625
8,000 Procter & Gamble Co................................. 664,000
------------
1,281,625
------------
ELECTRIC SERVICES - 1.43%
8,900 Allegheny Power System, Inc......................... 254,762
7,000 American Electric Power Co.......................... 283,500
8,900 Consolidated Edison Co. of New York, Inc............ 284,800
15,000 Dominion Resources, Inc............................. 618,750
11,300 DQE, Inc............................................ 347,475
20,000 Entergy Corp........................................ 585,000
6,800 FPL Group, Inc...................................... 315,350
19,100 Houston Industries, Inc............................. 463,175
17,500 Illinova Corp....................................... 525,000
------------
3,677,812
------------
ELECTRONIC COMPONENTS - 2.40%
17,000 Amphenol Corp.(a)................................... 412,250
102,000 Anixter International, Inc.(a)...................... 1,899,750
4,300 AVX Corp............................................ 113,950
27,300 Harman International Industries, Inc................ 1,095,413
21,000 Parker-Hannifin Corp................................ 719,250
2,700 Raychem Corp........................................ 153,562
13,000 Tektronix, Inc...................................... 638,625
46,000 Teradyne Inc.(a).................................... 1,150,000
------------
6,182,800
------------
ELECTRONIC/PC DISTRIBUTORS - 0.97%
30,000 Arrow Electronics, Inc.(a).......................... 1,293,750
11,000 Avnet, Inc.......................................... 492,250
20,000 Wyle Electronics.................................... 702,500
------------
2,488,500
------------
</TABLE>
FS-89
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<C> <S> <C>
FINANCE (ASSET MANAGEMENT) - 0.23%
12,000 Finova Group, Inc................................... $ 579,000
------------
FINANCE (CONSUMER CREDIT) - 3.35%
8,000 ADVANTA Corp. - Class A............................. 306,000
9,000 ADVANTA Corp. - Class B............................. 327,375
10,000 A T & T Capital Corp................................ 382,500
12,000 CMAC Investment Corp................................ 528,000
12,000 Countrywide Credit Industries, Inc.................. 261,000
20,000 Federal Home Loan Mortgage Corp. ................... 1,670,000
12,500 Federal National Mortgage Association............... 1,551,563
17,000 Green Tree Financial Corp........................... 448,375
50,000 MBNA Corp........................................... 1,843,750
17,000 PMI Group Inc. (The)................................ 769,250
5,900 Student Loan Marketing Association.................. 388,662
3,150 SunAmerica, Inc..................................... 149,625
------------
8,626,100
------------
FINANCE (SAVINGS & LOAN) - 0.21%
20,000 Ahmanson (H.F.) & Co................................ 530,000
------------
FOOD PROCESSING - 1.26%
21,000 ConAgra, Inc........................................ 866,250
36,000 Hudson Foods, Inc. - Class A........................ 621,000
27,000 IBP, Inc............................................ 1,363,500
17,700 Interstate Bakeries Corp............................ 396,037
------------
3,246,787
------------
FUNERAL SERVICES - 0.96%
46,300 Service Corp. International......................... 2,037,200
12,000 Stewart Enterprises, Inc............................ 444,000
------------
2,481,200
------------
GAMING - 0.34%
25,000 Mirage Resorts, Inc.(a)............................. 862,500
------------
HOMEBUILDING - 0.18%
21,500 Clayton Homes, Inc.................................. 459,562
------------
INSURANCE (LIFE & HEALTH) - 0.10%
4,000 Conseco Inc......................................... 250,500
------------
INSURANCE (MULTI-LINE PROPERTY) - 1.79%
37,000 Allstate Corp....................................... 1,521,625
12,200 CIGNA Corp.......................................... 1,259,650
16,000 ITT Hartford Group, Inc.(a)......................... 774,000
37,000 TIG Holdings, Inc................................... 1,054,500
------------
4,609,775
------------
MACHINE TOOLS - 0.05%
4,000 Applied Power Inc. - Class A........................ 120,000
------------
MACHINERY (HEAVY) - 0.36%
20,000 Case Corp........................................... 915,000
------------
MEDICAL (DRUGS) - 4.31%
12,000 American Home Products Corp. ....................... 1,164,000
33,000 Bergen Brunswig Corp................................ 820,875
51,861 ICN Pharmaceuticals, Inc............................ 998,330
6,000 Johnson & Johnson................................... 513,750
29,000 Mylan Laboratories.................................. 681,500
21,000 Pfizer Inc.......................................... 1,323,000
21,000 R. P. Scherer Corp.(a).............................. 1,031,625
83,000 Schering-Plough Corp................................ 4,544,250
------------
11,077,330
------------
</TABLE>
FS-90
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<C> <S> <C>
MEDICAL INSTRUMENTS/PRODUCTS - 1.54%
6,500 Bausch & Lomb, Inc.................................. $ 257,563
63,000 Baxter International, Inc........................... 2,638,125
10,600 Cordis Corp.(a)..................................... 1,065,300
------------
3,960,988
------------
MEDICAL (PATIENT SERVICES) - 2.47%
12,000 Genesis Health Ventures, Inc.(a).................... 438,000
25,000 Health Care and Retirement Corp.(a)................. 875,000
25,000 Integrated Health Services, Inc..................... 625,000
12,000 Living Centers of America, Inc.(a).................. 420,000
28,000 Manor Care, Inc..................................... 980,000
34,000 OrNda Healthcorp(a)................................. 790,500
24,000 Quorum Health Group, Inc.(a)........................ 528,000
30,000 Sybron International Corp.(a)....................... 712,500
21,000 U.S. Healthcare, Inc................................ 976,500
------------
6,345,500
------------
METALS - 0.09%
4,000 Harsco Corp......................................... 232,500
------------
OFFICE AUTOMATION - 2.24%
19,300 In Focus Systems, Inc.(a)........................... 697,213
37,000 Xerox Corp.......................................... 5,069,000
------------
5,766,213
------------
OFFICE PRODUCTS - 0.15%
10,000 Reynolds & Reynolds Co. - Class A................... 388,750
------------
OIL & GAS - 0.50%
60,000 Occidental Petroleum Corp........................... 1,282,500
------------
OIL EQUIPMENT & SUPPLIES - 0.99%
20,000 BJ Services Co.(a).................................. 580,000
12,000 Diamond Offshore Drilling, Inc.(a).................. 405,000
16,000 Halliburton Co...................................... 810,000
24,000 Tidewater, Inc...................................... 756,000
------------
2,551,000
------------
PAPER & FOREST PRODUCTS - 0.55%
4,000 Bowater, Inc........................................ 142,000
18,200 James River Corp. of Virginia....................... 439,075
16,000 Mead Corp........................................... 836,000
------------
1,417,075
------------
POLLUTION CONTROL - 0.37%
32,000 WMX Technologies, Inc............................... 956,000
------------
PUBLISHING - 0.28%
18,000 Scripps (E.W.) Co................................... 708,750
------------
RETAIL (FOOD & DRUG) - 0.28%
27,900 Circle K Corp.(a)................................... 707,963
------------
RETAIL (STORES) - 0.06%
11,000 Intimate Brands, Inc................................ 165,000
------------
SCIENTIFIC INSTRUMENTS - 0.91%
42,000 Millipore Corp...................................... 1,727,250
13,000 Varian Associates, Inc.............................. 620,750
------------
2,348,000
------------
SEMICONDUCTORS - 5.33%
29,000 Analog Devices, Inc.(a)............................. 1,025,875
74,000 Applied Materials, Inc.(a).......................... 2,913,750
57,000 Cypress Semiconductor Corp.(a)...................... 726,750
</TABLE>
FS-91
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<C> <S> <C>
SEMICONDUCTORS - (CONTINUED)
19,400 Electroglas, Inc.(a)................................ $ 475,300
14,000 Kemet Corp.(a)...................................... 334,250
10,000 LAM Research Corp.(a)............................... 457,500
25,000 LSI Logic Corp.(a).................................. 818,750
15,000 Novellus Systems, Inc.(a)........................... 810,000
14,000 Sierra Semiconductor Corp.(a)....................... 194,250
115,000 Texas Instruments, Inc.............................. 5,951,250
------------
13,707,675
------------
SHOES & RELATED APPAREL - 0.05%
2,000 Nike, Inc. - Class B................................ 139,250
------------
STEEL - 0.09%
5,300 J&L Specialty Steel, Inc............................ 99,375
16,300 UNR Industries, Inc................................. 140,588
------------
239,963
------------
TELECOMMUNICATIONS - 2.89%
50,000 A T & T Corp........................................ 3,237,500
64,100 MFS Communications Co., Inc.(a)..................... 3,413,325
21,000 Tellabs, Inc.(a).................................... 777,000
------------
7,427,825
------------
TELEPHONE - 1.31%
42,000 Ameritech Corp. .................................... 2,478,000
20,900 BellSouth Corp. .................................... 909,150
------------
3,387,150
------------
TOBACCO - 3.94%
10,500 Dimon, Inc.......................................... 185,063
110,000 Philip Morris Companies, Inc........................ 9,955,000
------------
10,140,063
------------
TRANSPORTATION - 0.47%
26,400 CSX Corp............................................ 1,204,500
------------
Total Common Stocks............................. 166,877,062
------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 5.09%
AUSTRALIA - 0.31%
42,000 News Corp. Ltd. - Preference Shares-ADR
(Publishing)........................................ 808,500
------------
CANADA - 0.38%
20,000 Corel Corp. (Computer Software & Services)(a)....... 260,000
16,900 Northern Telecom Ltd. (Telecommunications).......... 726,700
------------
986,700
------------
FINLAND - 0.06%
4,100 Nokia Corp. - Class A-ADR (Telecommunications)(a)... 159,389
------------
FRANCE - 0.78%
50,000 SGS - Thomson Microelectronics N.V.
(Semiconductors)(a)................................. 2,012,500
------------
ITALY - 0.12%
6,500 Fila Holding S.p.A.-ADR (Retail Stores)............. 295,750
------------
NETHERLANDS - 0.36%
20,400 Madge Networks N.V. (Computer Networking)(a)........ 912,900
------------
NEW ZEALAND - 0.43%
244,700 Telecom Corp. of New Zealand Ltd.
(Telecommunications)................................ 1,027,048
1,200 Telecom Corp. of New Zealand Ltd.-ADR
(Telecommunications)................................ 83,250
------------
1,110,298
------------
NORWAY - 0.34%
158,000 UNI Storebrand A/S - Class A (Insurance - Multi-Line
Property)(a)........................................ 873,052
------------
</TABLE>
FS-92
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<C> <S> <C>
SWEDEN - 1.25%
27,500 Astra AB "A" (Medical - Drugs).................. $ 1,097,564
30,000 Skandia Forsakring AB (Insurance - Multi-Line
Property)....................................... 811,030
66,000 Telefonaktiebolaget L.M. Ericsson-ADR
(Telecommunications)............................ 1,287,000
------------
3,195,594
------------
UNITED KINGDOM - 1.06%
28,800 Invesco PLC (Finance - Asset Management)........ 113,384
2,200 Invesco PLC-ADR (Finance - Asset Management).... 85,250
6,600 Orthofix International N.V. (Medical
Services)(a).................................... 48,675
14,500 Smithkline Beecham-ADR (Medical - Drugs)........ 804,750
160,000 Standard Chartered PLC (Leisure & Recreation)... 1,361,703
29,900 Waste Management International PLC-ADR
(Pollution Control)(a).......................... 321,425
------------
2,735,187
------------
Total Foreign Stocks & Other Equity
Interests.................................. 13,089,870
------------
PREFERRED STOCK - 0.05%
PUBLISHING - 0.05%
4,500 Time Warner Financing - $1.24 Convertible Pfd... 140,625
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<C> <S> <C>
U.S. TREASURY SECURITIES - 13.06%
U.S. TREASURY BILLS - 10.22%(B)
$13,100,000(c) 5.41%, 01/11/96................................. 13,093,843
13,345,000(c) 5.38%, 04/04/96................................. 13,175,918
------------
Total U.S. Treasury Bills................... 26,269,761
------------
U.S. TREASURY NOTES - 2.84%
7,000,000 6.75%, 05/31/99................................. 7,311,718
------------
Total U.S. Treasury Securities.............. 33,581,479
------------
REPURCHASE AGREEMENT(d) - 16.76%
43,102,545 Daiwa Securities America Inc., 5.92%,
01/02/96(e).................................... 43,102,545
------------
TOTAL INVESTMENTS - 99.84%...................... 256,791,581
OTHER ASSETS LESS LIABILITIES - 0.16%........... 420,206
------------
NET ASSETS - 100.00%............................ $257,211,787
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. Treasury Bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 6.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(e) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
Abbreviations:
ADR - American Depositary Receipt
Pfd. - Preferred
See Notes to Financial Statements.
</TABLE>
FS-93
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. VALUE ASSETS:
FUND
STATEMENT OF Investments, at market value (cost $227,669,641).................. $256,791,581
ASSETS AND Receivables for:
LIABILITIES Investments sold................................................ 750,836
December 31, 1995 Capital stock sold.............................................. 160,371
Dividends and interest.......................................... 383,343
Variation margin................................................ 30,100
Investment for deferred compensation plan......................... 8,365
Organizational costs, net......................................... 6,728
Other assets...................................................... 61,297
------------
Total assets.................................................. 258,192,621
------------
LIABILITIES:
Payables for:
Investments purchased........................................... 795,777
Deferred compensation........................................... 8,365
Accrued advisory fees............................................. 139,022
Accrued directors' fees........................................... 1,646
Accrued administrative services fees.............................. 2,593
Accrued operating expenses........................................ 33,431
------------
Total liabilities............................................. 980,834
------------
Net assets applicable to shares outstanding....................... $257,211,787
============
Capital shares, $.001 par value per share:
Authorized...................................................... 250,000,000
============
Outstanding..................................................... 15,969,839
============
Net asset value, offering and redemption price per share.......... $ 16.11
============
See Notes to Financial Statements.
</TABLE>
FS-94
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<C> <S> <C>
AIM V.I. VALUE INVESTMENT INCOME:
FUND
STATEMENT OF Interest....................................................... $ 1,353,855
OPERATIONS Dividends...................................................... 1,723,041
For the eleven -----------
months ended Total investment income...................................... 3,076,896
December 31, 1995 -----------
EXPENSES:
Advisory fees.................................................. 1,078,007
Custodian fees................................................. 68,394
Administrative service fees.................................... 35,540
Directors' fees and expenses................................... 6,369
Organizational costs........................................... 2,627
Other.......................................................... 49,714
-----------
Total expenses............................................... 1,240,651
-----------
Net investment income............................................ 1,836,245
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities.......................................... 17,183,742
Foreign currencies............................................. (10,005)
Futures contracts.............................................. 2,138,567
-----------
19,312,304
-----------
Unrealized appreciation (depreciation) of:
Investment securities.......................................... 25,412,699
Foreign currencies............................................. (361)
Futures contracts.............................................. 131,340
-----------
25,543,678
-----------
Net gain on investment securities, foreign currencies and futures
contracts....................................................... 44,855,982
-----------
Net increase in net assets resulting from operations............. $46,692,227
===========
AIM V.I. VALUE DECEMBER 31, JANUARY 31,
FUND 1995 1995
STATEMENT OF ------------ ------------
CHANGES IN <S> <C> <C>
NET ASSETS OPERATIONS:
For the eleven
months ended Net investment income............................ $ 1,836,245 $ 882,404
December 31, 1995 Net realized gain (loss) on sales of investment
and the year ended securities, foreign currencies and futures
January 31, 1995 contracts ...................................... 19,312,304 (2,153,433)
Net unrealized appreciation of investment
securities, foreign currencies and futures
contracts....................................... 25,543,678 895,492
------------ ------------
Net increase (decrease) in net assets resulting
from operations................................ 46,692,227 (375,537)
Net increase from capital stock transactions....... 101,386,580 72,151,126
Distributions to shareholders from net investment
income............................................ (124,487) (772,749)
------------ ------------
Net increase in net assets...................... 147,954,320 71,002,840
NET ASSETS:
Beginning of period.............................. 109,257,467 38,254,627
------------ ------------
End of period.................................... $257,211,787 $109,257,467
============ ============
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in)....... $208,555,673 $107,169,093
Undistributed net investment income.............. 1,819,581 107,823
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
futures contracts .............................. 16,941,375 (2,370,929)
Unrealized appreciation of investment securities,
foreign currencies and futures contracts........ 29,895,158 4,351,480
------------ ------------
$257,211,787 $109,257,467
============ ============
See Notes to Financial Statements.
</TABLE>
FS-95
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<C> <S>
AIM V.I. VALUE NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
FUND AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
NOTES TO organized on January 22, 1993, and is registered under the Investment Company
FINANCIAL Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
STATEMENTS investment company consisting of nine portfolios. Matters affecting each
December 31, 1995 portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Value Fund (the "Fund"). The Fund's investment objective is to
achieve long-term growth of capital by investing primarily in equity securities
judged by AIM to be undervalued relative to the current or projected earnings
of the companies issuing the securities or relative to current market values of
assets owned by the companies issuing the securities or relative to the equity
market generally. Income is a secondary objective. Effective December 31, 1995,
the Company's fiscal year end was changed from January 31 to December 31.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange is valued
at its last sales price on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at
the mean between the closing bid and asked prices on that day. Each security
traded in the over-the-counter market (but not including securities reported
on the NASDAQ National Market System) is valued at the mean between the last
bid and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date, or absent a last sales
price, at the mean of the closing bid and asked prices. Securities for which
market quotations are either not readily available or are questionable are
valued at fair value as determined in good faith by or under the supervision
of the Company's officers in a manner specifically authorized by the Board
of Directors. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under
the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Realized gains or losses from securities transactions are
recorded on the identified cost basis.
C. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
D. Organizational Costs - Organizational costs for the Fund of $14,461 are
being amortized over five years.
E. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contract at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contract may not correlate with changes in the securities being hedged.
F. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
</TABLE>
FS-96
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million. These agreements
require AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the eleven months ended December 31, 1995, AIM was reimbursed $35,540
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the eleven months ended December 31, 1995, the Fund incurred legal fees
of $2,788 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Board of Directors. A member of that firm is a
director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees, if
so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the eleven months ended December 31, 1995
was $287,069,501 and $226,176,603, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1995 is as follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities......... $32,775,879
Aggregate unrealized (depreciation) of investment securities....... (3,911,608)
-----------
Net unrealized appreciation of investment securities............... $28,864,271
===========
</TABLE>
<TABLE>
<C> <S>
Cost of investments for tax purposes is $227,927,310.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the eleven months ended December
31, 1995 and the year ended January 31, 1995:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1995
----------------------- ----------------------
Shares Amount Shares Amount
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 6,903,801 $103,653,052 6,208,374 $73,589,964
Issued as reinvestment of
distributions................ 7,829 124,487 67,137 772,749
Reacquired.................... (176,240) (2,390,959) (183,633) (2,211,587)
--------- ------------ --------- -----------
6,735,390 $101,386,580 6,091,878 $72,151,126
========= ============ ========= ===========
</TABLE>
<TABLE>
<C> <S>
NOTE 6 - OPEN FUTURES CONTRACTS
On December 31, 1995, $957,000 principal amount of U. S. Treasury Bills were
pledged as collateral to cover margin requirements for open futures contracts:
Open futures contracts at December 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT NO. OF CONTRACTS/MONTH/COMMITMENT APPRECIATION
<S> <C> <C>
S&P 500 Index.................... 86 Contracts/March 96/Buy $773,579
</TABLE>
FS-97
AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<C> <S>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding of
the Fund during the eleven months ended December 31, 1995, the year ended
January 31, 1995, and the period May 5, 1993 (date operations commenced)
through January 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
January 31,
December ------------------
31, 1995 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net asset value, beginning of period....... $ 11.83 $ 12.17 $ 10.00
-------- -------- -------
Income from investment operations:
Net investment income.................... 0.11 0.10 0.02
Net gains (losses) on securities (both
realized and unrealized)................ 4.18 (0.35) 2.17
-------- -------- -------
Total from investment operations....... 4.29 (0.25) 2.19
-------- -------- -------
Less distributions:
Dividends from net investment income..... (0.01) (0.09) (0.02)
-------- -------- -------
Net asset value, end of period............. $ 16.11 $ 11.83 $ 12.17
======== ======== =======
Total return(a)............................ 36.25% (2.03)% 21.94%
======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)... $257,212 $109,257 $38,255
======== ======== =======
Ratio of expenses to average net assets.... 0.75%(b) 0.82% 1.00%(c)
======== ======== =======
Ratio of net investment income to average
net assets................................ 1.11%(b) 1.17% 0.51%(c)
======== ======== =======
Portfolio turnover rate.................... 145% 143% 87%
======== ======== =======
------
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are annualized and based on average net assets of $181,240,121.
(c) Annualized ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees and/or expense reimbursements were
1.35% and 0.16%, respectively, for 1994.
</TABLE>
FS-98
AIM V.I. VALUE FUND
